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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-18014
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PAMRAPO BANCORP, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2984813
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Avenue C, Bayonne, New Jersey 07002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 201-339-4600
including area code -----------------------------------------
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date July 31, 2002.
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$.01 par value common stock - 5,133,986 shares outstanding
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at June 30, 2002 and December 31, 2001 (Unaudited) 1
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 2002 and 2001 (Unaudited) 2
Consolidated Statements of Comprehensive Income for the
Three Months and Six Months Ended June 30, 2002 and 2001
(Unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 12
Item 3: Quantitative and Qualitative Disclosure About Market Risk 13 - 14
PART II - OTHER INFORMATION 15 - 16
SIGNATURES 17
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
2002 2001
------------- -------------
ASSETS
Cash and amounts due from depository institutions $ 41,059,542 $ 22,688,885
Securities available for sale 4,830,665 5,304,032
Investment securities held to maturity;
estimated fair value of $3,142,000 (2002)
and $5,017,000 (2001) 3,000,000 5,000,000
Mortgage-backed securities held to maturity; estimated
fair value of $123,828,000 (2002) and $124,578,000 (2001) 119,739,494 122,417,611
Loans receivable 381,548,950 369,238,574
Foreclosed real estate 238,141 238,141
Investment in real estate 220,338 227,033
Premises and equipment 4,669,682 4,830,735
Federal Home Loan Bank stock, at cost 4,403,400 3,796,100
Interest receivable 2,935,763 2,944,226
Other assets 3,365,801 2,953,505
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Total assets $ 566,011,776 $ 539,638,842
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 429,056,290 $ 416,586,795
Advances from Federal Home Loan Bank of New York 77,340,000 67,340,000
Other borrowed money 163,960 178,176
Advance payments by borrowers for taxes and insurance 3,516,737 3,516,532
Other liabilities 6,855,574 4,494,164
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Total liabilities 516,932,561 492,115,667
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Stockholders' equity:
Preferred stock; authorized 3,000,000 shares;
issued and outstanding - none -- --
Common stock; par value $.01; authorized 7,000,000 shares;
6,900,000 shares and 3,450,000 shares, respectively, issued;
5,133,986 shares and 2,577,293 shares, respectively,
outstanding 69,000 34,500
Paid-in capital in excess of par value 18,872,268 18,906,768
Retained earnings - substantially restricted 49,446,747 47,621,056
Accumulated other comprehensive income -
unrealized gain on securities available for sale 205,461 195,784
Treasury stock, at cost; 1,766,014 and 872,707 shares,
respectively (19,514,261) (19,234,933)
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Total stockholders' equity 49,079,215 47,523,175
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Total liabilities and stockholders' equity $ 566,011,776 $ 539,638,842
============= =============
See notes to consolidated financial statements.
-1-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest income:
Loans $ 7,410,862 $ 6,609,507 $14,774,967 $13,057,440
Mortgage-backed securities 1,980,494 1,900,611 4,040,938 3,887,954
Investments and other interest-earning assets 200,563 417,659 379,492 758,988
----------- ----------- ----------- -----------
Total interest income 9,591,919 8,927,777 19,195,397 17,704,382
----------- ----------- ----------- -----------
Interest expense:
Deposits 2,876,787 3,947,194 5,878,059 7,892,765
Advances and other borrowed money 902,822 540,632 1,818,899 1,055,746
----------- ----------- ----------- -----------
Total interest expense 3,779,609 4,487,826 7,696,958 8,948,511
----------- ----------- ----------- -----------
Net interest income 5,812,310 4,439,951 11,498,439 8,755,871
Provision for loan losses 225,000 60,000 435,000 120,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,587,310 4,379,951 11,063,439 8,635,871
----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges 314,305 293,071 656,650 557,541
Miscellaneous 189,853 98,869 377,910 277,001
----------- ----------- ----------- -----------
Total non-interest income 504,158 391,940 1,034,560 834,542
----------- ----------- ----------- -----------
Non-interest expenses:
Salaries and employee benefits 1,835,679 1,667,976 3,522,443 3,329,862
Net occupancy expense of premises 296,039 295,267 564,554 622,465
Equipment 332,324 306,078 617,113 605,603
Advertising 51,464 50,474 89,777 95,781
Miscellaneous 727,320 830,002 1,415,069 1,542,436
----------- ----------- ----------- -----------
Total non-interest expenses 3,242,826 3,149,797 6,208,956 6,196,147
----------- ----------- ----------- -----------
Income before income taxes 2,848,642 1,622,094 5,889,043 3,274,266
Income taxes 1,023,185 598,877 2,132,370 1,207,405
----------- ----------- ----------- -----------
Net income $ 1,825,457 $ 1,023,217 $ 3,756,673 $ 2,066,861
=========== =========== =========== ===========
Net income per common share:
Basic/diluted $ 0.36 $ 0.20 $ 0.73 $ 0.40
=========== =========== =========== ===========
Dividends per common share $ 0.1875 $ 0.18 $ 0.375 $ 0.36
=========== =========== =========== ===========
Weighted average number of common shares and common stock equivalents
outstanding:
Basic/diluted 5,134,289 5,155,474 5,131,178 5,165,530
=========== =========== =========== ===========
See notes to consolidated financial statements.
-2-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $ 1,825,457 $ 1,023,217 $ 3,756,673 $ 2,066,861
----------- ----------- ----------- -----------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (1,175) 17,848 36,177 85,466
Deferred income taxes (13,100) (6,400) (26,500) (30,800)
----------- ----------- ----------- -----------
Other comprehensive (loss) income (14,275) 11,448 9,677 54,666
----------- ----------- ----------- -----------
Comprehensive income $ 1,811,182 $ 1,034,665 $ 3,766,350 $ 2,121,527
=========== =========== =========== ===========
See notes to consolidated financial statements.
-3-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------
2002 2001
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Cash flows from operating activities:
Net income $ 3,756,673 $ 2,066,861
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 307,965 288,750
Accretion of deferred fees, premiums and discounts, net (68,273) (3,272)
Provision for loan losses 435,000 120,000
Provision for losses on foreclosed real estate -- 20,037
(Gain) on sales of foreclosed real estate -- (7,653)
Decrease (increase) in interest receivable 8,463 (49,051)
(Increase) in other assets (438,796) (749,410)
Increase in other liabilities 2,361,410 4,799,710
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Net cash provided by operating activities 6,362,442 6,485,972
------------ ------------
Cash flows from investing activities:
Principal repayments on securities available for sale 527,435 475,677
Purchases of securities available for sale (22,415) (39,772)
Purchases of investment securities held to maturity -- (3,000,000)
Proceeds from calls of investment securities held to maturity 2,000,000 2,000,000
Principal repayments on mortgage-backed securities held to maturity 19,564,397 12,876,991
Purchases of mortgage-backed securities held to maturity (16,933,651) (4,036,119)
Net change in loans receivable (12,625,208) (34,341,194)
Proceeds from sales of foreclosed real estate -- 213,417
Additions to premises and equipment (140,217) (246,598)
Purchase of Federal Home Loan Bank of New York stock (607,300) (299,900)
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Net cash (used in) investing activities (8,236,959) (26,397,498)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 12,469,495 31,159,374
Net increase in advances from Federal Home Loan Bank of New York 10,000,000 --
Net (decrease) in other borrowed money (14,216) (13,126)
Net increase in payments by borrowers for taxes and insurance 205 657,657
Cash dividends paid (1,930,982) (1,855,969)
Purchase of treasury stock (279,328) (405,000)
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Net cash provided by financing activities 20,245,174 29,542,936
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Net increase in cash and cash equivalents 18,370,657 9,631,410
Cash and cash equivalents - beginning 22,688,885 14,253,854
------------ ------------
Cash and cash equivalents - ending $ 41,059,542 $ 23,885,264
============ ============
See notes to consolidated financial statements.
-4-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
2002 2001
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Supplemental information:
Transfer of loans receivable to foreclosed real estate $ -- $ 33,264
========== ==========
Cash paid during the period for:
Income taxes $2,329,660 $ 724,854
========== ==========
Interest on deposits and borrowings $7,740,661 $8,674,135
========== ==========
See notes to consolidated financial statements.
-5-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pamrapo Bancorp,
Inc. (the "Company") and its wholly owned subsidiaries, Pamrapo Savings Bank,
SLA (the "Bank") and Pamrapo Service Corp, Inc. The Corporation's business is
conducted principally through the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and Regulation S-X and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the three and six month periods ended June 30, 2002,
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. NET INCOME PER COMMON SHARE
Basic net income per common share is based on the weighted average number of
common shares actually outstanding. Diluted net income per share is calculated
by adjusting the weighted average number of shares of common stock outstanding
to include the effect of contracts or securities exercisable or which could be
converted into common stock, if dilutive, using the treasury stock method. There
were no potentially dilutive contracts or securities outstanding at either June
30, 2002 or 2001, or during the three and six months then ended.
On April 30, 2002 , the Board of Directors declared a two-for-one stock split
which was paid on May 29, 2002 in the form of a stock dividend on the Company's
common stock to shareholders of record on May 15, 2002. Net income per common
share, dividends per common share, and weighted average number of common shares
outstanding have been adjusted to reflect the two-for-one stock split.
4. SUBSEQUENT EVENT
On July 2, 2002, the State of New Jersey enacted changed in its corporate
business tax law. Among these changes are two which significantly impact the
Bank: (a) an increase in the tax rate, from 3% to 9%, applicable to the Bank's
pre-tax income and (b) the elimination of the previously permitted exclusion
from pre-tax income of certain dividends received. These changes are retroactive
to January 1, 2002. The Company has determined that the cumulative effect of the
tax law change, through July 2, 2002, was a decrease to net income of
approximately $99,000, which includes, net of the effect of federal income
taxes, the recording of additional current state tax for the six
months ended June 30, 2002, and the adjustment of state deferred tax assets.
This adjustment will be recorded in July 2002.
-6-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statement
This Form 10-Q may include certain forward-looking statements based on current
management expectations. The Company's actual results could differ materially
from those management expectations. Factors that could cause future results to
vary from current management expectations include, but are not limited to,
general economic conditions, legislative and regulatory changes, monetary and
fiscal policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of loan
and investment portfolios of Pamrapo Savings Bank, SLA, the Company's
wholly-owned subsidiary, (the "Bank"), changes in accounting principles,
policies or guidelines, and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices. Further description of the risks and uncertainties to the
business are included in the Company's other filings with the Securities and
Exchange Commission.
Changes in Financial Condition
The Company's assets at June 30, 2002 totaled $566.0 million, which represents
an increase of $26.4 million or 4.89% as compared with $539.6 million at
December 31, 2001.
Cash and amounts due from depository institution totaled $41.1 million and $22.7
at June 30, 2002 and December 31, 2001, respectively.
Securities available for sale at June 30, 2002 decreased $473,000 or 8.92% to
$4.8 million when compared with $5.3 million at December 31, 2001. The decrease
during the six months ended June 30, 2002, resulted primarily from repayments on
securities available for sale of $527,000, sufficient to offset an increase in
net unrealized gain of $36,000 and purchases of $22,000.
Investment securities held to maturity at June 30, 2002 decreased $2.0 million
or 40.00% to $3.0 million when compared with $5.0 million at December 31, 2001.
The decrease during the six months ended June 30, 2002 resulted primarily from
calls of such securities of $2.0 million. Mortgage-backed securities held to
maturity decreased $2.7 million or 2.21% to $119.7 million at June 30, 2002 when
compared to $122.4 million at December 31, 2001. The decrease during the six
months ended June 30, 2002, resulted primarily from principal repayments of
$19.6 million sufficient to offset purchases of $16.9 million.
Net loans amounted to $381.5 million at June 30, 2002, as compared to $369.2
million at December 31, 2001, which represents an increase of $12.3 million or
3.33%. The increase during the six months ended June 30, 2002 resulted primarily
from loan originations exceeding principal repayments.
Foreclosed real estate remained unchanged at $238,000 at June 30, 2002 and
December 31, 2001. At June 30, 2002, foreclosed real estate consisted of two
properties, one of which with a book value of $83,000 is under contract for
sale.
Deposits at June 30, 2002 totaled $429.1 million as compared with $416.6 million
at December 31, 2001, representing an increase of $12.5 million or 3.00%.
-7-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition (Cont'd.)
Advances from the Federal Home Loan Bank ("FHLB") increased $10.0 million or
14.86% to $77.3 million at June 30, 2002, when compared to $67.3 million at
December 31, 2001.
Stockholders' equity totaled $49.1 million and $47.5 million at June 30, 2002
and December 31, 2001, respectively. The increase of $1.6 million was primarily
the result of the net income for six months ended June 30, 2002, of $3.8
million, partially offset by the Company's repurchase of 10,300 shares of its
common stock at an aggregate cost of $279,000, along with cash dividend paid of
$1.9 million.
Comparison of Operating Results for the Three Months Ended June 30, 2002 and
2001
Net income increased $802,000 or 78.40% to $1.8 million for the three months
ended June 30, 2002 compared with $1.0 million for the same 2001 period. The
increase in net income during the 2002 period resulted from increases in total
interest income and non-interest income, and a decrease in total interest
expense, which were partially offset by increases in provision for loan losses,
non-interest expenses and income taxes.
Interest income on loans increased by $801,000 or 12.12% to $7.4 million during
the three months ended June 30, 2002 when compared with $6.6 million for the
same 2001 period. The increase during the 2002 period resulted from an increase
of $57.4 million in the average balance of loans outstanding which was
sufficient to offset a thirty-seven basis point decrease in the yield earned on
the loan portfolio. Interest on mortgage-backed securities increased $80,000 or
4.21% to $2.0 million during the three months ended June 30, 2002 when compared
with $1.9 million for the same 2001 period. The increase during the 2002 period
resulted from an increase of $9.8 million in the average balance of
mortgage-backed securities outstanding which was sufficient to offset a decrease
of twenty-five basis points in the yield earned on mortgage-backed securities.
Interest earned on investments and other interest-earning assets decreased by
$217,000 to $201,000 during the three months ended June 30, 2002, when compared
to $418,000 during the same 2001 period primarily due to a decrease of 319 basis
points in the yield earned on such portfolio.
Interest expense on deposits decreased $1.1 million or 27.11% to $2.88 million
during the three months ended June 30, 2002 when compared to $3.95 million
during the same 2001 period. Such decrease was primarily attributable to a
decrease of 126 basis points in the cost of interest-bearing deposits,
sufficient to offset an increase of $18.4 million in the average balance of
interest-bearing deposits. Interest expense on advances and other borrowed money
increased by $362,000 or 66.91% to $903,000 during the three months ended June
30, 2002 when compared with $541,000 during the same 2001 period, primarily due
to an increase of $35.9 million in the average balance of advances outstanding
from the FHLB, sufficient to offset a 101 basis point decrease in the cost of
advances and other borrowed money.
Net interest income increased $1.4 million or 30.90% during the three months
ended June 30, 2002 when compared with the same 2001 period. Such increase was
due to an increase in total interest income of $664,000 along with a decrease in
total interest expense of $708,000. The Bank's net interest rate spread
increased from 3.25% in 2001 to 3.89% in 2002. The increase in the interest rate
spread resulted from a decrease of 110 basis points in the cost
of interest-bearing liabilities, sufficient to offset a forty-six basis point
decrease in the yield earned on interest-earning assets.
-8-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended June 30, 2002 and
2001 (Cont'd.)
During the three months ended June 30, 2002 and 2001, the Bank provided $225,000
and $60,000, respectively, as a provision for loan losses. The allowance for
loan losses is based on management's evaluation of the risk inherent in its loan
portfolio and gives due consideration to the changes in general market
conditions and in the nature and volume of the Bank's loan activity. The Bank
intends to continue to provide for loan losses based on its periodic review of
the loan portfolio and general market conditions. At June 30, 2002 and 2001, the
Bank's non-performing loans, which were delinquent ninety days or more, totaled
$3.0 million or 0.53% of total assets and $4.4 million or 0.87% of total assets,
respectively. At June 30, 2002, $1.0 million of non-performing loans were
accruing interest and $2.0 million were on nonaccrual status. The non-performing
loans primarily consist of one-to-four family mortgage loans. During the three
months ended June 30, 2002 and 2001, the Bank charged off loans aggregating
$115,000 and $41,000, respectively. The allowance for loan losses amounted to
$2.4 million at June 30, 2002, representing 0.63% of total loans and 80.89% of
loans delinquent ninety days or more, and $1.9 million at June 30, 2001,
representing 0.56% of total loans and 44.46% of loans delinquent ninety days or
more.
Non-interest income increased $112,000 or 28.57% to $504,000 during the three
months ended June 30, 2002 from $392,000 during the same 2001 period. The
increase resulted from increases in fees and service charges of $21,000 and
miscellaneous income of $91,000.
Non-interest expenses increased by $93,000 or 2.95% to $3.243 million during the
three months ended June 30, 2002 when compared with $3.150 million during the
same 2001 period. Salaries and employee benefits, occupancy, equipment and
advertising increased $168,000, $1,000, $26,000 and $1,000, respectively, which
was sufficient to offset a decrease in miscellaneous expenses of $103,000 during
the 2002 period when compared with the same 2001 period.
Income taxes totaled $1.0 million and $599,000 during the three months ended
June 30, 2002 and 2001, respectively. The increase during the 2002 period
resulted from an increase in pre-tax income.
Comparison of Operating Results for the Six Months Ended June 30, 2002 and 2001
Net income increased $1.7 million or 81.76% to $3.8 million for the six months
ended June 30, 2002 compared with $2.1 million for the same 2001 period. The
increase in net income during the 2002 period resulted from increases in total
interest income and non-interest income, along with a decrease in total interest
expense, sufficient to offset increases in provision for loan losses,
non-interest expense and income taxes.
Interest income on loans increased by $1.7 million or 13.15% to $14.8 million
during the six months ended June 30, 2002 when compared with $13.1 million for
the same 2001 period. The increase during the 2002 period resulted from an
increase of $62.9 million in the average balance of loans outstanding which was
sufficient to offset a forty-four basis point decrease in the yield earned on
the loan portfolio. Interest on mortgage-backed securities increased $153,000 or
3.94% to $4.04 million during the six months ended June 30, 2002 when compared
with $3.89 million for the same 2001 period. The increase during the 2002 period
resulted from an increase of $9.4 million in the average balance of mortgage-
-9-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Months Ended June 30, 2002 and 2001
(Cont'd.)
backed securities outstanding, which was sufficient to offset a decrease of
twenty-five basis points in the yield earned on mortgage-backed securities.
Interest earned on investments and other interest-earning assets decreased by
$380,000 or 50.07% to $379,000 during the six months ended June 30, 2002, when
compared to $759,000 during the same 2001 period primarily due to decreases of
282 basis points in the yield earned on such portfolio and $2.1 million in the
average balance of such assets outstanding.
Interest expense on deposits decreased $2.0 million or 25.53% to $ 5.9 million
during the six months ended June 30, 2002 when compared to $7.9 million during
the same 2001 period. Such decrease was primarily attributable to a decrease of
126 basis points in the cost of interest-bearing deposits, sufficient to offset
an increase of $22.4 million in the average balance of interest-bearing
deposits. Interest expense on advances and other borrowed money increased by
$763,000 or 72.25% to $1.82 million during the six months ended June 30, 2002
when compared with $1.06 million during the same 2001 period which was primarily
due to an increase of $35.5 million in the average balance of advances
outstanding from the FHLB, sufficient to offset a seventy-nine basis point
decrease in the cost of advances and other borrowed money.
Net interest income increased $2.7 million or 31.32% during the six months ended
June 30, 2002 when compared with the same 2001 period. Such increase was due to
an increase in total interest income of $1.49 million, along with a decrease in
total interest expense of $1.25 million. The Bank's net interest rate spread
increased from 3.27% in 2001 to 3.90% in 2002. The increase in the interest rate
spread resulted from a decrease of 108 basis points in the cost of
interest-bearing liabilities sufficient to offset a forty-five basis point
decrease in the yield earned on interest-earning assets.
During the six months ended June 30, 2002 and 2001, the Bank provided $435,000
and $120,000, respectively, as a provision for loan losses. During the past year
Pamrapo's loan originations increased to approximately $120 million. The
increase in the provision for losses on loans in 2002 reflects management's
response to the increase in loan activity and its desire to raise the allowance
on loan losses to a level more closely in line with industry norms. The
allowance for loan losses is based on management's evaluation of the risk
inherent in its loan portfolio and gives due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. During the
six months ended June 30, 2001 and 2000, the Bank charged off loans aggregating
$178,000 and $134,000, respectively.
Non-interest income increased $200,000 or 23.95% to $1.0 million during the six
months ended June 30, 2002 from $835,000 during the same 2001 period. The
increase resulted from increases in fees and service charges of $99,000 and
miscellaneous income of $101,000.
Non-interest expenses increased by $13,000 to $6.209 million during the six
months ended June 30, 2002 when compared with $6.196 million during the same
2001 period. Salaries and employee benefits and equipment increased $192,000 and
$11,000, respectively, which was sufficient to offset decreases in occupancy,
advertising and miscellaneous expenses of $57,000, $6,000 and $127,000,
respectively, during the 2002 period when compared with the same 2001 period.
Income taxes totaled $2.1 million and $1.2 million during the six months ended
June 30, 2002 and 2001, respectively. The increase during the 2002 period
resulted from an increase in pre-tax income.
-10-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Bank is required to maintain levels of liquid assets under the Office of
Thrift Supervision (the "OTS") regulations sufficient to ensure the Bank's safe
and sound operation. The Bank's liquidity averaged 11.13% during the month of
June 2002. The Bank adjusts its liquidity levels in order to meet funding needs
for deposit outflows, payment of real estate taxes from escrow accounts on
mortgage loans, repayment of borrowings, when applicable, and loan funding
commitments. The Bank also adjusts its liquidity level as appropriate to meet
its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities.
Cash was generated by operating activities during the six months ended June 30,
2002 and 2001. Cash dividends paid during the six months ended June 30, 2002 and
2001 amounted to $1.93 million and $1.86 million, respectively.
The primary sources of investing activity are lending and the purchase of
mortgage-backed securities. Net loans amounted to $381.5 million and $369.2
million at June 30, 2002 and December 31, 2001, respectively. Securities
available for sale totaled $4.8 million and $5.3 million at June 30, 2002 and
December 31, 2001, respectively. Mortgage-backed securities held to maturity
totaled $119.7 million and $122.4 million at June 30, 2002 and December 31,
2001, respectively. In addition to funding new loan production and
mortgage-backed securities purchases through operating and financing activities,
such activities were funded by principal repayments on existing loans and
mortgage-backed securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provide an additional source of funds. At June 30, 2002, advances
from the FHLB amounted to $77.3 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 2002, the Bank has outstanding commitments
to originate loans of $12.0 million and to purchase investment securities of
$2.0 million. Certificates of deposit scheduled to mature in one year or less at
June 30, 2002, totaled $165.1 million. Management believes that, based upon its
experience and the Bank's deposit flow history, a significant portion of such
deposits will remain with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings institution
to maintain tangible capital equal to at least 1.5% and core capital equal to
4.0% of its adjusted total assets. The Capital rule further requires each
savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.
-11-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
The following table sets forth the Bank's capital position at June 30, 2002, as
compared to the minimum regulatory capital requirements:
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
------------------ ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
Total Capital
(to risk-weighted assets) $45,236 15.51% $23,332 8.00% $29,165 10.00%
Tier 1 Capital
(to risk-weighted assets) 42,878 14.70% -- -- 17,499 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 42,878 7.61% 22,536 4.00% 28,170 5.00%
Tangible Capital
(to adjusted total assets) 42,878 7.61% 8,451 1.50% -- --
Sale of Branches
On April 18, 2002, the Bank entered into an agreement to sell deposits,
furniture, fixtures and leasehold improvements at its two Brick, New Jersey
branch offices (the "Branches") to another financial institution (the
"Purchaser"). The amount to be paid by the Bank to the Purchaser in
consideration of the assumption by the Purchaser of the deposit liabilities
shall equal the outstanding balances and accrued interest on the deposit
liabilities as of the close of business on the closing date reduced by certain
adjustments. The deposit premium shall be $700,000, which includes the carrying
value of the leasehold improvements and furniture and fixtures. In the event the
assumed deposits as of the closing date are less than $20.0 million, the
purchase price shall be reduced to an amount equal to 2% of the amount of
assumed deposits. At June 30, 2002, the deposits at the Branches were
approximately $21.3 million and the book value of the furniture, fixtures and
leasehold improvements was $247,000. The sale of branches is expected to be
closed in the third quarter of 2002.
-12-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management of Interest Rate Risk. The ability to maximize net interest income is
largely dependent upon the achievement of a positive interest rate spread that
can be sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative when the amount
of interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would result in a
decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. Securities classified as available for sale provide management
with the flexibility to make adjustments to the portfolio given changes in the
economic or interest rate environment, to fulfill unanticipated liquidity needs,
or to take advantage of alternative investment opportunities.
Net Portfolio Value. The Bank's interest-rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produces its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports. The following table sets forth the
Bank's NPV as of March 31, 2002, the most recent date the Bank's NPV was
calculated by the OTS.
-13-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NPV as Percent of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ------------------------------------------ -----------------------------
In Basis Points Dollar Percent NPV Change In
(Rate Shock) Amount Change Change Ratio Basis Points
- ----------------- ------- -------- ------- ------ ------------
(Dollars in Thousands)
300 $32,207 $(47,673) (60) 6.04% (754)
200 47,953 (31,926) (40) 8.70% (488)
100 64,165 (15,714) (20) 11.26% (232)
Static 79,880 -- -- 13.58% --
-100 90,150 10,270 13 14.99% 141
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV measurements and net interest income models provide an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
-14-
PAMRAPO BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
Neither the Company nor the Bank are involved in any pending legal
proceedings other than routine legal proceedings occurring in the
ordinary course of business, which involve amounts in the aggregate
believed by management to be immaterial to the financial condition of
the Company and the Bank.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Stockholders' Meeting was held on May 1, 2002. The
following matters were submitted to the stockholders:
1. Election of two directors:
A. Directors elected at the meeting for terms to expire in 2005.
Number of Shares
---------------------
For Withheld
--------- --------
Mr. Daniel J. Masarelli 2,309,816 33,795
Mr. Francis J. O'Donnell 2,306,116 37,495
The following directors' terms of office as a director
continued after the meeting:
(i) Mr. William J. Campbell
(ii) Dr. Jamie Portela
(iii) Mr. John A. Morecraft
(iv) Mr. James Kennedy
Number of Shares
-----------------------------
For Against Abstained
--------- ------- ---------
2. The ratification of Radics & Co.,
LLC as independent auditors of
the Company for the fiscal year
ending December 31, 2002. 2,288,935 44,706 9,970
-15-
PAMRAPO BANCORP, INC.
PART II
ITEM 5. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 By-Laws of Pamrapo Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith).
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
* Incorporated herein by reference to 10-K Annual Report for the fiscal year
ended December 31, 2001, filed with the Securities and Exchange Commission
on March 30, 2002, Commission File No. 000-18014.
(b) Reports on Form 8-K
None.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAMRAPO BANCORP, INC.
Date: August 14, 2002 By /s/ WILLIAM J. CAMPBELL
-------------------- ----------------------------------------
William J. Campbell
President and Chief
Executive Officer
Date: August 14, 2002 By: /s/ KENNETH D. WALTER
-------------------- ---------------------------------------
Kenneth D. Walter
Vice President and Chief
Financial Officer
-17-