10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 0-18014

PAMRAPO BANCORP, INC.

(Exact name of registrant as specified in its charter)

NEW JERSEY	22-2984813
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

611 AVENUE C, BAYONNE, NEW JERSEY 07002

(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (201) 339-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Stock, par value $0.01 per share	The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    ¨  Yes    x  No

Note—Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Persons who respond to the collection of information contained in this form

are not required to respond unless the form displays a currently valid OMB control number.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨		Accelerated filer  x
Non-accelerated filer    ¨	(Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

The aggregate market value, based upon the last sales price of $15.48 as quoted on The NASDAQ Global Market for June 30, 2008, of the common stock held by non-affiliates of the registrant, i.e., persons other than directors and executive officers of the registrant, is approximately $59,380,000.

The Registrant had 4,935,542 shares of Common Stock outstanding as of March 9, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31, 2008 are incorporated by reference into Parts I and II of this Form 10-K.

Portions of the Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

INDEX

			PAGE
PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	28
	Item 1B.	Unresolved Staff Comments	33
	Item 2.	Properties	34
	Item 3.	Legal Proceedings	34
	Item 4.	Submission of Matters to a Vote of Security Holders	35
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36
	Item 6.	Selected Financial Data	36
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 8.	Financial Statements and Supplementary Data	37
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	37
	Item 9A.	Controls and Procedures	37
	Item 9B.	Other Information	42
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	42
	Item 11.	Executive Compensation	42
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
	Item 13.	Certain Relationships, Related Transactions, and Director Independence	42
	Item 14.	Principal Accounting Fees and Services	43
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	43
SIGNATURES

Forward-Looking Statements

This Form 10-K may include certain forward-looking statements based on current management expectations. The actual results of Pamrapo Bancorp, Inc. (the “Company”) could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios of Pamrapo Savings Bank, S.L.A., the Company’s wholly-owned subsidiary, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices.

PART I

Item 1. Business.

Pamrapo Bancorp, Inc. (also referred to as the “Company” or the “Registrant”) was incorporated under Delaware law on June 26, 1989 and changed its state of incorporation from Delaware to New Jersey on March 29, 2001. On November 10, 1989, the Registrant acquired Pamrapo Savings Bank, S.L.A. (the “Bank” or “Pamrapo”) as a part of the Bank’s conversion from a New Jersey chartered savings association in mutual form to a New Jersey chartered stock savings association. The Registrant is a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision (“OTS”), the Federal Deposit Insurance Corporation (“FDIC”) and the Securities and Exchange Commission (“SEC”). Currently, the Registrant does not transact any material business other than through its sole subsidiary, the Bank.

Pamrapo was organized in 1887 as Pamrapo Building and Loan Association. On October 6, 1952, it changed its name to Pamrapo Savings and Loan Association, a New Jersey chartered savings and loan association in mutual form, and in 1988 it changed its name to Pamrapo Savings Bank, S.L.A. The Bank’s principal office is located in Bayonne, New Jersey. Its deposits are insured up to applicable limits by the Deposit Insurance Fund (the “DIF”) which is administered by the FDIC. At December 31, 2008, the Bank had total assets of $598.0 million, deposits of $447.0 million and stockholders’ equity of $51.5 million before elimination of intercompany accounts with the Company.

On March 6, 2009, the Bank completed its transaction for the sale of assets and transfer of liabilities of the Bank’s Fort Lee, New Jersey banking office, as well as the assignment of the lease for that office, to NewBank, a New York-chartered commercial bank located in Flushing, New York. As of that date, the deposits of the Bank’s Fort Lee branch were approximately $14.5 million. The purchase price for the assets of the branch, which was offset against the amount owed to NewBank for assuming the branch’s deposits, was $500,000 and a cash payment for the loans being purchased, which had a net book value of $13,000 at the time of sale. The Bank recorded a gain of $492,000 as a result of the sale.

As a community-oriented institution, the Bank is principally engaged in attracting retail deposits from the general public and investing those funds in fixed-rate one- to four-family residential mortgage loans and, to a lesser extent, in multi-family residential mortgage loans, commercial real estate loans, home equity and second mortgage loans, consumer loans and mortgage-backed securities. The Bank’s revenues are derived principally from interest on loans and mortgage-backed securities, interest and dividends on investment securities and short-term investments, and other fees and service charges. The Bank’s primary sources of funds are deposits and, to a lesser extent, Federal Home Loan Bank of New York (“FHLB-NY”) advances and other borrowings.

Market Area

The Bank, which is headquartered in Bayonne, New Jersey, conducts its business through ten retail banking offices, seven of which are located in Bayonne, New Jersey, one in Hoboken, New Jersey, one in Jersey City, New Jersey, and one in Monroe, New Jersey. The Bank’s deposit base is located primarily in Hudson County, with a large concentration in Bayonne, an older, stable, residential community of one-family and two-family residences and middle income families who have lived in the area for many years. The communities in which the Bank’s branches are located are strategically located in the New York City metropolitan area and many residents of these communities commute to Manhattan to work on a daily basis. The Bank’s lending activities have also been concentrated in Hudson County and to a lesser extent in Bergen, Monmouth, Middlesex and Ocean Counties, areas which have had a high level of new development in recent years.

Lending Activities

General. Pamrapo principally originates fixed-rate mortgage loans on one- to four-family residential dwellings for retention in its own portfolio. The Bank also originates acquisition, development and construction

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loans in addition to multi-family and commercial real estate loans. At December 31, 2008, the Bank’s total gross loans outstanding amounted to $442.8 million, of which $273.7 million consisted of loans secured by one- to four-family residential properties, $12.2 million consisted of construction and land loans, $141.4 million consisted of loans secured by multi-family and commercial real estate, and $13.6 million consisted of commercial loans. Substantially all of the Bank’s real estate loan portfolio consists of conventional mortgage loans.

LOAN PORTFOLIO COMPOSITION

The following table sets forth the composition of the Bank’s loan and mortgage-backed securities portfolios in dollar amounts and in percentages at the dates indicated:

	At December 31,
	2004					2005					2006					2007					2008
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real Estate Mortgage Loans:
Permanent:
Fixed-rate	$	319,043		80.61	%	$	346,456		79.05	%	$	352,913		77.59	%	$	336,620		76.67	%	$	340,877		77.91	%
Adjustable rate		3,039		.77			6,316		1.44			8,188		1.80			7,098		1.62			7,895		1.80
Construction(1)		18,272		4.61			16,299		3.72			17,224		3.78			15,533		3.53			12,199		2.79
Total mortgage loans		340,354		85.99			369,071		84.21			378,325		83.17			359,251		81.82			360,971		82.50
Commercial Loans		659		.17			5,858		1.34			9,037		1.99			10,318		2.35			13,569		3.10
Consumer Loans:
Passbook or certificate		733		.19			763		.18			719		.16			720		.16			777		.18
Home improvement		133		.03			57		.01			36		.01			25		.01			1		—
Equity and second mortgages		59,015		14.91			66,494		15.17			70,507		15.50			71,902		16.38			66,278		15.14
Automobile		637		.16			680		.16			536		.12			561		.13			426		.10
Personal		1,041		.26			1,052		.24			1,146		.25			938		.21			776		.18
Total consumer loans		61,559		15.55			69,046		15.76			72,944		16.04			74,146		16.89			68,258		15.6
Total loans		402,572		101.71			443,975		101.31			460,306		101.20			443,715		101.06			422,798		101.2
Less:
Allowance for loan losses		2,495		.63			2,755		.63			2,651		.58			3,155		.72			4,661		1.06
Loans in process		5,155		1.30			4,020		.92			4,012		.88			2,719		.62			1,821		.42
Deferred loan fees (costs)		(878	)	(.22	)		(1,050	)	(.24	)		(1,216	)	(.26	)		(1,212	)	(.28	)		(1,238	)	(.28	)
Total		6,772		1.71			5,725		.31			5,447		1.20			4,662		1.06			5,244		1.20
Total net loans	$	395,800		100.00	%	$	438,250		100.00	%	$	454,859		100.00	%	$	439,053		100.00	%	$	437,554		100.00	%
Mortgage-Backed Securities:
GNMA(2)	$	421		.21	%	$	253		.15	%	$	168		.12	%	$	127		.10	%	$	103		.09	%
FHLMC(3)(6)		140,821		69.99			118,507		70.63			100,185		70.69			86,975		69.90			81,305		68.99
FNMA(4)(6)		42,660		21.20			32,623		19.44			27,127		19.14			24,725		19.87			20,671		17.54
CMO(5)		16,027		7.97			15,428		9.20			13,334		9.41			12,029		9.67			15,356		13.03
Total mortgage-backed securities		199,929		99.37			166,811		99.42			140,814		99.36			123,856		99.54			117,435		99.65
Add:
Premiums (discounts), net		1,246		.62			970		.58			903		.64			567		.46			411		.35
Unrealized gain on securities available for sale		16		.01			8		—			7		—			5		—			—		—
Net mortgage-backed securities	$	201,191		100.00	%	$	167,789		100.00	%	$	141,724		100.00	%	$	124,428		100.00	%	$	117,846		100.00	%

(1) Includes acquisition, development and land loans.

(2) Government National Mortgage Association (“GNMA”).

(3) Federal Home Loan Mortgage Corporation (“FHLMC”).

(4) Federal National Mortgage Association (“FNMA”).

(5) Collateralized Mortgage Obligations (“CMO”).

(6) Includes available for sale securities having a principal balance of $1,098,323 for 2004, a principal balance of $772,221 for 2005, a principal balance of $662,405 for 2006, a principal balance of $516,561 for 2007 and a principal balance of $418,937 for 2008.

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The following table sets forth the composition of the Bank’s gross loan portfolio by type of security at the dates indicated.

	As of December 31,
	2006				2007				2008
	(Dollars in thousands)
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
One-to four-family (2)	$	276,232	60.01	%	$	268,048	60.41	%	$	273,683	61.81	%
Multi-family (2)		71,323	15.50			63,652	14.35			63,709	14.39
Commercial real estate (2)		84,088	18.27			83,944	18.92			77,659	17.54
Construction and land		17,224	3.74			15,533	3.50			12,199	2.75
Commercial		9,037	1.96			10,318	2.32			13,569	3.06
Consumer-secured and unsecured		2,402	.52			2,220	.50			1,979	.45
Total gross loans	$	460,306	100.00	%	$	443,715	100.00	%	$	442,798	100.00	%

ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. The following table sets forth the Bank’s loan originations, purchases, sales and principal repayments for the periods indicated.

	Year Ended December 31,
	2006		2007		2008
	(Dollars in thousands)
Mortgage Loans (gross):
At beginning of period	$	369,071	$	378,325	$	359,251
Mortgage loans originated:
One- to four-family residential		46,533		11,676		30,064
Multi-family residential		9,456		1,483		8,830
Commercial		12,975		7,964		8,522
Construction (1)		12,350		6,616		1,335
Total mortgage loans originated		81,314		27,739		48,751
Mortgage loans sold		—		1,500		—
Charge-offs		86		183		16
Transfers to REO		—		486		—
Repayments		71,974		44,644		47,015
At end of period	$	378,325	$	359,251	$	360,971
Commercial Loans (gross):
At beginning of period	$	5,858	$	9,037	$	10,318
Commercial loans originated		5,005		4,301		7,121
Charge-offs		—		54		97
Repayments		1,826		2,966		3,773
At end of period	$	9,037	$	10,318	$	13,569
Consumer Loans (gross) (2)
At beginning of period	$	69,046	$	72,944	$	74,146
Consumer loans originated		26,782		20,367		14,603
Charge-offs		27		33		11
Repayments		22,857		19,132		20,480
At end of period	$	72,944	$	74,146	$	68,258
Mortgage-backed securities (gross):
At beginning of period	$	166,811	$	140,814	$	123,856
Mortgage-backed securities purchased		—		3,970		14,919
Repayments		25,997		20,928		21,340
At end of period	$	140,814	$	123,856	$	117,435

(1) Includes acquisition, development and land loans.

(2) Includes equity and second mortgages.

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LOAN MATURITY. The following table sets forth the maturity of the Bank’s gross loan portfolio at December 31, 2008. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totaled $96.7 million, $66.7 and $71.3 million for the years ended December 31, 2006, 2007 and 2008, respectively.

	One- to four- family residential mortgage loans (1)		Multi-family and commercial real estate loans (1)		Construction Loans (2)		Consumer- secured and unsecured loans		Commercial Loans		Total
	(In thousands)
Amounts due:
Within 1 year	$	125	$	1,067	$	12,086	$	53	$	6,029	$	19,360
After 1 year:
1 to 3 years		794		1,204		87		498		5,670		8,253
3 to 5 years		4,816		2,290		26		381		1,556		9,069
5 to 10 years		30,548		21,118		—		805		—		52,471
10 to 20 years		88,159		114,772		—		242		314		203,487
Over 20 years		149,241		917		—		—		—		150,158
Total due after 1 year		273,558		140,301		113		1,926		7,540		423,438
Total amounts due	$	273,683	$	141,368	$	12,199	$	1,979	$	13,569	$	442,798
Less:
Allowance for loan losses												4,661
Loans in process												1,821
Deferred loan fees (costs)												(1,238	)
Total											$	437,554

(1) Includes equity, second mortgage and home improvement loans.

(2) Includes acquisition, development and land loans.

The following table sets forth at December 31, 2008, the dollar amount of all mortgage, consumer, commercial and construction loans, due after December 31, 2009, which have fixed interest rates or adjustable interest rates:

	Due after December 31, 2009
	Fixed Rates		Floating or Adjustable Rates		Total Due After One Year
	(In thousands)
One- to four-family residential (1)	$	264,898	$	8,660	$	273,558
Construction loans		113				113
Multi-family and commercial real estate (1)		134,576		5,725		140,301
Commercial-loans				7,540		7,540
Consumer-secured and unsecured loans		1,163		763		1,926
Totals	$	400,750	$	22,688	$	423,438

(1) Includes equity, second mortgage and home improvement loans.

Residential Mortgage Lending. Pamrapo presently originates first mortgage loans, equity loans, second mortgage loans and improvement loans secured by one- to four-family residences and multi-family residences. As of December 31, 2008, 96.7% of the gross loan portfolio was fixed-rate loans and 3.3% was ARMs, and was

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originated for the Bank’s portfolio. Residential loan originations are generally obtained from existing or past customers and members of the local community. As of December 31, 2008, $337.4 million or 76.2% of the Bank’s total gross loan portfolio consisted of one- to four-family and multi-family residential mortgage loans. Of this amount $273.7 million were one- to four-family loans and $63.7 million were multi-family loans.

The one- to four-family residential loans originated by the Bank are primarily fixed-rate mortgages, generally with terms of 15 or 25 years. Typically, such homes in the Bayonne area are one- or two-family owner-occupied dwellings. The Bank generally makes one- to four-family residential mortgage loans in amounts up to 80% of the appraised value of the secured property. The Bank will originate loans with loan-to-value ratios up to 90% within the local community, provided that private mortgage insurance on the amount in excess of such 80% ratio is obtained. Mortgage loans in the Bank’s portfolio generally include due-on-sale clauses, which provide the Bank with the contractual right to demand the loan immediately due and payable in the event that the borrower transfers ownership of the property that is subject to the mortgage. It is the Bank’s policy to enforce due-on-sale provisions. As of December 31, 2008, the interest rate for one- to four-family residential fixed-rate mortgages offered by the Bank was 6.00% on 15-year loans and 6.25% on 25-year loans.

The Bank also originates loans on multi-family residences. Such residences generally consist of 6 to 24 units. Such loans are generally fixed-rate loans with interest rates ranging from 1.0% to 1.5% higher than those offered on one- to four-family residences. The Bank generally makes multi family residential loans in amounts up to 75% of the appraised value of the secured property. Such appraisals are based primarily on the income producing ability of the property. The terms of multi-family residential loans range from 10 to 15 years. As of December 31, 2008, $63.7 million or 14.4% of the Bank’s total gross loan portfolio consisted of multi-family residential loans.

Upon receipt of an application for a mortgage loan from a prospective borrower, a credit report is ordered to verify information relating to the applicant’s employment, income and credit standing. A preliminary inspection of the subject premises is made by at least one member of the Executive Committee. The report of that inspection is brought before the Executive Committee or the full Board of Directors to approve the amount of the loan and the terms. Approval is given subject to a report of value from an independent appraiser and credit approval. Approval of credit is given by the Bank’s president or loan officer. It is the Bank’s policy to obtain title insurance on all real estate loans. Borrowers also must obtain hazard insurance and flood insurance, if required, prior to closing. The Bank generally requires borrowers to advance funds on a monthly basis together with each payment of principal and interest to a tax escrow account from which the Bank can make disbursements for items such as real estate taxes and certain insurance premiums, if any, as they become due.

Acquisition, Development, Construction and Land Lending. The Bank originates loans to finance the construction of one- to four-family dwellings, multi-family dwellings and, to a lesser extent, commercial real estate. It also originates loans for the acquisition and development of unimproved property to be used principally for residential purposes in cases where the Bank is to provide the construction funds to improve the properties.

The interest rates and terms of the construction and land development loans vary, depending upon market conditions, the size of the construction or development project and negotiations with the borrower. Advances are generally made to the borrower to cover actual construction costs incurred. On larger construction loans, the Bank requires the project to be built out in phases. Advancement of funds is dependent upon completion of the project stages. The Bank generally limits its exposure to 75% of the projected market value of the completed project. The amount of the loans are generally determined as follows: (i) land acquisition loans with no immediate plans for construction are limited to 65% of the appraised value of the land; (ii) acquisition and development loans are limited to 65% of appraised value of the improved lot not to exceed 150% of the original acquisition cost; (iii) in addition to the disbursement for acquisition and development, in an acquisition, development and construction loan, the Bank will not advance more than 90% of the construction costs; and (iv) loans secured by previously owned vacant land are limited to 65%. Prior to making any disbursements, the Bank requires that the projects securing the construction and development loans be inspected.

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The underwriting criteria used by the Bank are designed to evaluate and minimize the risks of each construction loan. Among other things, the Bank generally considers an appraisal of the project, the reputation of the borrower and the contractor, the amount of the borrower’s equity in the project, independent valuations and review of cost estimates, plans and specifications, preconstruction sale and leasing information, current and expected economic conditions in the area of the project, cash flow projections of the borrower, and, to the extent available, guarantees by the borrower and/or third parties. All of the Bank’s acquisition, development and construction loan portfolio is secured by real estate properties located in northern and central New Jersey.

Acquisition, development and construction lending is generally considered to involve a higher level of risk than one- to four-family permanent residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on development projects, real estate developers and managers. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As of December 31, 2008, $12.2 million or 2.8% of the Bank’s gross loan portfolio consisted of acquisition, development, construction and land loans varying in size from $50,000 to $1.7 million.

Commercial Real Estate Lending. Loans secured by commercial real estate totaled $77.7 million, or 17.5% of the Bank’s total gross loan portfolio, at December 31, 2008. Commercial real estate loans are generally originated in amounts up to 70% of the appraised value of the property. Such appraised value is determined by an independent appraiser previously approved by the Bank. The Bank’s commercial real estate loans are secured by improved property such as office buildings, retail stores, warehouses and other non-residential buildings. Once the loan has been determined to be creditworthy and of sufficient property value, in the case of corporate borrowers, the Bank obtains a personal guaranty from third party principals of the corporate borrower as supplemental security on the loan. This enables the Bank to proceed against the guarantor in the event of default without first exhausting remedies against the borrower. Inquiry as to collectibility pursuant to such third party guarantees may be made by means of review of other properties secured by the Bank, personal interviews with the applicants, review of the applicant’s personal financial statements and income tax returns and review of credit bureau reports. Borrowers must personally guarantee loans made for commercial real estate. Commercial real estate loans have terms ranging from 5 to 15 years and are generally fixed-rate loans.

Loans secured by commercial real estate properties are generally larger and involve a greater degree of risk than residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. Emphasis is placed on the income producing capability of the collateral rather than on management-intensive projects.

Consumer and Commercial Lending. The Bank offers various other secured and unsecured consumer loan products such as automobile loans, personal loans and passbook loans, as well as commercial loans. At December 31, 2008, the balance of such loans was $15.5 million, or 3.5% of the Bank’s total gross loan portfolio.

Loan Review. The Bank has a formalized loan review program, providing for detailed post-closing reviews for loans selected from all categories. After review, reports are made to the mortgage and loan officers and the Board of Directors. Classification determination is presently the responsibility of the Asset Classification Committee. See “Classification of Assets.” The purpose of these procedures is to enhance the Bank’s ability to properly document the loans it originates and to improve the performance of such loans.

Lending Authority. The Bank’s Executive Committee has the authority to approve loans up to $750,000, with the stipulation that loans approved in excess of $500,000 must be reported at the next Board of Directors meeting. The Bank’s Vice President and Loan Officer have the authority to approve consumer and equity loans of up to $350,000.

6

Loan Servicing. The Bank originated all of the loans it has sold and services those loans for other investors. Pamrapo receives fees for these servicing activities, which include collecting and remitting loan payments, inspecting the properties and making certain insurance and tax payments on behalf of the borrowers. At December 31, 2008, the Bank was servicing $1.3 million of loans for others.

Loan Origination Fees and Costs. Loan origination fees and certain related direct loan origination costs are deferred and the resulting net amount is amortized over the life of the related loan as an adjustment to the yield of such loans. In addition, commitment fees are required to be offset against related direct costs and the resulting net amount generally is recognized over the life of the related loans as an adjustment of yield or if the commitment expires unexercised, recognized upon expiration of the commitment. The Bank had $1.2 million in net deferred origination costs at December 31, 2008.

Non-Performing Assets

When a borrower fails to make a required payment by the fifteenth day of the month in which the payment is due, the Bank sends a late notice advising the borrower that the payment has not been received. In most cases delinquencies are cured promptly; however, if a loan has been delinquent for more than 60 days, the Bank reviews the loan status more closely and, where appropriate, appraises the condition of the property and the financial circumstances of the borrower. Based upon the results of any such investigation, the Bank (1) may accept a repayment program for the arrearage from the borrower; (2) may seek evidence, in the form of a listing contract, of efforts by the borrower to sell the property if the borrower has stated that he is attempting to sell; (3) may request a deed in lieu of foreclosure; or (4) generally will initiate foreclosure proceedings when a loan payment is delinquent for more than three monthly installments.

The following table sets forth information regarding non-accrual loans, loans which are 90 days or more delinquent, but on which the Bank is accruing interest, and other real estate owned held by the Bank at the dates indicated. It is generally the Bank’s policy to stop interest income accruals and to fully reverse all previously accrued interest income on consumer loans more than 120 days past due and on all other loans when, in management’s opinion, the collection of all or a portion of the loan principal has become doubtful.

	At December 31,
	2004		2005		2006		2007		2008
	(Dollars in thousands)
One- to four-family residential real estate loans (1):
Non-accrual loans	$	696	$	493	$	529	$	1,239	$	1,747
Accruing loans 90 days overdue		81		332		993		592		3,056
Total		777		825		1,522		1,831		4,803
Multi-family residential and commercial real estate loans (1):
Non-accrual loans		1,067		647		345		246		924
Accruing loans 90 days overdue		236		463		383		1,031		1,443
Total		1,303		1,110		728		1,277		2,367
Construction loans (2):
Non-accrual loans		456		—		—		—		964
Accruing loans 90 days overdue		—		—		—		438		756
Total		456		—		—		438		1,720
Commercial loans:
Non-accrual loans		—		—		—		1,881		1,881
Accruing loans 90 days overdue		—		—		—		—		—
Total		—		—		—		1,881		1,881

7

	At December 31,
	2004			2005			2006			2007			2008
	(Dollars in thousands)
Consumer loans:
Non-accrual loans		42			33			22			44			37
Accruing loans 90 days overdue		9			1			7			12			1
Total		51			34			29			56			38
Total non-performing loans:
Non-accrual loans		2,261			1,173			896			3,410			5,553
Accruing loans 90 days overdue		326			796			1,383			2,073			5,256
Total	$	2,587		$	1,969		$	2,279		$	5,483		$	10,809
Total foreclosed real estate, net of related reserves	$	—		$	—		$	—		$	486		$	426
Total non-performing loans and foreclosed real estate to total assets		.41	%		.30	%		.36	%		.91	%		1.88	%

(1) Includes equity and second mortgage loans.

(2) Includes acquisition and development loans.

At December 31, 2006, 2007 and 2008, non-accrual loans for which interest has been discontinued totaled approximately $896,000, $3.4 million and $5.6 million, respectively. During the years ended December 31, 2006, 2007 and 2008, the Bank recognized interest income of approximately $10,000, $86,000 and $103,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $67,000, $261,000 and $363,000 for the years ended December 31, 2006, 2007 and 2008, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on nonaccrual status.

Delinquent Loans. At December 31, 2006, 2007 and 2008, respectively, delinquencies in the Bank’s portfolio were as follows:

	At December 31, 2006								At December 31, 2007								At December 31, 2008
	60 - 89 Days				90 Days or more				60 - 89 Days				90 Days or more				60 - 89 Days				90 Days or more
	Number of Loans	Principal Balance of Loans			Number of Loans	Principal Balance of Loans			Number of Loans	Principal Balance of Loans			Number of Loans	Principal Balance of Loans			Number of Loans	Principal Balance of Loans			Number of Loans	Principal Balance of Loans
	(Dollars in thousands)
Delinquent loans	19	$	2,513		25	$	2,279		13	$	1,460		31	$	5,483		33	$	6,904		52	$	10,809
As a percent of total gross loans			.55	%			.50	%			.33	%			1.24	%			1.56	%			2.44	%

As of December 31, 2008, the Bank had 52 loans which were 90 days or more past due totaling $10.8 million. The average balance of such loans was approximately $208,000. All loans are within the Bank’s lending areas. Most of the loans are of moderate size, with the largest balance being $1.9 million, which is a commercial loan to a local hospital. The loan was originally for $3.0 million with a maturity date of November 15, 2006, which was extended to June 1, 2007. In October 2006, $1.0 million of the loan was paid and the remaining balance of approximately $1.9 million was secured by a mortgage on real estate. As of December 31, 2008, the $1.9 million loan balance had not been paid. The repayment of the loan is subject to bankruptcy proceedings. In September 2008, the creditor’s committee for the hospital filed a complaint against the Bank seeking to recover the $1.0 million previously paid on the loan and to set aside the mortgage securing the $1.9 million still owed to the Bank.

8

The Bank’s level of non-performing loans 90 days or more delinquent increased from $5.5 million at December 31, 2007 to $10.8 million at December 31, 2008. The total of such loans in the lower risk one- to four-family residential category increased to $4.8 million from $1.8 million at December 31, 2007. Non-performing multi-family residential, commercial real estate and construction loans, loans normally having greater elements of risk, increased from $1.7 million at December 31, 2007 to $4.1 million at December 31, 2008. The $1.9 million loan discussed above was the only non-performing commercial loan at December 31, 2008 and 2007.

Classified Assets. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as “substandard,” “doubtful” or “loss” assets. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated “special mention” by management.

A classification of either substandard or doubtful requires the establishment of general allowances for loan losses in an amount deemed prudent by management. Assets classified as “loss” require either a specific allowance for losses equal to 100% of the amount of the asset so classified or a charge off of such amount.

A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS which can order the establishment of additional general or specific loss allowances. The OTS, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation allowances. Generally, the policy statement requires that institutions have effective systems and controls to identify, monitor and address asset quality problems; have analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and have established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement.

Management of the Bank has classified $10.4 million of its assets as substandard and approximately $1.1 million as related loss based upon its review of the Bank’s loan portfolio. Such review, among other things, takes into consideration the appraised value of underlying collateral, economic conditions and paying capacity of the borrowers. However, the Bank’s Asset Classification Committee carefully monitors all of the Bank’s delinquent loans to determine whether or not they should be classified. At a minimum, the Bank classifies all foreclosed real estate and non-performing loans 90 days or more delinquent as substandard assets. At December 31, 2008, the allowance for loan losses totaled $4.7 million.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance.

During the years ended December 31, 2006, 2007 and 2008, gross charge-offs totaled $113,000, $270,000 and $124,000, respectively.

9

The following table sets forth the activity of the Bank’s allowance for loan losses at the dates indicated:

	At or for the year ended December 31,
	2004			2005			2006			2007			2008
	(Dollars in thousands)
Balance at beginning of period	$	2,515		$	2,495		$	2,755		$	2,651		$	3,155
Provision for loan losses		82			110			—			670			1,630
Charge-offs (recoveries):
Charge-offs:
Real estate mortgage loans		39			—			86			183			16
Consumer loans		68			21			27			33			11
Commercial loans		—			—			—			54			97
Recoveries:
Real estate mortgage loans		(5	)		(129	)		—			(100	)		—
Consumer loans		—			(42	)		(9	)		(4	)		—
Net charge-offs (recoveries)		102			(150	)		104			166			124
Balance at end of period	$	2,495		$	2,755		$	2,651		$	3,155		$	4,661
Ratio of net charge offs (recoveries) during the period to average loans receivable during the period		.03	%		(.03	)%		.02	%		.04	%		.03	%
Ratio of allowance for loan losses to total outstanding loans (gross) at the end of period		.62	%		.62	%		.58	%		.71	%		1.05	%
Ratio of allowance for loan losses to non-performing loans		96.44	%		139.93	%		116.32	%		57.54	%		43.12	%

The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation to the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

	At December 31,
	2004						2005						2006						2007						2008
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans
													(Dollars in thousands)
Real estate mortgage loans	$	2,270	90.98	%	99.24	%	$	2,470	89.66	%	98.12	%	$	2,201	83.03	%	97.52	%	$	2,138	67.77	%	97.18	%	$	3,195	68.55	%	96.49	%
Consumer loans		150	6.01		.60			110	3.99		.56			150	5.65		.52			103	3.26		.50			94	2.02		.45
Commercial loans		75	3.01		.16			175	6.35		1.32			300	11.32		1.96			914	28.97		2.32			1,372	29.43		3.06
Total allowance	$	2,495	100.00	%	100.00	%	$	2,755	100.00	%	100.00	%	$	2,651	100.00	%	100.00	%	$	3,155	100.00	%	100.00	%	$	4,661	100.00	%	100.00	%

10

Mortgage-Backed Securities. The Bank has significant investments in mortgage-backed securities and has, during periods when loan demand was low and the interest yields on alternative investments were minimal, utilized such investments as an alternative to mortgage lending. All of the securities in the portfolio were insured or guaranteed by GNMA, FNMA or FHLMC and have coupon rates as of December 31, 2008 ranging from 3.94% to 10%. At December 31, 2008, the unamortized principal balance of mortgage-backed securities, both held to maturity and available for sale, totaled $117.4 million or 19.6% of total assets. The carrying value of such securities amounted to $141.7 million, $124.4 million and $117.8 million at December 31, 2006, 2007 and 2008, respectively, and the fair market value of such securities totaled approximately $137.1 million, $121.9 million and $120.3 million at December 31, 2006, 2007 and 2008, respectively.

The following table sets forth the contractual maturities of the Bank’s gross mortgage-backed securities portfolio, which includes available for sale and held to maturity mortgage-backed securities, at December 31, 2008.

	Contractual Maturities Due in Year(s) Ended December 31,
	2009-2010		2011-2012		2013-2017		2018-2027		2028 and Thereafter		Total
	(In thousands)
Mortgage-backed securities:
Held to maturity	$	104	$	434	$	14,997	$	96,041	$	5,440	$	117,016
Available for sale		—		—		—		345		74		419
Total	$	104	$	434	$	14,997	$	96,386	$	5,514	$	117,435

Mortgage-backed securities are a low risk investment for the Bank. The Bank’s substantial investment in mortgage-backed securities will significantly enhance the Bank’s ability to meet risk based capital requirements as mortgage-backed securities are assigned a risk rating, generally from 0% to 20%. Based on historical experience, the Bank believes that the mortgage-backed securities will be repaid significantly in advance of the stated maturities reflected in the above table.

Investment Activities

DIF-insured savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Subject to various restrictions, DIF-insured savings institutions may also invest their assets in commercial paper, corporate debt securities and mutual funds whose assets conform to the investments that a DIF-insured savings institution is otherwise authorized to make directly.

The Board of Directors sets the investment policy of the Bank. This policy dictates that investments will be made based on the safety of the principal, liquidity requirements of the Bank and the return on the investment and capital appreciation. The Bank’s Chief Executive Officer may make investments up to $10 million, subject to ratification by the Bank’s Board of Directors.

The Bank’s conservative policy does not permit investment in junk bonds or speculative strategies based upon the rise and fall of interest rates. Pamrapo’s goal, however, has always been to realize the greatest possible return commensurate with its interest rate risk. Pamrapo has emphasized shorter term securities for their liquidity to increase sensitivity of its investment securities to changes in interest rates.

11

Investment Portfolio

The following table sets forth certain information regarding the Bank’s investment portfolio, which includes available for sale securities carried at fair value and held to maturity, at the dates indicated:

	At December 31,
	2006				2007				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investments:
FHLB-NY stock (1)	$	5,721	$	5,721	$	4,996	$	4,996	$	5,160	$	5,160
Subordinated Notes (3)		9,168		9,599		9,043		9,305		10,016		9,500
Municipal Obligations (3)		—		—		1,334		1,345		1,334		1,331
Trust originated preferred security (2)		500		500		400		396		400		352
Total investment securities	$	15,389	$	15,820	$	15,773	$	16,042	$	16,910	$	16,343
Other interest-earning assets:
Interest bearing deposits	$	8,790	$	8,790	$	62,976	$	62,976	$	9,470	$	9,470
Total investment portfolio	$	24,179	$	24,610	$	78,749	$	79,018	$	26,380	$	25,813

(1) No stated maturity.

(2) For further information, see Note 2 to the Company’s Financial Statements in the 2008 Annual Report to Shareholders.

(3) For further information, see Note 3 to the Company’s Financial Statements in the 2008 Annual Report to Shareholders.

At December 31, 2008, the Bank had $6.0 million invested in subordinated notes with Columbia Financial Inc. Other than this investment, the Bank had no other investments with any one issuer that exceeded 10% of stockholders’ equity.

The following table sets forth certain information regarding the amortized cost, weighted average yields and contractual maturities of the debt securities in the portfolio:

	At December 31, 2008
	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
	(Dollars in thousands)
Subordinated Notes	$	—	—	%	$	10,016	8.57	%	$	—	—	%	$	—	—	%	$	10,016	8.57	%
Municipal Obligations		—	—			—	—			—	—			1,334	4.16			1,334	4.16
Trust originated preferred security		—	—			—	—			—	—			400	7.75			400	7.75
Total debt securities	$	—	—	%	$	10,016	8.57	%	$	—	—	%	$	1,734	4.99	%	$	11,750	8.03	%

12

Sources of Funds

General. Deposits are the primary source of the Bank’s funds for use in lending and for other general business purposes. In addition to deposits, the Bank obtains funds from advances from the FHLB-NY and other borrowings.

Deposits. Pamrapo offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank’s deposits consist of regular savings, non-interest bearing demand, NOW and Super NOW, money market and certificate accounts. Pamrapo’s deposits are obtained primarily from the Hudson County area. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain deposits. Deposits decreased by $63.9 million or 12.6% from $507.9 million at December 31, 2007 to $444.0 million at December 31, 2008.

The flow of deposits is influenced significantly by general economic conditions, changes in the money market and prevailing interest rates and competition.

Deposit Portfolio. The following table sets forth the distribution and weighted average nominal interest rate of the Bank’s deposit accounts at the dates indicated:

	At December 31,
	2006						2007						2008
	Amount		% of Total Deposits		Weighted Average Nominal Rate		Amount		% of Total Deposits		Weighted Average Nominal Rate		Amount		% of Total Deposits		Weighted Average Nominal Rate
	(Dollars in thousands)
Passbook and club accounts	$	135,503	28.83	%	1.41	%	$	122,923	24.20	%	1.13	%	$	115,719	26.06	%	1.12	%
Non-interest bearing demand		43,848	9.33		.00			38,226	7.52		.00			40,682	9.16		0.00
NOW		36,455	7.76		1.00			82,088	16.16		1.52			35,817	8.07		.92
Super NOW		163	.03		1.00			234	.05		1.00			229	.05		.99
Money market demand		24,148	5.14		1.25			26,305	5.18		2.87			25,821	5.82		2.26
Total passbook, club, NOW, and money market accounts		240,117	51.09		1.07			269,776	53.11		1.26			218,268	49.16		1.01
Certificate accounts:
91-day		62,027	13.20		4.34			70,169	13.81		4.77			28,073	6.32		3.27
26-week		106,204	22.60		4.63			115,331	22.70		4.54			147,207	33.15		3.38
12- to 30-month		15,018	3.20		4.27			8,661	1.71		4.54			2,534	.57		3.89
30- to 48-month		15,989	3.40		4.02			10,556	2.08		4.28			11,797	2.66		4.07
IRA and KEOGH		30,586	6.51		3.94			33,468	6.59		4.37			36,120	8.14		3.66
Total certificates		229,824	48.91		4.39			238,185	46.89		4.57			225,731	50.84		3.47
Total deposits	$	469,941	100.00	%	2.69	%	$	507,961	100.00	%	2.81	%		443,999	100.00	%	2.24	%

The following table sets forth the deposit activity of the Bank for the periods indicated:

	Year Ended December 31,
	2006			2007		2008
	(In thousands)
Net (withdrawals) deposits	$	(15,376	)	$	24,321	$	(75,474	)
Interest credited		11,314			13,699		11,512
Net (decrease) increase in deposits	$	(4,062	)	$	38,020	$	(63,962	)

13

The following table sets forth, by various rate categories, the amount of certificate accounts outstanding as of the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2008.

	At December 31,						At December 31, 2008, Maturing in
	2006		2007		2008		One Year or Less		Two Years		Three Years		Greater than Three Years
	(In thousands)
2.99% or less	$	4,862	$	856	$	34,326	$	33,946	$	350	$	30	$	—
3.00% to 4.99%		206,519		225,569		186,631		171,331		12,710		1,621		969
5.00% to 5.99%		18,443		11,760		4,774		1,890		1,540		134		1,210
Total	$	229,824	$	238,185	$	225,731	$	207,167	$	14,600	$	1,785	$	2,179

At December 31, 2008, the Bank had outstanding $107.0 million in certificate accounts in amounts of $100,000 or more maturing as follows:

	Amount (In thousands)
Three months or less	$	32,780
Over three through six months		38,336
Over six through twelve months		28,307
Over twelve months		7,619
Total	$	107,042

Borrowings. Although deposits are the Bank’s primary source of funds, the Bank utilizes borrowings when they are a less costly source of funds or can be invested at a positive rate of return.

Pamrapo obtains advances from the FHLB-NY upon the security of its capital stock of the FHLB-NY and a blanket assignment of the Bank’s unpledged qualifying mortgage loans, mortgage-backed securities and investment securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. As of December 31, 2008, outstanding advances from the FHLB-NY amounted to $89.5 million.

The following table sets forth certain information regarding FHLB-NY advances, all of which are at fixed rates, maturing in the periods indicated:

	At December 31,
	2006				2007				2008
	(Dollars in thousands)
Maturing by December 31,	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
2006	—	%	$	—	—	%	$	—	—	%	$	—
2007	2.91			17,000	—			—	—			—
2008	4.24			15,000	4.24			15,000	—			—
2009	5.25			18,000	5.25			18,000	2.69			38,500
2010	5.59			23,000	5.59			23,000	5.59			23,000
2011	5.24			10,000	5.24			10,000	5.24			10,000
2015	4.80			3,000	4.80			3,000	4.80			3,000
2016	4.05			15,000	4.05			15,000	4.05			15,000
	4.59	%	$	101,000	4.93	%	$	84,000	4.02	%	$	89,500

14

Competition

Pamrapo has substantial competition for both loans and deposits. The New York City metropolitan area has a high density of financial institutions, many of which are significantly larger and have substantially greater financial resources than the Bank, and all of which are competitors of the Bank to varying degrees. The Bank faces significant competition both in making mortgage loans and in attracting deposits. The Bank’s competition for loans comes principally from savings and loan associations, savings banks, mortgage banking companies, insurance companies, commercial banks and other institutional lenders. Its most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks, credit unions and other financial institutions. The Bank faces additional competition for deposits from short-term money market funds and other corporate and government securities funds. The Bank faces increased competition among financial institutions for deposits. Competition also may increase as a result of the continuing reduction in the effective restrictions on the interstate operations of financial institutions and legislation authorizing the acquisition of thrifts by Banks.

The Bank competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers and real estate brokers. It competes for deposits through pricing, service and by offering a variety of deposit accounts. New powers for thrift institutions provided by New Jersey and federal legislation enacted in recent years have resulted in increased competition between savings banks and other financial institutions for both deposits and loans. Management believes that implementation of new powers set forth in such recent legislation is expected to intensify this competition.

Subsidiaries

Pamrapo is generally permitted under New Jersey law and the regulations of the Commissioner of the New Jersey Department of Banking and Insurance (the “Commissioner”) to invest, without regulatory approval, an amount equal to 3% of its assets in subsidiary service corporations. As of December 31, 2008, Pamrapo had $215.7 million and $176,000 of its assets invested in Pamrapo Investment Company and Pamrapo Service Corporation, respectively, each of which is a wholly-owned subsidiary of the Bank. Pamrapo Investment Company manages and maintains certain tangible assets of the Bank for investment purposes. Currently, Pamrapo Service Corporation’s only activity is marketing non-variable life insurance products.

Yields Earned and Rates Paid

The Bank’s earnings depend primarily on its net interest income. Net interest income is affected by (i) the volume of interest-earning assets and interest-bearing liabilities, (ii) rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities and (iii) the difference (“interest rate spread”) between rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.

A large portion of the Bank’s real estate loans are long-term, fixed-rate loans. Accordingly, the average yield recognized by the Bank on its total loan portfolio changes slowly and generally does not keep pace with changes in interest rates on deposit accounts and borrowings. At December 31, 2008, approximately 77.0% of the Bank’s gross mortgage loan portfolio, excluding mortgage-backed securities, consisted of fixed-rate mortgage loans with original terms consisting primarily of 15 to 30 years. Accordingly, when interest rates rise, the Bank’s yield on its loan portfolio increases at a slower pace than the rate by which its cost of funds increases, which may adversely impact the Bank’s interest rate spread.

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The following tables set forth for the periods indicated information regarding the average balances of interest-earning assets and interest-bearing liabilities, the dollar amount of interest income earned on such assets and the resultant yields, the dollar amount of interest expense paid on such liabilities and the resultant costs. The tables also reflect the interest rate spread for such periods, the net yield on interest-earning assets (i.e., net interest income as a percentage of average interest-earning assets) and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances are based on daily amounts.

	Year Ended December 31,																		At December 31,
	2006						2007						2008						2008
	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Actual Balance		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	448,917	$	28,937	6.45	%	$	444,389	$	28,838	6.49	%	$	433,667	$	27,747	6.40	%	$	437,554	6.48	%
Mortgage-backed securities		154,471		7,222	4.68			133,116		6,003	4.51			123,989		5,647	4.55			117,428	4.78
Investments (2)		11,465		773	6.74			10,072		695	6.90			11,243		851	7.57			12,121	7.92
Other interest-earning assets		13,343		605	4.53			32,030		1,566	4.89			34,941		970	2.78			14,631	2.77
Total interest-earning assets		628,196		37,537	5.98			619,607		37,102	5.99			603,840		35,215	5.83			581,734	6.07
Non-interest-earning assets		14,932						12,433						13,250						16,278
Total assets (1)	$	643,128					$	632,040					$	617,090					$	598,012
Interest-bearing liabilities:
Passbook and club account		146,117		2,017	1.38			125,809		1,623	1.29			118,749		1,358	1.14			115,719	1.12
NOW and money market accounts		67,523		780	1.15			82,466		1,005	1.22			84,839		1,197	1.41			61,867	1.48
Certificates of Deposits		218,635		8,517	3.90			227,840		11,070	4.81			230,845		8,957	3.88			225,731	3.47
Advances and other borrowings		104,042		4,667	4.59			91,346		4,384	4.80			78,089		3,893	4.99			89,500	4.02
Total interest-bearing liabilities		536,317		15,981	2.98			527,461		18,082	3.43			512,522		15,405	3.01			492,817	2.77
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts		39,361						38,352						39,623						40,682
Other		7,690						6,982						6,699						9,835
Total non-interest-bearing liabilities		47,051						45,334						46,322						50,517
Total liabilities		583,368						572,795						558,844						543,334
Stockholders’ equity		59,760						59,245						58,246						54,678
Total liabilities and stockholders’ equity	$	643,128					$	632,040					$	617,090					$	598,012
Net interest income/interest rate spread			$	21,556	3.00	%			$	19,020	2.56	%			$	19,810	2.82	%
Net interest-earning assets/net yield on interest-earning assets	$	91,879			3.43	%	$	92,146			3.07	%					3.28	%
Ratio of average interest-earning assets to average interest-bearing liabilities					1.17x						1.17x						1.18x

(1) Non-accruing loans are part of the average balances of loans outstanding.

(2) Includes held to maturity and available for sale.

(3) Includes interest earning deposit in other banks and Federal Home Loan Bank stock.

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Interest Rate Sensitivity Analysis

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2008, which are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of the asset or liability. Loans and mortgage-backed securities that have adjustable rates are shown as being due in the period during which the interest rates are next subject to change. The Bank has assumed that its passbook savings and club accounts, which totaled $115.7 million at December 31, 2008, are withdrawn at the following rates: 11.55% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 11.36% on the cumulative declining balance of such accounts during the periods shown. The Bank has further assumed that its money market accounts, which totaled $25.8 million at December 31, 2008, are withdrawn at the following rates: 11.36% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 11.36% on the cumulative declining balance of such accounts during the periods shown.

Additionally, the Bank has assumed that its NOW and Super NOW accounts, which totaled $36 million at December 31, 2008, are withdrawn at the following rates: 11.36% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 11.36% on the cumulative declining balance of such accounts during the periods shown.

	1 Year or Less		More than 1 Year to 3 Years		More than 3 Years to 5 Years		More than 5 Years to 10 Years		More than 10 Years to 20 Years		More than 20 Years		Total
	(In thousands)
Interest-earning Assets:
Loans	$	19,360	$	8,253	$	9,069	$	52,471	$	203,487	$	150,158	$	442,798
Mortgage-backed securities		17		86		911		60,383		55,965		74		177,436
Investments		—		10,000		—		—		1,335		400		11,735
Other interest-earning assets (1)		14,631		—		—		—		—		—		14,631
Total interest-earning assets		34,008		18,339		9,980		112,854		260,787		150,632		586,600

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	1 Year or Less			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years to 10 Years			More than 10 Years to 20 Years			More than 20 Years			Total
	(In thousands)
Interest-bearing Liabilities:
NOW and Super NOW Accounts (2)		4,095			6,847			5,380			8,931			7,561			3,232		36,046
Money market accounts		2,933			4,905			3,854			6,398			5,417			2,315		25,822
Passbook and club accounts		13,366			21,934			17,234			28,609			24,223			10,353		115,719
Certificate accounts		207,167			16,385			2,080			99			—			—		225,731
Advances		38,500			33,000			—			18,000			—			—		89,500
Total interest-bearing liabilities		266,061			83,071			28,548			62,037			37,201			15,900		492,818
Interest sensitivity gap per period		(232,053	)		(64,732	)		(18,568	)		50,817			223,586			134,732		93,782
Cumulative interest sensitivity gap	$	(232,053	)	$	(296,785	)	$	(315,353	)	$	(264,536	)	$	(40,950	)	$	93,782
Cumulative gap as a percent of interest-earning assets		(39.56	)%		(50.59	)%		(53.76	)%		(45.10	)%		(6.98	)%		15.99	%
Cumulative interest-sensitive assets as a percent of interest-sensitive liabilities		12.78	%		14.99	%		16.50	%		39.84	%		91.41	%		119.03	%

(1) Includes stock, which has no stated maturity.

(2) Excludes non-interest-earning bearing accounts.

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Rate/Volume Analysis

Changes in net interest income are attributable to three factors: (i) a change in volume or amount of an interest-earning asset or interest-bearing liability, (ii) a change in interest rates or (iii) a change caused by a combination of changes in volume and interest rate. The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated, reflecting the extent to which such changes are attributable to changes in volume and changes in rate. The amount attributable to a change in volume or amount is calculated by multiplying the average interest rate for the prior period by the increase (decrease) in the average balance of the related asset or liability. The amount attributable to a change in rate is calculated by multiplying the increase (decrease) in the average interest rate from the prior period by the average balance of the related asset or liability for the prior period. The rate/volume change represents a change in rate multiplied by a change in volume and is allocated proportionately to volume and rate changes.

	Year Ended December 31,
	2007 v. 2006									2008 v. 2007
	Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	(285	)	$	186		$	(99	)	$	(699	)	$	(393	)	$	(1,092	)
Mortgaged-backed securities		(996	)		(223	)		(1,219	)		(409	)		53			(356	)
Investments		(94	)		16			(78	)		81			75			156
Other interest-earning assets		846			115			961			142			(738	)		(596	)
Total interest income		(529	)		94			(435	)		(885	)		(1,003	)		(1,888	)
Interest expense:
Passbook and club accounts		(281	)		(113	)		(394	)		(89	)		(176	)		(265	)
NOW and money market accounts		370			(144	)		226			29			162			191
Certificates of deposit		419			2,134			2,553			90			(2,203	)		(2,113	)
Advances and other borrowings		(529	)		246			(283	)		(638	)		147			(491	)
Total interest expense		(21	)		2,123			2,102			(608	)		(2,070	)		(2,678	)
Net change in net interest	$	(508	)	$	(2,029	)	$	(2,537	)	$	(277	)	$	1,067		$	790

REGULATION AND SUPERVISION

General

The Company, as a savings and loan holding company, is required to file certain reports with, and otherwise comply with the rules and regulations of the OTS under the Home Owners’ Loan Act, as amended (the “HOLA”). In addition, the activities of savings institutions, such as the Bank, are governed by the HOLA and the Federal Deposit Insurance Act (“FDI Act”).

The Bank is subject to extensive regulation, examination and supervision by the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer. The Bank is a member of the Federal Home Loan Bank (“FHLB”) System and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) managed by the FDIC. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The OTS and/or the FDIC conduct periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure

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also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Company, the Bank and their operations. Certain of the regulatory requirements applicable to the Bank and to the Company are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank and the Company.

Holding Company Regulation

The Company is a nondiversified unitary savings and loan holding company within the meaning of the HOLA. As a unitary savings and loan holding company, the Company generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that the Bank continues to be a qualified thrift lender (“QTL”). Upon any non-supervisory acquisition by the Company of another savings institution or savings bank that meets the QTL test and is deemed to be a savings institution by the OTS, the Company would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would be subject to extensive limitations on the types of business activities in which it could engage. The HOLA limits the activities of a multiple savings and loan holding company and its non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act (“BHC Act”), subject to the prior approval of the OTS, and certain activities authorized by OTS regulation, and no multiple savings and loan holding company may acquire more than 5% the voting stock of a company engaged in impermissible activities.

The HOLA prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of the voting stock of another savings institution or holding company thereof, without prior written approval of the OTS or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the OTS must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Although savings and loan holding companies are not subject to specific capital requirements or specific restrictions on the payment of dividends or other capital distributions, HOLA does prescribe such restrictions on subsidiary savings institutions as described below. The Bank must notify the OTS within 30 days before declaring any dividend to the Company. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the OTS, and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the subsidiary institution.

Federal Savings Institution Regulation

Cease and Desist Order. The Bank is subject to a range of bank regulatory compliance obligations. As previously disclosed, in connection with a routine compliance examination by the OTS, certain deficiencies were identified. The Bank has and continues to take steps to remediate these deficiencies and to strengthen the Bank’s

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overall compliance programs. The Bank agreed to a cease and desist order (the “Order”) issued by the OTS on September 26, 2008 as a result of issues relating to the Bank’s compliance with certain laws and regulations, including the Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”). The Order did not identify or relate to any issues regarding the safety and soundness of the Bank.

The Order requires the Bank to strengthen its BSA/AML Program, to strengthen its Compliance Maintenance Program and internal controls related to those matters and to take certain other actions identified by the OTS in the Order. The Bank has implemented initiatives to enhance, among other things, its BSA/AML Program and its Compliance Management Program in accordance with the requirements of the Order.

Capital Requirements. The OTS capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage (core) capital ratio and an 8% risk-based capital ratio. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The OTS regulations require that, in meeting the tangible, leverage (core) and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities that are not permissible for a national bank.

The risk-based capital standard for savings institutions requires the maintenance of total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS capital regulation based on the risks the OTS believes are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the 4% leverage standard. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and, within specified limits, the allowance for loan and lease losses. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The OTS regulatory capital requirements also incorporate an interest rate risk component. Savings institutions with “above normal” interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. A savings institution’s interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) that would result from a hypothetical 200 basis point increase or decrease in market interest rates divided by the estimated economic value of the institution’s assets, as calculated in accordance with guidelines set forth by the OTS. A savings institution whose measured interest rate risk exposure exceeds 2% must deduct an amount equal to one-half of the difference between the institution’s measured interest rate risk and 2%, multiplied by the estimated economic value of the institution’s total assets. That dollar amount is deducted from an institution’s total capital in calculating compliance with its risk-based capital requirement. Under the rule, there is a two quarter lag between the reporting date of an institution’s financial data and the effective date for the new capital requirement based on that data. A savings institution with assets of less than $300 million and risk-based capital ratios in excess of 12% is not subject to the interest rate risk component, unless the OTS determines otherwise. The Director of the OTS may waive or defer a savings institution’s interest rate risk component on a case-by-case basis. For the present time, the OTS has deferred implementation of the interest rate risk component. At December 31, 2008, the Bank met each of its capital requirements.

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The following table presents the Bank’s capital position at December 31, 2008:

	Actual Amount		Required Amount		Excess Amount		Actual Percent		Required Percent
	(Dollars in thousands)
Tangible	$	54,578	$	8,960	$	45,618	9.14	%	1.50	%
Core (Leverage)		54,578		23,894		30,684	9.14	%	4.00	%
Risk-based		58,154		30,515		27,639	15.25	%	8.00	%

Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a total risk-based capital of less than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the banking regulator is required to appoint a receiver or conservator for an institution that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to the institution depending upon its category, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Insurance of Deposit Accounts. Deposits of the Bank are insured up to applicable limits by the DIF, which is administered by the FDIC. To maintain the DIF, FDIC-insured institutions are required to pay a deposit insurance premium. The FDIC’s risk-based premium system provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based upon supervisory and capital evaluations. Assessment rates for insured institutions for the year ended December 31, 2008 ranged from five basis points for the healthiest institutions to 43 basis points for the riskiest.

The FDIC adopted a final rule, which became effective on January 1, 2009, that raised the risk-based deposit insurance assessment rates uniformly for all insured institutions by seven basis points for the first quarter of 2009 assessment period. As a result, assessment rates for the first quarter of 2009 increased to 12 basis points for the healthiest institutions. The FDIC also adopted a final rule, which becomes effective on April 1, 2009, that modifies the way the assessment system differentiates risk among insured institutions and raises the assessment rates for the second quarter of 2009 assessment period and thereafter. Under this final rule, assessment rates for the second quarter of 2009 will range from between 12 and 16 basis points for the healthiest institutions to 45 basis points for the riskiest.

In addition, on February 27, 2009, the FDIC adopted an interim rule, with request for comment, to impose a one-time 20 basis point emergency special assessment, effective on June 30, 2009 and to be collected on September 30, 2009. The interim rule would also permit the FDIC to impose additional special assessments of up to 10 basis points after June 30, 2009, if the DIF reserve ratio is estimated to fall to a level that that the FDIC believes would adversely affect public confidence or to a level close to zero or negative at the end of a calendar quarter. The ultimate goal of the increase in assessment rates and the proposed special assessments is to restore the DIF reserve ratio to a minimum of 1.15 percent within the next seven years.

Given the enacted and proposed increases in assessments for insured financial institutions in 2009, the Company anticipates that FDIC assessments on deposits will have a significantly greater impact upon operating expenses in 2009 compared to 2008 and could materially affect its reported earnings, liquidity and capital.

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In addition to the assessment for deposit insurance, institutions are required to pay on bonds issued in the late 1980s by the Financing Corporation (“FICO”) to recapitalize a predecessor deposit insurance fund.

The Bank’s assessment rate for the year ended December 31, 2008 was 8.53 basis points. $327,000 in premiums that would have been paid were offset by $225,000 from the One-time Assessment Credits (OTAC) for which the Bank was eligible pursuant to The Federal Deposit Insurance Reform Act of 2005 (FDIRA). The ending credit balance remaining as of December 31, 2008 is $0. Payments on the FICO bonds amounted to $55,000.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008 (“EESA”). The EESA, among other things, raises the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor until December 31, 2009. In addition, on October 14, 2008, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”). The TLGP includes the Transaction Account Guarantee Program by which, for a fee, noninterest bearing transaction accounts will receive unlimited insurance coverage until December 31, 2009. The TLGP also includes the Debt Guarantee Program by which certain senior unsecured debt issued by institutions and their holding companies on or after October 14, 2008 and not later than June 30, 2009 will be guaranteed by the FDIC through June 30, 2012. Eligible entities were required to inform the FDIC by December 5, 2008 whether they wanted to opt out of one or both components of the TLGP or they became a participating entity in the program. The Company and the Bank elected to opt out of the Debt Guarantee Program, but the Bank chose to participate in the Transaction Account Guarantee Program.

Thrift Rechartering Legislation. Various proposals to eliminate the federal thrift charter, create a uniform financial institutions charter and abolish the OTS have been introduced in past sessions of Congress. The Bank is unable to predict whether such legislation would be enacted or the extent to which the legislation would restrict or disrupt its operations.

Loans to One Borrower. Under the HOLA, savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Generally, savings institutions may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is fully secured by readily-marketable collateral, which is defined to include certain financial instruments and bullion. At December 31, 2008, the Bank’s limit on loans to one borrower was $7.7 million. At December 31, 2008, the Bank’s largest aggregate outstanding balance of loans to one borrower was $4.6 million.

QTL Test. The HOLA requires savings institutions to meet a QTL test. Under the QTL test, a savings association is required to maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed and related securities) in at least 9 months out of each 12 month period. A savings association that fails the QTL test must either convert to a bank charter or operate under certain restrictions. As of December 31, 2008, the Bank maintained 78.6% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test.

Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, which are based primarily on an institution’s capital level. An institution

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that exceeds all fully phased-in capital requirements before and after a proposed capital distribution (“Tier 1 Bank”) and has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its “surplus capital ratio” (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event the Bank’s capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, the Bank’s ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. At December 31, 2008, the Bank was classified as a Tier 1 Bank.

Under OTS capital distribution regulations, an application to and the prior approval of the OTS is required before an institution makes a capital distribution if (1) the institution does not meet certain criteria for “expedited treatment” for applications under the regulations, (2) the total capital distributions by the institution for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, (3) the institution would be undercapitalized following the distribution or (4) the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution may still need to give advance notice to the OTS of the capital distribution.

Liquidity. Until recently, the Bank is required to maintain an average daily balance of specified liquid assets equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. Effective March 15, 2001, the liquidity requirement to which the Bank is held under HOLA was amended to eliminate the specific percentage requirement, but retained the requirement that an institution “maintain sufficient liquidity to ensure its safe and sound operation.” The Bank’s average liquidity ratio for the month of December 2008 calculated using the ratio calculation of HOLA prior to March 15, 2001 was 2.62%, and in the opinion of management meets current requirements for Bank’s safe and sound operation. The Bank has never been subject to monetary penalties for failure to meet its liquidity requirements.

Assessments. Savings institutions are required to pay assessments to the OTS to fund the agency’s operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution’s total assets, including consolidated subsidiaries, as reported in the Bank’s latest quarterly thrift financial report. The assessments paid by the Bank for the fiscal year ended December 31, 2008 totaled $188,000.

Branching. OTS regulations permit nationwide branching by federally chartered savings institutions to the extent allowed by federal statute. This permits federal savings institutions to establish interstate networks and to geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings institutions.

Transactions with Related Parties. The Bank’s authority to engage in transactions with related parties or “affiliates” (i.e., any company that controls or is under common control with an institution, including the Company and its non-savings institution subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act (“FRA”). Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally requires that certain transactions with affiliates, including loans and asset purchases, be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies.

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Enforcement. Under the FDI Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. Under the FDI Act, the FDIC has the authority to recommend to the Director of the OTS enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Standards for Safety and Soundness. The FDI Act requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, and compensation, fees and benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness (“Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDI Act. The final rule establishes deadlines for the submission and review of such safety and soundness compliance plans.

Standards for Safeguarding Customer Information. In 1999, the President signed the Gramm-Leach-Bliley Act into law. Section 501 of the Act requires that bank regulatory agencies establish appropriate standards for financial institutions relating to the administrative, technical, and physical safeguards for customer records and information. Accordingly, the OTS, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System published Interagency Guidelines for Safeguarding Customer Information in February of 2001. The Customer Information Guidelines require the Bank to adopt a comprehensive written information security program that is designed to protect against unauthorized access to or use of customers’ nonpublic personal information. All elements of the security program must be coordinated among all parts of the bank. The Board of Directors of the Bank must approve the written information security program and oversee its development, implementation and maintenance. The Bank must identify reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration or destruction of customer information or customer information systems, assess the likelihood and potential damage of these threats (taking into consideration the sensitivity of customer information), and assess the sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. In order to manage and control any risk, the Bank should design its information security program to control the identified risks, commensurate with the sensitivity of the information as well as the complexity and scope of the Bank’s activities and adopt such measures listed in the Guidelines regarding access, controls, encryption and other procedures that the Bank concludes are appropriate. In addition, banks are required to exercise due diligence in selecting service providers having access to customer information, require such service providers by contract to implement appropriate measures designed to meet the objectives of the Guidelines, and monitor such service providers to confirm that they have satisfied their obligations under the contract. The Bank must report to its Board at least annually describing the overall status of the information security program and the Bank’s compliance with the Guidelines.

The USA Patriot Act of 2001. The USA Patriot Act of 2001, as amended (the “Patriot Act”), has imposed substantial new record-keeping and due diligence obligations on banks and other financial institutions, with a particular focus on detecting and reporting money-laundering transactions involving domestic or international customers. The U.S. Treasury Department has issued and will continue to issue regulations clarifying the Patriot Act’s requirements. The Patriot Act requires all “financial institutions,” as defined, to establish certain anti-money laundering compliance and due diligence programs.

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Regulation R. In September 2007, the SEC and the Federal Reserve Board jointly adopted final rules to implement exceptions provided for in the Gramm-Leach-Bliley Act for securities activities that banks may conduct without registering with the SEC as a securities broker or moving such activities to a broker-dealer affiliate. Regulation R affects the way a bank’s employees who are not registered with the SEC may be compensated for referrals to a third-party broker-dealer with whom the bank has entered into a networking arrangement. In addition, Regulation R implements the bank broker exceptions relating to trust and fiduciary activities, deposit “sweep” activities, and custody and safekeeping activities. The final regulation also includes certain exemptions related to these and other activities. Regulation R became effective for the Bank on January 1, 2009.

Federal Reserve System

The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts. The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for accounts aggregating $43.9 million or less (subject to adjustment by the Federal Reserve Board) the reserve requirement was 3%; and for accounts aggregating greater than $43.9 million, the reserve requirement was $1.0 million plus 10% (subject to adjustment by the Federal Reserve Board) against that portion of total transaction accounts in excess of $43.9 million. The first $9.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) were exempted from the reserve requirements. The Bank maintained compliance with the foregoing requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.

New Jersey Law

The Commissioner regulates, among other things, the Bank’s internal business procedures as well as its deposits, lending and investment activities. The Commissioner must approve changes to the Bank’s Certificate of Incorporation, establishment or relocation of branch offices, mergers and the issuance of additional stock. In addition, the Commissioner conducts periodic examinations of the Bank. Certain of the areas regulated by the Commissioner are not subject to similar regulation by the FDIC.

Recent federal and state legislative developments have reduced distinctions between commercial banks and DIF-insured savings institutions in New Jersey with respect to lending and investment authority, as well as interest rate limitations. As federal law has expanded the authority of federally chartered savings institutions to engage in activities previously reserved for commercial banks, New Jersey legislation and regulations (“parity legislation”) have given New Jersey chartered savings institutions, such as the Bank, the powers of federally chartered savings institutions.

New Jersey law provides that, upon satisfaction of certain triggering conditions, as determined by the Commissioner, insured institutions or savings and loan holding companies located in a state which has reciprocal legislation in effect on substantially the same terms and conditions as stated under New Jersey law may acquire, or be acquired by New Jersey insured institutions or holding companies on either a regional or national basis. New Jersey law explicitly prohibits interstate branching.

Sarbanes-Oxley Act of 2002

The Company is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:

• certification of financial statements by the chief executive officer and the chief financial officer;

• enhanced disclosure of controls and procedures and internal control over financial reporting;

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• the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;

• a prohibition on insider trading during pension plan black out periods;

• disclosure of off-balance sheet transactions;

• a prohibition on personal loans to directors and officers;

• auditor independence; and

• various increased criminal penalties for violations of securities laws.

FEDERAL AND STATE TAXATION

Federal Taxation

General. The Company and the Bank report their income on a consolidated basis and the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company. The Bank has not been audited by the IRS in the past ten years. For its 2008 taxable year, the Bank is subject to a maximum federal income tax rate of 34%.

Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995, thrift institutions which qualified under certain definitional tests and other conditions of the Internal Revenue Code of 1986 (the “Code”) were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans (generally secured by interests in real property improved or to be improved) under (i) the Percentage of Taxable Income Method (the “PTI Method”) or (ii) the Experience Method. The Bank’s reserve for nonqualifying loans was computed using the Experience Method.

The Small Business Job Protection Act of 1996 (the “1996 Act”), which was enacted on August 20, 1996, requires savings institutions to recapture (i.e., take into income) certain portions of their accumulated bad debt reserves. The 1996 Act repeals the reserve method of accounting for bad debts effective for tax years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to utilize the Experience Method applicable to such institutions, while thrift institutions that are treated as large banks (those generally exceeding $500 million in assets) are required to use only the specific charge-off method. Thus, the PTI Method of accounting for bad debts is no longer available for any financial institution.

A thrift institution required to change its method of computing reserves for bad debts will treat such change as a change in method of accounting, initiated by the taxpayer, and having been made with the consent of the IRS. Any Section 481(a) adjustment required to be taken into income with respect to such change generally will be taken into income ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement.

Distributions. Under the 1996 Act, if the Bank makes “non-dividend distributions” to the Company, such distributions will be considered to have been made from the Bank’s unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from the Bank’s supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in the Bank’s income. Non-dividend distributions include distributions in excess of the Bank’s current and accumulated earnings and profits, as

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calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Bank’s current or accumulated earnings and profits will not be so included in the Bank’s income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Bank makes a non-dividend distribution to the Company, approximately one and one-half times the amount of such distribution (but not in excess of the amount of such reserves) would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. The Banks does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State and Local Taxation

New Jersey Taxation. The Company, the Bank and the Bank’s subsidiaries, Pamrapo Service Corporation and Pamrapo Investment Company, file separate New Jersey income tax returns. For New Jersey income tax purposes, savings institutions are presently taxed at a rate equal to 9.36% of taxable income. For this purpose, “taxable income” generally means federal taxable income, subject to certain adjustments (including addition of interest income on state and municipal obligations). For New Jersey income tax purposes, regular corporations are presently taxed at a rate equal to 9% of taxable income (7.5% is the rate if taxable income is less than $100,000) and investment companies are presently taxed at a rate equal to 3.60% of taxable income.

Personnel

As of December 31, 2008, the Bank had 87 full-time employees and 26 part-time employees. The employees are not represented by a collective bargaining unit and the Bank considers its relationship with its employees to be good.

Website Access to Company Reports

The Company’s Internet address is www.pamrapo.com. The Company makes available free of charge through the Investor Relations section of its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC.

Item 1A. Risk Factors.

Government investigations may reduce our earnings.

As previously disclosed and described in Part I, Item 3, Legal Proceedings of this Form 10-K, the Bank has received federal grand jury subpoenas from the United States Attorney’s Office for the District of New Jersey (“U.S. Attorney’s Office”). The subpoenas were issued to the Bank in connection with an ongoing investigation regarding the Bank’s anti-money laundering and Bank Secrecy Act compliance. Certain individuals, including the Bank’s senior officers, have also received grand jury testimony subpoenas in connection with this matter. In addition, the Bank and its wholly-owned subsidiary, Pamrapo Service Corporation, have also recently received federal grand jury subpoenas from the U.S. Attorney’s Office relating to certain commissions paid to the manager of Pamrapo Service Corporation. The Bank is, and intends to continue, cooperating fully with the investigations. It is anticipated that the investigations will continue for at least the next several months. We are unable to predict what action, if any, might be taken in the future by governmental authorities as a result of these investigations or what impact, if any, the outcome of these matters might have on our consolidated financial position, results of operations, or cash flows. Regardless of the outcome, however, we may continue to incur substantial costs in dealing with these matters, which could continue to reduce our earnings.

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Forensic audit of Pamrapo Service Corporation may disrupt our business, cause us to incur significant expenses and affect our financial statements for the current and prior periods.

As described in Part II, Item 9A, Controls and Procedures of this Form 10-K and Note 22 of the Notes to Consolidated Financial Statements in the 2008 Annual Report to Shareholders, in August 2008, management became aware that certain commission payments from a third-party broker, which were payable to Pamrapo Service Corporation, as required by its policies and procedures, were being paid directly to the manager of Pamrapo Service Corporation. The direct payments to the manager were made pursuant to a letter between a third-party broker and the president of Pamrapo Service Corporation. These direct payments constituted a change in commission structure, which was made without the approval of the board of directors of Pamrapo Service Corporation, as required by its policies and procedures. Following an internal inquiry into this matter, an independent auditor recently was engaged to conduct a forensic audit and to review the business records of Pamrapo Service Corporation. Depending on the outcome of this audit, the independent auditor may provide recommendations regarding procedures and safeguards to be implemented on a going forward basis. At the present time, we cannot predict the outcome or the full impact of the forensic audit on our internal controls, business, results of operations or financial position. Depending upon the result of the forensic audit, however, we may need to record additional commission amounts in our income statement and evaluate whether a restatement of certain financial statements is necessary. In addition, the internal inquiry, forensic audit and related activities have required, and will likely continue to require, us to incur substantial expenses for legal, accounting and other professional services, and have diverted, and may continue to divert, management’s attention from our business.

If we are unsuccessful in our effort to remediate our material weakness in our internal control over financial reporting over time, it may adversely impact our ability to report our financial condition and results of operations in the future.

As discussed in Part II, Item 9A, Controls and Procedures of this Form 10-K, due to a material weakness in our internal control over financial reporting, our management concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2008. Although, we have taken, and are continuing to take, actions to remediate the weakness in internal control over financial reporting, if we are unsuccessful in our focused effort to permanently and effectively remediate the weakness over time, it may adversely impact our ability to report our financial condition and results of operations in the future accurately and in a timely manner, and may potentially adversely impact our reputation with stockholders.

The Bank is subject to a cease and desist order, which could adversely affect us.

The Bank is subject to supervision and regulation by the OTS. As a regulated savings bank, the Bank’s good standing with its regulators is of fundamental importance to the continuation of its business. On September 26, 2008, the Bank consented to the Order issued by the OTS. The Order requires the Bank to strengthen its BSA/AML Program, to strengthen its Compliance Maintenance Program and internal controls related to those matters and to take certain other actions identified by the OTS in the Order. The Bank has and continues to take steps to remediate the deficiencies noted in the Order and to strengthen the Bank’s overall compliance programs, including initiatives implemented to enhance, among other things, the Bank’s BSA/AML Program and its Compliance Management Program. We cannot predict the further impact of the Order upon our business, financial condition or results of operations.

The current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations.

We are operating in a challenging and uncertain economic environment, including generally uncertain national and local conditions. Financial institutions continue to be affected by sharp declines in the real estate market and constrained financial markets. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of

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asset values by financial institutions. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment could have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and results of operations. A worsening of these conditions would likely exacerbate the adverse effects on us and others in the financial institutions industry. For example, the national economic recession or a further deterioration in local economic conditions in our markets could drive losses beyond that which is provided for in our allowance for loan losses. We may also face the following risks in connection with these events:

• Domestic economic conditions that negatively affect housing prices and the job market have resulted, and may continue to result, in a deterioration in credit quality of our loan portfolios, and such deterioration in credit quality has had, and could continue to have, a negative impact on our business.

• Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates on loans and other credit facilities.

• The processes we use to estimate allowance for loan losses and reserves may no longer be reliable because they rely on complex judgments, including forecasts of economic conditions, which may no longer be capable of accurate estimation.

• Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future charge-offs.

• We expect to face increased regulation of our industry, and compliance with such regulation may increase our costs, limit our ability to pursue business opportunities and increase compliance challenges.

As these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse effects on our financial condition.

We rely, in part, on external financing to fund our operations and the unavailability of such funds in the future could adversely impact our growth strategy and prospects.

The Bank relies on deposits, advances from the FHLB-NY and other borrowings to fund its operations. Although we consider such sources of funds adequate for our current capital needs, we may seek additional debt or equity capital in the future to achieve our long-term business objectives. The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and debt refinancing arrangements may require us to pledge some of our assets and enter into covenants that would restrict our ability to incur further indebtedness. There can be no assurance that additional financing sources, if sought, would be available to us or, if available, would be on terms favorable to us. If additional financing sources are unavailable or are not available on reasonable terms, our growth strategy and future prospects could be adversely impacted.

Our business is subject to interest rate risk and variations in market interest rates may negatively affect our financial performance.

We are unable to predict fluctuations of market interest rates, which are affected by many factors, including:

• Inflation;

• Recession;

• A rise in unemployment;

• Tightening money supply; and

• Domestic and international disorder and instability in domestic and foreign financial markets.

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Changes in the interest rate environment may reduce our profits.

We expect that the Bank will continue to realize income from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. In addition, an increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest on and principal of their obligations, especially borrowers with loans subject to negative amortization. Negative amortization involves a greater risk during a period of rising interest rates because the loan principal may increase above the amount originally advanced, which could increase the risk of default. Accordingly, changes in levels of market interest rates could materially and adversely affect the Bank’s net interest spread, asset quality, levels of prepayments and cash flows as well as the market value of its securities portfolio and overall profitability.

The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent we require such dividends in the future, may affect our ability to service our debt and pay dividends.

The Company is a separate legal entity from its subsidiaries and does not have significant operations of its own. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the OTS, the Bank’s primary regulator, could assert that payment of dividends or other payments by the Bank is an unsafe or unsound practice. In the event the Bank is unable to pay dividends to us, we may not be able to service our debt, pay our obligations as they become due, or pay dividends on our common stock. Consequently, the inability to receive dividends from the Bank could adversely affect our financial condition, results of operations and prospects.

Our allowance for loan losses may not be adequate to cover actual losses.

Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. Our allowance for loan losses is based on our historical loss experience, as well as an evaluation of the risks associated with our loans held for investment. During the year ended December 31, 2008, loans charged off totaled $124,000. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. While we believe that our allowance for loan losses is adequate to cover current losses, we cannot provide assurance that we will not need to increase our allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

Our business is subject to various lending and other economic risks that could adversely impact our results of operations and financial condition.

Further deterioration in economic conditions, particularly in New Jersey, could hurt our business. Our business is directly affected by political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in governmental monetary and fiscal policies and inflation, all of which are beyond our control. Further deterioration in economic conditions, in particular within New Jersey, could result in the following consequences, any of which could hurt our business materially:

• Loan delinquencies may increase;

• Problem assets and foreclosures may increase;

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• Demand for our products and services may decline; and

• Collateral for loans made by us, especially real estate may decline in value, in turn reducing a client’s borrowing power, and reducing the value of assets and collateral associated with our loans held for investment.

A further downturn in the New Jersey real estate market could hurt our business.

Our business activities and credit exposure are concentrated in real estate lending in New Jersey. During 2008, the market for residential housing experienced dramatic declines, with falling home prices and increasing foreclosures. In recognition of the continued deterioration in the housing market and an expected increase in non-performing assets, we significantly increased our provision for loan losses in fiscal 2008. A further downturn in the New Jersey real estate market could hurt our business because the vast majority of our loans are secured by real estate located within New Jersey. If the significant decline in real estate values continues, especially in New Jersey, the collateral for our loans will provide less security. As a result, our ability to recover the principal amount due on defaulted loans by selling the underlying real estate will be diminished, and we will be more likely to suffer losses on defaulted loans.

We may suffer losses in our loan portfolio despite our underwriting practices.

We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. These practices include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets. Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for loan losses.

Recent changes in our management may cause uncertainty in, or be disruptive to, our general business operations.

On February 13, 2009, William J. Campbell retired as President, Chief Executive Officer and director of the Company and the Bank. Mr. Campbell had been with the Company and the Bank for over 40 years and had served as President and Chief Executive Officer since 1970. The Company’s board of directors has established a search committee that is in the process of seeking a permanent candidate to fill the position. In the meantime, Kenneth D. Walter, Vice President, Treasurer and Chief Financial Officer of the Company and the Bank, has been appointed as Interim President and Chief Executive Officer of the Company and the Bank. This change in our management may be disruptive to our business and during the transition period there may be uncertainty with our stockholders and the Bank’s customers and employees concerning our future direction and performance. Our success will depend on our ability to attract, hire and retain senior management and other key personnel and on the abilities of the new management personnel to function effectively going forward.

Our former President and Chief Executive Officer owns a significant amount of our common stock and may make decisions that are not in the best interests of all stockholders.

As of December 31, 2008, William J. Campbell, our former President and Chief Executive Officer, owned approximately 12.2% of our outstanding common stock. As a result, he will have the ability to significantly influence the election and removal of our board of directors, as well as the outcome of any other matters to be decided by a vote of stockholders. In addition, this concentration of ownership may delay or prevent a change in control of our company, even when a change in control may be perceived by some to be in the best interest of our stockholders.

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We are subject to extensive regulation, which could adversely affect us.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Our business is highly regulated, and the laws, rules and regulations applicable to us are subject to regular modification and change. There can be no assurance that there will be no laws, rules or regulations adopted in the future, which could make compliance more difficult or expensive, or otherwise adversely affect our business, financial condition or prospects.

We face strong competition from other financial institutions, financial service companies and other organizations offering services similar to those offered by us, which could hurt our business.

We conduct our business operations primarily in New Jersey. Increased competition within our market area may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include other savings associations, national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to continue our loan and deposit growth and our business, financial condition and prospects may be negatively affected.

Item 1B. Unresolved Staff Comments.

Not Applicable.

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Item 2. Properties.

The Bank conducts its business through ten branch offices and one administrative office. Four offices have drive-up facilities. The Bank has eleven automatic teller machines at its branch facilities and four other off-site locations. The following table sets forth information relating to each of the Bank’s offices as of December 31, 2008. The total net book value of the Bank’s premises and equipment at December 31, 2008 was $2.9 million.

Location	Year Office Opened	Net Book Value
		(In thousands)
Executive Office
591-597 Avenue C Bayonne, New Jersey	1985	$	1,298
Branch Offices
611 Avenue C Bayonne, New Jersey	1984		565
155 Broadway Bayonne, New Jersey	1973		80
175 Broadway (1) Bayonne, New Jersey	1985		—
861 Broadway Bayonne, New Jersey	1962		65
987 Broadway Bayonne, New Jersey	1977		207
1475 Bergen Boulevard (1)(2) Fort Lee, New Jersey	1990		—
544 Broadway (1) Bayonne, New Jersey	1995		8
401 Washington Street (1) Hoboken, New Jersey	1990		—
473 Spotswood Englishtown Road (1) Monroe, New Jersey	1998		—
181 Avenue A (1) Bayonne, New Jersey	2004		93
211-A Washington Street (1) Jersey City, New Jersey	2006		131
Net book value of properties			2,447
Furnishings and equipment (3)			482
Total premises and equipment		$	2,929

(1) Leased Property.

(2) Sold to NewBank, Flushing, New York, on March 6, 2009.

(3) Includes off-site ATMs.

Item 3. Legal Proceedings.

As announced on February 3, 2009, the Bank previously received federal grand jury subpoenas from the United States Attorney’s Office for the District of New Jersey (“U.S. Attorney’s Office”). The subpoenas were issued to the Bank in connection with an ongoing investigation regarding the Bank’s anti-money laundering and Bank Secrecy Act compliance. Certain individuals, including the Bank’s senior officers, have also received grand jury testimony subpoenas in connection with this matter. In addition, the Bank and its wholly-owned subsidiary, Pamrapo Service Corporation, have also recently received federal grand jury subpoenas from the U.S. Attorney’s

34

Office relating to certain commissions paid to the manager of Pamrapo Service Corporation. The Bank is, and intends to continue, cooperating fully with the investigations, having previously provided documents and information to the U.S. Attorney’s Office. It is anticipated that the investigations will continue for at least the next several months. The Company is unable to predict what action, if any, might be taken in the future by governmental authorities as a result of these investigations or what impact, if any, the outcome of these matters might have on its consolidated financial position, results of operations, or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Information relating to the market for Registrant’s common stock and related stockholder matters appears under Stock Information and Stock Performance Chart in the Registrant’s 2008 Annual Report to Shareholders on pages 45 and 46 and is incorporated herein by reference.

The following table contains information about the Company’s purchases of its equity securities during the fourth quarter of 2008.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)(2)(3)
October 1, 2008 to October 31, 2008	—	$	—	—	41,456
November 1, 2008 to November 30, 2008	40,000		8.99	40,000	1,456
December 1, 2008 to December 31, 2008	—		—	—	1,456
Total	40,000			40,000

(1) As of December 31, 2008.

(2) The Company’s share repurchase program that authorized the Company to purchase up to 256,000 shares of common stock was announced on August 22, 2000. On February 3, 2009, the Company announced a new stock repurchase program, which authorizes the repurchase of up to 5% of its outstanding common stock, or approximately 246,700 shares. Unless modified or revoked by the Company’s Board of Directors, the authorizations do not expire.

(3) If the Company repurchases shares of its common stock, the Company intends to complete the original authorization with 1,456 shares remaining before purchasing additional shares pursuant to the new authorization.

Item 6. Selected Financial Data.

The selected financial data appears under Selected Consolidated Financial Condition and Operating Data of the Company in the Registrant’s 2008 Annual Report to Shareholders on pages 43 and 44 and is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The above-captioned information appears under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Registrant’s 2008 Annual Report to Shareholders on pages 2 through 9 and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information about market risk appears under Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Interest Rate Risk and —Net Portfolio Value in the Registrant’s 2008 Annual Report to Shareholders on pages 8 and 9 and is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements, and related notes thereto, of the Company and its subsidiaries, together with the report thereon by Beard Miller Company LLP appear in the Registrant’s 2008 Annual Report to Shareholders on pages 10 through 42 and are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Financial Officer and Interim Chief Executive Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The purpose of these controls and procedures is to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms. Based on the evaluation, the Company’s Chief Financial Officer and Interim Chief Executive Officer concluded that, because of a material weakness in the Company’s internal control over financial reporting as discussed in Management’s Annual Report on Internal Control over Financial Reporting, the Company’s disclosure controls and procedures were not effective as of December 31, 2008. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Limitations on the Effectiveness of Disclosure Controls and Procedures

There are inherent limitations on the effectiveness of any systems of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

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Management’s Annual Report on Internal Control Over Financial Reporting

March 12, 2009

Board of Directors and Shareholders of Pamrapo Bancorp, Inc.:

The management of Pamrapo Bancorp, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment we believe that, as of December 31, 2008, the Company’s internal control over financial reporting was not effective based on those criteria because management has identified the following material weakness:

Pamrapo Service Corporation—The controls relating to fees and commissions from sale of financial products payable to Pamrapo Service Corporation, a wholly-owned subsidiary of the Bank, were inadequate. In August 2008, management became aware that certain commission payments from a third-party broker, which were payable to Pamrapo Service Corporation, as required by its policies and procedures, were being paid directly to the manager of Pamrapo Service Corporation. The direct payments to the manager were made pursuant to a letter between a third-party broker and the president of Pamrapo Service Corporation. These direct payments constituted a change in commission structure, which was made without the approval of the board of directors of Pamrapo Service Corporation, as required by its policies and procedures. Following an internal inquiry, the Board of Directors of the Bank was informed of the matter in January 2009. Management, under the oversight of the joint Audit Committee of the Company and the Bank, is in the process of remediating this material weakness.

The Independent Registered Public Accounting Firm that audited the consolidated financial statements included in the Registrant’s 2008 Annual Report to Shareholders has also issued an attestation on the Company’s internal control over financial reporting.

/s/ KENNETH D. WALTER

Kenneth D. Walter

Chief Financial Officer and
Interim Chief Executive Officer

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Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequent to December 31, 2008, the Company has taken and is continuing to take actions to remediate its material weakness in internal control over financial reporting as described further below.

Remediation of Material Weakness

In February 2009, the Company and the Bank took the following actions to remediate the weakness in internal control over financial reporting discussed above:

• The manager of Pamrapo Service Corporation was terminated and any signing authority he may have had on behalf of Pamrapo Service Corporation was withdrawn.

• The third-party broker was instructed that any further commissions to the manager of Pamrapo Service Corporation earned prior to his termination date that have not yet been paid should be placed in escrow.

• An independent auditor was engaged to conduct a forensic audit and to review the business records of Pamrapo Service Corporation. Depending on the outcome of this audit, the independent auditor may provide recommendations regarding procedures and safeguards to be implemented on a going forward basis.

The Company will continue to evaluate the effectiveness of the remedial measures and the actions taken to date as summarized above with the intent to fully correct the weakness in internal control over financial reporting.

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Pamrapo Bancorp, Inc

We have audited Pamrapo Bancorp, Inc. and subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment:

Management overrode established controls and operating procedures in 2008 relating to collection of fees and commissions from third party brokers earned by a subsidiary of the Company. This override resulted in the third party broker paying fees and commissions directly to the manager of the subsidiary rather than the subsidiary, resulting in commission income not being accurately and completely recorded. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not affect our report dated March 12, 2009 on those consolidated financial statements.

40

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition and the related consolidated statements of income and changes in stockholders’ equity and cash flows of Pamrapo Bancorp, Inc. and subsidiaries, and our report dated March 12, 2009 expressed an unqualified opinion.

/s/ BEARD MILLER COMPANY LLP

Beard Miller Company LLP

Clark, New Jersey

March 12, 2009

41

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

On March 9, 2004, the Company adopted a Code of Ethics for its Principal Executive Officers and Senior Financial Officers (the “Code of Ethics”). The Code of Ethics is available free of charge by writing to the Secretary of the Company at 611 Avenue C, Bayonne, New Jersey 07002.

The information relating to directors, executive officers and audit committee of the Registrant and with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009, which will be filed with the SEC not later than 120 days after the end of the Registrant’s fiscal year 2008 (“Proxy Statement”).

Item 11. Executive Compensation.

The information relating to executive compensation, including the Personnel Committee Report, which is deemed furnished herein, is incorporated herein by reference to the Registrant’s Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the Registrant’s Proxy Statement.

Equity Compensation Plan Information

The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans as of December 31, 2008.

Equity Compensation Plan Information

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity Compensation Plans Approved by Stockholders	46,000	$	24.77	22,380
Equity Compensation Plans Not Approved by Stockholders	—			—
Total	46,000	$	24.77	22,380

Item 13. Certain Relationships, Related Transactions, and Director Independence.

The information relating to certain relationships and related transactions, and director independence is incorporated herein by reference to the Registrant’s Proxy Statement.

42

Item 14. Principal Accounting Fees and Services.

The information relating to principal accountant fees and services is incorporated herein by reference to the Registrant’s Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as a part of this report:

1.      Consolidated Financial Statements of Pamrapo Bancorp, Inc. are incorporated by reference to the indicated pages of the 2008 Annual Report to Shareholders.
		Page
	Report of Independent Registered Public Accounting Firm	10
	Consolidated Statements of Financial Condition as of December 31, 2008 and 2007	11
	Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006	12
	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006	13
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006	14-15
	Notes to Consolidated Financial Statements	16-42

The remaining information appearing in the 2008 Annual Report to Shareholders is not deemed to be filed as part of this report, except as expressly provided herein.

2. All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

3. Exhibits.

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The following Exhibits are filed as part of this report, and this list includes the Exhibit Index.

3.1.1	Certificate of Incorporation of Pamrapo Bancorp, Inc.1
3.1.2	Certificate of Amendment to Certificate of Incorporation of Pamrapo Bancorp, Inc.2
3.2	Pamrapo Bancorp, Inc. By-laws.3
4	Stock Certificate of Pamrapo Bancorp, Inc.4
10.1	Restated Bank Employment Agreement by and between Pamrapo Savings Bank, S.L.A. and William J. Campbell.5*
10.2	Restated Holding Company Employment Agreement by and between Pamrapo Bancorp, Inc. and William J. Campbell.5*
10.3	Restated Pamrapo Bancorp, Inc. Change in Control Agreement by and between Pamrapo Bancorp, Inc. and Kenneth D. Walter.5*
10.4	Change in Control Agreement by and between Pamrapo Bancorp, Inc. and Margaret Russo.6*
10.5	Pamrapo Savings Bank, S.L.A. Directors’ Consultation and Retirement Plan.7
10.6	Pamrapo Bancorp, Inc. 2003 Stock-Based Incentive Plan.8
10.7	Order to Cease and Desist, Order No. NE-08-12, effective September 26, 2008.9
10.8	Stipulation and Consent to Issuance of Order to Cease and Desist.9
11	Computation of earnings per share (filed herewith).
13	Portions of the 2008 Annual Report to Shareholders (filed herewith).
14	Code of Ethics.10
21	Subsidiary information is incorporated herein by reference to “Part I—Subsidiaries.”
23	Consent of Independent Registered Public Accounting Firm (filed herewith).
31	Certification of Chief Financial Officer and Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32	Certification of Chief Financial Officer and Interim Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

¹ Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 30, 2001.

² Incorporated herein by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed on November 12, 2003.

³ Incorporated herein by reference to the Current Report on Form 8-K, filed on November 27, 2007.

⁴ Incorporated herein by reference to the Registration Statement on Form S-1 (Registration No. 33-30370), as amended, filed on August 8, 1989.

⁵ Incorporated herein by reference to the Current Report on Form 8-K, filed on October 29, 2007.

⁶ Incorporated herein by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed on November 9, 2007.

⁷ Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed on March 16, 2006.

⁸ Incorporated herein by reference to the 2003 Annual Meeting Proxy Statement, filed on March 31, 2003.

⁹ Incorporated herein by reference to the Current Report on Form 8-K, filed on September 26, 2008.

¹⁰ Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 15, 2004.

^* Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PAMRAPO BANCORP, INC.
Dated: March 16, 2009
	By:	/s/ KENNETH D. WALTER
		Kenneth D. Walter
		Vice President, Treasurer and Chief Financial Officer, and Interim President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ KENNETH D. WALTER Kenneth D. Walter	Vice President, Treasurer and Chief Financial Officer, and Interim President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)	March 16, 2009
/s/ DANIEL J. MASSARELLI Daniel J. Massarelli	Chairman of the Board and Director	March 16, 2009
/s/ JOHN A. MORECRAFT John A. Morecraft	Vice Chairman of the Board and Director	March 16, 2009
/s/ PATRICK D. CONAGHAN Patrick D. Conaghan	Director	March 16, 2009
/s/ KENNETH R. POESL Kenneth R. Poesl	Director	March 16, 2009
/s/ ROBERT G. DORIA Robert G. Doria	Director	March 16, 2009
/s/ HERMAN L. BROCKMAN Herman L. Brockman	Director	March 16, 2009

EX-11

Exhibit 11

STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE

	Year Ended December 31, 2008
Income available to common stockholders	$	2,459,318
Weighted average shares outstanding		4,970,788
Basic earnings per share	$	0.49
Income for diluted earnings per share	$	2,459,318
Total weighted average common shares and equivalents outstanding for diluted computation		4,970,788
Diluted earnings per share	$	0.49

EX-13

Exhibit 13

PAMRAPO BANCORP, INC. & SUBSIDIARIES

Management’s Discussion and Analysis of Financial Conditions 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 are based on loan types and classification status. 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 the Consolidated Financial Statements.

“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 judgment.

2    www.pamrapo.com

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, 2008 totaled $598.0 million, which represents a decrease of $59.4 million or 9.04% when compared to $657.4 million at December 31, 2007, primarily due to decreases in interest-bearing deposits in other banks, loans receivable and mortgage-backed securities, which more than offset increases in investment securities held to maturity and deferred tax assets.

Securities available for sale decreased $146,000 or 15.92% to $771,000 at December 31, 2008 when compared to $917,000 at December 31, 2007. The decrease during the year ended December 31, 2008 resulted primarily from principal repayments of $98,000 on securities available for sale along with an increase of $48,000 in unrealized losses. Investment securities held to maturity increased $973,000 or 9.38% to $11.4 million at December 31, 2008 when compared to $10.4 million at December 31, 2007. The increase during the year ended December 31, 2008 resulted primarily from purchases of investment securities held to maturity amounting to $1.0 million.

Mortgage-backed securities held to maturity decreased $6.5 million or 5.25% to $117.4 million at December 31, 2008 from $123.9 million at December 31, 2007. The decrease during the year ended December 31, 2008 resulted primarily from principal repayments of $21.2 million on mortgage-backed securities, which more than offset purchases of mortgage-backed securities totaling $15.0 million.

Net loans amounted to $437.6 million and $439.1 million at December 31, 2008 and 2007, respectively, which represents a decrease of $1.5 million or 0.34%, primarily due to loan repayments exceeding loan originations.

Foreclosed real estate amounted to $426,000 and $486,000 at December 31, 2008 and 2007, respectively, which represents a decrease of $60,000 or 12.35%, primarily due to provision for losses of $70,000 on the foreclosed real estate, offset by capital improvements of $10,000.

Total deposits at December 31, 2008 decreased $64.0 million or 12.60% to $444.0 million compared to $508.0 million at December 31, 2007. Included in the December 31, 2007 total is an interest-bearing demand account with a balance of $40.3 million which was reduced during the year 2008 to $2.6 million.

Advances from the Federal Home Loan Bank of New York (“FHLB-NY”) totaled $89.5 million and $84.0 million at December 31, 2008 and 2007, respectively. The net increase of $5.5 million or 6.55% during the year ended December 31, 2008 resulted from an increase in FHLB-NY overnight borrowings of $20.5 million, offset by repayments of $15.0 million on advances from the FHLB-NY.

Stockholders’ equity amounted to $54.7 million and $58.6 million at December 31, 2008 and 2007, respectively. During the years ended December 31, 2008 and 2007, net income of $2.5 million and $4.4 million, respectively, was recorded and cash dividends of $4.2 million and $4.6 million, respectively, were paid on the Company’s common stock. Accumulated other comprehensive loss increased $1.8 million or 138.46% to $3.1 million at December 31, 2008 from $1.3 million at December 31, 2007, primarily due to FAS 158 adjustments pertaining to the Bank’s defined benefit plans. During the year ended December 31, 2008, the Company repurchased 40,000 shares of its common stock for $361,000 under a stock repurchase program.

Results of Operations For The Years Ended December 31, 2008 and 2007

NET INCOME

Net income decreased by $1.9 million or 43.18% to $2.5 million during the year ended December 31, 2008 when compared to $4.4 million for the year ended December 31, 2007. The decrease in net income during the 2008 period was primarily due to an increase in total non-interest expenses of $2.6 million and a provision for loan losses of $960,000, along with decreases in total interest income of $1.9 million, which more than offset an increase in total non-interest income of $76,000 and decreases in total interest expense of $2.7 million and income taxes of $779,000.

INTEREST INCOME

Interest income on loans during the year ended December 31, 2008 decreased by $1.1 million or 3.82% to $27.7 million when compared to $28.8 million during 2007. During the years ended December 31, 2008 and 2007, the yield earned on the loan portfolio was 6.40% and 6.49%, respectively. The average balance of loans outstanding during the years ended December 31, 2008 and 2007, totaled $433.7 million and $444.4 million, respectively.

Interest on mortgage-backed securities decreased $356,000 or 5.93% during the year ended December 31, 2008 to $5.6 million compared to $6.0 million for 2007. During the years ended December 31, 2008 and 2007, the average balance of mortgage-backed securities totaled $124.0 million and $133.1 million, respectively, resulting in a net decrease of $9.1 million or 6.84%. The yield earned on the mortgage-backed securities portfolio was 4.55% and 4.51% during 2008 and 2007, respectively. Interest earned on

www.pamrapo.com    3

PAMRAPO BANCORP, INC. & SUBSIDIARIES

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

investment securities increased by $156,000 or 22.45% to $851,000 for the year ended December 31, 2008, when compared to $695,000 for 2007. The increase during the year ended December 31, 2008 resulted from an increase of $1.1 million, or 10.89%, in the average balance of the investment securities portfolio, along with an increase of sixty-seven basis points in the yield earned on the investment securities portfolio from 6.90% in 2007 to 7.57% in 2008. Interest on other interest-earning assets decreased by $596,000 or 38.06% to $970,000 for the year ended December 31, 2008, when compared to $1.6 million for 2007. The decrease during the year ended December 31, 2008, resulted from a decrease of two-hundred eleven basis points in the yield earned on the other interest-earning assets portfolio from 4.89% in 2007 to 2.78% in 2008, which more than offset an increase of $2.9 million in the average balance of the other interest-earning assets portfolio.

INTEREST EXPENSE

Interest on deposits decreased $2.2 million or 16.06% to $11.5 million during the year ended December 31, 2008 compared to $13.7 million for 2007. The decrease during 2008 was attributable to a decrease of forty-nine basis points in the Bank’s average cost of interest-bearing deposits to 2.65% for 2008 from 3.14% for 2007, along with a decrease of $1.7 million or 0.39% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money decreased $491,000 or 11.20% to $3.9 million during the year ended December 31, 2008 compared to $4.4 million for 2007. The decrease during 2008 was attributable to a decrease of $13.2 million or 14.46% in the average balance of advances and other borrowed money, which more than offset an increase of nineteen basis points in the Bank’s cost of borrowings from 4.80% for 2007 to 4.99% for 2008.

NET INTEREST INCOME

Net interest income for the year ended December 31, 2008 increased $790,000 or 4.15% to $19.8 million for 2008 as compared to $19.0 million for 2007. The Bank’s net interest rate spread increased from 2.56% in 2007 to 2.83% in 2008 and its interest rate margin increased from 3.07% in 2007 to 3.28% in 2008. The increase in net interest rate spread primarily resulted from a forty-two basis point decrease in the cost of interest-bearing liabilities from 3.43% in 2007 to 3.01% in 2008, sufficient to offset a sixteen basis point decrease in the yield of average interest-earning assets from 5.99% in 2007 to 5.83% in 2008. The average balance of interest-earning assets amounted to $603.8 million in 2008 and $619.6 million in 2007 and the average balance of interest-bearing liabilities amounted to $512.5 million in 2008 and $527.5 million in 2007.

PROVISION FOR LOAN LOSSES

During the years ended December 31, 2008 and 2007, the Bank provided $1.6 million and $670,000, respectively, for loan losses. At December 31, 2008 and 2007, the Bank’s loan portfolio included loans totaling $10.8 million and $5.5 million, respectively, which were delinquent ninety days or more. Included in the December 31, 2008 and 2007 total delinquent loans is the Bank’s largest non-accruing commercial loan of $1.9 million to a local hospital. The loan was originally for $3.0 million with a maturity date of November 15, 2006, which was extended to June 1, 2007. In October 2006, $1.0 million of the loan was paid and the remaining balance of approximately $1.9 million was secured by a mortgage on real estate. As of December 31, 2008, the $1.9 million loan balance had not been paid. The repayment of the loan is subject to bankruptcy proceedings. In September 2008, the creditor’s committee for the hospital filed a complaint against the Bank seeking to recover the $1.0 million previously paid on the loan and to set aside the mortgage securing the $1.9 million still owed to the Bank. The methodology used to determine the collectability of this loan was based on the fair value of the collateral. The fair value of the physical collateral was valued on December 15, 2006 at $2.04 million, which is greater than the loan balance at December 31, 2008. While management believes that the mortgage on the property is valid, the unsecured creditors in the bankruptcy proceedings have brought suit against the Bank, charging that the mortgage is a “voidable preference.” Litigation is in the discovery phase. At this point, management believes, based on discussions with its litigation counsel, that the Bank will likely prevail in its defense. However, due to the normal uncertainties of any litigation, the loan ($1.9 million) has been deemed impaired and is included in the impaired loans of $2.6 million and $1.9 million at December 31, 2008 and 2007, respectively, as reflected in Note 5 to the Notes to Consolidated Financial Statements. The hospital property is in close proximity to the Bank and is routinely observed by management. Given the proximity of the property, management’s knowledge of the real estate market and the fact that the appraisal of the property is higher than the carrying value of the loan, the management does not believe that a new appraisal is needed at this time. The Company has not charged off this loan against the allowance for loan losses based on the fact that the loan is collateralized by properties that have a greater value than the carrying amount of the loan. However, due to the uncertainty of any litigation, the Bank will continue to monitor this loan and evaluate its collectability as necessary. 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 $4.66 million at December 31,

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2008, representing 1.05% of total loans and 43.15% of loans delinquent ninety days or more, compared to an allowance of $3.15 million at December 31, 2007, representing 0.71% of total loans and 57.54% of loans delinquent ninety days or more. During the years ended December 31, 2008 and 2007, the Bank charged off loans aggregating $124,000 and $270,000, respectively, and recoveries totaled $0 and $104,000, respectively. The Bank monitors its loan portfolio and intends to continue to provide for loan losses based on its ongoing periodic review of the loan portfolio and general market conditions.

NON-INTEREST INCOME

Non-interest income increased by $76,000 or 3.30% to $2.4 million during the year ended December 31, 2008 as compared to $2.3 million for 2007. The increase in non-interest income during 2008 resulted primarily from increases in other income of $131,000, sufficient to offset decreases in fees and service charges of $10,000 and commissions from sale of financial products of $45,000.

Commissions from sale of financial products includes commissions received by Pamrapo Service Corporation (“Corporation”), a wholly-owned subsidiary of the Bank, due to the sale of products such as securities, life insurance, and annuities. Commissions received related to securities are received from a third-party broker dealer. Pursuant to the Corporation’s policies, such commissions are to be paid directly to the Corporation, which, in conjunction with the Bank, then determines the amount of commission payments to be made to the Corporation’s employees and agents.

As of March 12, 2009, the Company and the Bank were aware of the following information relating to certain commission payments made to the manager of the Corporation (the “Manager”). The information presented below is based upon the knowledge and understanding of the individuals who conducted internal inquiries into this matter. The Bank has hired an independent auditor to conduct a forensic audit of the Corporation’s business records, the outcome of which cannot be determined at this time. Subsequent to March 12, 2009, additional information may be discovered, or may come to light, that could affect the accuracy of the following information relating to the commissions.

In August 2008, the Bank discovered that 100% of certain commissions from a third-party broker were paid directly to the Manager. These direct payments constituted a change in commission structure, which was made without the approval of the Board of Directors of the Corporation, as required by its policies and procedures. Based upon the Corporation’s policies in effect at the time, 100% of these commissions were to be paid directly to the Corporation and then 50% were to be distributed by the Corporation to the Manager. Following such internal inquiries, the Bank determined that $270,357 was owed by the Manager to the Corporation for commissions paid directly to the Manager for the period from August 2007 to December 2008.

The $270,357 was paid to the Corporation as follows. On December 3, 2008, the Manager paid $160,000 of the amount owed to the Corporation. On December 10, 2008, the Manager paid $50,000 of the amount owed to the Corporation. On February 4, 2009, the Manager paid the remaining $60,357 of the amount owed to the Corporation. The Company and the Bank determined to record the amount of $270,357 in the fourth quarter of 2008. For further information, please see Note 22 to the Consolidated Financial Statements in this 2008 Annual Report.

NON-INTEREST EXPENSES

Non-interest expenses increased $2.6 million or 18.84% to $16.4 million during the year ended December 31, 2008 compared to $13.8 million for 2007. During the year ended December 31, 2008, salaries and employee benefits, net occupancy expense of premises, equipment, professional fees, loss on foreclosed real estate and other expenses increased $314,000, $92,000, $37,000, $2,028,000, $92,000 and $27,000 respectively, which more than offset a decrease in advertising expense of $12,000. The increase in professional fees was predominately due to fees paid to consultants that the Bank engaged as a result of the cease and desist order issued by the Office of Thrift Supervision (“OTS”), effective September 26, 2008. For further information on the OTS cease and desist order, please see Note 19 to the Notes to Consolidated Financial Statements.

INCOME TAXES

Income tax expense totaled $1.7 million and $2.5 million during the years ended December 31, 2008 and 2007, respectively. The decrease in 2008 resulted from a decrease in pre-tax income of $2.7 million.

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PAMRAPO BANCOP, INC. & SUBSIDIARIES

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

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 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 repayment of this loan is subject to bankruptcy proceedings. For further details on this loan, see Note 13 to the Consolidated Financial Statements in the 2008 Annual Report. 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

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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. For further information on commissions from sale of financial products, see Note 22 to the Consolidated Financial Statements in this 2008 Annual Report.

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 and 2006, respectively. The decrease in 2007 resulted from a decrease in pre-tax income of $3.6 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 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, 2008 and 2007, advances from the FHLB-NY amounted to $89.5 million and $84.0 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At December 31, 2008, the Bank had outstanding commitments to originate loans and fund unused credit lines of $17.0 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 2008, totaled $207.2 million. Management believes that, based upon historical experience, a significant portion of such deposits will remain with the Bank.

At December 31, 2008, the Bank exceeded each of the three OTS capital requirements. The Bank’s tangible, core and total risk-based capital ratios were 9.14%, 9.14% and 15.25%, respectively. The Bank was categorized as “well-capitalized” under the prompt corrective action regulations of the OTS.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The following table sets forth our contractual obligations and commercial commitments at December 31, 2008. This does not include interest expense on the FHLB-NY advances and the certificates of deposit which the Bank expects to pay at weighted average rates of 4.02% and 3.47%, respectively. In addition, the Bank expects to make a pension plan contribution of approximately $800,000 in 2009.

	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
FHLB-NY Advances	$	89,500,000	$	38,500,000	$	33,000,000	$	—	$	18,000,000
Certificates of deposit		225,731,000		207,167,000		16,385,000		2,080,000		99,000
Lease Obligations		2,788,121		492,191		949,425		811,854		534,651
Benefit plans		7,231,761		693,093		1,398,261		1,355,555		3,784,852
Total	$	325,250,882	$	246,852,284	$	51,732,686	$	4,247,409	$	22,418,503
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, 2008. 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
To originate loans	$	5,353,000	$	5,353,000	$	—	$	—	$	—
Unused lines of credit		11,599,000		11,599,000		—		—		—
Letters of credit		1,796,000		1,786,000		10,000		—		—
Total	$	18,748,000	$	18,738,000	$	10,000	$	—	$	—

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. During a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would result in a decrease in net interest income.

Because the Bank’s interest-bearing liabilities, which mature or reprice within short periods, exceed its interest-earning assets with similar characteristics, material and prolonged increases in interest rates generally would adversely affect net interest income,

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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, 2008, was calculated by the OTS:

Change in Interest Rates In Basis Points (Rate Shock)	Amount		Net Portfolio Value Dollar Change		Percent Change		NPV as Percent of Portfolio Value of Assets
							NPV Ratio		Change In Basis Points
	(Dollars in Thousands)
+300bp	$	39,487	$	-37,135	-48	%	6.70	%	-540bp
+200bp	$	54,127	$	-22,495	-29	%	8.93	%	-317bp
+100bp	$	66,952	$	-9,670	-13	%	10.78	%	-132bp
+50bp	$	72,010	$	-4,611	-6	%	11.47	%	-62bp
0	$	76,621	$	—	—		12.10	%	—
-50bp	$	79,819	$	3,197	+4	%	12.51	%	+42bp
-100bp	$	82,538	$	5,916	+8	%	12.86	%	+77bp

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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PAMRAPO BANCORP, INC. & SUBSIDIARIES

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, 2008 and 2007, and the related statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for Defined Benefit Plans and Other Post-retirement Plans in 2006.

As further discussed in Note 19 to the consolidated financial statements, the Company stipulated and consented to a Cease and Desist Order issued by the Office of Thrift Supervision on September 26, 2008.

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, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2009 expressed an adverse opinion.

Beard Miller Company LLP

Clark, New Jersey

March 12, 2009

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Consolidated Statements of Financial Condition

	December 31,
	2008			2007
ASSETS
Cash and amounts due from depository institutions	$	4,116,871		$	3,919,627
Interest-bearing deposits in other banks		9,470,431			62,976,392
Cash and Cash Equivalents		13,587,302			66,896,019
Securities available for sale		770,752			917,047
Investment securities held to maturity (estimated fair value of $10,831,410 and $10,650,452, respectively)		11,350,165			10,376,920
Mortgage-backed securities held to maturity (estimated fair value of $119,920,146 and $121,422,424, respectively)		117,427,652			123,906,632
Loans receivable (net of allowance for loan losses of $4,660,705 and $3,154,977, respectively)		437,554,169			439,053,090
Foreclosed real estate		426,353			486,000
Premises and equipment		2,929,035			3,339,898
Federal Home Loan Bank of New York stock		5,160,100			4,996,000
Interest receivable		2,884,431			2,738,425
Deferred tax asset		4,380,878			2,503,680
Other assets		1,541,027			2,214,550
Total Assets	$	598,011,864		$	657,428,261
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	443,998,757		$	507,961,177
Advances from Federal Home Loan Bank of New York		89,500,000			84,000,000
Advance payments by borrowers for taxes and insurance		3,281,968			3,557,745
Other liabilities		6,552,889			3,269,865
Total Liabilities		543,333,614			598,788,787
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; 4,935,542 shares (2008) and 4,975,542 shares (2007) outstanding		69,000			69,000
Paid-in capital		19,339,615			19,339,615
Retained earnings		61,928,289			63,711,451
Accumulated other comprehensive loss		(3,118,849	)		(1,301,888	)
Treasury stock, at cost, 1,964,458 shares (2008) and 1,924,458 shares (2007)		(23,539,805	)		(23,178,704	)
Total Stockholders’ Equity		54,678,250			58,639,474
Total Liabilities and Stockholders’ Equity	$	598,011,864		$	657,428,261

See Notes to Consolidated Financial Statements

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Consolidated Statements of Income

	Years Ended December 31,
	2008		2007		2006
Interest Income
Loans	$	27,746,334	$	28,838,443	$	28,936,780
Mortgage-backed securities		5,646,999		6,003,167		7,222,162
Investments, taxable		795,710		674,212		772,736
Investments, non-taxable		55,562		20,513		—
Other interest-earning assets		970,477		1,566,054		605,583
Total Interest Income		35,215,082		37,102,389		37,537,261
Interest Expense
Deposits		11,512,007		13,698,770		11,313,907
Advances and other borrowed money:		3,893,107		4,383,916		4,666,907
Overnight borrowings		44,726		1,551		436,254
Term advances		3,848,381		4,382,365		4,230,653
Total Interest Expense		15,405,114		18,082,686		15,980,814
Net Interest Income		19,809,968		19,019,703		21,556,447
Provision for Loan Losses		1,630,000		670,000		—
Net Interest Income after Provision for Loan Losses		18,179,968		18,349,703		21,556,447
Non-Interest Income
Fees and service charges		1,239,937		1,249,896		1,183,073
Gain on sale of securities available for sale		—		—		430,089
Commissions from sale of financial products		858,630		903,675		976,194
Other		324,698		193,672		208,655
Total Non-Interest Income		2,423,265		2,347,243		2,798,011
Non-Interest Expenses
Salaries and employee benefits		7,910,365		7,596,422		7,637,767
Net occupancy expense of premises		1,292,270		1,199,928		1,183,348
Equipment		1,357,782		1,320,370		1,294,678
Advertising		243,212		255,225		306,779
Professional fees		2,798,347		770,734		594,923
Loss on foreclosed real estate		91,647		—		—
Other		2,726,048		2,698,593		2,867,354
Total Non-Interest Expenses		16,419,671		13,841,272		13,884,849
Income before Income Taxes		4,183,562		6,855,674		10,469,609
Income Taxes		1,724,244		2,503,426		3,927,742
Net Income	$	2,459,318	$	4,352,248	$	6,541,867
Net Income per Common Share
Basic	$	0.49	$	.87	$	1.31
Diluted	$	0.49	$	.87	$	1.31
Weighted Average Number of Common Shares Outstanding
Basic		4,970,788		4,975,542		4,975,542
Diluted		4,970,788		4,978,652		4,980,708
Dividends per Common Share	$	0.84	$	0.92	$	0.92

See Notes to Consolidated Financial Statements

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Consolidated Statements of Changes in Stockholders’ Equity

	Common Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance - January 1, 2006	$	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
Comprehensive income:
Net income		—		—		2,459,318			—			—			2,459,318
Unrealized loss on securities available for sale, net of income taxes of $19,500		—		—		—			(29,171	)		—			(29,171	)
Benefit plans, net of income taxes of $1,191,861									(1,787,790	)		—			(1,787,790	)
Total Comprehensive Income															642,357
Implementation of change in measurement date of benefit plans, net of income taxes of $46,017		—		—		(69,025	)		—			—			(69,025	)
Purchase of treasury stock		—		—		—			—			(361,101	)		(361,101	)
Cash dividends		—		—		(4,173,455	)		—			—			(4,173,455	)
Balance - December 31, 2008	$	69,000	$	19,339,615	$	61,928,289		$	(3,118,849	)	$	(23,539,805	)	$	54,678,250

See Notes to Consolidated Financial Statements

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007			2006
Cash Flows from Operating Activities
Net income	$	2,459,318		$	4,352,248		$	6,541,867
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		486,951			588,233			568,252
Amortization of deferred fees, premiums and discounts, net		426,108			526,971			256,692
Provision for loan losses		1,630,000			670,000			—
Provision for loss on foreclosed real estate		69,873			—			—
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 securities available for sale		—			—			(430,089	)
Deferred income tax (benefit) expense		(619,821	)		(473,894	)		37,470
(Increase) decrease in interest receivable		(146,006	)		155,664			(84,752	)
Decrease (increase) in other assets		673,523			174,996			(42,176	)
Increase in other liabilities		188,332			374,326			65,908
Net Cash Provided by Operating Activities		5,168,278			6,368,544			6,913,172
Cash Flows from Investing Activities
Principal repayments on securities available for sale		97,624			245,844			109,817
Purchases of securities available for sale		—			—			(27,483	)
Proceeds from sale of securities available for sale		—			—			2,025,221
Purchases of investment securities held to maturity		(1,020,759	)		(1,333,662	)		—
Proceeds from maturity of investment securities held to maturity		—			—			1,000,000
Principal repayments on mortgage-backed securities held to maturity		21,242,677			20,781,037			25,888,579
Purchases of mortgage-backed securities held to maturity		(14,994,187	)		(3,909,245	)		—
Net change in loans receivable		(279,183	)		14,522,764			(16,679,941	)
Capital improvement to foreclosed real estate		(10,226	)		—			—
Additions to premises and equipment		(76,088	)		(197,495	)		(442,981	)
(Purchase) redemption of Federal Home Loan Bank of New York stock		(164,100	)		725,100			233,100
Net Cash Provided by Investing Activities		4,795,758			30,834,343			12,106,312

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Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007			2006
Cash Flows from Financing Activities
Net (decrease) increase in deposits		(63,962,420	)		38,020,111			(4,062,214	)
Advances from Federal Home Loan Bank of New York		—			—			40,000,000
Repayment of advances from Federal Home Loan Bank of New York		(15,000,000	)		(17,000,000	)		(37,000,000	)
Advances (repayment) in Federal Home Loan Bank overnight borrowing		20,500,000			—			(8,400,000	)
Net decrease in other borrowed money		—			—			(39,908	)
Net decrease in payments by borrowers for taxes and insurance		(275,777	)		(96,419	)		(33,865	)
Cash dividends paid		(4,173,455	)		(4,577,499	)		(4,577,499	)
Sale of treasury stock		—			—			515,480
Purchase of treasury stock		(361,101	)		—			(644,620	)
Net Cash (Used in) Provided by Financing Activities		(63,272,753	)		16,346,193			(14,242,626	)
Net (Decrease) Increase in Cash and Cash Equivalents		(53,308,717	)		53,549,080			4,776,858
Cash and Cash Equivalents - Beginning		66,896,019			13,346,939			8,570,081
Cash and Cash Equivalents - Ending	$	13,587,302		$	66,896,019		$	13,346,939
Supplementary Information
Income taxes paid, net of refunds	$	2,150,084		$	2,492,212		$	3,523,899
Interest paid	$	15,470,528		$	18,125,636		$	15,990,049
Loans transferred to foreclosed real estate	$	—		$	486,000		$	—
Implementation of change in measurement date of benefit plans	$	69,025		$	—		$	—

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

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

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such amounts as an adjustment of yield over the contractual lives of the related 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 occurred.

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”). The 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 Company and the number of years prior to the Normal Retirement Age that participants retire.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

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 Statement of Financial Accounting Standards (“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 effect of implementations of SFAS No. 158, was to increase Accumulated Other Comprehensive Loss by $1,603,182 (net of related deferred tax benefit of $1,068,789).

The second requirement of SFAS No. 158, which is effective for the Company as of January 1, 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. As a result of changing the measurement date from October 1 to December 31 for its benefit plans, the Company recorded an adjustment of $69,025 (net of related deferred tax benefit of $46,017) to retained earnings.

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 FASB Interpretation (“FIN”) 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 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. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. The amount of interest and penalties for the year ended December

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31, 2007 was immaterial. The tax years subject to examination by the taxing authorities are the years ended December 31, 2007, 2006, 2005, 2004 and 2003.

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.

FEDERAL HOME LOAN

BANK OF NEW YORK STOCK

Federal Home Loan Bank of New York (“FHLB”) Stock, which represents required investment in the common stock of a correspondent bank, is carried at cost and as of December 31, 2008 and 2007, consists of the common stock of FHLB.

Management evaluates the restricted stock for impairment in accordance with Statement of Position (“SOP”) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB Stock as of December 31, 2008.

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.

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.

NET INCOME PER COMMON SHARE

Basic net income per common share is based on the weighted average number of common shares actually outstanding. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of 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 December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (FSP SFAS 140-4 and FIN 46(R)-8). FSP SFAS 140-4 and FIN 46(R)-8 amends FASB SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financial assets. It also amends FIN 46(R), “Consolidation of Variable Interest Entities,” to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is: (a) a sponsor of a qualifying special purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

SPE; and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE. The disclosures required by FSP SFAS 140-4 and FIN 46(R)-8 are intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) is effective for reporting periods (annual or interim) ending after December 15, 2008. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In January 2009, the FASB issued FSP Emerging Issues Task Force (“EITF”) 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15, 2009. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations.” EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (FSP 133-1 and FIN 45-4). FSP 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

In September 2008, the FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF 08-5 is effective for the first reporting period beginning after December 15, 2008. The Company is currently assessing the impact of EITF 08-5 on its consolidated financial position and results of operations.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and

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Hedging Activities—an amendment of FASB Statement No. 133” (Statement 161). Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” This FSP addresses the issue of whether or not these transactions should be viewed as two

separate transactions or as one “linked” transaction. The FSP includes a “rebuttable presumption” that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years beginning after November 15, 2008 and will apply only to original transfers made after that date; early adoption will not be allowed. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 2. Securities Available for Sale

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2008:
Mortgage-backed securities	$	418,937	$	792	$	977	$	418,752
Trust originated preferred security, maturing after twenty years		400,000		—		48,000		352,000
	$	818,937	$	792	$	48,977	$	770,752
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

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, 2008:
Mortgage-backed securities	$	207,724	$	977	$	—	$	—	$	207,724	$	977
Trust originated preferred security, maturing after twenty years		—		—		352,000		48,000		352,000		48,000
	$	207,724	$	977	$	352,000	$	48,000	$	559,724	$	48,977
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, 2008 and 2007.

Management does not believe that any of the unrealized losses at December 31, 3008 represent an other-than-temporary impairment. The unrealized losses are on subordinated notes and mortgage-backed securities that earn interest at a fixed rate. Such losses are due to changes in market interest rates while the above investments are at a fixed rate. The Bank has the intent and ability to hold these investments for a time necessary to recover the amortized cost. At December 31, 2008 unrealized losses were on three mortgage-backed securities and one trust-originated preferred security.

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Note 3. Investment Securities Held to Maturity

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2008:
Subordinated notes:
Due after one within five years	$	10,016,420	$	—	$	516,420	$	9,500,000
Municipal Obligations:
Due after ten years through fifteen years		1,333,745		17,330		19,665		1,331,410
	$	11,350,165	$	17,330	$	536,085	$	10,831,410
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

The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related investment 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, 2008:
Subordinated notes:
Due after one within five years	$	9,500,000	$	516,420	$	—	$	—	$	9,500,000	$	516,420
Municipal obligations:
Due after ten years through fifteen years		575,000		19,665		—		—		575,000		19,665
	$	10,075,000	$	536,085	$	—	$	—	$	10,075,000	$	536,085

Management does not believe that any of the unrealized losses at December 31, 2008 represent an other-than-temporary impairment. The unrealized losses are on subordinated notes and municipal securities that earn interest at a fixed rate. Such unrealized losses are due to changes in market interest rates while the above investments are at a fixed rate. The Bank has the intent and ability to hold these investments for a time necessary to recover the amortized cost. At December 31, 2008 the unrealized losses included seven subordinated notes and one municipal obligation.

There were no sales of investment securities held to maturity during the years ended December 31, 2008, 2007 and 2006.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 4 - Mortgage-Backed Securities Held to Maturity

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2008:
Federal Home Loan Mortgage Corporation	$	81,256,914	$	2,086,447	$	794	$	83,342,567
Federal National Mortgage Association		20,776,291		413,077		24,456		21,164,912
Government National Mortgage Association		103,057		6,538		—		109,595
Collateralized mortgage obligations		15,291,390		61,461		49,779		15,303,072
	$	117,427,652	$	2,567,523	$	75,029	$	119,920,146
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

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, 2008:
Federal Home Loan Mortgage Corporation	$	108,226	$	794	$	—	$	—	$	108,226	$	794
Federal National Mortgage Corporation		28,955		231		5,334,274		24,225		5,363,229		24,456
Collateralized mortgage obligations		—		—		8,088,817		49,779		8,088,817		49,779
	$	137,181	$	1,025	$	13,423,091	$	74,004	$	13,560,272	$	75,029
December 31, 2007:
Federal Home Loan Mortgage Corporation	$	—	$	—	$	68,827,391	$	1,433,276	$	68,827,391	$	1,433,276
Federal National Mortgage Corporation		—		—		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

Management does not believe that any of the unrealized losses at December 31, 2008 and 2007, 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. At December 31, 2008 the unrealized losses included three Federal Home Loan Mortgage Corporation securities, five Federal National Mortgage Corporation securities and three collateralized mortgage obligations.

There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2008, 2007 and 2006.

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Note 5. Loans Receivable

	December 31,
	2008			2007
Real estate mortgage:
One-to-four family	$	229,276,592		$	220,466,440
Multi-family		53,770,881			53,340,123
Commercial		65,724,255			69,911,297
		348,771,728			343,717,860
Real estate construction		12,123,434			15,457,598
Land		75,500			75,500
Commercial		13,569,042			10,317,987
Consumer:
Passbook or certificate		776,907			719,858
Home improvement		1,141			24,520
Equity and second mortgage		66,278,338			71,901,556
Automobile		425,547			561,433
Personal		776,081			938,236
		68,258,014			74,145,603
Total Loans		442,797,718			443,714,548
Loans in process		1,821,194			2,718,470
Allowance for loan losses		4,660,705			3,154,977
Deferred loan fees		(1,238,350	)		(1,211,989	)
		5,243,549			4,661,458
	$	437,554,169		$	439,053,090

At December 31, 2008, 2007 and 2006, loans serviced by the Bank for the benefit of others totaled approximately $1,301,000, $1,708,000, and $281,000, respectively.

The following is an analysis of the allowance for loan losses:

	Years Ended December 31,
	2008			2007			2006
Balance, beginning	$	3,154,977		$	2,650,679		$	2,755,000
Provisions charged to operations		1,630,000			670,000			—
Recoveries credited to allowance		—			103,938			8,570
Loan losses charged to allowance		(124,272	)		(269,640	)		(112,891	)
Balance, ending	$	4,660,705		$	3,154,977		$	2,650,679

Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows:

	December 31,
	2008		2007
Recorded investment in impaired loans:
With recorded allowances	$	2,586,580	$	1,925,693
Related allowance for loan losses		1,085,937		702,857
Net Impaired Loans	$	1,500,643	$	1,222,836
Average balance of total impaired loans	$	2,056,082	$	448,910

At December 31, 2008, 2007 and 2006, non-accrual loans for which interest has been discontinued totaled approximately $5,553,000, $3,410,000, and $896,000, respectively. During the years ended December 31, 2008, 2007 and 2006, the Bank recognized interest income of approximately $103,000, $86,000, and $10,000, respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $363,000, $261,000, and $67,000 for the years ended December 31, 2008, 2007 and 2006, 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,
	2008			2007
Balance, beginning	$	6,865,732		$	6,519,573
Loans originated (1)		1,378,923			636,756
Persons no longer associated		(133,925	)		—
Collection of principal		(296,138	)		(290,597	)
Balance, ending	$	7,814,592		$	6,865,732

⁽¹⁾ Includes net change in line of credit loans.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 6. Premises and Equipment

	December 31,
	2008			2007
Land	$	701,625		$	701,625
Buildings and improvements		4,086,680			4,086,680
Accumulated depreciation		(2,574,036	)		(2,455,124	)
		1,512,644			1,631,556
Leasehold improvements		1,571,552			1,571,552
Accumulated amortization		(1,339,192	)		(1,221,311	)
		232,360			350,241
Furnishings and equipment		6,973,929			6,897,840
Accumulated depreciation		(6,491,523	)		(6,241,364	)
		482,406			656,476
	$	2,929,035		$	3,339,898

Depreciation expense for the years ended December 31, 2008, 2007, and 2006 totaled $486,951, $588,233, and $568,252, 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,
	2008		2007
Loans	$	2,204,634	$	2,047,801
Mortgage-backed securities		472,548		499,071
Investment securities		207,249		191,553
	$	2,884,431	$	2,738,425

Note 8. Deposits

	December 31,
	2008						2007
	Weighted Average Rate		Amount		Percent		Weighted Average Rate		Amount		Percent
Demand:
Non-interest bearing	0.00	%	$	40,681,753	9.16	%	0.00	%	$	38,225,640	7.53	%
NOW	0.92	%		36,045,882	8.12	%	1.52	%		82,322,395	16.21	%
	0.41	%		76,727,635	17.28	%	1.04	%		120,548,035	23.74	%
Money market	2.26	%		25,821,557	5.82	%	2.87	%		26,305,317	5.18	%
Savings and club	1.12	%		115,718,832	26.06	%	1.13	%		122,923,204	24.19	%
Certificates of deposit	3.47	%		225,730,733	50.84	%	4.57	%		238,184,621	46.89	%
	2.24	%	$	443,998,757	100.00	%	2.81	%	$	507,961,177	100.00	%

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The scheduled maturities of certificates of deposit are as follows:

	December 31,
	2008		2007
	(In Thousands)
Maturing in:
One year or less	$	207,167	$	219,829
After one to two years		14,600		13,288
After two to three years		1,785		3,788
After three to four years		555		626
After four to five years		1,525		396
After five years		99		258
	$	225,731	$	238,185

Certificates of deposit of $100,000 or more by the time remaining until maturity are as follows:

	December 31,
	2008		2007
	(In Thousands)
Three months or less	$	32,780	$	37,747
After three months through six months		38,336		34,997
After six months through twelve months		28,307		30,982
After twelve months		7,619		7,605
	$	107,042	$	111,331

A summary of interest on deposits follows:

	Years Ended December 31,
	2008		2007		2006
	(In Thousands)
Demand	$	1,196,743	$	1,005,979	$	779,597
Savings, club and money market		1,358,323		1,622,096		2,017,648
Certificates of deposit		8,956,941		11,070,695		8,516,662
	$	11,512,007	$	13,698,770	$	11,313,907

Note 9. Advances from Federal Home Loan Bank of New York

	December 31,
	2008				2007
	Weighted Average Rate		Amount		Weighted Average Rate		Amount
Overnight Borrowings:	0.44	%	$	20,500,000	—	%	$	—
Maturing by December 31,
2008	—	%	$	—	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
2015	4.80	%		3,000,000	4.80	%		3,000,000
2016	4.05	%		15,000,000	4.05	%		15,000,000
	4.02	%	$	89,500,000	4.93	%	$	84,000,000

At December 31, 2008 and 2007, all the advances were fixed interest rate advances.

At December 31, 2008 and 2007, 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 $5,160,100 and $4,996,000, respectively, and a blanket assignment of the Bank’s unpledged qualifying mortgage loans, mortgage-backed securities and investment securities portfolios.

At December 31, 2008, the Company also had available to it $65,350,000 under a revolving overnight line of credit, expiring July 31, 2009, 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 $36,341,000 and $37,332,000, respectively. Borrowings are at the lender’s cost of funds plus 0.25%. There was $20,500,000 outstanding under the overnight line of credit at December 31, 2008 and no outstanding borrowings under the line of credit at December 31, 2007. At December 31, 2008, the Company also had a companion (DRA) commitment with the Federal

Home Loan Bank of New York for $65,350,000 expiring July 31, 2009. There were no outstanding borrowings at December 31, 2008 and December 31, 2007 under the companion (DRA) commitment.

Note 10 - Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted total assets (as defined). The following tables present a reconciliation of capital per GAAP and regulatory capital and information as to the Bank’s capital levels at the dates presented:

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

	December 31,
	2008		2007
	(In Thousands)
GAAP capital	$	51,459	$	54,147
Unrealized loss on securities available for sale		29		—
Benefit plans adjustment		3,090		1,302
Core and tangible capital		54,578		55,449
General valuation allowance		3,576		2,453
Total Regulatory Capital	$	58,154	$	57,902

As of March 31, 2008, the most recent notification from the Office of Thrift Supervision (“OTS”), 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, 2008:
Total capital (to risk-weighted assets)	$	58,154	15.25	%	$	³30,515	³	8.00	%	$	³38,144	³10.00	%
Tier 1 capital (to risk-weighted assets)		54,578	14.31	%		³     —	³	—			³22,886	³  6.00	%
Core (Tier 1) capital (to adjusted total assets)		54,578	9.14	%		³23,894	³	4.00	%		³29,868	³  5.00	%
Tangible capital (to adjusted total assets)		54,578	9.14	%		³  8,960	³	1.50	%		³     —	³   —
December 31, 2007:
Total capital (to risk-weighted assets)	$	57,902	15.82	%	$	³29,279	³	8.00	%	$	³36,599	³10.00	%
Tier 1 capital (to risk-weighted assets)		55,449	15.15	%		³     —	³	—			³21,959	³  6.00	%
Core (Tier 1) capital (to adjusted total assets)		55,449	8.43	%		³26,295	³	4.00	%		³32,869	³  5.00	%
Tangible capital (to adjusted total assets)		55,449	8.43	%		³  9,861	³	1.50	%		³     —	³   —

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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,
	2008			2007
Measurement Date	October 1, 2008			October 1, 2007
Change in Benefit Obligation
Benefit obligation, beginning	$	7,933,374		$	7,902,564
Adjustment for measurement date change		192,958			—
Service cost		236,848			256,756
Interest cost		534,984			488,604
Actuarial loss		748,138			393,773
Benefits paid		(844,559	)		(1,108,323	)
Benefit obligation, ending	$	8,801,743		$	7,933,374
Change in Plan Assets
Fair value of assets, beginning	$	7,357,406		$	7,424,663
Actual return on plan assets		(2,014,810	)		697,986
Employer contributions		517,089			343,080
Benefits paid		(844,559	)		(1,108,323	)
Fair value of assets, ending	$	5,015,126		$	7,357,406
Reconciliation of Funded Status
Accumulated benefit obligation	$	7,735,627		$	6,905,310
Projected benefit obligation	$	8,801,743		$	7,933,374
Fair value of assets		(5,015,126	)		(7,357,406	)
Funded status at end of year	$	(3,786,617	)	$	(575,968	)
Assumptions Used Discount rate		6.125	%		6.625	%
Rate of increase in compensation		3.50	%		4.00	%

	Years Ended December 31,
	2008			2007			2006
Net Periodic Pension Expense
Service cost	$	236,848		$	256,756		$	257,724
Interest cost		534,984			488,604			431,744
Expected return on assets		(585,136	)		(593,844	)		(549,860	)
Amortization of unrecognized loss		192,212			188,992			214,968
Settlement Charge		—			280,309			—
Unrecognized past service liability		17,772			17,772			17,772
Net Periodic Pension Expense	$	396,680		$	638,589		$	372,348
Assumptions Used
Discount rate		6.625	%		6.25	%		5.88	%
Rate of increase in compensation		4.00	%		3.50	%		3.00	%
Long-term rate of return on plan assets		8.00	%		8.00	%		8.00	%

At December 31, 2008 and 2007, unrecognized net loss of $5,663,895 and $2,409,792, respectively, and unrecognized prior service cost of $50,475 and $72,690 respectively, were included in accumulated other comprehensive loss in accordance with SFAS No. 158. For the year ended December 31, 2009, $471,768 of net loss and $17,772 of prior service cost are expected to be recognized in pension expense.

PLAN ASSETS

For 2008 and 2007, the Plan’s assets realized an annual return (loss) of (26.3%) and 2.3%, respectively. The weighted-average allocations by asset category are as follows:

	December 31,
	2008		2007
Certificates of deposit	46	%	36	%
Mutual fund	7	%	29	%
Mortgage-backed securities	5	%	—	%
Equity securities	42	%	35	%
	100	%	100%

For 2009, 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 3% return from cash, a 5% return from fixed income and a 6% return from equities, for an overall expected return of approximately 5%.

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 5.0% to 8.0% and 1.0% to 5.0%, 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 5% to 8%.

Equity securities include Pamrapo Bancorp, Inc. common stock in the amounts of $369,000 (7.36% of total plan assets) and $828,000 (11.25% of total plan assets) at December 31, 2008 and 2007, respectively.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

CONTRIBUTIONS

The Company expects to contribute, based upon actuarial estimates, approximately $800,000 to the pension plan in 2009.

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:

2009	$	482,674
2010		486,551
2011		492,503
2012		518,737
2013		549,098
2014-2018		3,125,552
	$	5,655,115

SAVINGS AND INVESTMENT PLAN (“SIP”)

The Bank sponsors a SIP pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended, for all eligible employees. Employees may elect to save up to 25% of their compensation of which the 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, $52,000, and $72,000 for the years ended December 31, 2008, 2007 and 2006, 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,
	2008			2007
Measurement Date	December 31, 2008			October 1, 2007
Projected benefit obligation, beginning	$	1,763,652		$	2,022,107
Adjustment for measurement date change		23,651			—
Interest cost		94,604			118,188
Actuarial gain		(291,133	)		(253,565	)
Benefit payments		(131,708	)		(123,078	)
Projected benefit obligation, ending		1,459,066			1,763,652
Plan assets at fair value		—			—
Projected benefit obligation in excess of plan assets	$	1,459,066		$	1,763,652
Assumptions:
Discount rate		6.125	%		6.625	%
Rate of increase in compensation		3.50	%		4.00	%

At December 31, 2008 and 2007, unrecognized net gain of $662,401 and $470,318, respectively and unrecognized prior service cost of $97,969 and $158,124, respectively, were included in accumulated other comprehensive loss in accordance with SFAS No. 158. For the year ended December 31, 2009, $71,736 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,
	2008			2007			2006
Service cost	$	—		$	—		$	—
Interest cost		94,604			118,188			130,116
Amortization of prior service cost		48,124			52,868			92,052
Amortization of unrecognized (gain)		(79,240	)		(2,192	)		—
Net periodic SERP cost	$	63,488		$	168,864		$	222,168
Benefit payments	$	131,708		$	123,078		$	140,384
Contributions made	$	131,708		$	123,078		$	140,384
Assumptions Used
Discount rate		6.125	%		6.625	%		5.875	%
Rate of increase in compensation		3.50	%		4.00	%		3.00	%
Amortization period (in years)		7.20			6.83			6.88

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CONTRIBUTIONS

The Company expects to contribute, based upon actuarial estimates, approximately $210,000 to the SERP plan in 2009.

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:

2009	$	210,419
2010		210,419
2011		208,788
2012		143,860
2013		143,860
2014-2018		659,300
	$	1,576,646

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 activities, all of which are vested, follows:

	Number of Options Shares	Range of Exercise Price		Weighted Average Exercise Price
January 1, 2006	101,000	$	18.41-29.25	$	23.24
Forfeitures	(6,000)		29.25		29.25
Exercised	(28,000)		18.41		18.41
December 31, 2006	67,000		18.41-29.25		24.72
Forfeitures	(3,000)		29.25		29.25
Exercised	—
December 31, 2007	64,000		18.41-29.25		24.51
Forfeitures	(18,000)		18.41-29.25		23.83
Exercised	—
December 31, 2008	46,000	$	18.41-29.25	$	24.77

As of December 31, 2008, the intrinsic value of options outstanding was $0.

At December 31, 2008 and 2007, the weighted average remaining contractual life of the stock options granted was approximately 4.9 years and 5.1 years, respectively, and stock options for up to 22,380 additional shares of common stock were available for future grants.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

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, 2008 and 2007, 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,
	2008		2007
Deferred tax assets:
Allowance for loan losses	$	1,856,359	$	1,285,208
Benefit plans		2,122,386		868,829
Deferred loan fees		11,863		15,149
Depreciation		316,330		280,051
Reserve for uncollected interest		54,640		54,643
Unrealized loss on securities available for sale		19,300		—
		4,380,878		2,503,880
Deferred tax liabilities:
Unrealized gain on securities available for sale		—		200
Net Deferred Tax Assets	$	4,380,878	$	2,503,680

The components of income taxes are summarized as follows:

	Years Ended December 31,
	2008			2007			2006
Current expense:
Federal	$	2,052,644		$	2,627,268		$	3,372,510
State		291,421			350,052			517,762
		2,344,065			2,977,320			3,890,272
Deferred tax expense (benefit):
Federal		(470,526	)		(366,029	)		27,756
State		(149,295	)		(107,865	)		9,714
		(619,821	)		(473,894	)		37,470
	$	1,724,244		$	2,503,426		$	3,927,742

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,
	2008			2007			2006
Federal income tax	$	1,422,411		$	2,330,929		$	3,559,667
Increases in income taxes resulting from
New Jersey income tax, net of federal income tax effect		93,803			159,843			348,134
Other items, net		208,030			12,654			19,941
Effective Income Tax	$	1,724,244		$	2,503,426		$	3,927,742
Effective Income Tax Rate		41.21	%		36.52	%		37.52	%

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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, 2008 and 2007:

	December 31,
	2008		2007
Commitments to originate loans	$	5,353,000	$	8,477,000
Unused lines of credit	$	11,599,000	$	10,617,000
Letters of credit	$	1,796,000	$	559,000

At December 31, 2008, the outstanding commitments to originate fixed rate loans were $5,168,000 with interest rates ranging from 6.00% to 13.00%. The outstanding commitments to originate adjustable rate loans were $185,000 with interest rates ranging from 3.25% to 4.00%. All commitments are due to expire within ninety days.

At December 31, 2008, undisbursed funds from approved lines of credit under a homeowners’ equity and a commercial equity lending program amounted to approximately $9,601,000 and $1,998,000, respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand. The interest rates charged for any month on funds disbursed under these programs range from 0% to 3.00% above the prime rate.

Rental expenses related to the occupancy of premises totaled $585,000, $468,000, and $457,000 for the years ended December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, minimum noncancelable obligations under lease agreements with original terms of more than one year are as follows:

December 31,
2009		492,000
2010		470,000
2011		479,000
2012		488,000
2013		324,000
Thereafter		535,000
	$	2,788,000

At December 31, 2008 and 2007, the Bank’s loan portfolio included loans totaling $10.8 million and $5.5 million, respectively, which were delinquent ninety days or more. Included in the December 31, 2008 and 2007 total delinquent loans, is the Bank’s largest non-accruing commercial loan of $1.9 million to a local hospital. The loan was originally for $3.0 million with a maturity date of November 15, 2006, which was extended to June 1, 2007. In October, 2006, $1.0 million of the loan was paid and the remaining balance of approximately $1.9 million was secured by a mortgage on real estate. As of December 31, 2008, the $1.9 million loan balance had not been paid. The repayment of the loan is subject to bankruptcy proceedings. In September 2008, the creditor’s committee for the hospital filed a complaint against the Bank seeking to recover the $1.0 million previously paid on the loan and to set aside the mortgage securing the $1.9 million still owed to the Bank. The methodology used to determine the collectability of the hospital loan was based on the fair value of the collateral of the loan. The fair value of the physical collateral was valued on December 15, 2006 at $2.04 million, which was greater than the hospital loan. While management believes that the mortgage on the property is valid, the unsecured creditors in the bankruptcy proceedings

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

have brought suit against the Bank charging that the mortgage is a “voidable preference.” Litigation is in the discovery phase. At this point, management believes, based on discussions with its litigation counsel, that the Bank will likely prevail in its defense. However, due to the normal uncertainties of any litigation, the loan $1.9 million has been deemed impaired and is included in the recorded investments in impaired loans with recorded allowances total of $2.6 million and $1.9 million at December 31, 2008 and 2007, respectively, as reflected in Note 5 to the Notes to Consolidated Financial Statements. The hospital property is in close proximity to the Bank and is routinely observed by management. Given the proximity of the property, management’s knowledge of the real estate, and the fact that the appraisal of the property is higher than the carrying value of the loan, the management does not believe that a new appraisal is needed at this time. The Company has not charged off this loan against the allowance for loan losses based on the fact that the loan is collateralized by properties that have a greater value than the carrying amount of the loan. However, due to the uncertainty of any litigation, the Bank decided to establish an allowance for the hospital loan and will continue to monitor this loan and evaluate its collectibility as necessary.

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.

Note 14. Comprehensive Income (Loss)

The components of accumulated other comprehensive (loss) included in stockholders’ equity are as follows:

	At December 31,
	2008			2007
Net unrealized gain (loss) on securities available for sale	$	(48,185	)	$	486
Tax effect		19,300			(200	)
Net of tax amount		(28,885	)		286
Benefit plans adjustments		(5,149,938	)		(2,170,288	)
Tax effect		2,059,974			868,114
Net of tax amount		(3,089,964	)		(1,302,174	)
Accumulated other comprehensive (loss)	$	(3,118,849	)	$	(1,301,888	)

The components of other comprehensive income (loss) and related tax effects are presented in the following table:

	Years Ended December 31,
	2008			2007			2006
Unrealized holding losses on securities available for sale:
Unrealized holding losses arising during the year	$	(48,671	)	$	(6,729	)	$	(36,191	)
Reclassification adjustment for gains included in net income		—			—			(430,089	)
Net unrealized losses on securities available for sale		(48,671	)		(6,729	)		(466,280	)
Defined benefit pension plan:
Pension losses		2,913,754			292,014			—
Prior service cost		(65,896	)		70,640			—
Settlement accounting		—			280,309			—
Net change in defined benefit pension plan accrued expense		2,979,650			501,683			—
Other comprehensive income (loss) before taxes		(3,028,321	)		494,954			(466,280	)
Tax effect		1,211,360			(197,975	)		185,992
Other comprehensive income (loss)	$	(1,816,961	)	$	296,979		$	(280,288	)

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Note 15. Earnings Per Common Share

The following is a summary of the calculation of earnings per share (EPS):

	Years Ended December 31,
	2008		2007		2006
Net income	$	2,459,318	$	4,352,248	$	6,541,867
Weighted average common shares outstanding for computation of basic EPS		4,970,788		4,975,542		4,975,542
Dilutive common-equivalent shares		—		3,110		5,163
Weighted average common shares for computation of diluted EPS		4,970,788		4,978,652		4,980,708
Earnings per common share:
Basic	$	0.49	$	0.87	$	1.31
Diluted	$	0.49	$	0.87	$	1.31

Note 16. Fair Values of Financial Instruments

The carrying amounts and fair value of the financial instruments are as follows:

	December 31,
	2008				2007
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	13,587	$	13,587	$	66,896	$	66,896
Securities available for sale		771		771		917		917
Investment securities held to maturity		11,350		10,831		10,377		10,650
Mortgage-backed securities held to maturity		117,428		119,920		123,907		121,422
FHLB stock		5,160		5,160		4,996		4,996
Loans receivable		437,554		454,149		439,053		447,980
Interest receivable		2,884		2,884		2,738		2,738
Financial liabilities:
Deposits		443,999		447,734		507,961		509,052
Advances		89,500		94,830		84,000		86,111
Interest payable		359		359		424		424

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used in estimating the fair value of 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 available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

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 (carried at cost): The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change to credit risk, fair values are based on carrying values.

Deposit liabilities (carried at cost): The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

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.

In September 2006, the FASB issued SFAS Statement No. 157, “Fair Value Measurements,” which defines

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fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The primary effect of SFAS 157 on the Company was to expand the required disclosures pertaining to the methods used to determine fair values upon adoption on January 1, 2008.

In December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. As such, the Corporation only partially adopted the provisions of SFAS 157, and will begin to account and report for non-financial assets and liabilities in 2009. In October 2008, the FASB issued FASB Staff Position 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active (“FSP 157-3”), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Corporation’s December 31, 2008 consolidated financial statements. The adoption of SFAS 157 and FSP 157-3 had no impact on the amounts reported in the consolidated financial statements.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring and non-recurring basis, the Company’s fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:

Description	December 31, 2008		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(In Thousands)
Recurring:
Securities available for sale	$	771	$	—	$	771	$	—
Non-recurring:
Impaired loans		1,501		—		—		1,501
Foreclosed assets		426		—		—		426
Total	$	2,698	$	—	$	771	$	1,927

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

The following valuation techniques were used to measure fair value of assets in the table above not previously disclosed.

Impaired loans — Loans included in the above table are those that are accounted for under SFAS 114, “Accounting by Creditors for Impairment of a Loan,” in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less valuation allowance as determined under SFAS 114. The fair value consists of loan balances of $1,501,00, net of valuation allowances of $1,086,000. During the year ending December 31, 2008, additional provision for loan losses of $405,000 were recorded.

Foreclosed assets — Fair value of foreclosed assets was based on independent third party appraisals of the properties. These values were identified based on the sales prices of similar properties in the proximate vicinity. Foreclosed assets were written down by $70,000 and cost capitalized were $10,000 during the year ended December 31, 2008.

Note 17. Parent Company Financial Information

STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2008			2007
Assets
Cash and cash equivalents	$	3,029,075		$	4,413,918
Investment in subsidiary		51,459,657			54,146,766
Refundable income taxes		277,955			140,595
Other assets		5,963			—
Total Assets	$	54,772,650		$	58,701,279
Liabilities and Stockholders’ Equity
Liabilities, other	$	94,400		$	61,805
Stockholders’ equity
Common stock		69,000			69,000
Paid-in capital		19,339,615			19,339,615
Retained earnings		61,928,289			63,711,451
Accumulated other comprehensive loss		(3,118,849	)		(1,301,888	)
Treasury stock, at cost		(23,539,805	)		(23,178,704	)
Total Stockholders’ Equity		54,678,250			58,639,474
Total Liabilities and Stockholders’ Equity	$	54,772,650		$	58,701,279

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STATEMENTS OF INCOME

	Years Ended December 31,
	2008			2007			2006
Dividends from subsidiary	$	3,800,000		$	3,800,000		$	5,000,000
Interest income		2,592			2,823			3,160
Income before Expenses		3,802,592			3,802,823			5,003,160
Non-interest expenses		818,026			414,257			344,580
Income before Equity in Undistributed Earnings of Subsidiary and Income Tax Benefit		2,984,566			3,388,566			4,658,580
Equity in undistributed earnings of subsidiary		(801,123	)		825,167			1,768,604
Income before Income Tax Benefit		2,183,443			4,213,733			6,427,184
Income Tax Benefit		(275,875	)		(138,515	)		(114,683	)
Net Income	$	2,459,318		$	4,352,248		$	6,541,867
STATEMENTS OF CASH FLOWS
	Years Ended December 31,
	2008			2007			2006
Cash Flows from Operating Activities
Net income	$	2,459,318		$	4,352,248		$	6,541,867
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings (loss) of subsidiary		801,123			(825,167	)		(1,768,604	)
(Increase) in other assets		(5,963	)		—			—
(Increase) decrease in refundable income taxes		(137,360	)		(23,832	)		(30,347	)
Increase (decrease) in other liabilities		32,595			2,125			(730	)
Net Cash Provided by Operating Activities		3,149,713			3,505,374			4,742,186
Cash Flows from Financing Activities
Cash dividends paid		(4,173,455	)		(4,577,499	)		(4,577,499	)
Sale of treasury stock		—			—			515,480
Purchase of treasury stock		(361,101	)		—			(644,620	)
Net Cash Used in Financing Activities		(4,534,556	)		(4,577,499	)		(4,706,639	)
Net (Decrease) Increase in Cash and Cash Equivalents		(1,384,843	)		(1,072,125	)		35,547
Cash and Cash Equivalents – Beginning		4,413,918			5,486,043			5,450,496
Cash and Cash Equivalents – Ending	$	3,029,075		$	4,413,918		$	5,486,043

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 18. Quarterly Financial Data (Unaudited)

	Year Ended December 31, 2008
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In Thousands, Except Per Share Amounts)
Interest income	$	9,121	$	8,764	$	8,661	$	8,669
Interest expense		4,436		4,016		3,514		3,439
Net Interest Income		4,685		4,748		5,147		5,230
Provision for loan losses		78		151		352		1,049
Net Interest Income after Provision for loan losses		4,607		4,597		4,795		4,181
Non-interest income		538		555		640		690
Non-interest expenses		3,544		3,625		4,426		4,825
Income before Income Taxes		1,601		1,527		1,009		46
Income taxes		591		564		398		171
Net Income (Loss)	$	1,010	$	963	$	611	$	(125	)
Net income per common share:
Basic	$	0.20	$	0.20	$	0.12	$	(0.03	)
Diluted	$	0.20	$	0.20	$	0.12	$	(0.03	)
Dividends per common share	$	0.23	$	0.23	$	0.23	$	0.15
	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

See also Note 22 to Consolidated Financial Statements for discussion on non-interest income.

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Note 19 – Regulatory Update

The Bank is subject to a range of bank regulatory compliance obligations. In connection with a routine compliance examination by the Office of Thrift Supervision (“OTS”), certain deficiencies were identified. The Bank has and continues to take steps to remediate these deficiencies and to strengthen the Bank’s overall compliance programs. The Bank agreed to a cease and desist order (the “Order”) issued by the OTS on September 26, 2008 as a result of issues relating to the Bank’s compliance with certain laws and regulations, including the Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”). The Order did not identify or relate to any issues regarding the safety and soundness of the Bank.

The Order requires the Bank to strengthen its BSA/AML Program, to strengthen its Compliance Maintenance Program and internal controls related to those matters, and to take certain other actions identified by the OTS in the Order. The Bank has implemented initiatives to enhance, among other things, its BSA/AML Program and its Compliance Management Program in accordance with the requirements of the Order.

Note 20 – Sale of Branch Office

On March 6, 2009, the Bank completed its transaction for the sale of assets and transfer of liabilities of the Bank’s Fort Lee, New Jersey banking office, as well as assignment of the lease for that office, to NewBank, a New York chartered commercial bank located in Flushing, New York. As of that date, the deposits of the Bank’s Fort Lee branch were approximately $14.5 million. The purchase price for the assets of the branch, which was offset against the amount owed to NewBank for assuming the branch’s deposits, was $500,000 and a cash payment for the loans being purchased, which had a net book value of $13,000 at the time of sale. The Bank recorded a gain of approximately $492,000 as a result of the sale.

Note 21 – Stock Repurchase Program

In the fourth quarter of 2008, Pamrapo Bancorp, Inc. repurchased 40,000 shares under its previous share repurchase program that was announced on August 22, 2000, at an average price of $9.00, leaving only 1,465 shares remaining that may be repurchased under that program as of December 31, 2008. Pamrapo Bancorp, Inc. announced on February 3, 2009 that its Board of Directors has authorized the repurchase of up to 5% of its outstanding common stock, or approximately 246,700 shares.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 22: Commissions from Sale of Financial Products

Commissions from sale of financial products includes commissions received by Pamrapo Service Corporation (“Corporation”), a wholly-owned subsidiary of the Bank, due to the sale of products such as securities, life insurance, and annuities. Commissions received related to securities are received from a third-party broker dealer. Pursuant to the Corporation’s policies, such commissions are to be paid directly to the Corporation, which, in conjunction with the Bank, then determines the amount of commission payments to be made to the Corporation’s employees and agents.

As of March 12, 2009, the Company and the Bank were aware of the following information relating to certain commission payments made to the manager of the Corporation (the “Manager”). The information presented below is based upon the knowledge and understanding of the individuals who conducted internal inquiries into this matter. The Bank has hired an independent auditor to conduct a forensic audit of the Corporation’s business records, the outcome of which cannot be determined at this time. Subsequent to March 12, 2009, additional information may be discovered, or may come to light, that could affect the accuracy of the following information relating to the commissions.

In August 2008, the Bank discovered that 100% of certain commissions from a third-party broker were paid directly to the Manager. These direct payments constituted a change in commission structure, which was made without the approval of the board of directors of the Corporation, as required by its policies and procedures. Based upon the Corporation’s policies in effect at the time, 100% of these commissions were to be paid directly to the Corporation and then 50% were to be distributed by the Corporation to the Manager. Following such internal inquiries, the Bank determined that $270,357 was owed by the Manager to the Corporation for commissions paid directly to the Manager for the period from August 2007 to December 2008.

The $270,357 was calculated as follows. For the period from August 2007 to August 2008, the Bank determined that the Manager owed $168,016. This amount is the Corporation’s 50% share of the commissions had the Corporation directly received the payment from the third-party broker and then provided the Manager his 50% share of the commissions. For the period from September 2008 to December 2008, the Bank determined that the Manager owed $102,341. This amount represented 100% of the commissions the Manager received from the third-party broker for this period. The Bank sought repayment of the entire amount for the following reason. During the internal inquiry, the Bank discovered that the Manager received commissions from September 2008 to December 2008 directly from the third-party broker. Additionally, on December 10, 2008, the Manager received $91,667 as a salary payment for the period from September 2008 to December 2008, based upon an annual salary of $275,000 pursuant to an arrangement established in November 2008.

The $270,357 was paid to the Corporation as follows. On December 3, 2008, the Manager paid $160,000 of the amount owed to the Corporation. On December 10, 2008, the Manager paid $50,000 of the amount owed to the Corporation. On February 4, 2009, the Manager paid the remaining $60,357 of the amount owed to the Corporation.

The Company and the Bank have determined that a restatement of previously issued financial statements is not necessary with respect to this matter because the income statement effect was not deemed to be material to any given period. Specifically, the income before income taxes, related income tax expense, net income, and earnings per common share were deemed not material to any of the quarters ended September 30, 2007, December 31, 2007, March 31, 2008, June 30, 2008, September 30, 2008 and December 31, 2008. The Company and the Bank determined to record the amount of $270,357 in the fourth quarter of 2008. Depending upon the result of the forensic audit, the Company and the Bank may need to record additional amounts and reevaluate whether a restatement of certain financial statements is necessary.

During February 2009, the Corporation discovered additional commissions in the amount of $52,647 that may be owed to the Corporation. The commissions related to the periods from August 2007 to October 2007 and November 2008. This additional amount was not recorded in the 2008 Consolidated Financial Statements.

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Selected Consolidated Financial Condition and Operating Data of the Company

	At December 31,
Financial condition data:	2004			2005			2006			2007			2008
	(In Thousands)
Total amount of:
Assets	$	639,899		$	646,086		$	636,560		$	657,428		$	598,012
Loans receivable		395,800			438,250			454,859			439,053			437,554
Securities available for sale		3,639			3,321			1,170			917			771
Mortgage-backed securities		200,077			167,009			141,053			123,907			117,428
Investment securities		9,309			10,287			9,168			10,377			11,350
Deposits		489,350			474,003			469,941			507,961			443,999
Advances and other borrowed money		89,000			106,400			101,000			84,000			89,500
Stockholders’ equity		55,114			58,616			58,568			58,639			54,678
	Year Ended December 31,
Operating data:	2004			2005			2006			2007			2008
	(In Thousands)
Interest income	$	35,983		$	36,517		$	37,537		$	37,102		$	35,215
Interest expense		11,391			12,430			15,981			18,082			15,405
Net interest income		24,592			24,087			21,556			19,020			19,810
Provision for loan losses		82			110			—			670			1,630
Non-interest income		2,599			2,541			2,798			2,347			2,423
Non-interest expenses		13,792			13,543			13,884			13,841			16,420
Income taxes		5,373			5,011			3,928			2,504			1,724
Net income	$	7,944		$	7,964		$	6,542		$	4,352		$	2,459
Net income per share
Basic	$	1.60		$	1.60		$	1.31		$	0.87		$	0.49
Diluted		1.59			1.60			1.31			0.87			0.49
Dividends per share	$	0.84		$	0.88		$	0.92		$	0.92		$	0.84
Dividend payout ratio		52.60	%		54.97	%		69.97	%		105.18	%		169.70	%

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

Selected Consolidated Financial Condition and Operating Data of the Company

	As of or For Year Ended December 31,
Selected Financial Ratios:	2004		2005		2006		2007		2008
Return on average assets	1.24	%	1.24	%	1.02	%	0.69	%	0.40	%
Return on average equity	15.00	%	14.06	%	10.95	%	7.35	%	4.22	%
Average equity/average assets	8.26	%	8.82	%	9.29	%	9.37	%	9.44	%
Interest rate spread	3.66	%	3.52	%	3.00	%	2.56	%	2.83	%
Net yield on average interest-earning assets	3.92	%	3.84	%	3.43	%	3.07	%	3.28	%
Non-interest expenses to average assets	2.15	%	2.11	%	2.16	%	2.19	%	2.66	%
Equity/total assets	8.61	%	9.07	%	9.20	%	8.92	%	9.14	%
Capital ratios:
Tangible	7.92	%	8.18	%	8.59	%	8.43	%	9.14	%
Core	7.92	%	8.18	%	8.59	%	8.43	%	9.14	%
Risk-based	15.89	%	15.25	%	15.68	%	15.82	%	15.25	%
Non-performing loans to total assets	0.41	%	0.30	%	0.36	%	0.83	%	1.81	%
Non-performing loans to loans receivable	0.67	%	0.44	%	0.50	%	1.25	%	2.44	%
Non-performing assets to total assets	0.41	%	0.30	%	0.36	%	0.91	%	1.88	%
Allowance for loan losses to non-performing loans	96.44	%	139.93	%	116.32	%	57.54	%	43.12	%
Average interest-earning assets/average interest-bearing liabilities	1.14x		1.16x		1.17x		1.17x		1.18	%
Net interest income after provision for loan losses to non-interest expenses	1.79x		1.77x		1.55x		1.33x		1.11	%

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Stockholder Information

MARKET FOR COMMON STOCK AND RELATED MATTERS

Pamrapo Bancorp, Inc.’s common stock is presently quoted on The NASDAQ GM under the symbol “PBCI.” At March 9, 2009, the Company’s 4,935,542 outstanding shares of common stock were held by approximately 1,600 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, 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
March 31, 2008		20.43		14.36
June 30, 2008		16.62		14.27
September 30, 2008		15.50		10.20
December 31, 2008		10.92		7.36
Dividends were paid as follows:
March, 2007	$	.23
June, 2007		.23
September, 2007		.23
December, 2007		.23
March, 2008		.23
June, 2008		.23
September, 2008		.23
December, 2008		.15

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.

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PAMRAPO BANCORP, INC. & SUBSIDIARIES

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, 2003.

COMPARATIVE FIVE-YEAR TOTAL RETURNS

Pamrapo Bancorp, Inc., Russell 2000 Index, SNL NASDAQ Thrift Index

(Performance Results Through 12/31/08)

	Period Ending
Index	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
Pamrapo Bancorp, Inc.	100.00	100.92	91.05	104.38	93.59	37.28
Russell 2000	100.00	118.33	123.72	146.44	144.15	95.44
SNL Thrift NASDAQ	100.00	112.60	112.12	133.74	116.31	112.57

Source: SNL Financial LC, Charlottesville, VA (434) 977-1600 ^© 2009 www.snl.com

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EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-106574) of Pamrapo Bancorp, Inc. of our reports dated March 12, 2009, relating to the consolidated financial statements, which appears in the Annual Report to the Shareholders, which is incorporated by reference in this Annual Report on Form 10-K and the effectiveness of the Pamrapo Bancorp, Inc. internal control over financial reporting, which appears in this Form 10-K.

/s/ BEARD MILLER COMPANY LLP

Beard Miller Company LLP

Clark, New Jersey

March 12, 2009

EX-31

Exhibit 31

CERTIFICATION

I, Kenneth D. Walter, certify that:

1. I have reviewed this Annual Report on Form 10-K of Pamrapo Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2009

/s/ KENNETH D. WALTER

Kenneth D. Walter

Chief Financial Officer and
    Interim Chief Executive Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Pamrapo Bancorp, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth D. Walter, Chief Financial Officer and Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ KENNETH D. WALTER

Kenneth D. Walter

Chief Financial Officer and

Interim Chief Executive Officer

March 16, 2009