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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ To ___________________________________
Commission File Number 0-18014
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PAMRAPO BANCORP, INC.
- --------------------------------------------------------------------------------
(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, including area code 201-339-4600
-----------------------------
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date October 31, 2002.
$.01 par value common stock - 5,135,986 shares outstanding
PAMRAPO BANCORP, INC.
AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION Number
---------------
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at September 30, 2002 and December 31, 2001 (Unaudited) 1
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 2002 and 2001 (Unaudited) 2
Consolidated Statements of Comprehensive Income for the Three Months
and Nine Months Ended September 30, 2002 and 2001 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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
Item 4: Controls and Procedures 14
PART II - OTHER INFORMATION 15
SIGNATURES 16
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
ASSETS 2002 2001
- ------ ------------- ------------
Cash and amounts due from depository institutions $ 29,015,584 $ 22,688,885
Securities available for sale 4,617,429 5,304,032
Investment securities held to maturity;
estimated fair value of $7,323,000 (2002)
and $5,017,000 (2001) 7,105,210 5,000,000
Mortgage-backed securities held to maturity; estimated
fair value of $120,627,000 (2002) and $124,578,000 (2001) 115,557,134 122,417,611
Loans receivable 389,599,017 369,238,574
Foreclosed real estate 155,340 238,141
Investment in real estate 216,991 227,033
Premises and equipment 4,442,213 4,830,735
Federal Home Loan Bank stock of New York, at cost 4,403,400 3,796,100
Interest receivable 3,033,534 2,944,226
Other assets 4,824,004 2,953,505
------------ ------------
Total assets $562,969,856 $539,638,842
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $429,380,677 $416,586,795
Advances from Federal Home Loan Bank of New York 74,340,000 67,340,000
Other borrowed money 156,636 178,176
Advance payments by borrowers for taxes and insurance 3,840,923 3,516,532
Other liabilities 5,356,406 4,494,164
------------ ------------
Total liabilities 513,074,642 492,115,667
------------ ------------
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;
5,135,986 shares and 2,577,293 shares, respectively,
outstanding 69,000 34,500
Paid-in capital in excess of par value 18,881,168 18,906,768
Retained earnings - substantially restricted 50,233,545 47,621,056
Accumulated other comprehensive income -
unrealized gain on securities available for sale 203,662 195,784
Treasury stock, at cost; 1,764,014 and 872,707 shares,
respectively (19,492,161) (19,234,933)
------------ ------------
Total stockholders' equity 49,895,214 47,523,175
------------ ------------
Total liabilities and stockholders' equity $562,969,856 $539,638,842
============ ============
See notes to consolidated financial statements.
-1-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ----------------------------------
2002 2001 2002 2001
-------------- -------------- --------------- ----------------
Interest income:
Loans $ 7,300,995 $ 7,114,335 $ 22,075,962 $ 20,171,775
Mortgage-backed securities 1,864,408 2,054,315 5,905,346 5,942,269
Investments and other interest-earning assets 320,998 259,986 700,490 1,018,974
-------------- -------------- --------------- ----------------
Total interest income 9,486,401 9,428,636 28,681,798 27,133,018
-------------- -------------- --------------- ----------------
Interest expense:
Deposits 2,852,042 3,740,615 8,730,101 11,633,380
Advances and other borrowed money 959,820 733,146 2,778,719 1,788,892
-------------- -------------- --------------- ----------------
Total interest expense 3,811,862 4,473,761 11,508,820 13,422,272
-------------- -------------- --------------- ----------------
Net interest income 5,674,539 4,954,875 17,172,978 13,710,746
Provision for loan losses 125,000 150,000 560,000 270,000
-------------- -------------- --------------- ----------------
Net interest income after provision for loan losses 5,549,539 4,804,875 16,612,978 13,440,746
-------------- -------------- --------------- ----------------
Non-interest income:
Fees and service charges 320,953 298,842 977,603 856,383
Gain on sale of branches 478,563 - 478,563 -
Miscellaneous 143,612 159,676 521,522 436,677
-------------- -------------- --------------- ----------------
Total non-interest income 943,128 458,518 1,977,688 1,293,060
-------------- -------------- --------------- ----------------
Non-interest expenses:
Salaries and employee benefits 1,849,595 1,568,599 5,372,038 4,898,461
Net occupancy expense of premises 275,934 286,357 840,488 908,822
Equipment 333,552 315,605 950,665 921,208
Advertising 29,803 67,260 119,580 163,041
Federal insurance premium 18,010 18,825 54,850 55,528
Miscellaneous 749,823 999,309 2,128,052 2,505,042
-------------- -------------- --------------- ----------------
Total non-interest expenses 3,256,717 3,255,955 9,465,673 9,452,102
-------------- -------------- --------------- ----------------
Income before income taxes 3,235,950 2,007,438 9,124,993 5,281,704
Income taxes 1,484,467 736,072 3,616,837 1,943,477
-------------- -------------- --------------- ----------------
Net income $ 1,751,483 $ 1,271,366 $ 5,508,156 $ 3,338,227
============== ============== =============== ================
Net income per common share:
Basic/diluted $ 0.34 $ 0.25 $ 1.07 $ 0.65
============== ============== =============== ================
Dividends per common share $ 0.188 $ 0.180 $ 0.563 $ 0.540
============== ============== =============== ================
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted 5,134,443 5,155,474 5,140,080 5,162,140
============== ============== =============== ================
See notes to consolidated financial statements.
-2-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
2002 2001 2002 2001
------------ ------------- ------------ -----------
Net income $1,751,483 $1,271,366 $5,508,156 $3,338,227
---------- ---------- ---------- ----------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (3,099) 84,240 33,078 169,706
Deferred income taxes 1,300 (30,300) (25,200) (61,100)
---------- ---------- ---------- ----------
Other comprehensive (loss) income (1,799) 53,940 7,878 108,606
---------- ---------- ---------- ----------
Comprehensive income $1,749,684 $1,325,306 $5,516,034 $3,446,833
========== ========== ========== ==========
See notes to consolidated financial statements.
-3-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 5,508,156 $ 3,338,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate 466,760 437,799
Accretion of deferred fees, premiums and discounts, net (26,290) (1,940)
Provision for loan losses 560,000 270,000
Provision for losses on foreclosed real estate - 20,037
(Gain) on sales of foreclosed real estate (8,349) (18,146)
(Gain) on sales of branches (478,563) -
(Increase) in interest receivable (89,308) (221,133)
(Increase) in other assets (1,895,699) (370,954)
Increase in other liabilities 862,242 2,369,494
Donation of capital stock 31,000 -
------------ ------------
Net cash provided by operating activities 4,929,949 5,823,384
------------ ------------
Cash flows from investing activities:
Principal repayments on securities available for sale 747,856 855,911
Purchases of securities available for sale (33,643) (56,332)
Purchases of investment securities held to maturity (4,110,600) (3,000,000)
Proceeds from calls of investment securities held to maturity 2,000,000 4,000,000
Principal repayments on mortgage-backed securities held to maturity 28,719,410 20,820,005
Purchases of mortgage-backed securities held to maturity (21,952,400) (24,209,578)
Net change in loans receivable (20,937,778) (56,289,215)
Proceeds from sale of account loans 147,950 -
Proceeds from sales of foreclosed real estate 91,150 324,909
Addition to premises and equipment (289,633) (300,300)
Proceeds from sale of premises and equipment 221,437 -
Purchase of Federal Home Loan Bank of New York stock (607,300) (299,900)
------------ ------------
Net cash (used in) investing activities (16,003,551) (58,154,500)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 34,599,305 29,440,147
Cash paid for sale of deposits (21,326,860) -
Net increase in advances from Federal Home Loan Bank of New York 7,000,000 25,000,000
Net (decrease) in other borrowed money (21,540) (19,888)
Net increase in payments by borrowers for taxes and insurance 324,391 881,385
Cash dividends paid (2,895,667) (2,783,954)
Purchase of treasury stock (279,328) (405,000)
------------ ------------
Net cash provided by financing activities 17,400,301 52,112,690
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,326,699 (218,426)
Cash and cash equivalents - beginning 22,688,885 14,253,854
------------ ------------
Cash and cash equivalents - ending $ 29,015,584 $ 14,035,428
============ ============
See notes to consolidated financial statements.
-4-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------------------
2002 2001
--------------- ---------------
Supplemental information:
Transfer of loans receivable to foreclosed real estate $ - $ 33,264
=============== ===============
Cash paid during the period for:
Income taxes $ 3,329,660 $ 1,324,854
=============== ===============
Interest on deposits and borrowings $ 11,615,917 $ 13,422,272
=============== ===============
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 accounting
principles generally accepted in the United States of America. 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 nine
month periods ended September 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 stock options, if dilutive, using the treasury stock
method. There were no potentially dilutive contracts or securities outstanding
at either September 30, 2002 or 2001, or during the three or nine 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.
-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 September 30, 2002 totalled $563.0 million, which
represents an increase of $23.4 million or 4.34% as compared with $539.6 million
at December 31, 2001.
Cash and amounts due from depository institutions totalled $29.0 million and
$22.7 at September 30, 2002 and December 31, 2001, respectively.
Securities available for sale at September 30, 2002 decreased $687,000 or 12.95%
to $4.6 million when compared with $5.3 million at December 31, 2001. The
decrease during the nine months ended September 30, 2002, resulted primarily
from repayments on securities available for sale of $748,000, sufficient to
offset an increase in net unrealized gain of $33,000 and purchases of $34,000.
Investment securities held to maturity at September 30, 2002 increased $2.1
million or 42.00% to $7.1 million when compared with $5.0 million at December
31, 2001. The increase during the nine months ended September 30, 2002 resulted
primarily from purchase of $4.1 million in securities sufficient to offset calls
of such securities of $2.0 million. Mortgage-backed securities held to maturity
decreased $6.8 million or 5.56% to $115.6 million at September 30, 2002 when
compared to $122.4 million at December 31, 2001. The decrease during the nine
months ended September 30, 2002, resulted primarily from principal repayments of
$28.7 million, sufficient to offset purchases of $22.0 million.
Net loans amounted to $389.6 million at September 30, 2002, as compared to
$369.2 million at December 31, 2001, which represents an increase of $20.4
million or 5.53%. The increase during the nine months ended September 30, 2002
resulted primarily from loan originations exceeding principal repayments.
Foreclosed real estate amounted to $155,000 and $238,000 at September 30, 2002
and December 31, 2001, respectively. At September 30, 2002, foreclosed real
estate consisted of one property.
Deposits at September 30, 2002 totalled $429.4 million as compared with $416.6
million at December 31, 2001, representing an increase of $12.8 million or
3.07%.
-7-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Advances from the Federal Home Loan Bank ("FHLB") increased $7.0 million or
10.40% to $74.3 million at September 30, 2002, when compared to $67.3 million at
December 31, 2001.
Stockholders' equity totalled $49.9 million and $47.5 million at September 30,
2002 and December 31, 2001, respectively. The increase of $2.4 million was
primarily the result of the net income for nine months ended September 30, 2002,
of $5.5 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 dividends
paid of $2.9 million.
Comparison of Operating Results for the Three Months Ended September 30, 2002
and 2001
Net income increased $480,000 or 37.77% to $1.8 million for the three months
ended September 30, 2002 compared with $1.3 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 decreases in total interest
expense and provision for loan losses, which were partially offset by increases
in non-interest expenses and income taxes.
Interest income on loans increased by $187,000 or 2.63% to $7.3 million during
the three months ended September 30, 2002 when compared with $7.1 million for
the same 2001 period. The increase during the 2002 period resulted from an
increase of $29.4 million in the average balance of loans outstanding which was
sufficient to offset a forty-two basis point decrease in the yield earned on the
loan portfolio. Interest on mortgage-backed securities decreased $190,000 or
9.25% to $1.9 million during the three months ended September 30, 2002 when
compared with $2.1 million for the same 2001 period. The decrease during the
2002 period resulted from a decrease of $5.4 million in the average balance of
mortgage-backed securities outstanding along with a decrease of thirty-four
basis points in the yield earned on mortgage-backed securities. Interest earned
on investments and other interest-earning assets increased by $61,000 or 23.46%
during the three months ended September 30, 2002, when compared to $260,000
during the same 2001 period primarily due to an increase of $30.6 million in the
average balance, sufficient to offset a decrease of 353 basis points in the
yield earned on such portfolio.
Interest expense on deposits decreased $889,000 or 23.76% to $2.9 million during
the three months ended September 30, 2002 when compared to $3.7 million during
the same 2001 period. Such decrease was primarily attributable to a decrease of
104 basis points in the cost of interest-bearing deposits, sufficient to offset
an increase of $17.1 million in the average balance of interest-bearing
deposits. Interest expense on advances and other borrowed money increased by
$227,000 or 30.97% to $960,000 during the three months ended September 30, 2002
when compared with $733,000 during the same 2001 period, primarily due to an
increase of $25.9 million in the average balance of advances outstanding from
the FHLB, sufficient to offset an eighty-five basis point decrease in the cost
of advances and other borrowed money.
Net interest income increased $720,000 or 14.53% during the three months ended
September 30, 2002 when compared with the same 2001 period. Such increase was
due to an increase in total interest income of $58,000 along with a decrease in
total interest expense of $662,000. The Bank's net interest rate spread
increased from 3.51% in 2001 to 3.71% in 2002. The increase in the interest rate
spread resulted from a decrease of ninety-one basis points in the cost of
interest-bearing liabilities, sufficient to offset a seventy-one 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 September 30, 2002
and 2001 (Cont'd.)
During the three months ended September 30, 2002 and 2001, the Bank provided
$125,000 and $150,000, 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
September 30, 2002 and 2001, the Bank's non-performing loans, which were
delinquent ninety days or more, totalled $2.8 million or 0.50% of total assets
and $3.1 million or 0.59% of total assets, respectively. At September 30, 2002,
$1.2 million of non-performing loans were accruing interest and $1.6 million
were on nonaccrual status. The non-performing loans primarily consist of
one-to-four family mortgage loans. During the three months ended September 30,
2002 and 2001, the Bank charged off loans aggregating $36,000 and $97,000,
respectively. The allowance for loan losses amounted to $2.5 million at
September 30, 2002, representing 0.64% of total loans and 88.89% of loans
delinquent ninety days or more, and $2.0 million at September 30, 2001,
representing 0.54% of total loans and 64.15% of loans delinquent ninety days or
more.
Non-interest income increased $484,000 or 105.45% to $943,000 during the three
months ended September 30, 2002 from $459,000 during the same 2001 period. The
increase resulted from increases in fees and service charges of $22,000 and gain
on sale of branches of $479,000 sufficient to offset a decrease in miscellaneous
income of $16,000. During the three months ended September 30, 2002, the Bank
sold deposits of $21.8 million, furniture, fixtures and leasehold improvements
of $221,000 and account loans of $148,000 at its two Brick, New Jersey, branch
offices to another financial institution. As a result of the sale, the Bank
recognized a net gain of $479,000.
Non-interest expenses increased by $1,000 to $3.257 million during the three
months ended September 30, 2002 when compared with $3.256 million during the
same 2001 period. Salaries and employee benefits and equipment expense increased
$281,000 and $18,000, respectively, which was sufficient to offset decreases in
occupancy, advertising and miscellaneous expenses of $10,000, $37,000 and
$249,000, respectively, during the 2002 period when compared with the same 2001
period.
Income taxes totalled $1.5 million and $736,000 during the three months ended
September 30, 2002 and 2001, respectively. The increase during the 2002 period
resulted from an increase in pre-tax income and an increase in the state income
tax rate from 3% to 9%.
Comparison of Operating Results for the Nine Months Ended September 30, 2002 and
2001
Net income increased $2.2 million or 66.67% to $5.5 million for the nine months
ended September 30, 2002 compared with $3.3 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 expenses and income taxes.
-9-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Months Ended September 30, 2002 and
2001 (Cont'd.)
Interest income on loans increased by $1.9 million or 9.41% to $22.1 million
during the nine months ended September 30, 2002 when compared with $20.2 million
for the same 2001 period. The increase during the 2002 period resulted from an
increase of $51.7 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 decreased $37,000 or
0.62% to $5.91 million during the nine months ended September 30, 2002 when
compared with $5.94 million for the same 2001 period. The decrease during the
2002 period resulted from a decrease of twenty-seven basis points in the yield
earned on mortgage-backed securities, which was sufficient to offset an increase
of $4.4 million in the average balance of mortgage-backed securities
outstanding. Interest earned on investments and other interest-earning assets
decreased by $319,000 or 31.31% to $700,000 during the nine months ended
September 30, 2002, when compared to $1.02 million during the same 2001 period
primarily due to a decrease of 317 basis points in the yield earned on such
portfolio sufficient to offset an increase of $8.8 million in the average
balance of such assets outstanding.
Interest expense on deposits decreased $2.9 million or 25.00% to $8.7 million
during the nine months ended September 30, 2002 when compared to $11.6 million
during the same 2001 period. Such decrease was primarily attributable to a
decrease of 116 basis points in the cost of interest-bearing deposits,
sufficient to offset an increase of $19.0 million in the average balance of
interest-bearing deposits. Interest expense on advances and other borrowed money
increased by $990,000 or 55.34% to $2.8 million during the nine months ended
September 30, 2002 when compared with $1.8 million during the same 2001 period
which was primarily due to an increase of $32.3 million in the average balance
of advances outstanding from the FHLB, sufficient to offset an eighty-one basis
point decrease in the cost of advances and other borrowed money.
Net interest income increased $3.5 million or 25.25% during the nine months
ended September 30, 2002 when compared with the same 2001 period. Such increase
was due to an increase in total interest income of $1.55 million, along with a
decrease in total interest expense of $1.91 million. The Bank's net interest
rate spread increased from 3.37% in 2001 to 3.83% in 2002. The increase in the
interest rate spread resulted from a decrease of 100 basis points in the cost of
interest-bearing liabilities sufficient to offset a fifty-four basis point
decrease in the yield earned on interest-earning assets.
During the nine months ended September 30, 2002 and 2001, the Bank provided
$560,000 and $270,000, respectively, as a provision for loan losses. During the
past year Pamrapo's loan originations increased to approximately $146 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
nine months ended September 30, 2002 and 2001, the Bank charged off loans
aggregating $214,000 and $231,000, respectively.
-10-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Months Ended September 30, 2002 and
2001 (Cont'd.)
Non-interest income increased $685,000 or 52.98% to $2.0 million during the nine
months ended September 30, 2002 from $1.3 million during the same 2001 period.
The increase resulted from increases in fees and service charges of $121,000,
gain on sale of branches of $479,000 and miscellaneous income of $85,000.
Non-interest expenses increased by $14,000 to $9.466 million during the nine
months ended September 30, 2002 when compared with $9.452 million during the
same 2001 period. Salaries and employee benefits and equipment expense increased
$474,000 and $29,000, respectively, which was sufficient to offset decreases in
occupancy, advertising, and miscellaneous expenses of $68,000, $43,000 and
$377,000, respectively, during the 2002 period when compared with the same 2001
period.
Income taxes totalled $3.6 million and $1.9 million during the nine months ended
September 30, 2002 and 2001, respectively. The increase during the 2002 period
resulted from an increase in pre-tax income and an increase in the state income
tax rate from 3% to 9%.
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 10.49% during the month of
September 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 nine months ended
September 30, 2002 and 2001. Cash dividends paid during the nine months ended
September 30, 2002 and 2001 amounted to $2.9 million and $2.8 million,
respectively.
The primary sources of investing activity are lending and the purchase of
mortgage-backed securities. Net loans amounted to $389.6 million and $369.2
million at September 30, 2002 and December 31, 2001, respectively. Securities
available for sale totalled $4.6 million and $5.3 million at September 30, 2002
and December 31, 2001, respectively. Mortgage-backed securities held to maturity
totalled $115.6 million and $122.4 million at September 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.
-11-
PAMRAPO BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
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 September 30, 2002,
advances from the FHLB amounted to $74.3 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 2002, the Bank has outstanding
commitments to originate loans of $17.9 million and to purchase mortgage-backed
securities of $5.0 million. Certificates of deposit scheduled to mature in one
year or less at September 30, 2002, totalled $166.0 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.
The following table sets forth the Bank's capital position at September 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) $ 47,239 15.75% $ 23,998 8.00% $ 29,998 10.00%
Tier 1 Capital
(to risk-weighted assets) 44,775 14.93% - - 17,999 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 44,775 7.99% 22,421 4.00% 28,026 5.00%
Tangible Capital
(to adjusted total assets) 44,775 7.99% 8,408 1.50% - -
USA Patriot Act of 2001. On October 26, 2001, the USA PATRIOT (Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism) Act of 2001 (the "Act") became law. The Act, passed in
response to the September 11 tragedy, includes several money laundering and
banking provisions that significantly impact financial institutions, the most
important of which is the requirement for all financial institutions to develop
anti-money laundering programs. The Treasury Department is still releasing
additional regulations that will further define the requirements of financial
institutions under the Act. As of the date of this filing, the Bank has not
fully determined the impact that the Act will have on its operations but the
impact is not expected to be material. The Bank has established policies and
procedures to ensure compliance with the Act.
-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 June 30, 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
Change in Percent of Portfolio
Interest Rates Net Portfolio Value Value of Assets
------------------------------------------------------------------------
In Basis Points Dollar Percent NPV Change In
(Rate Shock) Amount Change Change Ratio Basis Points
------------------ ------------ ------------- ------------ ------------ ---------------
(Dollars in Thousands)
300 $39,174 $(44,871) (53) 7.05% (677)
200 54,632 (29,413) (35) 9.52% (429)
100 70,196 (13,849) (16) 11.86% (195)
Static 84,045 - - 13.82% -
-100 90,558 6,513 8 14.66% 84
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. AND SUBSIDIARIES
CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures as of
a date within 90 days of the filing date of this quarterly report, the Chief
Executive Officer and the Chief Financial Officer of the Company have concluded
that the Company's disclosure controls and procedures are effective in
connection with the Company's filing of this quarterly report on Form 10-Q for
the period ended September 30, 2002.
There were no significant changes in the Company's internal controls or in any
other factors which could significantly affect those controls subsequent to the
date of the most recent evaluation of the Company's internal controls by the
Company, including any corrective actions with regard to any significant
deficiencies or material weaknesses.
-15-
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
None.
ITEM 5. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Pamrapo Bancorp, Inc.*
3.2 By-Laws of Pamrapo Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith).
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
* Incorporated herein by reference to 10-K Annual Report
for the fiscal year ended December 31, 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: November 14, 2002 By: /s/ William J. Campbell
--------------------------- --------------------------------------
William J. Campbell
President and Chief Executive Officer
Date: November 14, 2002 By: /s/ Kenneth D. Walter
--------------------------- --------------------------------------
Kenneth D. Walter
Vice President and Chief Financial
Officer
-17-
CERTIFICATIONS
I, William J. Campbell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pamrapo
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ William J. Campbell
-------------------------------
William J. Campbell
Chief Executive Officer
I, Kenneth D. Walter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pamrapo
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Kenneth D. Walter
----------------------------
Kenneth D. Walter
Chief Financial Officer