UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended DECEMBER 31, ~~2008~~2009

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 ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers~~submitted ~~pursuant~~electronically toand ~~Item 405~~posted ofon ~~Regulation~~its ~~S-K~~corporate isWebsite, ~~not~~if ~~contained herein~~any, ~~and~~every ~~will~~Interactive Data ~~not~~File required to be ~~contained,~~submitted and posted pursuant to ~~the~~Rule ~~best~~405 of ~~registrant’s~~Regulation ~~knowledge,~~S-T in(§232.405 ~~definitive~~of ~~proxy or~~this ~~information~~chapter) ~~statements~~during ~~incorporated~~the bypreceding ~~reference~~12 inmonths ~~Part~~(or ~~III~~for ofsuch ~~the~~shorter ~~Form~~period ~~10-K~~that orthe ~~any~~registrant ~~amendment~~was required to ~~this~~submit ~~Form~~and ~~10-K~~post such files. ¨ 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. ¨ Yes ¨ No

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 ¨x

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 $159.4824 as quoted on The NASDAQ Global Market for June 30, ~~2008~~2009, 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 $5940,~~380~~200,000.

The Registrant had 4,935,542 shares of Common Stock outstanding as of March 929, ~~2009~~2010.

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	~~PAGE~~
PART I
Item 1.	~~Item 1.~~Business	~~Business~~1	1
Item 1A.	~~Item~~Risk ~~1A.~~Factors	~~Risk Factors~~32	28
Item 1B.	~~Item~~Unresolved ~~1B.~~Staff Comments	~~Unresolved Staff Comments~~39	33
Item 2.	~~Item 2.~~Properties	~~Properties~~40	34
Item 3.	~~Item~~Legal 3.Proceedings	~~Legal Proceedings~~40	34
Item 4.	~~Item 4.~~Reserved	~~Submission of Matters to a Vote of Security Holders~~41	35
PART II
Item 5.	~~Item~~Market 5.for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~42	36
Item 6.	~~Item~~Selected 6.Financial Data	~~Selected Financial Data~~43	36
Item 7.	~~Item~~Management’s 7.Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~45	36
Item 7A.	~~Item~~Quantitative ~~7A.~~and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~56	36
Item 8.	~~Item~~Financial 8.Statements and Supplementary Data	~~Financial Statements and Supplementary Data~~57	37
Item 9.	~~Item~~Changes 9.in and Disagreements With Accountants on Accounting and Financial Disclosure	~~Changes in and Disagreements With Accountants on Accounting and Financial Disclosure~~101	37
Item 9A.	~~Item~~Controls ~~9A.~~and Procedures	~~Controls and Procedures~~101	37
Item 9B.	~~Item~~Other ~~9B.~~Information	~~Other Information~~104	42
PART III
Item 10.	~~Item~~Directors, ~~10.~~Executive Officers and Corporate Governance	~~Directors, Executive Officers and Corporate Governance~~104	42
Item 11.	~~Item~~Executive ~~11.~~Compensation	~~Executive Compensation~~107	42
Item 12.	~~Item~~Security ~~12.~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~111	42
Item 13.	~~Item~~Certain ~~13.~~Relationships, Related Transactions, and Director Independence	~~Certain Relationships, Related Transactions, and Director Independence~~113	42
Item 14.	~~Item~~Principal ~~14.~~Accounting Fees and Services	~~Principal Accounting Fees and Services~~113	43
PART IV
Item 15.	~~Item~~Exhibits ~~15.~~and Financial Statement Schedules	~~Exhibits and Financial Statement Schedules~~114	43
SIGNATURES

Forward-Looking Statements

~~This~~Unless otherwise indicated or unless the context requires otherwise, all references in this Form 10-K ~~may~~to ~~include~~“Pamrapo,” ~~certain~~“the Company,” ~~forward-looking~~“the ~~statements~~Registrant,” ~~based~~“we,” on“us,” ~~current~~“our” ~~management~~or ~~expectations.~~similar ~~The~~references ~~actual~~mean ~~results of~~ Pamrapo Bancorp, Inc. ~~(the~~This ~~“Company”)~~Form ~~could~~10-K ~~differ~~may ~~materially~~contain ~~from~~forward-looking ~~those management~~statements ~~expectations.~~within ~~Factors~~the ~~that~~meaning ~~could~~of ~~cause~~the ~~future~~Private ~~results~~Securities toLitigation Reform ~~vary~~Act ~~from~~of ~~current~~1995 ~~management~~(the ~~expectations~~“Private ~~include,~~Securities ~~but~~Litigation ~~are~~Reform ~~not~~Act”). ~~limited~~We ~~to,~~intend ~~general~~these ~~economic~~forward-looking ~~conditions,~~statements ~~legislative~~to ~~and~~be ~~regulatory~~covered ~~changes,~~by ~~monetary~~the ~~and~~safe ~~fiscal~~harbor ~~policies~~provisions for forward-looking statements of the Private Securities Litigation Reform Act. In ~~federal~~some ~~government~~cases, ~~changes~~you incan ~~tax~~identify ~~policies,~~these ~~rates~~statements ~~and~~by ~~regulations~~our use of ~~federal,~~forward-looking ~~state~~words ~~and~~such ~~local~~as ~~tax~~“may,” ~~authorities~~“will,” ~~changes~~“should,” in“anticipate,” ~~interest~~“estimate,” ~~rates~~“expect,” ~~deposit~~“plan,” ~~flows~~“believe,” “predict,” ~~the~~“potential,” ~~cost~~“intend,” of“project,” ~~funds~~“forecasts,” ~~demand~~“goals,” ~~for~~“could ~~loan products~~have,” ~~demand~~“may ~~for~~have” ~~financial~~and ~~services,~~similar ~~competition, changes~~expressions. inYou ~~the~~should ~~quality~~be oraware ~~composition~~that ofthese ~~loan~~statements and ~~investment~~any other ~~portfolios~~forward-looking ofstatements ~~Pamrapo~~in ~~Savings~~this ~~Bank,~~Form ~~S.L.A.,~~10-K ~~the~~only ~~Company’s~~reflect ~~wholly-owned~~our ~~subsidiary,~~expectations ~~changes~~and inare ~~accounting~~not ~~principles,~~guarantees ~~policies~~of orperformance. ~~guidelines,~~These ~~and~~statements ~~other~~involve ~~economic~~risks, ~~competitive, governmental~~uncertainties and ~~technological~~assumptions, ~~factors~~which ~~affecting~~we ~~the~~describe ~~Company’s~~in ~~operations,~~more ~~markets,~~detail ~~products,~~elsewhere ~~services~~herein and ~~prices~~in other documents filed by us with the SEC.

Various factors could cause actual results or outcomes to differ materially from our expectations. We wish to caution readers not to place undue reliance on any such forward-looking statements and to advise readers that various factors, including, but 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, on going litigation, regulatory matters, government investigations and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors, if any, will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this cautionary note.

PART I

Item 1. Business.

~~Pamrapo~~On June 29, 2009, we and BCB Bancorp, Inc. ~~(also~~a ~~referred~~New toJersey ascorporation ~~the~~ (“~~Company~~BCB”), orentered ~~the~~into ~~“Registrant”)~~an ~~was~~Agreement ~~incorporated~~and ~~under~~Plan ~~Delaware~~of ~~law~~Merger on(the ~~June 26~~“Merger Agreement”), ~~1989~~pursuant ~~and~~to ~~changed~~which ~~its~~Pamrapo Bancorp, ~~state~~Inc. of(the ~~incorporation~~“Company” ~~from~~or ~~Delaware~~the to“Registrant”) ~~New~~will ~~Jersey~~merge onwith ~~March 29~~and into BCB, ~~2001.~~with OnBCB ~~November 10,~~as ~~1989,~~the surviving corporation (the ~~Registrant acquired~~“Merger”). Pamrapo Savings Bank, S.L.A. (the “Bank” or “Pamrapo”) asand aBCB Community ~~part of the~~ Bank’s, ~~conversion from~~ a New Jersey -chartered ~~savings~~bank ~~association~~and ~~in mutual form to~~ a ~~New~~wholly-owned ~~Jersey~~subsidiary ~~chartered~~of ~~stock~~BCB ~~savings~~(“BCB ~~association.~~Bank”), ~~The Registrant~~also isentered into a ~~savings~~plan ~~and~~of ~~loan~~bank ~~holding~~merger ~~company~~that ~~and~~provides isfor ~~subject~~the tomerger ~~regulation~~of by the ~~Office~~Bank ofwith ~~Thrift~~and ~~Supervision~~into ~~(“OTS”)~~BCB Bank, ~~the~~with ~~Federal~~BCB ~~Deposit~~Bank ~~Insurance~~as ~~Corporation~~the ~~(“FDIC”)~~surviving institution. ~~and~~Our ~~the~~Board ~~Securities~~of Directors and ~~Exchange Commission (“SEC”). Currently~~stockholders, and the ~~Registrant~~Board ~~does~~of ~~not~~Directors ~~transact~~and ~~any~~stockholders ~~material~~of ~~business~~BCB, ~~other~~have ~~than~~approved ~~through~~the ~~its~~Merger ~~sole~~and ~~subsidiary,~~ the ~~Bank~~Merger Agreement.

~~Pamrapo~~The ~~was~~completion ~~organized~~of inthe ~~1887~~Merger asis ~~Pamrapo~~subject ~~Building and Loan Association. On October 6, 1952, it changed its name~~ to ~~Pamrapo~~various ~~Savings~~closing ~~and Loan Association~~conditions, aincluding ~~New~~approval ~~Jersey~~from ~~chartered savings and loan association in mutual form~~the, ~~and~~Federal inReserve ~~1988~~Board ~~it changed~~of ~~its name to Pamrapo Savings Bank~~Governors, ~~S.L.A.~~the ~~The~~Federal ~~Bank’s~~Deposit ~~principal~~Insurance ~~office~~Corporation isand ~~located~~the ~~in Bayonne,~~ New Jersey. Department ~~Its~~of ~~deposits~~Banking ~~are~~and ~~insured up to applicable limits by the Deposit~~ Insurance. ~~Fund~~See ~~(the~~ “~~DIF”)~~Pending ~~which~~Merger iswith ~~administered~~BCB” byfor ~~the FDIC.~~a Atfurther ~~December 31,~~description ~~2008,~~of the ~~Bank had total assets of $598~~Merger.~~0 million,~~ ~~deposits~~The ofinformation ~~$447.0~~presented ~~million~~in ~~and~~this ~~stockholders’~~Annual ~~equity~~Report ofon ~~$51.5~~Form 10-K ~~million~~does ~~before~~not ~~elimination~~give ofeffect ~~intercompany~~to ~~accounts with~~ the ~~Company~~Merger.

OnThe ~~March 6,~~Company ~~2009,~~was ~~the~~incorporated ~~Bank~~under ~~completed~~Delaware ~~its~~law ~~transaction~~on ~~for~~June 26, ~~the~~1989 ~~sale of assets~~ and ~~transfer~~changed ofits ~~liabilities~~state of ~~the~~incorporation ~~Bank’s~~from ~~Fort~~Delaware ~~Lee,~~to New Jersey ~~banking~~ ~~office~~on March 29, as2001. ~~well~~On asNovember 10, 1989, the ~~assignment~~Registrant ofacquired the ~~lease~~Bank ~~for~~as ~~that office, to NewBank,~~ a ~~New~~part ~~York-chartered~~of ~~commercial~~the ~~bank~~Bank’s ~~located~~conversion infrom ~~Flushing,~~a New ~~York.~~Jersey Aschartered ofsavings ~~that~~association ~~date,~~in ~~the~~mutual ~~deposits~~form ofto ~~the~~a ~~Bank’s~~New ~~Fort~~Jersey ~~Lee~~chartered ~~branch~~stock ~~were~~savings ~~approximately $14~~association.~~5 million.~~ The Registrant ~~purchase~~is ~~price~~a ~~for~~savings ~~the~~and ~~assets~~loan ofholding ~~the~~company ~~branch,~~and ~~which~~is ~~was~~subject ~~offset against the amount owed~~ to ~~NewBank~~regulation ~~for~~by ~~assuming~~ the ~~branch’s~~Office ~~deposits,~~of ~~was~~Thrift ~~$500~~Supervision (“OTS”),~~000~~ ~~and a cash payment for~~ the ~~loans~~Federal ~~being~~Deposit ~~purchased,~~Insurance ~~which~~Corporation ~~had~~(“FDIC”) aand ~~net~~the ~~book~~Securities ~~value~~and ofExchange Commission ~~$13~~(“SEC”). Currently,~~000~~ at the ~~time~~Registrant ofdoes ~~sale.~~not ~~The~~transact ~~Bank~~any ~~recorded~~material abusiness ~~gain~~other ofthan ~~$492,000~~through asits asole ~~result~~subsidiary, of the ~~sale~~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, 2009, the Bank had total assets of $557.8 million, deposits of $445.3 million and stockholders’ equity of $47.9 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. 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.

Pending Merger with BCB

On June 29, 2009, we and BCB, entered into an Agreement and Plan of Merger, pursuant to which the Company will merge with and into BCB, with BCB as the surviving corporation. The Bank and BCB Bank, also entered into a plan of bank merger that provides for the merger of the Bank with and into BCB Bank, with BCB Bank as the surviving institution.

The completion of the Merger is subject to various closing conditions, including approval from the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance. The Merger is intended to qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended.

At the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of any stockholder, the Company’s stockholders will receive 1.0 share of BCB common stock for each share of the Company’s common stock. In addition, all outstanding unexercised options to purchase the Company’s common stock will be converted into options to purchase BCB’s common stock.

If the Merger Agreement is terminated by either the Company or BCB due to the following circumstances:

•

the acceptance by either party of a superior proposal that the other party decides not to match;

•

subject to further conditions specified in the Merger Agreement with respect to a control transaction (as such term is defined in the Merger Agreement) involving either party and a person or entity included in a disclosure schedule to the Merger Agreement, the failure to consummate the merger on or before June 30, 2010 caused solely by the other party;

•

subject to further conditions specified in the Merger Agreement with respect to a control transaction (as such term is defined in the Merger Agreement) involving either party and a person or entity included in a disclosure schedule to the Merger Agreement, the failure by either party to obtain the required vote of its stockholders; or

•

subject to further conditions specified in the Merger Agreement with respect to a control transaction (as such term is defined in the Merger Agreement) involving either party and a person or entity included in a disclosure schedule to the Merger Agreement, a material breach by either party of its representations, warranties or covenants in the Merger Agreement, which breach is not cured within the applicable time,

the breaching party must pay a termination fee of $2.5 million to the other party. BCB and the Company agreed to this termination fee arrangement in order to induce each other to enter into the Merger Agreement. The termination fee requirement may discourage other companies from trying or proposing to combine with either BCB or the Company before the merger is completed.

BCB and the Company shall pay the documented fees and expenses of the other party, in an amount not to exceed $750,000, if the terminating party enters into an agreement to be acquired by purchase, consolidation, sale, transfer or otherwise, in one transaction or any related series of transactions, a majority of the voting power of its outstanding securities or substantially all of its consolidated assets, within six months of such termination. However, if the Company enters into such agreement with a party whose name has been previously disclosed to BCB in the Merger Agreement, the Company shall not pay the documented fees and expenses described in this paragraph, but may be required to pay, subject to the conditions in the Merger Agreement, the $2.5 million termination fee described above.

If either BCB or the Company fails to timely pay the termination fee to the other, the non-complying party will be obligated to pay the costs and expenses incurred by the other in connection with any action in which it prevails, taken to collect payment of such amounts, together with interest.

The Merger Agreement contains representations and warranties that the Company and BCB made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement between the Company and BCB and may be subject to important qualifications and limitations agreed to by the Company and BCB in connection with negotiating its terms. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the Company and BCB rather than establishing matters as facts. For the foregoing reasons, no person should rely on the representations and warranties as statements of factual information at the time they were made or otherwise.

This description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to the Current Report on Form 8-K dated June 30, 2009, and is incorporated herein by reference.

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~~Before January 2010, the Bank also ~~originates~~originated acquisition, development and construction loans in addition to multi-family and commercial real estate loans. The Bank no longer originates these types of loans. At December 31, 2009, the Bank’s total gross loans outstanding amounted to $427.3 million, of which $269.0 million consisted of loans secured by one- to four-family residential properties, $4.7 million consisted of construction and land loans, $144.0 million consisted of loans secured by multi-family and commercial real estate, and $7.4 million consisted of commercial loans. Substantially all of the Bank’s real estate loan portfolio consists of conventional mortgage loans.

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
	2005					2006					2007					2008					2009
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real Estate Mortgage Loans:
Permanent:
Fixed-rate	$	~~319~~346,~~043~~456		8079.6105	%	$	~~346~~352,~~456~~913		7977.0559	%	$	~~352~~336,~~913~~620		7776.5967	%	$	~~336~~340,~~620~~877		7677.6791	%	$	340,~~877~~831		7780.9195	%
Adjustable rate		36,~~039~~316		1.7744			68,~~316~~188		1.4480			87,~~188~~098		1.8062			7,~~098~~895		1.6280			76,~~895~~861		1.8063
Construction(1)		18,272		4.61			16,299		3.72			17,224		3.78			15,533		3.53			12,199		2.79
Construction (1)		16,299		3.72			17,224		3.78			15,533		3.53			12,199		2.79			4,676		1.11
Total mortgage loans		~~340~~369,~~354~~071		8584.9921			~~369~~378,~~071~~325		8483.2117			~~378~~359,~~325~~251		8381.1782			~~359~~360,~~251~~971		~~81.~~82.50			~~360~~352,~~971~~368		8283.5069
Commercial Loans		~~659~~5,858		1.1734			59,~~858~~037		1.3499			910,~~037~~318		12.9935			1013,~~318~~569		23.3510			137,~~569~~423		31.1076
Consumer Loans:
Passbook or certificate		~~733~~763		.1918			~~763~~719		.1816			~~719~~720		.16			~~720~~777		.1618			~~777~~980		.1823
Home improvement		~~133~~57		.0301			5736		.01			3625		.01			251		~~.01~~—			1—		—
Equity and second mortgages		5966,~~015~~494		1415.9117			6670,~~494~~507		15.1750			7071,~~507~~902		1516.5038			7166,~~902~~278		1615.3814			6665,~~278~~315		15.1451
Automobile		~~637~~680		.16			~~680~~536		.1612			~~536~~561		.1213			~~561~~426		.1310			~~426~~301		.1007
Personal		1,~~041~~052		.2624			1,~~052~~146		.2425			~~1,146~~938		.2521			~~938~~776		.2118			~~776~~864		.1821
Total consumer loans		6169,~~559~~046		15.5576			6972,~~046~~944		1516.7604			7274,~~944~~146		16.0489			7468,~~146~~258		1615.896			6867,~~258~~460		1516.602
Total loans		~~402~~443,~~572~~975		101.7131			~~443~~460,~~975~~306		101.3120			~~460~~443,~~306~~715		101.2006			~~443~~442,~~715~~798		101.062			~~422~~427,~~798~~251		101.247
Less:
Allowance for loan losses		2,~~495~~755		.63			2,~~755~~651		.6358			23,~~651~~155		.5872			34,~~155~~661		1.7206			46,~~661~~591		1.0657
Loans in process		54,~~155~~020		1.3092			4,~~020~~012		.9288			42,~~012~~719		.8862			21,~~719~~821		.6242			~~1,821~~863		.4220
Deferred loan fees (costs)		(~~878~~1,050	)	(.2224	)		(1,~~050~~216	)	(.2426	)		(1,~~216~~212	)	(.2628	)		(1,~~212~~238	)	(.28	)		(1,~~238~~252	)	(.2830	)
Total		65,~~772~~725		1.7131			5,~~725~~447		1.3120			54,~~447~~662		1.2006			45,~~662~~244		1.0620			56,~~244~~202		1.2047
Total net loans	$	~~395~~438,~~800~~250		100.00	%	$	~~438~~454,~~250~~859		100.00	%	$	~~454~~439,~~859~~053		100.00	%	$	~~439~~437,~~053~~554		100.00	%	$	~~437~~421,~~554~~049		100.00	%
Mortgage-Backed Securities:
GNMA(2)	$	421		.21	%	$	253		.15	%	$	168		.12	%	$	127		.10	%	$	103		.09	%
GNMA (2)	$	253		.15	%	$	168		.12	%	$	127		.10	%	$	103		.09	%	$	88		.10	%
FHLMC(3)(6)		140,821		69.99			118,507		70.63			100,185		70.69			86,975		69.90			81,305		68.99
FHLMC (3)(6)		118,507		70.63			100,185		70.69			86,975		69.90			81,305		68.99			61,402		69.72
FNMA(4)(6)		42,660		21.20			32,623		19.44			27,127		19.14			24,725		19.87			20,671		17.54
FNMA (4)(6)		32,623		19.44			27,127		19.14			24,725		19.87			20,671		17.54			15,763		17.90
CMO(5)		16,027		7.97			15,428		9.20			13,334		9.41			12,029		9.67			15,356		13.03
CMO (5)		15,428		9.20			13,334		9.41			12,029		9.67			15,356		13.03			10,564		12.00
Total mortgage-backed securities		~~199~~166,~~929~~811		99.3742			~~166~~140,~~811~~814		99.4236			~~140~~123,~~814~~856		99.3654			~~123~~117,~~856~~435		99.5465			~~117~~87,~~435~~817		99.6572
Add:
Premiums (discounts), net		~~1,246~~970		.6258			~~970~~903		.5864			~~903~~567		.6446			~~567~~411		.4635			~~411~~250		.3528
Unrealized gain on securities available for sale		168		~~.01~~—			87		—			75		—			5—		—			—		—
Net mortgage-backed securities	$	~~201~~167,~~191~~789		100.00	%	$	~~167~~141,~~789~~724		100.00	%	$	~~141~~124,~~724~~428		100.00	%	$	~~124~~117,~~428~~846		100.00	%	$	~~117~~88,~~846~~067		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 $1772,~~098,323~~221 for ~~2004~~2005, a principal balance of $~~772~~662,~~221~~405 for ~~2005~~2006, a principal balance of $~~662~~516,~~405~~561 for ~~2006~~2007, a principal balance of $~~516~~418,~~561~~937 for ~~2007~~2008 and a principal balance of $~~418~~315,~~937~~994 for ~~2008~~2009.

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
	2007				2008				2009
	(Dollars in thousands)
	Amount		PercentofTotal		Amount		PercentofTotal		Amount		PercentofTotal
One-to four-family (2)	$	~~276~~268,~~232~~048	60.0141	%	$	~~268~~271,~~048~~533	6061.4132	%	$	~~273~~269,~~683~~028	6162.8197	%
Multi-family (2)		7163,~~323~~652	1514.5035			6364,~~652~~509	14.3557			6361,~~709~~262	14.3934
Commercial real estate (2)		8483,~~088~~944	18.2792			8378,~~944~~152	1817.9265			7782,~~659~~717	1719.5436
Construction and land		1715,~~224~~533	3.7450			1513,~~533~~056	32.5095			124,~~199~~676	21.7509
Commercial		910,~~037~~318	12.9632			1013,~~318~~569	23.3206			137,~~569~~423	31.0674
Consumer-secured and unsecured		2,~~402~~220	.5250			21,~~220~~979	.5045			12,~~979~~145	.4550
Total gross loans	$	~~460~~443,~~306~~715	100.00	%	$	~~443~~442,~~715~~798	100.00	%	$	~~442~~427,~~798~~251	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
	2007		2008		2009
	(Dollars in thousands)
Mortgage Loans (gross):
At beginning of period	$	~~369~~378,~~071~~325	$	~~378~~359,~~325~~251	$	~~359~~360,~~251~~971
Mortgage loans originated:
One- to four-family residential		4611,~~533~~676		1130,~~676~~064		3028,~~064~~099
Multi-family residential		91,~~456~~483		18,~~483~~830		83,~~830~~600
Commercial		127,~~975~~964		78,~~964~~522		87,~~522~~599
Construction (1)		126,~~350~~616		61,~~616~~335		~~1,335~~420
Total mortgage loans originated		8127,~~314~~739		2748,~~739~~751		4839,~~751~~718
Mortgage loans sold		—1,500		~~1,500~~—		—
Charge-offs		86183		~~183~~16		16118
Transfers to REO		—486		~~486~~—		—
Repayments		7144,~~974~~644		4447,~~644~~015		4748,~~015~~203
At end of period	$	~~378~~359,~~325~~251	$	~~359~~360,~~251~~971	$	~~360~~352,~~971~~368
Commercial Loans (gross):
At beginning of period	$	59,~~858~~037	$	910,~~037~~318	$	1013,~~318~~569
Commercial loans originated		54,~~005~~301		47,~~301~~121		~~7,121~~270
Charge-offs		—54		5497		971,903
Repayments		12,~~826~~966		23,~~966~~773		34,~~773~~513
At end of period	$	910,~~037~~318	$	1013,~~318~~569	$	137,~~569~~423
Consumer Loans (gross) (2)
At beginning of period	$	6972,~~046~~944	$	7274,~~944~~146	$	7468,~~146~~258
Consumer loans originated		2620,~~782~~367		2014,~~367~~603		14,~~603~~441
Charge-offs		2733		3311		1174
Repayments		2219,~~857~~132		1920,~~132~~480		2015,~~480~~165
At end of period	$	7274,~~944~~146	$	7468,~~146~~258	$	6867,~~258~~460
Mortgage-backed securities (gross):
At beginning of period	$	~~166~~140,~~811~~814	$	~~140~~123,~~814~~856	$	~~123~~117,~~856~~435
Mortgage-backed securities purchased		—3,970		314,~~970~~919		~~14,919~~—
Repayments		2520,~~997~~928		2021,~~928~~340		2129,~~340~~618
At end of period	$	~~140~~123,~~814~~856	$	~~123~~117,~~856~~435	$	~~117~~87,~~435~~817

(1)	Includes acquisition, development and land loans.

(2)	Includes equity and second mortgages.

LOAN MATURITY. The following table sets forth the maturity of the Bank’s gross loan portfolio at December 31, ~~2008~~2009. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totaled $9666.7 million, $6671.73 million and $7167.39 million for the years ended December 31, ~~2006,~~ 2007, 2008 and ~~2008~~2009, respectively.

One- to four-family residentialmortgage loans (1)

Multi-familyand ~~commercialreal~~commercial real estate loans (1)

~~ConstructionLoans~~Constructionloans (2)

Consumer-secured andunsecuredloans

~~CommercialLoans~~Commercialloans

Total

(In thousands)

Amounts due:

Within 1 year

~~125~~57

12,~~067~~849

124,~~086~~586

53124

63,~~029~~186

1910,~~360~~802

After 1 year:

1 to 3 years

~~794~~938

~~1,204~~531

8768

~~498~~406

52,~~670~~833

84,~~253~~776

3 to 5 years

4,~~816~~847

23,~~290~~134

2622

~~381~~328

~~1,556~~755

9,~~069~~086

5 to 10 years

3029,~~548~~078

2125,~~118~~363

—

~~805~~860

—

5255,~~471~~301

10 to 20 years

8885,~~159~~185

~~114~~106,~~772~~937

—

~~242~~427

~~314~~649

~~203~~193,~~487~~198

Over 20 years

~~149~~148,~~241~~923

~~917~~5,165

—

~~150~~154,~~158~~088

Total due after 1 year

~~273~~268,~~558~~971

~~140~~141,~~301~~130

~~113~~90

12,~~926~~021

74,~~540~~237

~~423~~416,~~438~~449

Total amounts due

~~273~~269,~~683~~028

~~141~~143,~~368~~979

124,~~199~~676

12,~~979~~145

137,~~569~~423

~~442~~427,~~798~~251

Less:

Allowance for loan losses

46,~~661~~591

Loans in process

~~1,821~~863

Deferred loan fees (costs)

(1,~~238~~252

)

Total

~~437~~421,~~554~~049

(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~~2009, the dollar amount of all mortgage, consumer, commercial and construction loans, due after December 31, ~~2009~~2010, which have fixed interest rates or adjustable interest rates:

	Due after December 31, 2009
	Due after December 31, 2010
	FixedRates		Floating orAdjustableRates		Total DueAfter OneYear
	(In thousands)
One- to four-family residential (1)	$	~~264~~261,~~898~~247	$	87,~~660~~724	$	~~273~~268,~~558~~971
Construction loans		~~113~~652		—		~~113~~652
Multi-family and commercial real estate (1)		~~134~~133,~~576~~828		57,~~725~~302		~~140~~141,~~301~~130
Commercial-loans		—		74,~~540~~237		74,~~540~~237
Consumer-secured and unsecured loans		1,~~163~~048		~~763~~973		12,~~926~~021
Totals	$	~~400~~396,~~750~~775	$	2220,~~688~~236	$	~~423~~417,~~438~~011

(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~~ 2009, 96.72% of the gross loan portfolio was fixed-rate loans and 3.38% was ARMs, and was originated for the Bank’s portfolio. Residential loan originations are generally obtained from existing or past

~~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~~2009, $~~337~~330.43 million or 7677.23% of the Bank’s total gross loan portfolio consisted of one- to four-family and multi-family residential mortgage loans. Of this amount $~~273~~269.70 million were one- to four-family loans and $6361.73 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 2530 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~~2009, the interest rate for one- to four-family residential fixed-rate mortgages offered by the Bank was 64.0075% on 15-year loans and 65.25% on 25 30-year loans.

The Bank also originates loans on multi-family residences. Such residences generally consist of 65 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~~2009, $6361.73 million or 14.43% 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 toand ~~verify information relating to the applicant’s~~ employment, ~~income~~ and ~~credit~~income ~~standing~~are verified. A preliminary inspection of the subject premises ismay be made by ata ~~least one~~ member of the ~~Executive~~ Loan 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~~Board ~~president~~of Directors, the Loan Committee, the Vice President of Lending, or ~~loan~~the ~~officer~~Loan Processing Manager in accordance with the Bank’s policy. It is also the Bank’s policy to obtain title insurance on all first mortgage 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~~Before January 2010, the Bank ~~originates~~ originated 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~~originated loans for the acquisition and development of unimproved property to be used principally for residential purposes in cases where the Bank iswas to provide the construction funds to improve the properties. All of the Bank’s acquisition, development and construction loan portfolio is secured by real estate properties located in New Jersey.

~~The~~Acquisition, ~~interest rates~~development and ~~terms of the~~ construction ~~and~~lending ~~land~~is ~~development~~generally ~~loans~~considered ~~vary,~~to ~~depending~~involve ~~upon~~a ~~market~~higher ~~conditions,~~level ~~the size~~ of ~~the~~risk ~~construction~~than orone- ~~development~~to ~~project~~four-family permanent ~~and~~residential ~~negotiations~~lending ~~with~~due ~~the borrower. Advances are generally made~~ to the ~~borrower~~concentration toof ~~cover actual~~principal ~~construction~~in ~~costs~~a ~~incurred.~~limited Onnumber ~~larger~~of ~~construction~~ loans, ~~the~~and ~~Bank~~borrowers ~~requires~~and the ~~project~~effects toof begeneral ~~built~~economic ~~out~~conditions inon ~~phases.~~development ~~Advancement~~projects, ofreal ~~funds~~estate isdevelopers ~~dependent~~and ~~upon~~managers. ~~completion~~In ofaddition, the ~~project~~nature ~~stages. The Bank generally limits its exposure to 75%~~ of ~~the~~ ~~projected~~these ~~market~~loans ~~value~~is ofsuch ~~the~~that ~~completed~~they ~~project. The amount of the loans~~ are generally ~~determined~~less aspredictable ~~follows:~~and ~~(i) land~~more ~~acquisition~~difficult ~~loans with no immediate plans for construction are limited~~ to ~~65%~~evaluate ofand ~~the~~monitor. ~~appraised~~As ~~value~~ of ~~the land; (ii)~~December ~~acquisition~~31, ~~and~~2009, ~~development~~$4.7 ~~loans~~million ~~are~~or ~~limited to 65~~1.1% of ~~appraised value of~~ the ~~improved~~Bank’s ~~lot~~gross ~~not~~loan toportfolio ~~exceed~~consisted ~~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)~~ land loans ~~secured~~varying byin ~~previously~~size ~~owned~~from ~~vacant~~$2,000 ~~land are limited~~ to ~~65%~~$668,000. ~~Prior~~The ~~to making any disbursements, the~~ Bank ~~requires~~no ~~that~~longer ~~the projects~~originates ~~securing~~these ~~the~~types ~~construction~~of ~~and development~~ loans ~~be inspected~~.

5Commercial Real Estate Lending. Loans secured by commercial real estate totaled $82.7 million, or 19.4% of the Bank’s total gross loan portfolio, at December 31, 2009. 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

~~The~~ independent ~~underwriting~~appraiser ~~criteria~~previously ~~used~~approved by the Bank. ~~are~~The ~~designed~~Bank’s tocommercial ~~evaluate~~real ~~and~~estate ~~minimize~~loans ~~the~~are ~~risks~~secured ofby ~~each construction~~improved ~~loan.~~property ~~Among~~such ~~other~~as ~~things~~office buildings, ~~the~~retail ~~Bank~~stores, ~~generally~~warehouses ~~considers~~and another non-residential ~~appraisal~~buildings. ofOnce the ~~project,~~loan ~~the~~has ~~reputation~~been ofdetermined ~~the~~to ~~borrower~~be creditworthy and ~~the~~of ~~contractor~~sufficient property value, in the ~~amount~~case of corporate borrowers, the ~~borrower’s~~Bank ~~equity~~obtains ina ~~the~~personal ~~project,~~guaranty ~~independent~~from ~~valuations~~third ~~and~~party ~~review~~principals of ~~cost~~the corporate borrower as ~~estimates,~~supplemental ~~plans~~security ~~and~~on ~~specifications,~~the ~~preconstruction~~loan. ~~sale~~This ~~and~~enables ~~leasing~~the ~~information,~~Bank ~~current~~to ~~and~~proceed ~~expected~~against ~~economic~~the ~~conditions~~guarantor in the ~~area~~event of ~~the~~default ~~project,~~without ~~cash~~first ~~flow~~exhausting ~~projections~~remedies ofagainst the borrower,. ~~and,~~Inquiry as to ~~the~~collectability ~~extent~~pursuant ~~available,~~to such third party guarantees may be made by means of review of other properties secured by the ~~borrower and/or~~Bank, ~~third~~personal ~~parties.~~interviews ~~All~~with the applicants, review of the ~~Bank~~applicant’s ~~acquisition,~~personal ~~development~~financial statements and ~~construction~~income ~~loan~~tax ~~portfolio~~returns isand ~~secured~~review byof credit bureau reports. Borrowers must personally guarantee loans made for commercial real estate. ~~properties~~Commercial ~~located~~real inestate ~~northern~~loans have terms ranging from 5 to 15 years and ~~central~~are ~~New~~generally ~~Jersey~~fixed-rate loans.

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~~2009, the balance of such loans was $159.56 million, or 32.52% 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~~Asset ofClassification ~~Directors~~Committee. 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~~Loan Committee has the authority to approve loans of up to $~~750~~1,500,000. Loans from $500,000 ~~with~~to $750,000 ~~the~~require ~~stipulation~~approval ~~that~~by ~~loans~~two ~~approved~~signatories, inwhich ~~excess~~signatories ofcan ~~$500~~be the Loan Committee,~~000~~ ~~must~~the beBank’s ~~reported~~Chief atExecutive Officer or the ~~next~~Vice ~~Board~~President of ~~Directors meeting~~Lending. The Bank’s Vice President ~~and~~of ~~Loan~~Lending ~~Officer~~has ~~have the~~ authority to approve ~~consumer~~loans of up to $500,000 and ~~equity~~the Processing Manager has the authority to approve loans of up to $~~350~~300,~~000~~00.

6Loan 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, 2009, the Bank was servicing $914,000 of loans for others.

~~Table~~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 ~~Contents~~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 $1.3 million in net deferred origination costs at December 31, 2009.

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. InIf ~~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~~8 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

	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	%

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) 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,
	2005			2006			2007			2008			2009
	(Dollars in thousands)
One- to four-family residential real estate loans (1):
Non-accrual loans	$	493		$	529		$	1,239		$	1,747		$	7,824
Accruing loans 90 days overdue		332			993			592			3,056			5,723

Total		825			1,522			1,831			4,803			13,547

Multi-family residential and commercial real estate loans (1):
Non-accrual loans		647			345			246			924			3,154
Accruing loans 90 days overdue		463			383			1,031			1,443			2,316

Total		1,110			728			1,277			2,367			5,470

Construction loans (2):
Non-accrual loans		—			—			—			964			3,022
Accruing loans 90 days overdue		—			—			438			756			—

Total		—			—			438			1,720			3,022

Commercial loans:
Non-accrual loans		—			—			1,881			1,881			350
Accruing loans 90 days overdue		—			—			—			—			137

Total		—			—			1,881			1,881			487

Consumer loans:
Non-accrual loans		33			22			44			37			15
Accruing loans 90 days overdue		1			7			12			1			11

Total		34			29			56			38			26

Total non-performing loans:
Non-accrual loans		1,173			896			3,410			5,553			14,365
Accruing loans 90 days overdue		796			1,383			2,073			5,256			8,187

Total	$	1,969		$	2,279		$	5,483		$	10,809		$	22,552

Total foreclosed real estate, net of related reserves	$	—		$	—		$	486		$	426		$	384

Total non-performing loans and foreclosed real estate to total assets		.30	%		.36	%		.91	%		1.88	%		4.11	%

(1)	Includes equity and second mortgage loans.

(2)	Includes acquisition and development loans.

~~At December 31,~~9 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
	NumberofLoans	PrincipalBalanceof Loans			NumberofLoans	PrincipalBalanceof Loans			NumberofLoans	PrincipalBalanceof Loans			NumberofLoans	PrincipalBalanceof Loans			NumberofLoans	PrincipalBalanceof Loans			NumberofLoans	PrincipalBalanceof 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.

~~The~~At ~~Bank’s~~December 31, ~~level~~2007, of2008 and 2009, non-~~performing~~accrual loans 90for ~~days~~which orinterest ~~more~~has ~~delinquent~~been discontinued ~~increased~~totaled ~~from~~approximately $53.54 million ~~at December 31~~, ~~2007~~$5.6 tomillion and $1014.84 million, atrespectively. During the years ended December 31, 2007, 2008. ~~The~~and ~~total~~2009, ~~of such loans in~~ the ~~lower~~Bank ~~risk~~recognized ~~one-~~interest toincome ~~four-family~~of ~~residential~~approximately ~~category~~$86,000, ~~increased~~$103,000 toand $~~4.8~~195,000, respectively, ~~million~~on ~~from~~these $1loans.8 ~~million~~Interest atincome ~~December 31,~~that ~~2007.~~would ~~Non-performing~~have ~~multi-family residential~~been recorded, ~~commercial~~had ~~real~~the ~~estate~~loans ~~and~~been ~~construction~~on ~~loans~~the accrual status, ~~loans~~would ~~normally~~have ~~having~~amounted ~~greater~~to ~~elements~~approximately of$261,000, ~~risk~~$363,000 ~~increased~~and ~~from~~ $~~1.7~~998,000 ~~million~~for atthe years ended December 31, 2007, to2008 $4and 2009, respectively.1 ~~million~~The atBank ~~December 31,~~is ~~2008.~~not ~~The~~committed ~~$1.9~~to ~~million~~lend ~~loan~~additional ~~discussed~~funds ~~above~~to ~~was~~ the ~~only~~borrowers ~~non-performing~~whose ~~commercial~~loans ~~loan~~have atbeen ~~December 31,~~placed ~~2008~~on ~~and~~nonaccrual ~~2007~~status.

Delinquent Loans. At December 31, 2007, 2008 and 2009, respectively, delinquencies in the Bank’s portfolio were as follows:


	At December 31, 2007								At December 31, 2008								At December 31, 2009
	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	13	$	1,460		31	$	5,483		33	$	6,904		52	$	10,809		18	$	3,679		105	$	22,552
As a percent of total gross loans			.33	%			1.24	%			1.56	%			2.44	%			.86	%			5.28	%

As of December 31, 2009, the Bank had 105 loans which were 90 days or more past due totaling $22.6 million. The average balance of such loans was approximately $215,000. All loans are within the Bank’s lending areas.

The Bank’s level of non-performing loans 90 days or more delinquent increased from 10.8 million at December 31, 2008 to $22.6 million at December 31, 2009. The total of such loans in the lower risk one- to four-family residential category increased to $13.5 million from $4.8 million at December 31, 2008. Non-performing multi-family residential, commercial real estate and construction loans, loans normally having greater elements of risk, increased from $4.1 million at December 31, 2008 to $7.9 million at December 31, 2009. The increase in the level of non-performing loans was mainly driven by a weak economy and a resulting high unemployment level.

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~~collectability 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.

Management of the Bank has classified $21.2 million of its assets as substandard and approximately $2.3 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, 2009, the allowance for loan losses totaled $6.6 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 along with the general economic and real estate market conditions. Such evaluation, which includes a review of all loans of which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value of the underlying collateral, economic conditions and historical loan loss experience. For more detail on allowance for loan losses, See—Item 8, Note 1 to the Company’s Consolidated Financial Statements.

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
	2005			2006			2007			2008			2009
	(Dollars in thousands)
Balance at beginning of period	$	2,~~515~~495		$	2,~~495~~755		$	2,~~755~~651		$	23,~~651~~155		$	34,~~155~~661
Provision for loan losses		82110			~~110~~—			—670			~~670~~1,630			14,~~630~~025
Charge-offs (recoveries):
Charge-offs:
Real estate mortgage loans		39—			—86			86183			~~183~~16			16118
Consumer loans		6821			2127			2733			3311			1174
Commercial loans		—			—			—54			5497			971,903
Recoveries:
Real estate mortgage loans		(5129	)		~~(129~~—	)		—(100	)		~~(100~~—	)		—
Consumer loans		—(42	)		(429	)		(94	)		(4—	)		—
Net charge-offs (recoveries)		~~102~~(150	)		~~(150~~104	)		~~104~~166			~~166~~124			~~124~~2,095
Balance at end of period	$	2,~~495~~755		$	2,~~755~~651		$	23,~~651~~155		$	34,~~155~~661		$	46,~~661~~591
Ratio of net charge offs (recoveries) during the period to average loans receivable during the period		(.03	)%		(.0302	)%		.0204	%		.0403	%		.0349	%
Ratio of allowance for loan losses to total outstanding loans (gross) at the end of period		.62	%		.6258	%		.5871	%		1.7105	%		1.0554	%
Ratio of allowance for loan losses to non-performing loans		96139.4493	%		~~139~~116.9332	%		~~116~~57.3254	%		5743.5412	%		4329.1223	%

The increase in the allowance for loan loss balance and in the provision for loan losses during 2009, as compared to 2008, was primarily due to an increase in the Bank’s non-performing loans, which were $22.6 million at December 31, 2009 compared to $10.8 million at December 31, 2008. The provision for loan losses also included $0.3 million and $0.9 million in 2008 and 2009, respectively, for the Bank’s largest non-accruing commercial loan to a local hospital. The Bank’s carrying value of the loan as of December 31, 2009 was $941,000. Based on the fact that the Bank is deemed an unsecured creditor with a lower priority in the future distribution from the Liquidating Trustee, the Company’s board of directors decided on January 20, 2010 to write off the remaining loan balance of $941,000 as of December 31, 2009.

During the years ended December 31, 2007, 2008 and 2009, gross charge-offs totaled $270,000, $124,000 and $2.1 million respectively. The charge-off of commercial loans in 2009 included $1.9 million relating to the local hospital discussed above.

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
	2005						2006						2007						2008						2009
	Amount		Percent ofAllowanceto TotalAllowance		Percentof Loansin EachCategoryto TotalLoans		Amount		Percent ofAllowanceto TotalAllowance		Percentof Loansin EachCategoryto TotalLoans		Amount		Percent ofAllowanceto TotalAllowance		Percentof Loansin EachCategoryto TotalLoans		Amount		Percent ofAllowanceto TotalAllowance		Percentof Loansin EachCategoryto TotalLoans		Amount		Percent ofAllowanceto TotalAllowance		Percentof Loansin EachCategoryto TotalLoans
	(Dollars in thousands)												~~(Dollars in thousands)~~
Real estate mortgage loans	$	2,~~270~~470	9089.9866	%	9998.2412	%	$	2,~~470~~201	8983.6603	%	9897.1252	%	$	2,~~201~~138	8367.0377	%	97.5218	%	$	23,~~138~~195	6768.7755	%	9796.1849	%	$	35,~~195~~867	6889.5502	%	9697.4976	%
Consumer loans		~~150~~110	63.0199		.6056			~~110~~150	35.9965		.5652			~~150~~103	53.6526		.5250			~~103~~94	32.2602		.5045			9471	21.0208		.4550
Commercial loans		75175	36.0135		1.1632			~~175~~300	611.3532		1.3296			~~300~~914	1128.3297		12.9632			~~914~~1,372	2829.9743		23.3206			~~1,372~~653	299.4390		31.0674
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	%
Totalallowance	$	2,755	100.00	%	100.00	%	$	2,651	100.00	%	100.00	%	$	3,155	100.00	%	100.00	%	$	4,661	100.00	%	100.00	%	$	6,591	100.00	%	100.00	%

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, 2009 ranging from 2.50% to 10%. At December 31, 2009, the unamortized principal balance of mortgage-backed securities, both held to maturity and available for sale, totaled $87.8 million or 15.73% of total assets. The carrying value of such securities amounted to $124.4 million, $117.8 million and $88.1 at December 31, 2007, 2008 and 2009, respectively, and the fair market value of such securities totaled approximately $121.9 million, $120.3 million and $91.5 million at December 31, 2007, 2008 and 2009, 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, 2009.


	Contractual Maturities Due in Year(s) Ended December 31,
	2010-2011		2012-2013		2014-2018		2019-2028		2029 and Thereafter		Total
	(In thousands)
Mortgage-backed securities:
Held to maturity	$	25	$	527	$	46,637	$	39,875	$	437	$	87,501
Available for sale		—		—		93		154		69		316

Total	$	25	$	527	$	46,730	$	40,029	$	506	$	87,817

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.

	Contractual Maturities Due in Year(s) EndedDecember 31,
	2009-2010		2011-2012		2013-2017		2018-2027		2028 andThereafter		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.

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
	2007				2008				2009
	AmortizedCost		FairValue		AmortizedCost		FairValue		AmortizedCost		FairValue
	(In thousands)
Investments:
FHLB-NY stock (1)	$	54,~~721~~996	$	54,~~721~~996	$	45,~~996~~160	$	45,~~996~~160	$	53,~~160~~396	$	53,~~160~~396
Subordinated Notes (3)		9,168		9,599		9,043		9,305		10,016		9,500
Subordinated notes (3)		9,043		9,305		10,016		9,500		10,003		10,000
Municipal Obligations (3)		—		—		1,334		1,345		1,334		1,331
Municipal obligations (3)		1,334		1,345		1,334		1,331		1,334		1,337
Trust originated preferred security (2)		~~500~~400		~~500~~396		400		~~396~~352		400		~~352~~394
Total investment securities	$	15,~~389~~773	$	1516,~~820~~042	$	1516,~~773~~910	$	16,~~042~~343	$	1615,~~910~~133	$	1615,~~343~~127
Other interest-earning assets:
Interest bearing deposits	$	862,~~790~~976	$	862,~~790~~976	$	629,~~976~~470	$	629,~~976~~470	$	917,~~470~~735	$	917,~~470~~735
Total investment portfolio	$	2478,~~179~~749	$	2479,~~610~~018	$	7826,~~749~~380	$	7925,~~018~~813	$	2632,~~380~~868	$	2532,~~813~~862

(1)	No stated maturity.

(2) For further information, see Note 2 to the Company’s Financial Statements in ~~the~~Item ~~2008~~8 ~~Annual~~of ~~Report~~this toAnnual ~~Shareholders~~Report.

(3) For further information, see Note 3 to the Company’s Financial Statements in ~~the~~Item ~~2008~~8 ~~Annual~~of ~~Report~~this toAnnual ~~Shareholders~~Report.

At December 31, ~~2008~~2009, 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~~13 ~~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 Yearto Five Years				More than FiveYears to Ten Years				More than TenYears				Total
	AmortizedCost		WeightedAverageYield		AmortizedCost		WeightedAverageYield		AmortizedCost		WeightedAverageYield		AmortizedCost		WeightedAverageYield		AmortizedCost		WeightedAverageYield
	(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	%

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, 2009
	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	$	4,003	9.25	%	$	6,000	8.09	%	$	—	—	%	$	—	—	%	$	10,003	8.55	%
Municipal obligations		—	—	%		—	—	%		—	—	%		1,334	4.16	%		1,334	4.16	%
Trust originated preferred security		—	—	%		—	—	%		—	—	%		400	7.75	%		400	7.75	%

Total debt securities	$	4,003	9.25	%	$	6,000	8.09	%	$	—	—	%	$	1,734	4.99	%	$	11,737	8.03	%

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~~increased by $63.95 million or 12.61% from $~~507~~444.90 million at December 31, ~~2007~~2008 to $444.05 million at December 31, ~~2008~~2009.

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
	2007						2008						2009
	Amount		% ofTotalDeposits		WeightedAverageNominalRate		Amount		% ofTotalDeposits		WeightedAverageNominalRate		Amount		% ofTotalDeposits		WeightedAverageNominalRate
	~~(Dollars in thousands)~~						(Dollars in thousands)
Passbook and club accounts	$	~~135~~122,~~503~~923	2824.8320	%	1.4113	%	$	~~122~~115,~~923~~719	2426.2006	%	1.1312	%	$	~~115~~118,~~719~~243	26.0660	%	1.1209	%
Non-interest bearing demand		4338,~~848~~226	97.3352		~~.00~~—			3840,~~226~~682	79.5216		~~.00~~—			4035,~~682~~252	97.1693		~~0.00~~—
NOW		3682,~~455~~322	716.7621		1.0052			8236,~~088~~046	168.1612		1.5292			3547,~~817~~882	810.0777		.9287
Super NOW		163	.03		1.00			234	.05		1.00			229	.05		.99
Money market demand		26,305	5.18		2.87			25,821	5.82		2.26			36,557	8.23		1.33
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		269,776	53.11		1.26			218,268	49.16		1.01			237,934	53.53		.75
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		6270,~~027~~169	13.2081		4.3477			7028,~~169~~073	136.8132		43.7727			~~28,073~~139	6.3203		3.2786
26-week		~~106~~115,~~204~~331	22.6070		4.6354			~~115~~147,~~331~~207	2233.7015		43.5438			~~147~~113,~~207~~761	3325.1559		31.3867
12- to 30-month		158,~~018~~661	31.2071		4.2754			82,~~661~~534	1.7157		43.5489			239,~~534~~743	8.5794		32.8953
30- to 48-month		1510,~~989~~556	32.4008		4.0228			1011,~~556~~797	2.0866		4.2807			1118,~~797~~876	24.6625		42.0799
IRA and KEOGH		3033,~~586~~468	6.5159		34.9437			3336,~~468~~120	68.5914		43.3766			3634,~~120~~039	87.1466		32.6671
Total certificates		~~229~~238,~~824~~185	4846.9189		4.3957			~~238~~225,~~185~~731	4650.8984		43.5747			~~225~~206,~~731~~558	5046.8447		32.4713
Total deposits	$	~~469~~507,~~941~~961	100.00	%	2.6981	%	$	~~507~~443,~~961~~999	100.00	%	2.8124	%	$	~~443~~444,~~999~~492	100.00	%	21.2449	%

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

	Year Ended December 31,
	2006				2007		2008
	2007			2008			2009
	(In thousands)
Net (withdrawals) deposits	$	~~(15~~24,~~376~~321	)	$	$(75,474	~~24,321~~)	$	(757,~~474~~813	)
Interest credited		1113,~~314~~699			11,512	~~13,699~~		118,~~512~~306
Net (decrease) increase in deposits	$	(4,062	)		$	38,020	$	(63,962	)
Net increase (decrease) in deposits	$	38,020		$	(63,962	)	$	493

13The 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, 2009.


	At December 31,						At December 31, 2009, Maturing in
	2007		2008		2009		One Year or Less		Two Years		Three Years		Greater than Three Years
	(In thousands)
2.99% or less	$	856	$	34,326	$	179,457	$	161,650	$	12,101	$	5,073	$	633
3.00% to 4.99%		225,569		186,631		24,716		21,897		1,694		478		647
5.00% to 5.99%		11,760		4,774		2,385		1,356		141		19		869

Total	$	238,185	$	225,731	$	206,558	$	184,903	$	13,936	$	5,570	$	2,149

~~The~~At ~~following table sets forth~~December 31, ~~by various rate categories~~2009, the ~~amount~~Bank ofhad ~~certificate accounts~~ outstanding as$94.8 ofmillion ~~the~~in ~~dates~~certificate ~~indicated~~accounts ~~and~~in amounts ~~the periods to maturity~~ of ~~the~~$100,000 ~~certificate~~or ~~accounts~~more ~~outstanding~~maturing atas ~~December 31,~~follows: ~~2008.~~

	At December 31,						At December 31, 2008, Maturing in
	Amount
	2006		2007		2008		One Yearor Less		TwoYears		ThreeYears		Greater thanThree Years
	(In thousands)
	(In thousands)
Three months or less	$	30,937
2.99% or less	$	4,862	$	856	$	34,326	$	33,946	$	350	$	30	$	—
Over three through six months		27,887
3.00% to 4.99%		206,519		225,569		186,631		171,331		12,710		1,621		969
Over six through twelve months		26,711
5.00% to 5.99%		18,443		11,760		4,774		1,890		1,540		134		1,210
Over twelve months		9,261
Total	$	~~229~~94,~~824~~796	$	~~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 and a special 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~~2009, outstanding advances from the FHLB-NY amounted to $8951.50 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
	2007				2008				2009
	(Dollars in thousands)
Maturing by December 31,	WeightedAverageInterestRate		Amount		WeightedAverageInterestRate		Amount		WeightedAverageInterestRate		Amount
2006	—	%	$	—	—	%	$	—	—	%	$	—
2008	4.24		$	15,000	—		$	—	—		$	—
2007	2.91			17,000	—			—	—			—
2009	5.25			18,000	2.69			38,500	—			—
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
2017	—			—	—			—	—			—
	4.93	%	$	84,000	4.02	%	$	89,500	5.02	%	$	51,000

14At December 31, 2009, the Company also had available to it $59,289,000 under a revolving overnight line of credit, expiring August 9, 2010, with the FHLB-NY, which can only be drawn upon to the extent collateral is provided by the Company. The line of credit is secured by a blanket pledge of mortgage loans of $160,215,000 and a specific pledge of mortgage-backed securities with carrying values and fair values of approximately $28,868,000 and $30,042,000, respectively. Borrowings are at the lender’s cost of funds plus 0.25%. There was no outstanding borrowing under the overnight line of credit at December 31, 2009 and $20,500,000 outstanding at December 31, 2008. At December 31, 2009, the Company also had a companion Arc Daily Advance commitment with the FHLB-NY for $59,289,000 expiring August 9, 2010, which would also require collateral prior to any drawdown of these funds. There were no outstanding borrowings at December 31, 2009 and December 31, 2008 under the companion DRA commitment.

In January 2010, The FHLB-NY imposed certain restrictions on the Bank’s credit activities. The Bank now is only able to obtain short term borrowings (30 days or less) and its eligibility to sell mortgage loans into the Mortgage Partnership Finance (“MPF”) Program has been suspended pending a determination by the FHLB-NY

that the Bank again meets the eligibility requirements for participation in the MPF Program. The Bank’s line of credit with the FHLB-NY has not been reduced. The Company continues to have the revolving overnight line of credit available to the extent of collateral support provided.

In January 2010, the Federal Reserve Bank of New York (“FRB-NY”) informed the Bank that it (i) no longer qualifies for uncollateralized daylight credit, (ii) is no longer eligible to borrow under the FRB-NY Discount Window’s primary credit program, rather requests to borrow at the Window will be considered under the secondary credit program and granted on an overnight basis, and (iii) is now required to prefund its Automated Clearing House credit originations.

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~~as such ofmay ~~which~~have ~~are~~higher ~~competitors~~lending oflimits ~~the~~and ~~Bank~~may tooffer ~~varying~~other ~~degrees~~services that are not provided by the Company. 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~~2009, Pamrapo had $~~215~~219.7 million and $~~176~~188,000 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~~an ~~non-variable~~inactive ~~life insurance products~~subsidiary.

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.

1517

changes in interest rates on deposit accounts and borrowings. At December 31, 2009, 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.

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
	2007						2008						2009						2009
	AverageBalance		Interest		Yield/Cost		AverageBalance		Interest		Yield/Cost		AverageBalance		Interest		Yield/Cost		~~ActualBalance~~Actual Balance		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	~~448~~444,~~917~~389	$	28,~~937~~838	6.4549	%	$	~~444~~433,~~389~~667	$	2827,~~838~~747	6.4940	%	$	~~433~~425,~~667~~946	$	2725,~~747~~916	6.4008	%	$	~~437~~421,~~554~~049	6.4821	%
Mortgage-backed securities		~~154~~133,~~471~~116		76,~~222~~003	4.6851			~~133~~123,~~116~~989		65,~~003~~647	4.5155			~~123~~102,~~989~~818		54,~~647~~658	4.5553			~~117~~87,~~428~~751	4.7876
Investments (2)		1110,~~465~~072		~~773~~695	6.7490			1011,~~072~~243		~~695~~851	67.9057			11,~~243~~706		~~851~~929	7.5794			12,~~121~~049	7.9291
Other interest-earning assets		13,343		605	4.53			32,030		1,566	4.89			34,941		970	2.78			14,631	2.77
Other interest-earningassets (3)		32,030		1,566	4.89			34,941		970	2.78			24,676		224	.91			21,131	1.30
Total interest-earning assets		~~628~~619,~~196~~607		37,~~537~~102	5.9899			~~619~~603,~~607~~840		3735,~~102~~215	5.9983			~~603~~565,~~840~~146		3531,~~215~~727	5.8361			~~581~~541,~~734~~980	65.0782
Non-interest-earning assets		1412,~~932~~433						1213,~~433~~250						13,~~250~~836						1615,~~278~~820
Total assets (1)	$	~~643~~632,~~128~~040					$	~~632~~617,~~040~~090					$	~~617~~578,~~090~~982					$	~~598~~557,~~012~~800
Interest-bearing liabilities:
Passbook and club account		~~146~~125,~~117~~809		21,~~017~~623	1.3829			~~125~~118,~~809~~749		1,~~623~~358	1.2914			~~118~~117,~~749~~957		1,~~358~~293	1.1410			~~115~~118,~~719~~243	1.1209
NOW and money market accounts		6782,~~523~~466		~~780~~1,005	1.1522			8284,~~466~~839		1,~~005~~197	1.2241			8473,~~839~~764		~~1,197~~981	1.4133			6184,~~867~~439	1.4807
Certificates of Deposits		~~218~~227,~~635~~840		811,~~517~~070	34.9081			~~227~~230,~~840~~845		118,~~070~~957	43.8188			~~230~~217,~~845~~949		86,~~957~~029	32.8877			~~225~~206,~~731~~558	32.4713
Advances and other borrowings		~~104~~91,~~042~~346		4,~~667~~384	4.5980			9178,~~346~~089		43,~~384~~893	4.8099			7867,~~089~~622		3,~~893~~187	4.9971			8951,~~500~~000	45.02
Total interest-bearing liabilities		~~536~~527,~~317~~461		1518,~~981~~082	23.9843			~~527~~512,~~461~~522		1815,~~082~~405	3.4301			~~512~~477,~~522~~292		1511,~~405~~490	32.0141			~~492~~460,~~817~~240	21.7799
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts		3938,~~361~~352						3839,~~352~~623						3937,~~623~~830						4035,~~682~~252
Other		76,~~690~~982						6,~~982~~699						611,~~699~~602						914,~~835~~073
Total non-interest-bearing liabilities		4745,~~051~~334						4546,~~334~~322						4649,~~322~~432						5049,~~517~~325
Total liabilities		~~583~~572,~~368~~795						~~572~~558,~~795~~844						~~558~~526,~~844~~724						~~543~~509,~~334~~565
Stockholders’ equity		59,~~760~~245						5958,~~245~~246						5852,~~246~~258						5448,~~678~~235
Total liabilities and stockholders’ equity	$	~~643~~632,~~128~~040					$	~~632~~617,~~040~~090					$	~~617~~578,~~090~~982					$	~~598~~557,~~012~~800
Net interest income/interest rate spread			$	2119,~~556~~020	32.0056	%			$	19,~~020~~810	2.5682	%			$	1920,~~810~~237	23.8220	%
Net interest-earning assets/net yield on interest-earning assets	$	9192,~~879~~146			3.4307	%	$	~~92,146~~			3.0728	%					3.2858	%
Ratio of average interest-earning assets to average interest-bearing liabilities					1.17x						1.~~17x~~18x						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.

1618

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~~2009, 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~~118.75 million at December 31, ~~2008~~2009, are withdrawn at the following rates: 11.5551% 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 $2536.83 million at December 31, ~~2008~~2009, 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 $3647.4 million at December 31, ~~2008~~ 2009, 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 Yearor Less		More than1 Year to3 Years		More than3 Years to5 Years		More than5 Years to10 Years		More than10 Years to20 Years		More than20 Years		Total
	(In thousands)
Interest-earning Assets:
Loans	$	1910,~~360~~240	$	84,~~253~~776	$	9,~~069~~086	$	5258,~~471~~454	$	~~203~~190,~~487~~607	$	~~150~~154,~~158~~088	$	~~442~~427,~~798~~251
Mortgage-backed securities		1725		86214		~~911~~935		6056,~~383~~484		5529,~~965~~656		74437		~~177~~87,~~436~~751
Investments		—4,003		106,000		—		—156		1,~~335~~427		~~400~~463		1112,~~735~~049
Other interest-earning assets (1)		14,631		—		—		—		—		—		14,631
Other interest-earningassets (1)		21,131		—		—		—		—		—		21,131
Total interest-earning assets		3435,~~008~~399		1810,~~339~~990		910,~~980~~021		~~112~~115,~~854~~094		~~260~~221,~~787~~690		~~150~~154,~~632~~988		~~586~~548,~~600~~182
Interest-bearing Liabilities:
NOW and Super NOW Accounts (2)		5,439		9,095		7,146		11,864		10,044		4,293		47,881
Money market accounts		4,152		6,944		5,456		9,059		7,669		3,278		36,558
Passbook and club accounts		13,610		22,422		17,617		29,248		24,762		10,584		118,243
Certificate accounts		184,903		19,506		2,149		—		—		—		206,558
Advances		23,000		10,000		—		18,000		—		—		51,000
Total interest-bearing liabilities		231,104		67,967		32,368		68,171		42,475		18,155		460,240

1719

	1 Yearor Less			More than1 Year to3 Years			More than3 Years to5 Years			More than5 Years to10 Years			More than10 Years to20 Years			More than20 Years			Total
	(In thousands)
Interest-bearing Liabilities:
Interest sensitivity gap per period		(195,705	)		(56,977	)		(22,347	)		46,923			179,215			136,833		$	87,942
NOW and Super NOW Accounts (2)		4,095			6,847			5,380			8,931			7,561			3,232		36,046
Cumulative interest sensitivity gap	$	(195,705	)	$	(252,682	)	$	(275,029	)	$	(228,106	)	$	(48,891	)	$	87,942
Money market accounts		2,933			4,905			3,854			6,398			5,417			2,315		25,822
Cumulative gap as a percent of interest-earning assets		(35.70	)%		(46.09	)%		(50.17	)%		(41.61	)%		(8.92	)%		16.04	%
Passbook and club accounts		13,366			21,934			17,234			28,609			24,223			10,353		115,719
Cumulative interest-sensitive assets as a percent of interest-sensitive liabilities		15.32	%		15.51	%		17.02	%		42.92	%		88.94	%		119.11	%
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.

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
	2008 v. 2007									2009 v. 2008
	Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Net			Volume			Rate			Net
	~~(In thousands)~~						(In thousands)
Interest income:
Loans	$	(~~285~~699	)	$	~~186~~(393	)	$	(991,092	)	$	(~~699~~463	)	$	(~~393~~1,368	)	$	(1,~~092~~831	)
Mortgaged-backed securities		(~~996~~409	)		~~(223~~53	)		(~~1,219~~356	)		(~~409~~964	)		53(25	)		(~~356~~989	)
Investments		~~(94~~81	)		1675			~~(78~~156	)		8135			7543			~~156~~78
Other interest-earning assets		~~846~~142			~~115~~(738	)		~~961~~(596	)		~~142~~(285	)		(~~738~~461	)		(~~596~~746	)
Total interest income		(~~529~~885	)		94(1,003	)		(~~435~~1,888	)		(~~885~~1,677	)		(1,~~003~~811	)		(13,~~888~~488	)
Interest expense:
Passbook and club accounts		(~~281~~89	)		(~~113~~176	)		(~~394~~265	)		(899	)		(~~176~~56	)		(~~265~~65	)
NOW and money market accounts		~~370~~29			~~(144~~162	)		~~226~~191			29(147	)		~~162~~(69	)		~~191~~(216	)
Certificates of deposit		~~419~~90			(2,~~134~~203	)		(2,~~553~~113	)		90(357	)		(2,~~203~~571	)		(2,~~113~~928	)
Advances and other borrowings		(~~529~~638	)		~~246~~147			(~~283~~491	)		(~~638~~493	)		~~147~~(213	)		(~~491~~706	)
Total interest expense		(21608	)		(2,~~123~~070	)		(2,~~102~~678	)		(~~608~~1,006	)		(2,~~070~~909	)		(23,~~678~~915	)
Net change in net interest	$	(~~508~~277	)	$	(21,~~029~~067	)	$	~~(2,537~~790	)	$	(~~277~~671	)	$	1,~~067~~098		$	~~790~~427

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 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 and is qualified in its entirety by reference to applicable laws and regulations.

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.

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~~The ~~and~~OTS ~~Desist~~has ~~Order.~~extensive ~~The~~authority ~~Bank~~over isthe ~~subject~~operations toof asavings ~~range~~institutions. As part of ~~bank~~this ~~regulatory~~authority, ~~compliance~~savings ~~obligations.~~institutions Asare ~~previously~~required ~~disclosed,~~to file inperiodic ~~connection~~reports with ~~a routine~~the ~~compliance~~OTS ~~examination~~and are subject to periodic examinations by the OTS, ~~certain~~and ~~deficiencies~~the ~~were identified~~FDIC. ~~The~~Such ~~Bank~~regulation ~~has~~ and ~~continues~~supervision tois ~~take~~primarily ~~steps~~intended tofor ~~remediate~~the ~~these~~protection ~~deficiencies~~of depositors and ~~to strengthen~~ the ~~Bank’s~~DIF.

20Cease and Desist Orders. The Bank is subject to a range of bank regulatory compliance obligations. As previously disclosed, in connection with routine compliance examinations 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 overall compliance programs.

On January 21, 2010, the Bank, stipulated and consented to a cease and desist order (the “Order”) issued by the OTS. The Order became effective on January 21, 2010. The Order was issued as a result of matters relating to the Bank’s compliance with certain laws and regulations, and deficiencies in its operations and management.

The Order requires the Bank to prepare and submit to the OTS an updated three-year business plan for calendar years 2010 to 2012, and to prepare and submit to the OTS a management plan. The Order also requires the Bank to appoint, by April 15, 2010, at least three (3) new independent members to the Bank’s board of directors in the event that the sale or merger of the Bank is not completed by March 31, 2010. The Bank, pursuant to the Order, shall not increase its total assets during any quarter in excess of an amount equal to net interest credited on deposit liabilities during the prior quarter without the prior permission of the OTS. The Order also requires the Bank to maintain adequate and effective internal controls and corporate governance policies, procedures and practices, including an internal audit program, an independent compliance oversight program, and an effective internal loan review program and to take certain other actions identified by the OTS in the Order. The Bank has already begun to implement several initiatives to enhance, among other things, its management and corporate governance in accordance with the requirements of the Order.

As previously disclosed, the Bank also agreed to a cease and desist order (the “2008 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 2008 Order did not identify or relate to any issues regarding the safety and soundness of the Bank.

The 2008 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 2008 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 2008 Order.

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~~2009, the Bank met each of its capital requirements.

21The following table presents the Bank’s capital position at December 31, 2009:


	Actual Amount		Required Amount		Excess Amount		Actual Percent		Required Percent
	(Dollars in thousands)
Tangible	$	49,530	$	8,361	$	41,169	8.89	%	1.50	%
Core (Leverage)		49,530		22,297		27,233	8.89	%	4.00	%
Risk-based		53,818		29,432		24,386	14.63	%	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 ~~following~~regulation ~~table~~also ~~presents~~provides that a capital restoration plan must be filed with the ~~Bank’s~~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 ~~position~~distributions atand expansion. ~~December 31~~The OTS could also take any one of a number of discretionary supervisory actions, ~~2008:~~including the issuance of a capital directive and the replacement of senior executive officers and directors.

	ActualAmount		RequiredAmount		ExcessAmount		ActualPercent		RequiredPercent
	(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	%

Insurance of Deposit Accounts. Deposits of the Bank are insured up to applicable limits by the DIF, which is administered by the FDIC. On May 10, 2009, President Barack Obama signed the Helping Families Save Their Home Act which extends the temporary increase in the standard maximum deposit insurance amount (“SMDIA”) to $250,000 per depositor through December 31, 2013. The legislation provides that the SMDIA limit will return to $100,000 on January 1, 2014. The legislation did not increase coverage for retirement accounts, which continues to be $250,000.

~~Prompt~~Due ~~Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required~~ to ~~take certain supervisory actions against undercapitalized institutions,~~ the ~~severity~~significant number of ~~which~~bank ~~depends~~failures ~~upon~~and the ~~institution’s~~current ~~degree~~balance of ~~undercapitalization.~~the ~~Generally~~DIF, athe ~~savings~~Company ~~institution~~anticipates ~~that~~continued ~~has~~increases ain ~~total~~its ~~risk-based~~FDIC ~~capital~~premiums ofgoing ~~less than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is considered to be “undercapitalized~~forward.” ATo ~~savings~~maintain ~~institution~~the ~~that~~DIF, ~~has a total risk~~FDIC-~~based~~insured ~~capital~~institutions ~~ratio~~are 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~~pay a ~~receiver~~deposit orinsurance ~~conservator for an institution that is “critically undercapitalized~~premium.” The ~~regulation~~FDIC ~~also~~utilizes ~~provides that~~ a ~~capital~~risk-based ~~restoration plan~~premium ~~must~~system beto ~~filed~~evaluate ~~with~~ the ~~OTS~~risk ~~within 45 days~~ of ~~the~~each ~~date~~financial ~~a savings~~ institution ~~receives~~based ~~notice~~on ~~that~~three itprimary ~~is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan~~sources ~~must~~of beinformation: ~~guaranteed~~(1) its bysupervisory ~~any parent holding company. In addition~~rating, ~~numerous mandatory supervisory actions become immediately applicable to the institution depending upon~~ (2) its ~~category,~~financial ~~including~~ratios, ~~but not limited to, increased monitoring by regulators~~ and ~~restrictions~~ on(3) its ~~growth,~~long-term ~~capital~~debt ~~distributions~~issuer ~~and expansion. The OTS could also take any one of a number of discretionary supervisory actions~~rating, ~~including~~if the ~~issuance~~institution ofhas ~~a capital directive and the replacement of senior executive officers and directors~~one.

~~Insurance~~The ofFDIC ~~Deposit~~adopted ~~Accounts.~~a ~~Deposits~~final ofrule, which became effective on January 1, 2009, that raised the ~~Bank~~risk-based ~~are~~deposit ~~insured~~insurance upassessment torates ~~applicable~~uniformly ~~limits~~for all insured institutions by seven basis points for the ~~DIF,~~first ~~which~~quarter ~~is administered~~of by2009 ~~the~~assessment ~~FDIC~~period. ToAs ~~maintain~~a result, assessment rates for the ~~DIF,~~first ~~FDIC-insured~~quarter ~~institutions~~of ~~are~~2009 ~~required~~increased to ~~pay~~12 abasis ~~deposit~~points ~~insurance~~for ~~premium~~the healthiest institutions. ~~The~~On February 27, 2009, the FDIC’s ~~risk-based~~also ~~premium~~adopted ~~system~~a ~~provides~~final ~~for~~rule ~~quarterly~~on assessments, which ~~based~~became effective on anApril 1, ~~insured~~2009, ~~institution’s~~that ~~ranking~~modified ~~in one~~the ofway ~~four~~the ~~risk~~assessment ~~categories~~system ~~based~~differentiates ~~upon~~risk ~~supervisory~~among insured institutions and ~~capital~~raised ~~evaluations.~~the ~~Assessment~~assessment rates for ~~insured~~the ~~institutions~~second quarter of 2009 assessment period and thereafter. Under this final rule, assessment rates for the ~~year~~second ~~ended~~quarter ~~December 31,~~of ~~2008~~2009 ranged from ~~five~~between 12 and 16 basis points for the healthiest institutions to 4345 basis points for the riskiest. Premiums for 2010 are currently set at 2009 rates. On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as reported on the report of condition as of June 30, 2009, but capped the special assessment at 10 basis points times the institution’s assessment base for the second quarter of 2009 risk based assessment. The Bank recognized a special assessment of $263,000 in June 2009.

~~The~~On November 12, 2009, the FDIC adopted a final rule, ~~which~~amending ~~became~~the ~~effective~~assessment onregulations ~~January 1,~~to ~~2009,~~require ~~that~~insured ~~raised~~depository ~~the~~institutions to prepay their quarterly risk-based ~~deposit~~assessments ~~insurance assessment~~for ~~rates~~the ~~uniformly~~fourth ~~for~~quarter ~~all~~of ~~insured~~2009, ~~institutions~~and byfor ~~seven~~all ~~basis~~of ~~points~~2010, ~~for~~2011, ~~the~~and ~~first~~2012, ~~quarter~~on ofDecember 30, 2009, ~~assessment~~along ~~period.~~with Aseach ainstitution’s ~~result,~~risk-based assessment ~~rates~~ for the ~~first~~third quarter of 2009. ~~increased~~The toBank 12was granted ~~basis~~an ~~points~~exemption ~~for~~by the ~~healthiest~~FDIC ~~institutions. The~~from ~~FDIC~~prepaying ~~also~~its ~~adopted~~estimated aquarterly ~~final~~risk-based ~~rule,~~deposit ~~which~~insurance ~~becomes~~assessments ~~effective~~for onthe ~~April 1,~~fourth quarter of 2009 and all of 2010, ~~that~~2011, ~~modifies~~and ~~the~~2012. ~~way~~Therefore, the ~~assessment~~Bank ~~system~~will ~~differentiates~~continue ~~risk~~to ~~among~~pay ~~insured~~its ~~institutions~~risk ~~and~~based ~~raises~~deposit insurance ~~the~~assessments ~~assessment~~on ~~rates~~a ~~for~~quarterly ~~the~~basis, ~~second~~rather ~~quarter~~than ofon ~~2009~~the ~~assessment period~~initially ~~and~~required ~~thereafter~~prepayment schedule. ~~Under~~Given ~~this~~the ~~final~~continued ~~rule,~~decline ~~assessment~~in ~~rates~~the ~~for~~Deposit ~~the~~Insurance ~~second~~Fund ~~quarter~~balance, ofthe ~~2009~~Company ~~will~~anticipates ~~range~~that ~~from~~the ~~between~~FDIC 12will ~~and~~impose 16additional ~~basis~~special ~~points~~emergency assessments ~~for~~in the ~~healthiest~~future ~~institutions~~that towill 45impact ~~basis~~the ~~points~~Bank’s ~~for~~capital ~~the~~levels ~~riskiest~~and earnings.

InThe ~~addition,~~increases onin ~~February 27, 2009, the~~ FDIC ~~adopted~~insurance contributed ~~an interim rule, with request for comment,~~ to ~~impose~~the aincrease ~~one-time~~in 20the ~~basis~~Company’s ~~point~~expense ~~emergency~~from ~~special assessment~~$71,000 ~~effective~~in on2008 ~~June 30, 2009 and~~ to ~~be collected on September 30~~$1,449,000 in 2009. ~~The~~Given ~~interim rule would also permit~~ the ~~FDIC~~enacted toincreases ~~impose~~in ~~additional special~~ assessments offor upinsured tofinancial 10institutions ~~basis points after June 30, 2009, if~~ the ~~DIF~~Company ~~reserve ratio~~anticipates ~~is estimated to fall to a level~~ that ~~that the~~ FDIC ~~believes~~assessments ~~would~~on ~~adversely~~deposits ~~affect~~will continue ~~public confidence or~~ to ahave ~~level close to zero or negative at the end of~~ a ~~calendar~~significant ~~quarter.~~impact ~~The~~upon ~~ultimate~~operating ~~goal~~expenses ~~of the increase~~ in ~~assessment~~2010 ~~rates~~ and ~~the proposed~~could ~~special~~materially ~~assessments~~affect isour toreported ~~restore~~earnings ~~the~~liquidity ~~DIF~~and ~~reserve ratio to a minimum of 1~~capital.15 ~~percent within the next seven years.~~

~~Given~~24 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.

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 FICO is a mixed-ownership government corporation established by the Competitive Equality Banking Act of 1987 whose sole purpose was to function as a financing vehicle for the now defunct Federal Savings & Loan Insurance Corporation. FICO assessments are included in the FDIC amounts stated above, and totaled $47,000 in 2009.

The Bank’s FDIC assessment rate for the year ended December 31, ~~2008~~2009 was 821.5347 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.

Emergency Economic Stabilization Act of 2008. 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.

Temporary Liquidity Guarantee Program., 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 June 30, 2010. The TLGP also includes the Debt Guarantee Program by which certain senior unsecured debt issued by institutions and their holding companies on or after April 1, 2009 and not later than October 31, 2009 will be guaranteed by the FDIC through the earlier of maturity of the debt or December 31, 2012. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. 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. Separately, Congress extended the temporary increase in the standard coverage limit to $250,000 until December 31, 2013.

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~~2009, the Bank’s limit on loans to one borrower was $7.72 million. At December 31, ~~2008~~2009, the Bank’s largest aggregate outstanding balance of loans to one borrower was $4.61 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~~2009, the Bank maintained 7876.69% 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~~

2325

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 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~~2009, 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~~2009 calculated using the ratio calculation of HOLA prior to March 15, 2001 was 24.6205%, 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~~2009 totaled $~~188~~216,000.

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.

2426

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 Standards. The FDI Act, requires ~~each federal~~the ~~banking~~federal ~~agency~~bank regulatory agencies to prescribe ~~for~~standards, ~~all~~by ~~insured~~regulations ~~depository~~or ~~institutions~~guidelines, ~~standards~~ relating to, ~~among other things,~~ internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the ~~agency~~agencies ~~deems~~deem appropriate. ~~The~~Guidelines adopted by the federal ~~banking~~bank regulatory agencies ~~have~~establish ~~adopted~~general standards ~~final~~relating ~~regulations~~to internal controls and ~~Interagency~~information ~~Guidelines~~systems, ~~Prescribing~~internal ~~Standards~~audit ~~for~~systems, ~~Safety~~ loan documentation, credit underwriting, interest rate exposure, asset growth and ~~Soundness~~compensation, ~~(“Guidelines”)~~fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to ~~implement~~identify ~~these~~and ~~safety~~manage the risk and ~~soundness~~exposures ~~standards~~specified in the guidelines. The ~~Guidelines~~guidelines ~~set~~prohibit ~~forth~~excessive ~~the~~compensation ~~safety~~as an unsafe and ~~soundness~~unsound ~~standards~~practice ~~that~~and describe compensation as excessive when the ~~federal~~amounts ~~banking~~paid ~~agencies~~are ~~use~~unreasonable or disproportionate to ~~identify~~the ~~and~~services ~~address~~performed ~~problems~~by atan ~~insured~~executive ~~depository institutions~~officer, ~~before~~employee, ~~capital~~director ~~becomes~~or ~~impaired~~principal stockholder. IfIn addition, the ~~appropriate~~agencies ~~federal~~adopted ~~banking~~regulations that authorize, but do not require, an agency ~~determines~~to order an institution that has been given notice by an ~~institution~~agency ~~fails~~that toit ~~meet~~is not satisfying any ~~standard~~of ~~prescribed~~such bysafety ~~the~~and ~~Guidelines~~soundness standards to submit a compliance plan. If, ~~the~~after ~~agency~~being ~~may~~so ~~require~~notified, ~~the~~an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an ~~acceptable~~ ~~plan~~order directing action to ~~achieve~~correct ~~compliance~~the ~~with~~deficiency and may issue an order directing other actions of the ~~standard,~~types asto ~~required~~which byan undercapitalized institution is subject under the “prompt corrective action” provisions of FDI Act. ~~The~~If ~~final~~an ~~rule~~institution ~~establishes~~fails ~~deadlines~~to ~~for~~comply with such an order, the ~~submission~~agency ~~and~~may ~~review~~seek ofto enforce such ~~safety~~order in judicial proceedings and ~~soundness~~to ~~compliance~~impose ~~plans.~~civil money penalties.

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~~27 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.

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.

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.

Incentive Compensation. On October 22, 2009, the Federal Reserve Board issued a comprehensive proposal on incentive compensation policies (the “Incentive Compensation Proposal”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Proposal, which covers all employees that have the ability to materially affect the risk profile of an organization, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The Federal Reserve Board indicated that all banking organizations are to evaluate their incentive compensation arrangements and related risk management, control, and corporate governance processes and immediately address deficiencies in these arrangements or processes that are inconsistent with safety and soundness.

The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, on January 12, 2010, FDIC issued an Advance Notice of Proposed Rulemaking seeking public comment on whether certain employee compensation structures pose risks that should be captured in the deposit insurance assessment program through higher deposit assessment rates.

The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain and motivate its key employees.

Regulatory Reform. In June 2009, President Obama’s administration proposed a wide range of regulatory reforms that, if enacted, may have significant effects on the financial services industry in the United States. Significant aspects of the administration’s proposals that may affect the Company included, among other things, proposals: (i) to reassess and increase capital requirements for banks and bank holding companies and examine the types of instruments that qualify as regulatory capital; (ii) to combine the OCC and the Office of Thrift Supervision into a National Bank Supervisor with a unified federal bank charter; (iii) to expand the current eligibility requirements for financial holding companies, such as the Company, so that the financial holding company must be “well capitalized” and “well managed” on a consolidated basis; (iv) to create a federal consumer financial protection agency to be the primary federal consumer protection supervisor with broad examination, supervision and enforcement authority with respect to consumer financial products and services; (v) to further limit the ability of banks to engage transactions with affiliates; and (vi) to subject all “over-the-counter” derivatives markets to comprehensive regulation.

The U.S. Congress, state lawmaking bodies and federal and state regulatory agencies continue to consider a number of wide-ranging and comprehensive proposals for altering the structure, regulation and competitive relationships of the nation’s financial institutions, including rules and regulations related to the administration’s proposals. Separate comprehensive financial reform bills intended to address the proposals set forth by the administration were introduced in both houses of Congress in the second half of 2009 and remain under review by both the U.S. House of Representatives and the U.S. Senate. In addition, both the U.S. Treasury Department and the Basel Committee have issued policy statements regarding proposed significant changes to the regulatory capital framework applicable to banking organizations, as discussed above. The Company cannot predict whether or in what form further legislation or regulations may be adopted or the extent to which the Company may be affected thereby.

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 $4344.94 million or less (subject to adjustment by the Federal Reserve Board) the reserve requirement was 3%; and for accounts aggregating greater than $4344.94 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 $4344.9 4 million. The first $910.3 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;

•

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~~ 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~~ 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~~2009 taxable year, the Bank is subject to a maximum federal income tax rate of 34%.

The Bank qualifies as a savings institution under the provisions of the 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, 2009 and 2008, include approximately $6.9 million of such bad debt, which, in accordance with FASB ACS 740 “Accounting for Income Taxes,” is considered permanent difference between the book and income tax basis of loans receivable, and for which income taxes have not been provided.

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.

A30 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

~~calculated~~reserves. ~~for~~The ~~federal~~1996 ~~income~~Act ~~tax~~repeals ~~purposes,~~the ~~distributions~~reserve inmethod ~~redemption~~ of ~~stock,~~accounting ~~and~~for ~~distributions~~bad indebts ~~partial~~effective orfor ~~complete~~tax ~~liquidation~~years beginning after 1995. ~~Dividends~~Thrift ~~paid~~institutions ~~out~~that ofwould be treated as small banks are allowed to utilize the ~~Bank’s~~Experience ~~current~~Method orapplicable ~~accumulated~~to ~~earnings~~such ~~and~~institutions, ~~profits~~while ~~will~~thrift ~~not~~institutions bethat soare ~~included~~treated as large banks (those generally exceeding $500 million in assets) are required to use only the ~~Bank’s~~specific ~~income~~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 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~~2009, the Bank had 87 full-time employees and 2623 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.

AsOn ~~previously~~March ~~disclosed and described in Part I~~29, ~~Item 3~~2010, ~~Legal Proceedings of this Form 10-K,~~ the Bank ~~has~~entered ~~received~~into ~~federal~~a ~~grand~~plea ~~jury~~agreement ~~subpoenas~~with ~~from~~ the United States Attorney’s Office for the District of New Jersey (“and the U.S. ~~Attorney’s~~Department ~~Office”).~~of ~~The~~Justice ~~subpoenas~~(collectively, ~~were~~the ~~issued~~“United States”) to ~~the~~resolve ~~Bank~~a inpreviously ~~connection~~disclosed ~~with an ongoing~~ investigation ~~regarding~~into the Bank’s ~~anti-money laundering and~~ Bank Secrecy Act/Anti-Money ~~compliance.~~Laundering ~~Certain~~(“BSA/AML”) ~~individuals,~~compliance ~~including~~program. ~~the~~The ~~Bank’s~~plea ~~senior~~agreement ~~officers,~~was ~~have~~approved ~~also~~by ~~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.~~United ~~Attorney’s Office relating to certain commissions paid to the manager of Pamrapo Service Corporation. The Bank is~~States, and ~~intends~~was ~~to continue, cooperating fully~~accepted ~~with~~by the ~~investigations.~~United ItStates isDistrict ~~anticipated~~Court ~~that the investigations will continue~~ for atNew ~~least the next several months~~Jersey. 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.

28Under the plea agreement, the Bank forfeited $5 million to the United States. In addition to the $5 million forfeiture, the Bank agreed to a consent order and payment of a civil money penalty of $5 million assessed concurrently by the OTS relating to the Bank’s BSA/AML compliance controls. The penalty does not require a separate payment to the OTS or United States from the amount forfeited pursuant to the plea agreement. There is a potential for additional losses regarding the United States investigation. Such additional losses would relate to potential criminal fines that may be imposed separately by a court, and civil money penalties that may be imposed by the Financial Crimes Enforcement Network (FinCEN), a part of the United States Treasury Department, and could have a material impact on the Company’s consolidated financial position, results of operations, and regulatory capital ratios. In addition, regardless of the outcome of the investigation, the Company may continue to incur substantial costs in dealing with these matters, which could continue to reduce the Company’s earnings.

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 2224 of the Notes to Consolidated Financial Statements in ~~the~~this ~~2008~~Form ~~Annual Report to Shareholders~~10-K, in August 2008, management became aware that certain commission payments from a third-party broker, which were payable to ~~Pamrapo~~ ~~Service~~the Corporation, as required by its policies and procedures, were being paid directly to the manager of Pamrapo Service Corporation (the “Manager”). The direct payments to the ~~manager~~Manager were made pursuant to a letter between a third-party broker and the president of ~~Pamrapo~~the ~~Service~~ Corporation. These direct payments constituted a change in commission structure, which was made without the approval of the board of directors of ~~Pamrapo~~the ~~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.

Following an internal inquiry into this matter, the Bank determined, based upon the knowledge and understanding at the time of the individuals who conducted the inquiries, 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 repaid by or on behalf of the Manager to the Corporation, and the Company recognized the amount of $270,357 in earnings during the fourth quarter of 2008.

On February 24, 2009, the Audit Committee of the Bank engaged independent forensic accountants to assist with an internal investigation of the business and financial records of the Corporation. On May 5, 2009, the independent forensic accountants issued a report to the Bank’s Audit Committee with respect to the results of their internal investigation (the “Report”). The Report indicates that, based upon the information presented to the forensic accountants on or before April 24, 2009 and the procedures that they performed, the forensic accountants determined that the Manager received funds in the form of commission income directly from broker-dealers and insurance carriers beginning in the year 2005 through his termination on February 12, 2009. According to the Report, the independent forensic accountants determined that, as of May 5, 2009, excluding the $270,357 previously paid to the Corporation, an additional $224,559 in commission revenue for the fiscal years 2005 through 2008 is due to the Corporation by the Manager and certain other individuals previously affiliated with the Corporation. Recovery of any of these amounts is subject to several contingencies, including any claims or defenses put forth by any person or entity that the Bank would choose to seek recovery from, including, but not limited to, the former Manager of the Corporation. The amounts are subject to change, based on the receipt of

further information. Management has determined that the item is a gain contingency and, in accordance with FASB ASC 450 “Contingencies,” has not reflected any amounts in its consolidated financial statements as of December 31, 2009. If it is determined that the Corporation is in fact entitled to any of these amounts and they are in fact recovered, the amounts could be material to the Bank’s current and previously issued consolidated financial statements, and restatements of certain consolidated financial statements may be necessary.

The Report reflects the determinations of the independent forensic accountants, based upon information received and procedures performed through the date of the Report. Pamrapo’s management, board of directors and Audit Committee are still in the process of evaluating the Report and other information as it becomes available to determine additional amounts due, if any.

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~~2009. 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 atwo cease and desist ~~order~~orders, 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~~January 2621, ~~2008~~2010, the Bank consented to the Order issued by the OTS on the same date. The Order ~~requires~~ was issued as a result of matters relating to the Bank’s tocompliance ~~strengthen~~with ~~its~~certain ~~BSA/AML~~laws ~~Program~~and regulations, toand ~~strengthen~~deficiencies in its operations ~~Compliance~~and ~~Maintenance~~management. ~~Program~~The Order requires the Bank to prepare and ~~internal~~submit ~~controls~~to ~~related~~the OTS an updated three-year business plan for calendar years 2010 to ~~those~~2012, ~~matters~~and to prepare and submit to ~~take~~the ~~certain~~OTS ~~other~~a ~~actions~~management ~~identified~~plan. The Order also required the Bank to appoint, by April 15, 2010, at least three (3) new independent members to the ~~OTS~~Bank’s board of directors in the ~~Order~~event that the sale or merger of the Bank is not completed by March 31, 2010. The Bank, ~~has~~pursuant ~~and~~to ~~continues~~the toOrder, shall ~~take~~not ~~steps~~increase its total assets during any quarter in excess of an amount equal to ~~remediate~~net interest credited on deposit liabilities during the ~~deficiencies~~prior ~~noted~~quarter inwithout the ~~Order~~prior ~~and~~permission toof ~~strengthen~~the OTS. The Order also requires the Bank’s ~~overall~~to ~~compliance~~maintain ~~programs~~adequate and effective internal controls and corporate governance policies, procedures and practices, including ~~initiatives~~an ~~implemented~~internal toaudit ~~enhance~~program, ~~among~~an ~~other~~independent ~~things~~compliance oversight program, ~~the~~and ~~Bank’s~~an ~~BSA/AML~~effective ~~Program~~internal loan review program and ~~its~~to ~~Compliance Management~~take ~~Program.~~certain Weother actions ~~cannot~~identified ~~predict~~by the ~~further~~OTS ~~impact~~in of the Order. ~~upon~~The ~~our~~Bank ~~business~~has already begun to implement several initiatives to enhance, ~~financial~~among ~~condition~~other orthings, ~~results~~its management and corporate governance in accordance with the requirements of ~~operations~~the Order.

On September 26, 2008, the Bank consented to the 2008 Order. The ~~current~~2008 Order requires the Bank to strengthen its BSA/AML Program, to ~~economic~~strengthen ~~environment~~its ~~poses~~Compliance ~~significant~~Maintenance ~~challenges~~Program ~~for~~and usinternal controls related to those matters and ~~could~~to ~~adversely~~take ~~affect~~certain other actions identified by the OTS in the 2008 Order. The Bank has and continues to take steps to remediate the deficiencies noted in the 2008 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 and the 2008 Order upon our business, financial condition ~~and~~or results of operations.

We33 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

~~asset~~Any ~~values~~delay ~~by financial institutions. Continued declines~~ in ~~real~~completion ~~estate values, home sales volumes and financial stress on borrowers as a result~~ of the ~~uncertain~~ ~~economic~~Merger ~~environment~~may ~~could~~significantly ~~have~~reduce anthe ~~adverse~~benefits ~~effect~~expected onto ~~our~~be ~~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~~obtained ~~effects~~from ~~on us and others in~~ the ~~financial institutions industry~~Merger. 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:

•In ~~Domestic~~addition ~~economic~~to the required regulatory clearances and approvals, the Merger is subject to a number of other conditions beyond the control of BCB and the Company that ~~negatively~~may prevent, delay or otherwise materially adversely affect ~~housing~~its ~~prices~~completion. BCB and the ~~job~~Company ~~market~~cannot ~~have~~predict ~~resulted,~~whether and ~~may~~when ~~continue~~these toother ~~result~~conditions will be satisfied. Further, inthe requirements afor ~~deterioration~~obtaining inthe ~~credit~~required ~~quality~~approvals could delay the completion of ~~our~~the ~~loan~~Merger ~~portfolios,~~for ~~and~~a ~~such~~significant ~~deterioration~~period of time or prevent it from occurring. Any delay in ~~credit~~completing ~~quality~~the ~~has~~Merger ~~had,~~may significantly reduce the synergies and ~~could~~other ~~continue~~benefits that BCB and the Company expect to ~~have,~~achieve aif ~~negative~~they ~~impact~~successfully oncomplete ~~our~~the ~~business~~Merger within the expected timeframe and integrate their respective businesses.

Failure to complete the Merger could negatively impact the share price and the future business results of the Company.

There is no assurance that conditions to completion of the Merger will be satisfied, including obtaining the necessary regulatory approvals. If the Merger is not completed for any reason, the price of the Company’s common stock and the future results of the Company could be adversely affected.

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 two years, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of 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 and 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. 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 demand, the job market and the demand for other goods and services 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.

Liquidity risk could impair the Company’s ability to fund its operations and jeopardize its financial condition.

Liquidity is essential to the Company’s business. An inability to raise funds through deposits, borrowings, equity/debt offerings and other sources could have a substantial negative effect on the Company’s liquidity. The Company’s access to funding sources in amounts adequate to finance its activities, or on terms attractive to the Company, could be impaired by factors that affect the Company specifically or the financial services industry in general. Factors that could detrimentally impact the Company’s access to liquidity sources include a reduction in its credit ratings, if any, an increase in costs of capital in financial capital markets, a decrease in the level of its business activity due to a market downturn or adverse regulatory action against the Company, or a decrease in depositor or investor confidence in it. The Company’s ability to borrow could also be impaired by factors that are not specific to it, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.

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~~ advances from the FHLB-NY and other borrowings to fund its operations. ~~Although~~In weJanuary ~~consider~~2010 ~~such~~the ~~sources~~Bank ofwas ~~funds~~informed ~~adequate~~by ~~for~~the ~~our~~FHLB-NY ~~current~~about ~~capital~~its ~~needs,~~decision weto ~~may~~impose ~~seek~~certain ~~additional~~restrictions ~~debt~~on ~~or equity capital in~~ the ~~future~~Bank’s tocredit ~~achieve our long-term business objectives~~activities. The ~~sale~~Bank ofnow ~~equity~~is oronly ~~convertible~~able ~~debt~~to ~~securities~~do inshort ~~the~~term borrowings ~~future~~(30 ~~may~~days beor ~~dilutive~~less) ~~to our stockholders,~~ and ~~debt~~its ~~refinancing~~eligibility ~~arrangements may require us~~ to ~~pledge~~sell ~~some~~mortgage ofloans ~~our assets and enter~~ into ~~covenants~~the ~~that~~MPF ~~would~~Program ~~restrict~~has ~~our~~been ~~ability to~~suspended ~~incur~~pending ~~further~~a ~~indebtedness.~~determination ~~There~~by ~~can~~the beFHLB-NY ~~no assurance~~ that ~~additional~~the ~~financing~~Bank ~~sources,~~again ifmeets ~~sought,~~the ~~would~~eligibility berequirements ~~available~~for toparticipation usin ~~or,~~the ifMPF ~~available, would be on terms favorable to us~~Program. IfThe Bank’s ~~additional~~line ~~financing~~of ~~sources~~credit ~~are~~with ~~unavailable~~the orFHLB-NY ~~are~~has not ~~available on~~been ~~reasonable terms, our growth strategy and future prospects could be adversely impacted~~reduced.

~~Our~~The ~~business~~Bank also recently was informed by the FRB-NY that the Bank (i) no longer qualifies for uncollateralized daylight credit, (ii) is ~~subject~~no longer eligible to ~~interest~~borrow ~~rate~~under ~~risk~~the ~~and~~FRB-NY Discount Window’s primary credit program, rather requests to borrow at the Window will be considered under the ~~variations~~secondary credit program and granted on an overnight basis, and (iii) is now required to prefund its Automated Clearing House credit originations. As these restrictions continue to be in ~~market~~place, ~~interest~~we ~~rates~~could ~~may~~experience ~~negatively~~continuing ~~affect~~or increased adverse effects on our ~~financial~~growth ~~performance~~strategy and prospects.

Although we consider our 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 affected.

Our business is subject to interest rate risk and variations in market interest rates may negatively affect our results of operations and financial condition.

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

•

Inflation;

•

Recession;

• ~~A rise in unemployment~~Unemployment;

• ~~Tightening~~Monetary ~~money supply~~Policy; and

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

30• Investor and consumer demand.

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~~We may need to continue to increase our allowance for loan losses ~~may~~in ~~not~~material beamounts. ~~adequate~~We have also experienced and may continue to ~~cover~~experience ~~actual~~increases ~~losses~~in net charge-offs.

~~Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance.~~ Our ~~allowance~~customers ~~for loan losses~~ may not berepay ~~adequate~~their toloans ~~cover~~according ~~actual~~to ~~loan~~the ~~losses~~original terms, 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~~collateral ~~associated~~securing ~~with our loans held for investment. During~~ the ~~year~~payment ~~ended~~of ~~December 31,~~those ~~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~~insufficient ~~our control,~~to ~~and~~pay ~~these~~any ~~losses~~remaining ~~may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for~~ loan ~~losses~~balance. While we ~~believe~~maintain ~~that~~an ~~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~~defaults orand ~~that~~non-performance ~~regulators~~losses ~~will~~may ~~not~~exceed ~~require~~the usvalue toof ~~increase~~the collateral ~~this~~securing ~~allowance.~~the ~~Either~~loans ofand ~~these~~the ~~occurrences~~allowance ~~could~~may ~~materially~~not ~~and~~fully ~~adversely~~cover ~~affect our~~any ~~earnings~~excess ~~and profitability~~loss.

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. 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. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Bank to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

During the year ended December 31, 2009, we recorded a $4.0 million provision for loan losses and had net charge-offs of $2.1 million, compared to $1.6 million and $0.1 million respectively during the year ended December 31, 2008. This significant increase in the provision for loan losses is in response to two primary factors: first, the overall deterioration in the housing market in general in New Jersey which has caused an increase in the Bank’s non-performing loans, and second, an additional provision of $0.9 million for a commercial loan to a local hospital. The provision for loan losses included $0.3 million and $0.9 million in 2008 and 2009 respectively and $1.9 million in charge-offs in 2009 related to the above mentioned loan. We expect our loan loss provision to remain at elevated levels until non-performing assets and charge-offs improve.

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;

•

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~~2009, the market for residential housing ~~experienced~~continued to experience dramatic declines, with falling home prices and increasing foreclosures. InWe ~~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~~year 2009. 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 increasingly 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~~ weIf ~~believe~~the ~~that our~~ underwriting ~~criteria~~process ~~are~~fails ~~appropriate~~to capture ~~for~~accurate ~~the~~information ~~various~~or ~~kinds~~proves ofto ~~loans~~be ~~we make~~inadequate, we may incur losses on loans that meet our underwriting criteria, and ~~these~~those 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~~37 ~~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.

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 January 12, 2010, William J. Campbell, our former President and Chief Executive Officer, owned approximately 12.18% of our outstanding common stock. As a result, he will have the ability to significantly influence the outcome of any other matters to be decided by a vote of stockholders.

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.

Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect the Company’s business and require us to raise additional capital.

In addition to the U.S. Treasury’s Capital Purchase Program (“CPP”) under the Troubled Asset Relief Program (“TARP”) announced in the fall of 2008, the U.S. Treasury and the FDIC have taken further steps to support and regulate the financial services industry, that include enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insurance on bank deposits. Also, the U.S. Congress, through the EESA and the American Recovery and Reinvestment Act of 2009, has imposed a number of restrictions and limitations on the operations of financial services firms participating in the federal programs. These programs subject us and other financial institutions who participate in them to (1) additional restrictions, oversight, reporting obligations and costs; and (2) compensation restrictions that limit our ability to attract and retain executives, each of which could have an adverse impact on our business, financial condition, results of operations or the price of our common stock. In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry and

impose restrictions on the ability of firms within the industry to conduct business consistent with historical practices, including aspects such as compensation, interest rates, new and inconsistent consumer protection regulations and mortgage regulation, among others. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. We cannot predict the substance or impact of pending or future legislation or regulation, or the application thereof. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner.

Higher FDIC deposit insurance premiums and assessments could adversely affect Pamrapo Bancorp’s financial condition.

The Bank’s FDIC insurance premiums have increased substantially in 2009. The Bank expects to pay significantly higher premiums in the future. A large number of depository institution failures have significantly depleted the Deposit Insurance Fund (“DIF”) and reduced the ratio of reserves to insured deposits. In order to restore the DIF reserve ratio to its statutorily mandated minimum of 1.15 percent over a period of several years, the FDIC increased deposit insurance premium rates at the beginning of 2009 and imposed a special assessment on June 30, 2009, which amounted to $263,000 for the Bank. Given the continued decline in the DIF balance, the FDIC may impose additional special emergency assessments in the future that will impact the Bank’s capital levels and earnings.

Item 1B. Unresolved Staff Comments.

Not Applicable.

3339

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~~ 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~~2009. The total net book value of the Bank’s premises and equipment at December 31, ~~2008~~2009 was $2.96 million.

Location	YearOffice Opened	NetBook Value
		(In thousands)
Executive Office
Executive Office 591-597 Avenue C Bayonne, New Jersey	1985	$	1,226
591-597 Avenue C Bayonne, New Jersey	1985	$	1,298
Branch Offices
611 Avenue C Bayonne, New Jersey	1984		~~565~~548
155 Broadway Bayonne, New Jersey	1973		8076
175 Broadway (1) Bayonne, New Jersey	1985		—
861 Broadway Bayonne, New Jersey	1962		6555
987 Broadway Bayonne, New Jersey	1977		~~207~~197
1475 Bergen Boulevard (1)(2) Fort Lee, New Jersey	1990		—
544 Broadway (1) Bayonne, New Jersey	1995		84
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		9374
211-A Washington Street (1) Jersey City, New Jersey	2006		~~131~~108
Net book value of properties			2,~~447~~288
Furnishings and equipment (3)			~~482~~327
Total premises and equipment		$	2,~~929~~615

(1)	Leased Property.

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

(3)	Includes off-site ATMs.

Item 3. Legal Proceedings.

AsOn ~~announced~~March ~~on February 3~~29, ~~2009~~2010, the Bank ~~previously~~entered ~~received~~into ~~federal~~a ~~grand~~plea ~~jury~~agreement ~~subpoenas~~with ~~from~~ the United States ~~Attorney’s~~ ~~Office for the District of New Jersey (“U.S. Attorney’s Office”). The subpoenas were issued~~ to resolve ~~the~~a ~~Bank~~previously indisclosed ~~connection with an ongoing~~ investigation ~~regarding~~into the Bank’s ~~anti-money~~BSA/AML ~~laundering and Bank Secrecy Act~~ compliance program. ~~Certain~~The ~~individuals,~~plea ~~including~~agreement ~~the~~was ~~Bank’s~~approved ~~senior~~by ~~officers, have also received grand jury testimony subpoenas in connection with this matter. In addition,~~ the Bank and ~~its~~the ~~wholly-owned~~United ~~subsidiary~~States, ~~Pamrapo~~and ~~Service~~was ~~Corporation,~~accepted ~~have also~~by ~~recently~~the ~~received~~United ~~federal~~States ~~grand~~District ~~jury~~Court ~~subpoenas~~for ~~from~~New ~~the U~~Jersey.S. ~~Attorney’s~~

3440

~~Office~~Under ~~relating~~the toagreement, ~~certain commissions paid to~~ the ~~manager of Pamrapo Service Corporation. The~~ Bank ~~is,~~pleaded ~~and~~guilty ~~intends~~ to ~~continue,~~a ~~cooperating~~criminal ~~fully~~information charging it with ~~the~~a ~~investigations,~~single ~~having~~count ~~previously~~of ~~provided~~conspiracy ~~documents~~to ~~and~~fail ~~information~~ to ~~the~~file ~~U.S.~~Currency ~~Attorney’s~~Transaction ~~Office.~~Reports Itand isSuspicious ~~anticipated~~Activity ~~that~~Reports ~~the~~and ~~investigations~~to ~~will~~fail ~~continue for at least the next several months. The Company is unable~~ to ~~predict~~establish ~~what~~an ~~action,~~adequate ~~if any,~~anti-money ~~might~~laundering beprogram ~~taken~~as inrequired ~~the future~~ by ~~governmental~~the ~~authorities~~Bank asSecrecy aAct ~~result~~and ofits ~~these~~implementing ~~investigations~~regulations ~~or what impact, if any,~~ (the “Information”). ~~outcome~~The ofBank ~~these~~forfeited ~~matters~~$5 ~~might~~million ~~have~~to onthe ~~its~~United ~~consolidated financial position, results of operations, or cash flows~~States.

~~Item 4.~~According ~~Submission~~to the terms of ~~Matters~~the plea, the United States has agreed that it will not bring any additional criminal charges against the Bank in connection with the criminal conduct alleged in the Information. The plea agreement reflects that the Bank has fully cooperated with the criminal investigation. The Bank continues to cooperate fully with the criminal investigation. On March 29, 2010, the Bank agreed to a ~~Vote~~consent order and payment of ~~Security~~a ~~Holders~~civil money penalty of $5 million assessed concurrently by the OTS relating to the Bank’s BSA/AML compliance controls. The penalty does not require a separate payment to the OTS or United States from the amount forfeited pursuant to the agreement with the United States. The Bank has not yet entered into a consent order with the FinCEN.

~~None~~Reserves totalling $5 million for the forfeiture and the concurrent OTS civil money penalty were previously established by the Bank as reported in Forms 8-K filed with the Securities and Exchange Commission on June 23, 2009 and December 7, 2009.

35Class Action Lawsuit. On July 8, 2009, certain stockholders filed a purported class action lawsuit seeking relief with respect to the Merger. On December 8, 2009, the plaintiffs filed a motion for a preliminary injunction seeking to enjoin the special meeting previously scheduled for December 22, 2009 until the Company disseminated an amendment to the respective proxy statement that provided certain information that the plaintiffs asserted was material. The supplemental disclosures, were made by the Company on January 1, 2010 pursuant to an agreement with the plaintiffs, whereby the plaintiffs agreed to withdraw their pending motion for injunctive relief in relation to the merger (but not any claims for money damages) provided that the Company included the supplemental disclosures. On February 11, 2010, the stockholders voted to approve the Merger and adopt the Merger Agreement.

William Campbell’s Lawsuit. On December 2, 2009, William J. Campbell, who is the largest stockholder of the Company and was the Bank’s former President and Chief Executive Officer from 1970 until February 13, 2009, filed a complaint in the Superior Court of New Jersey in Hudson County against the Company, the Bank, and each of its directors. The complaint alleged, among other things, that the Company’s directors were in breach of their fiduciary duties to stockholders in connection with the Company’s entry into the merger agreement. Additionally, the complaint alleged that the Company failed to disclose that Kenneth Poesl and Robert Doria, former directors of BCB and now directors of the Company, still own BCB stock. The complaint sought, among other things, for the Court to award unspecified money damages to Mr. Campbell and enjoin the defendants from consummating the transactions contemplated by the merger agreement and to award the plaintiff attorneys’ fees and expenses incurred in bringing the lawsuit. Mr. Campbell simultaneously filed an Order to Show Cause Seeking Preliminary Injunction. Mr. Campbell’s lawsuit was identified as a related case to the pending, and previously mentioned, consolidated purported class action lawsuit.

On December 16, 2009, the Superior Court of New Jersey, Chancery Division entered an Order enjoining Pamrapo from conducting its special meeting of stockholders on December 22, 2009 or otherwise consummating the merger until further order of the court and ordering that the special meeting be conducted on February 11, 2010.

On February 11, 2010 the stockholders voted to approve the Merger and adopt the Merger Agreement and on February 16, 2010, the Superior Court of New Jersey, Hudson County, Chancery Division, entered an Order dissolving its injunction against the consummation and closing of the merger between Pamrapo and BCB Bancorp, Inc.

Item 4. Reserved.

PART II

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

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

Pamrapo Bancorp, Inc.’s common stock trades on The ~~following~~NASDAQ ~~table~~GM ~~contains~~under ~~information~~the ~~about~~symbol “PBCI”. At March 18, 2010, the ~~Company’s~~number ~~purchases~~of common stockholders of ~~its~~record ~~equity~~was ~~securities~~1,400 ~~during~~and the ~~fourth~~number ~~quarter~~of outstanding shares of ~~2008~~common stock was 4,935,542.

The following table sets for the high and low closing sales price per common share for the periods indicated.


	Closing Prices
Quarter Ended	High		Low
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
March 31, 2009		8.16		5.20
June 30, 2009		10.80		7.25
September 30, 2009		9.64		6.08
December 31, 2009		7.90		6.63

Dividends were paid as follows:
March, 2008		.23
June, 2008		.23
September, 2008		.23
December, 2008		.15
March, 2009		.15
June, 2009		.11
September, 2009		.00
December, 2009		.00

On August 27, 2009, the Company announced that its board of directors has decided to suspend the Company’s regular cash dividends on its common stock, including the dividend for the third quarter of 2009, until further notice. 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.

The following table contains information about the Company’s purchases of its common stock during the fourth quarter of 2009.

Securities Authorized for Issuance Under Equity Compensation Plans.

The information relating to Equity Compensation Plans is incorporated herein by reference to Item 12 – “Equity Compensation Plan Information”—in this Annual Report on Form 10-K.

Issuer Purchases of Equity Securities

Period	Total Numberof SharesPurchased	Average PricePaid per Share		Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans orPrograms	MaximumNumber ofShares thatMay Yet BePurchased Underthe Plans orPrograms (1)(2)(3)
October 1, 2008 to October 31, 2008	—	$	—	—	41,456
October 1, 2009 to October 31, 2009	—	$	—	—	248,156
November 1, 2008 to November 30, 2008	40,000		8.99	40,000	1,456
November 1, 2009 to November 31, 2009	—		—	—	248,156
December 1, 2008 to December 31, 2008	—		—	—	1,456
December 1, 2009 to December 31, 2009	—		—	—	248,156
Total	40,000			40,000

(1) As of December 31, ~~2008~~2009.

(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.~~

The following consolidated financial data is derived in part from the consolidated financial statements of the Company as of and for the five years ended December 31, 2009. The following consolidated selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operation and the Consolidated Financial Statements of the Company and related notes included in this Annual Report on Form 10-K.


	At December 31,
Financial condition data:	2005		2006		2007		2008		2009
	(In Thousands)
Total amount of:
Assets	$	646,086	$	636,560	$	657,428	$	598,012	$	557,800
Loans receivable		438,250		454,859		439,053		437,554		421,049
Securities available for sale		3,321		1,170		917		771		712
Mortgage-backed securities		167,009		141,053		123,907		117,428		87,751
Investment securities		10,287		9,168		10,377		11,350		11,337
Deposits		474,003		469,941		507,961		443,999		444,492
Advances and other borrowed money		106,400		101,000		84,000		89,500		51,000
Stockholders’ equity		58,616		58,568		58,639		54,678		48,235


	Year Ended December 31,
Operating data:	2005			2006			2007			2008			2009
	(In Thousands)
Interest income	$	36,517		$	37,537		$	37,102		$	35,215		$	31,727
Interest expense		12,430			15,981			18,082			15,405			11,491

Net interest income		24,087			21,556			19,020			19,810			20,237
Provision for loan losses		110			—			670			1,630			4,025
Non-interest income		2,541			2,798			2,347			2,423			2,046
Non-interest expenses		13,543			13,884			13,841			16,420			25,560
Income taxes		5,011			3,928			2,504			1,724			(697	)

Net income (loss)		7,964			6,542			4,352			2,459			(6,606	)

Net income (loss) per share
Basic	$	1.60		$	1.31		$	0.87		$	0.49		$	(1.34	)
Diluted		1.60			1.31			0.87			0.49			(1.34	)

Dividends per share	$	.88		$	.92		$	0.92		$	0.84		$	0.26

Dividend payout ratio		54.97	%		69.97	%		105.18	%		169.70	%		—

Selected Consolidated Financial Condition and Operating Data of the Company


	As of or For Year Ended December 31,
Selected Financial Ratios	2005		2006		2007		2008		2009
Return on average assets	1.24	%	1.02	%	0.69	%	0.40	%	(1.14	)%
Return on average equity	14.06	%	10.95	%	7.35	%	4.22	%	(12.64	)%
Average equity/average assets	8.82	%	9.29	%	9.37	%	9.44	%	9.03	%
Interest rate spread	3.52	%	3.00	%	2.56	%	2.83	%	3.21	%
Net yield on average interest-earning assets	3.84	%	3.43	%	3.07	%	3.28	%	3.58	%
Non-interest expenses to average assets	2.11	%	2.16	%	2.19	%	2.66	%	4.41	%
Equity/total assets	9.07	%	9.20	%	8.92	%	9.14	%	8.89	%
Capital ratios:
Tangible	8.18	%	8.59	%	8.43	%	9.14	%	8.89	%
Core	8.18	%	8.59	%	8.43	%	9.14	%	8.89	%
Risk-based	15.25	%	15.68	%	15.82	%	15.25	%	14.63	%
Non-performing loans to total assets	0.30	%	0.36	%	0.83	%	1.81	%	4.04	%
Non-performing loans to loans receivable	0.44	%	0.50	%	1.25	%	2.44	%	5.28	%
Non-performing assets to total assets	0.30	%	0.36	%	0.91	%	1.88	%	4.11	%
Allowance for loan losses to non-performing loans	139.93	%	116.32	%	57.54	%	43.12	%	29.23	%
Average interest-earning assets/average interest-bearing liabilities	1.16x		1.17x		1.17x		1.18x		1.18x
Net interest income after provision for loan losses to non-interest expenses	1.77x		1.55x		1.33x		1.11x		.63x

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

~~The~~Executive ~~above-captioned~~Overview 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.

The Company owns 100% of the issued and outstanding stock of the Bank, which is the primary asset of the Company. The Company’s business is conducted principally through the Bank.

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. The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. 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 in the loan portfolio, economic conditions, collateral values, and other factors related to the collectability of the loan portfolio. Since there has been no material change 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. The loss allowance is established by applying a loss percentage factor to the different types of loans. 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.

Deferred Income Taxes. 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 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.

Pension Plan Assumptions. Our pension plan costs are calculated using actuarial concepts, as discussed within the requirements of FASB ASC 715 “Compensation—Retirement Benefits” and FASB ASC 960 “Plan Accounting—Defined Benefit Pension Plan.” 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. 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.

Changes In Financial Condition

The Company’s consolidated assets at December 31, 2009 totaled $557.8 million, which represents a decrease of $40.2 million or 6.7% when compared to $598.0 million at December 31, 2008. This decrease is primarily the result of decreases in loans receivable and mortgage backed securities.

Securities available for sale decreased $59,000 or 7.7% to $712,000 at December 31, 2009 when compared to $771,000 at December 31, 2008. The decrease during the year ended December 31, 2009 resulted primarily from principal repayments of $103,000 on securities available for sale, partly offset by a decrease of $44,000 in unrealized losses.

Investment securities held to maturity decreased $13,000 or 0.1% to $11.3 million at December 31, 2009.

Mortgage-backed securities held to maturity decreased $29.6 million or 25.2% to $87.8 million at December 31, 2009 from $117.4 million at December 31, 2008. The decrease during the year ended December 31, 2009 resulted from principal repayments of mortgage-backed securities.

Net loans amounted to $421.0 million and $437.6 million at December 31, 2009 and 2008, respectively, which represents a decrease of $16.6 million or 3.8%, primarily due to loan repayments of $67.9 million which exceeded loan originations by $13.5 million. An increase in the allowance for loan losses of $1.9 million also contributed to the current year decrease in the net loans receivable.

Foreclosed real estate amounted to $384,000 and $426,000 at December 31, 2009 and 2008, respectively, which represents a decrease of $42,000 or 10%, resulting from a 10% writedown in asset value. Total deposits at December 31, 2009 increased $500,000 or .1% to $444.5 million compared to $444.0 million at December 31, 2008.

Advances from the FHLB-NY totaled $51.0 million and $89.5 million at December 31, 2009 and 2008, respectively. The decrease of $38.5 million or 43.0% during the year ending December 31, 2009 resulted from repayments of advances and overnight borrowings to FHLB-NY.

Stockholder’s equity amounted to $48.2 million and $54.7 million at December 31, 2009 and 2008, respectively. During the years ended December 31, 2009 and 2008, respectively, a net loss of $6.6 million and net income of $2.5 million, respectively, were recorded and cash dividends of $1.3 million and $4.2 million, respectively, were paid on the Company’s common stock. Accumulated other comprehensive loss decreased $1.4 million net of taxes, or 45.2% to $1.7 million at December 31, 2009 from $3.1 million at December 31, 2008, primarily due to adjustments pertaining to the Bank’s defined benefit plans liabilities.

Results of Operations For The Years Ended December 31, 2009 and 2008

Net Income (Loss)

The net loss for the year ended December 31, 2009 totaled $6.6 million as compared to net income of $2.5 million for the year ended December 31, 2008, or a decrease of $9.1 million. This decrease resulted primarily from a $9.1 million increase in total non-interest expenses and a $2.4 million increase in the provision for loan losses, partly offset by a decrease in income taxes of $2.4 million. The $9.1 million increase in total non-interest expenses was primarily driven by a $5.0 million litigation loss reserve accrued in 2009, a $2.1 million increase in professional fees and a $1.4 million increase in FDIC premiums.

The increase in professional fees during the 2009 fiscal year, as compared to the 2008 fiscal year, was predominately due to expenses incurred for legal, accounting and other professional services as a result of the federal grand jury investigation, and fees paid to consultants that the Bank engaged as a result of the 2008 Order.

FDIC premiums increased as a result of an increase in premium rates, the depletion of assessment credits previously in effect and a special assessment during the quarter ended June 30, 2009 of $270,000.

The increase in the provision for loan losses during the 2009 fiscal year, as compared to the 2008 fiscal year was primarily due to an increase in the Bank’s non-performing loans, which were $22.6 million at December 31, 2009 compared to $10.8 million at December 31, 2008.

Interest Income

Interest income on loans during the year ended December 31, 2009 decreased by $1.8 million or 6.5% to $25.9 million when compared with $27.7 million during 2008. The decrease during the 2009 period resulted from a decrease of $7.7 million or 1.8% in the average balance of loans outstanding, along with a decrease of 32 basis points in the yield earned on loans. During the years ended December 31, 2009 and 2008, the yield earned on the loan portfolio was 6.08% and 6.40%, respectively. The average balance on loans outstanding during the years ended December 31, 2009 and 2008 totaled $425.9 million and $433.7 million, respectively.

Interest on mortgage-backed securities decreased $989,000 or 17.5% to $4.7 million during the year ended December 31, 2009, when compared with $5.6 million for 2008. During the years ended December 31, 2009 and 2008, the average balance on mortgage-backed securities totaled $102.8 million and $124.0 million, respectively, resulting in a net decrease of $21.2 million or 17.1%. The yield earned on the mortgage-backed securities was 4.53% and 4.55% during 2009 and 2008, respectively. Interest earned on investments securities increased by $78,000 or 9.2% to $929,000 during the year ended December 31, 2009, when compared to $851,000 in 2008. The increase during the year ended December 31, 2009 resulted from an increase of $463,000 or 4.1% in the average balance of the investment securities portfolio, along with an increase of 37 basis points in the yield on the portfolio from 7.57% in 2008 to 7.94% in 2009.

Interest on other interest-earning assets decreased by $746,000 or 76.9% to $224,000 during the year ended December 31, 2009, when compared to $970,000 during 2008. The decrease during the year ended December 31, 2009 resulted from a decrease of 187 basis points in the yield on the other interest-earning assets portfolio from 2.78% in 2008 to .91% in 2009 and a decrease of $10.3 million or 29.4% in the average balance of the other interest-earning assets portfolio.

Interest Expense

Interest expense on deposits decreased $3.2 million or 27.9% to $8.3 million during the year ended December 31, 2009, when compared to $11.5 million during 2008. This decrease was primarily attributable to a decrease of 62 basis points in the average cost of interest-bearing deposits to 2.03% in 2009 from 2.65% for 2008, along with a decrease of $24.8 million or 5.7% in the average balance of interest-bearing deposits outstanding. Interest expense on advances from the FHLB and overnight borrowings decreased $706,000 or 18.1% to $3.2 million during the year ended December 31, 2009, when compared with $3.9 million during 2008. The decrease during 2009 was attributable to a decrease of $10.5 million or 13.4% in the average balance of advances and overnight borrowings outstanding, in addition to a decrease of 28 basis points in the cost of advances and overnight borrowings from 4.99% for 2008 to 4.71% for 2009.

Net Interest Income

Net interest income for the year ended December 31, 2009 increased $427,000 or 2.2% to $20.2 million for 2009 as compared to $19.8 million for 2008. The Bank’s net interest rate spread increased from 2.83% in 2008 to 3.21% in 2009. The increase in net interest rate spread primarily resulted from a 60 point decrease in the cost of interest-bearing liabilities from 3.01% in 2008 to 2.41% in 2009, sufficient to offset a 22 point decrease in the yield of average interest-earning assets from 5.83% in 2008 to 5.61% in 2009. The average balance of interest-earning assets amounted to $565.1 million in 2009 and $603.8 in 2008 and the average balance of interest-bearing liabilities amounted to $477.3 million in 2009 and $512.5 million in 2008.

Provision For Loan Losses

During the years ended December 31, 2009 and 2008, the Bank provided $4.0 million and $1.6 million, respectively, as a provision for loan losses. The $2.4 million increase in the provision for loan losses, from the 2008 to the 2009 period, was primarily due to a deterioration in the housing market in general in New Jersey, and an increase in the Bank’s non-performing loans, which were $22.6 million at December 31, 2009 compared to $10.8 million at December 31, 2008.

During the twelve months ended December 31, 2009 and 2008, the Bank charged off $2.1 million and $124,000, respectively. There were also no recoveries during either period. Included in the $2.1 million amount charged off in 2009 was $1.9 million for a commercial loan to a local hospital. In October 2006, $1.0 million of the total $3.0 million due on the loan was paid and the remaining contractual balance of approximately $1.9 million was secured by a mortgage on real estate. The $1.9 million was due on June 1, 2007. The repayment of the loan was 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, charging that the payment and the mortgage were “avoidable preferences.”

On June 9, 2009, the Liquidating Trustee for the hospital filed a motion providing for an auction sale of the two mortgaged properties to be sold free and clear of all liens, with liens to attach to the proceeds of sale. The Bank did not oppose the motion and the auction sale was held at a hearing on July 20, 2009. The U.S. Bankruptcy Court for the District of New Jersey, by orders dated July 23, 2009, approved separate bids to acquire the properties for a total of $1.6 million. The closings took place on August 5, 2009 and August 6, 2009, respectively. Net proceeds of the sale, after deducting taxes, real estate commissions and other closing costs, were approximately $1.5 million.

In November 2009, the parties in the litigation filed motions for summary judgment. On December 29, 2009, the Bankruptcy Court ruled in favor of the Bank and against the creditor’s committee motion to recover from the Bank the $1.0 million previously paid on the loan in October 2006. On that same date, the Court also ruled in favor of the Liquidating Trustee on the mortgage, ruling that the Bank does not have a security interest in

the property. As a result, the Bank is deemed an unsecured creditor with a lower priority in the future distribution from the Liquidating Trustee, who will be entitled to the sum of approximately $1.5 million, which is currently held in escrow, along with other funds that are being held by the Liquidating Trustee pending the resolution of the bankruptcy proceedings. The Liquidating Trustee will distribute such funds, including the Bank’s proportion of its $1.9 million claim, at a yet to be determined date. Based on the fact that the Bank is deemed an unsecured creditor with a lower priority in the future distribution from the Liquidating Trustee, the Company’s board of directors decided on January 20, 2010 to write off the full amount of this loan as of December 31, 2009.

The allowance for loan losses amounted to $6.6 million at December 31, 2009, representing 1.54% of total loans and 29.2% of loans delinquent ninety days or more, and $4.7 million at December 31, 2008, representing 1.05% of total loans and 43.15% of loans delinquent ninety days or more. Economic conditions deteriorated in New Jersey, as evidenced by an increase in unemployment, a reduction in the number of home sales and weak consumer confidence.

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 economic and real estate 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 economic and real estate market conditions. Management believes that the allowance for loan losses totaling $6.6 million, is sufficient to absorb estimated losses inherent in the portfolio.

Non-Interest Income

Non-interest income decreased by $378,000 or 15.6% during the year ended December 31, 2009, to $2.0 million, as compared to $2.4 million during the year ended December 31, 2008. This change resulted from decreases in commissions from sale of financial products of $770,000 and fees and service charges in the amount of $120,000, partly offset by a gain on the sale of a branch in the amount of $492,000 in March, 2009 and an increase in other non-interest income in the amount of $20,000. The decrease in commissions from sale of financial products was primarily due to management’s decision to eliminate the sale of financial products to the general public in April of 2009 as a result of the on-going investigation in connection with these commissions as described below.

In August 2008, management became aware that certain commission payments from a third-party broker, which were payable to the Corporation, as required by its policies and procedures, were being paid directly to the Manager. The direct payments to the Manager were made pursuant to a letter between a third-party broker and the president of the 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.

$270,357 previously paid to the Corporation, an additional $224,559 in commission revenue for the fiscal years 2005 through 2008 is due to the Corporation by the Manager and certain other individuals previously affiliated with the Corporation. Recovery of any of these amounts is subject to several contingencies, including any claims or defenses put forth by any person or entity that the Bank would choose to seek recovery from, including, but not limited to, the former Manager of the Corporation. The amounts are subject to change, based on the receipt of further information. Management has determined that the item is a gain contingency and, in accordance with FASB ASC 450 “Contingencies,” has not reflected any amounts in its consolidated financial statements as of December 31, 2009. If it is determined that the Corporation is in fact entitled to any of these amounts and they are in fact recovered, the amounts could be material to the Bank’s current and previously issued consolidated financial statements, and restatements of certain consolidated financial statements may be necessary.

Non-Interest Expenses

Non-interest expenses increased by $9.1 million or 55.7% to $25.6 million during the year ended December 31, 2009, when compared with $16.5 million during 2008. Litigation loss reserve, professional fees, federal deposit insurance premiums and merger-related costs increased $5.0 million, $2.1 million, $1.4 million and $0.9 million, respectively, when compared with 2008.

In connection with the investigation conducted by the United States, on March 29, 2010, the Bank agreed to a consent order and payment of a civil money penalty of $5 million assessed concurrently by the OTS relating to the Bank’s BSA/AML compliance controls. The penalty does not require a separate payment to the OTS or United States from the amount forfeited pursuant to the agreement with the United States. The Bank has not yet entered into a consent order with the FinCEN. It is possible that the Bank will incur material losses in addition to the $5.0 million forfeiture paid to the United States; however the Bank is not able to reasonably estimate additional losses at this time. These additional losses relate to potential further criminal forfeitures and potential criminal fines that may be imposed separately by a court, and civil money penalties that may be imposed by FinCEN.

The increase in professional fees during the year ended December 31, 2009, as compared to the same 2008 period, was predominately due to expenses incurred for legal, accounting and other professional services as a result of the federal grand jury investigation by the U.S. Attorney’s Office and fees paid to consultants that the Bank engaged as a result of the 2008 Order.

Income Taxes

Income taxes for the year ended December 31, 2009 reflected a benefit of $697,000, representing an effective tax benefit rate of 9.55% as compared to an expense of $1.7 million for 2008, representing an effective tax rate of 41.21%. The decrease during the 2009 period resulted primarily from a decrease in pre-tax income of $11.5 million, which included a non-deductable litigation loss reserve of $5.0 million and non-deductible merger costs of $0.3 million.

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 a decrease 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 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 allowance for loan losses in 2008 included $941,000 relative to recording a

provision of approximately 50% of the amount of the loan to the local hospital. For the reasons mentioned before, the Company’s board of directors decided on January 20, 2010 to record a provision and to write off the remaining net loan balance of $941,000 as of December 31, 2009.

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, 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.

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 “Manager”). 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, the Bank determined, based upon the knowledge and understanding at the time of the individuals who conducted the inquiries, that $270,357 was owed by the Manager to the Pamrapo Service Corporation for commissions paid directly to the Manager for the period from August 2007 to December 2008. The $270,357 was repaid by or on behalf of the Manager to the Pamrapo Service Corporation, and the Company recognized the amount of $270,357 in earnings during the fourth quarter of 2008.

with the Corporation. Recovery of any of these amounts is subject to several contingencies, including any claims or defenses put forth by any person or entity that the Bank would choose to seek recovery from, including, but not limited to, the former Manager of the Corporation. The amounts are subject to change, based on the receipt of further information. Management has determined that the item is a gain contingency and, in accordance with FASB ASC 450 “Contingencies,” has not reflected any amounts in its consolidated financial statements as of December 31, 2009. If it is determined that the Corporation is in fact entitled to any of these amounts and they are in fact recovered, the amounts could be material to the Bank’s current and previously issued consolidated financial statements, and restatements of certain consolidated financial statements may be necessary.

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.

Income Taxes

Income tax expense totaled $1.7 million, representing an effective tax rate of 41.21%, and $2.5 million, representing an effective tax rate of 36.52% 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.

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.

In January 2010, the FHLB-NY imposed certain restrictions on the Bank’s credit activities. The Bank now is only able to do short term borrowings (30 days or less) and its eligibility to sell mortgage loans into the Mortgage Partnership Finance (“MPF”) Program has been suspended pending a determination by the FHLB-NY that the Bank again meets the eligibility requirements for participation in the MPF Program. The Bank’s line of credit with the FHLB-NY has not been reduced. As of January 5, 2010, borrowings must be secured by mortgage-backed securities or specific mortgage loans, rather than by mortgage-backed securities or blanket mortgage loans. As of March 25, 2010, the Company had $30.1 million of mortgage-backed security pledges in excess of amounts borrowed.

In January, the FRB-NY informed the Bank that it (i) no longer qualifies for uncollateralized daylight credit, (ii) is no longer eligible to borrow under the FRB-NY Discount Window’s primary credit program, rather requests to borrow at the Window will be considered under the secondary credit program and granted on an overnight basis, and (iii) is now required to prefund its Automated Clearing House credit originations.

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 (loss), adjusted for non-cash items and working capital changes.

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, 2009 and 2008, advances from the FHLB-NY amounted to $51.0 million and $89.5 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At December 31, 2009, the Bank had outstanding commitments to originate loans and fund unused credit lines of $18.9 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 2009, totaled $184.9 million. Management believes that, based upon historical experience, a significant portion of such deposits will remain with the Bank. At December 31, 2009, the Bank exceeded each of the three OTS capital requirements. The Bank’s tangible, core and total risk-based capital ratios were 8.89%, 8.89% and 14.63%, respectively. The Bank was categorized as “well-capitalized” under the prompt corrective action regulations of the OTS.

Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments at December 31, 2009. 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 5.02% and 2.13%, respectively. In addition, the Bank expects to make a pension plan contribution of approximately $350,000 in 2010.

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	$	51,000,000	$	23,000,000	$	10,000,000	$	—	$	18,000,000
Certificates of Deposit		206,558,000		184,903,000		19,506,000		2,149,000		—
Lease Obligations		2,190,000		529,000		1,066,000		551,000		44,000
Benefit Plans		6,642,000		632,000		1,233,000		1,260,000		3,517,000

Total	$	266,390,000	$	209,064,000	$	31,805,000	$	3,960,000	$	21,561,000

Off-Balance Sheet Arrangements

In the normal course of business, the Bank enters into off-balance sheet arrangements primarily to meet the financing needs of its customers. These arrangements include commitments to originate loans and fund lines of credit secured by real estate, a large portion on which may expire without having been drawn upon. The commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Company’s consolidated statement of financial condition. The following table presents these off-balance sheet arrangements at December 31, 2009. 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	$	3,655,000	$	3,655,000	$	—	$	—	$	—
Unused lines of credit		15,199,000		15,199,000		—		—		—
Letters of credit		1,559,000		1,549,000		10,000		—		—

Total	$	20,413,000	$	20,403,000	$	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, 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, 2009, was calculated by the OTS:


							NPV as Percent of Portfolio Value of Assets
Change in Interest Rates In Basis Points	Amount		Net Portfolio Value Dollar Change		Percent Change		NPV Ratio		Change in Basis Points
	(Dollars in Thousands)
+300bp	$	36,583	$	-46,406	-56	%	6.68	%	-717bp
+200bp	$	52,281	$	-30,708	-37	%	9.25	%	-460bp
+100bp	$	68,456	$	-14,533	-18	%	11.75	%	-210bp
+50bp	$	75,596	$	-7,394	- 9	%	12.79	%	-106bp
0bp	$	82,989		—			13.85	%
-50bp	$	88,934	$	5,945	+7	%	14.67	%	+82bp
-100bp	$	94,787	$	11,798	+14	%	15.47	%	+162bp

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.

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

~~Information~~Not ~~about~~applicable 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.

3656

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.


Report of Independent Registered Public Accounting Firm		58
Consolidated Statements of Financial Condition as of December 31, 2009 and 2008		59
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007		60
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007		61
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		62
Notes to Consolidated Financial Statements		63

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Pamrapo Bancorp, Inc.

Bayonne, New Jersey

We have audited the accompanying consolidated statements of financial conditions of Pamrapo Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial position of Pamrapo Bancorp, Inc. and subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

As further discussed in Note 21 to the consolidated financial statements, the Company has entered into a merger agreement pursuant to which the Company will merge with and into another entity.

As further discussed in Note 24 to the consolidated financial statements, the Company has stipulated and consented to two separate Cease and Desist Orders issued by the Office of Thrift Supervision.

/s/ ParenteBeard LLC

ParenteBeard LLC

Clark, New Jersey

March 31, 2010

Pamrapo Bancorp, Inc. and Subsidiaries

Consolidated Statements of Financial Condition


	December 31,
	2009			2008
Assets
Cash and amounts due from depository institutions	$	4,037,102		$	4,116,871
Interest-bearing deposits in other banks		17,735,447			9,470,431

Cash and Cash Equivalents		21,772,549			13,587,302
Securities available for sale		712,100			770,752
Investment securities held to maturity (estimated fair value of $11,336,875 and $10,831,410, respectively)		11,337,355			11,350,165
Mortgage-backed securities held to maturity (estimated fair value of $91,161,838 and $119,920,146, respectively)		87,750,620			117,427,652
Loans receivable (net of allowance for loan losses of $6,591,314 and $4,660,705, respectively)		421,048,892			437,554,169
Foreclosed real estate		383,718			426,353
Premises and equipment		2,615,081			2,929,035
Federal Home Loan Bank of New York stock		3,395,900			5,160,100
Interest receivable		2,650,291			2,884,431
Deferred tax asset		4,896,390			4,380,878
Other assets		1,237,240			1,541,027

Total Assets	$	557,800,136		$	598,011,864

Liabilities and Stockholders’ Equity
Liabilities
Deposits
Non-interest bearing	$	35,251,533		$	40,681,753
Interest bearing		409,240,220			403,317,004

Total Deposits	$	444,491,753		$	443,998,757
Overnight borrowings from Federal Home Loan Bank of New York		—			20,500,000
Advances from Federal Home Loan Bank of New York		51,000,000			69,000,000
Advance payments by borrowers for taxes and insurance		3,261,428			3,281,968
Other liabilities		10,811,481			6,552,889

Total Liabilities		509,564,662			543,333,614

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 (2009 and 2008) outstanding		69,000			69,000
Paid-in capital		19,339,615			19,339,615
Retained earnings		54,039,297			61,928,289
Accumulated other comprehensive loss		(1,672,633	)		(3,118,849	)
Treasury stock, at cost, 1,964,458 shares (2009 and 2008)		(23,539,805	)		(23,539,805	)

Total Stockholders’ Equity		48,235,474			54,678,250

Total Liabilities and Stockholders’ Equity	$	557,800,136		$	598,011,864

See notes to consolidated financial statements.

Pamrapo Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations


	Years Ended December 31,
	2009			2008		2007
Interest Income
Loans	$	25,915,281		$	27,746,334	$	28,838,443
Mortgage-backed securities		4,658,199			5,646,999		6,003,167
Investments, taxable		873,790			795,710		674,212
Investments, non-taxable		55,564			55,562		20,513
Other interest-earning assets		224,454			970,477		1,566,054

Total Interest Income		31,727,288			35,215,082		37,102,389

Interest Expense
Deposits		8,303,431			11,512,007		13,698,770
Advances and other borrowed money
Overnight borrowings		24,646			44,726		1,551
Term advances		3,162,567			3,848,381		4,382,365

Total Interest Expense		11,490,644			15,405,114		18,082,686

Net Interest Income		20,236,644			19,809,968		19,019,703

Provision for Loan Losses		4,025,000			1,630,000		670,000

Net Interest Income after Provision for Loan Losses		16,211,644			18,179,968		18,349,703

Non-Interest Income
Fees and service charges		1,119,538			1,239,937		1,249,896
Gain on sale of branch office		492,037			—		—
Commissions from sale of financial products		89,079			858,630		903,675
Other		345,055			324,698		193,672

Total Non-Interest Income		2,045,709			2,423,265		2,347,243

Non-Interest Expenses
Salaries and employee benefits		8,012,627			7,910,365		7,596,422
Net occupancy expense of premises		1,224,282			1,292,270		1,199,928
Equipment		1,322,498			1,357,782		1,320,370
Advertising		202,398			243,212		255,225
Professional fees		4,884,514			2,798,347		770,734
Loss on foreclosed real estate		67,512			91,647		—
Federal insurance premium		1,449,394			71,211		56,083
Litigation loss reserve		5,000,000			—		—
Merger costs		918,192			—		—
Other		2,479,053			2,654,837		2,642,510

Total Non-Interest Expenses		25,560,470			16,419,671		13,841,272

Income (Loss) before Income Taxes		(7,303,117	)		4,183,562		6,855,674
Income Taxes (Benefit)		(697,365	)		1,724,244		2,503,426

Net Income (Loss)	$	(6,605,752	)	$	2,459,318	$	4,352,248

Net Income (Loss) per Common Share
Basic	$	(1.34	)	$	0.49	$	0.87

Diluted	$	(1.34	)	$	0.49	$	0.87

Weighted Average Number of Common Shares Outstanding
Basic		4,935,542			4,970,788		4,975,542

Diluted		4,935,542			4,970,788		4,978,652

Dividends per Common Share	$	0.26		$	0.84	$	0.92

See notes to consolidated financial statements.

Pamrapo Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity


	Common Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance—January 1, 2007	$	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, $0.92 per share		—		—		(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, $0.84 per share		—		—		(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

Comprehensive loss:
Net loss		—		—		(6,605,752	)		—			—			(6,605,752	)
Unrealized gain on securities available for sale, net of income taxes of $17,742		—		—		—			26,550			—			26,550
Benefit plans, net of income taxes of $946,445		—		—		—			1,419,666			—			1,419,666

Total Comprehensive Loss															(5,159,536	)

Cash dividends, $0.26 per share		—		—		(1,283,240	)		—			—			(1,283,240	)

Balance—December 31, 2009	$	69,000	$	19,339,615	$	54,039,297		$	(1,672,633	)	$	(23,539,805	)	$	48,235,474

See notes to consolidated financial statements.

Pamrapo Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Cash Flows


	Years Ended December 31,
	2009			2008			2007
Cash Flows from Operating Activities
Net income (loss)	$	(6,605,752	)	$	2,459,318		$	4,352,248
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		388,568			486,951			588,233
Amortization of premiums and discounts, net		174,336			278,004			399,510
Amortization of deferred loan fees, net		178,135			148,104			127,461
Provision for loan losses		4,025,000			1,630,000			670,000
Provision for loss on foreclosed real estate		42,635			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 foreclosed real estate		(2,500	)		—			—
Gain on sale of branch		(492,037	)		—			—
Deferred income tax benefit		(1,479,699	)		(619,821	)		(473,894	)
Decrease (increase) in interest receivable		234,140			(146,006	)		155,664
Decrease in other assets		303,787			673,523			174,996
Increase in other liabilities		6,624,703			188,332			374,326

Net Cash Provided by Operating Activities		3,391,316			5,168,278			6,368,544

Cash Flows from Investing Activities
Principal repayments on securities available for sale		102,944			97,624			245,844
Purchases of investment securities held to maturity		—			(1,020,759	)		(1,333,662	)
Principal repayments on mortgage-backed securities held to maturity		29,515,506			21,242,677			20,781,037
Purchases of mortgage-backed securities held to maturity		—			(14,994,187	)		(3,909,245	)
Net change in loans receivable		11,805,142			(279,183	)		14,522,764
Capital improvement to foreclosed real estate		—			(10,226	)		—
Proceeds from sale of foreclosed real estate		499,500			—
Additions to premises and equipment		(82,576	)		(76,088	)		(197,495	)
Proceeds from sale of premises and equipment		7,962			—			—
Redemption (purchase) of Federal Home Loan Bank of New York stock		1,764,200			(164,100	)		725,100

Net Cash Provided by Investing Activities		43,612,678			4,795,758			30,834,343

Cash Flows from Financing Activities
Net increase (decrease) in deposits		14,938,611			(63,962,420	)		38,020,111
Cash paid upon sale of branch deposits, net of premiums received		(13,953,578	)		—			—
Repayment of advances from Federal Home Loan Bank of New York		(40,600,000	)		(15,000,000	)		(17,000,000	)
Advances from Federal Home Loan Bank overnight borrowing		2,100,000			20,500,000			—
Net decrease in payments by borrowers for taxes and insurance		(20,540	)		(275,777	)		(96,419	)
Cash dividends paid		(1,283,240	)		(4,173,455	)		(4,577,499	)
Purchase of treasury stock		—			(361,101	)		—

Net Cash (Used in) Provided by Financing Activities		(38,818,747	)		(63,272,753	)		16,346,193

Net Increase (Decrease) in Cash and Cash Equivalents		8,185,247			(53,308,717	)		53,549,080
Cash and Cash Equivalents—Beginning		13,587,302			66,896,019			13,346,939

Cash and Cash Equivalents—Ending	$	21,772,549		$	13,587,302		$	66,896,019

Supplementary Information
Income taxes paid, net of refunds	$	1,590,526		$	2,150,084		$	2,492,212

Interest paid	$	11,570,074		$	15,470,528		$	18,125,636

Loans receivable transferred to foreclosed real estate	$	497,000		$	—		$	486,000

Implementation of change in measurement date of benefit plans	$	—		$	69,025		$	—

See notes to consolidated financial statements.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended December 31, 2009, 2008 and 2007

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 Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of December 31, 2009 for items that should be potentially recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these financial statements were issued.

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.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

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. Declines in the fair value of held-to-maturity and available-for sale securities below their cost that are deemed to be other-than-temporary would be reflected in the consolidated financial statements. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value and (4) whether the Bank intends to sell the security or if it is more likely than not that the Bank will be required to sell the security before the recovery of its amortized cost basis.

For debt securities where the Bank has determined that an other-than-temporary impairment exists and the Bank does not intend to sell the security or it is not more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, the impairment is separated into the amount that is credit-related and the amount due to all other factors. The credit-related impairment is recognized in the consolidated statement of operations, and is the difference between an investment’s amortized cost basis and the present value of expected future cash flows discounted at the investment’s effective interest rate. The non-credit component of impairment is recorded in other comprehensive loss. For debt securities classified as held-to-maturity, the amount of noncredit-related impairment recognized in other comprehensive loss is accreted over the remaining life of the debt security as an increase in the carrying value of the investment.

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 operations.

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and discounts.

The Bank defers loan origination fees and certain direct loan origination costs and amortizes/accretes such amounts as an adjustment of yield over the contractual lives of the related loans using the interest method.

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.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

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. In addition, the Bank and the Company are subject to the supervision of various regulatory agencies. These agencies, as part of their examination processes, may require that additional amounts be recorded in the allowance for loan losses.

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.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

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.

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.

The funded status of the defined benefit and SERP plans is fully recognized on the consolidated statement of financial condition. It is determined by the difference between the fair value of plan assets and the benefit obligation, with the benefit obligation represented by the projected benefit obligation for the two plans. Actuarial gains (losses) and prior service benefits (costs) which have not yet been recognized in net income (loss) are recognized as a credit (charge) to the accumulated other comprehensive loss component of stockholders’ equity. The credit (charge) to stockholders’ equity, which is reflected net of related tax effects, is subsequently recognized in net income (loss) when amortized as a component of defined benefit plans and postretirement benefit plans expense.

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 operations.

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 (loss). 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 (loss) in the years in which those

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

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.

The Company follows the provisions of FASB ASC 740-10, to account for uncertain tax positions. The guidance provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance 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 FASB ASC 740-10, 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 Operations. The amount of interest and penalties for the years ended December 31, 2009 and 2008 was immaterial. The tax years subject to examination by the taxing authorities are the years ended December 31, 2008, 2007 and 2006.

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 as of December 31, 2009 and 2008.

Management evaluates the restricted stock for impairment in accordance with FASB ASC 310-10, 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.

No impairment charge was recorded in relation to the FHLB Stock in 2009 or 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, the Bank’s 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.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

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. No compensation expense had been reflected in net income (loss) 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 FASB ASC 718 (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 FASB ASC 718 had no impact on the consolidated financial statements.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is based on the weighted average number of common shares actually outstanding. Diluted net income (loss) 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

When necessary, certain amounts for prior periods have been reclassified to conform to the current period’s presentation. The impact of these reclassifications had no impact on consolidated net income (loss) or stockholders’ equity.

Recent Accounting Pronouncements

The following is a summary of recently issued authoritative pronouncements that could have an impact on the accounting, reporting, and/or disclosure of the consolidated financial information of the Company.

On July 1, 2009, the FASB’s GAAP Codification became effective as the sole authoritative source of U.S. GAAP. This codification reorganizes current GAAP for non-governmental entities into a topical index to facilitate accounting research and to provide users with additional assurance that they have referenced all related literature pertaining to a given topic. Existing GAAP prior to the codification was not altered in compilation of the GAAP Codification, instead it takes thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, displaying them in a consistent structure. Accounting literature included in the codification is referenced by Topic, Subtopic, Section, and Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section, and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where the ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”). The GAAP Codification encompasses all FASB Statements of Financial Accounting Standards (SFAS), Emerging Issues Task Force (EITF) statements, FASB Staff Positions (FSP), FASB Interpretations (FIN), FASB Derivative Implementation Guides (DIG), American Institute of Certified Public Accountants (AICPA) Statement of Positions (SOP), Accounting Principles Board (APB) Opinions and Accounting Research Bulletins (ARB’s), along with the remaining body of GAAP effective as of June 30, 2009. Financial Statements issued for all interim and annual periods ending after September 15, 2009 will need to reference accounting guidance embodied in the codification as opposed to referencing the previously authoritative pronouncements. The codification was in response to the June 2009 FASB issuance of SFAS No. 168, which replaces SFAS No. 162. Under the GAAP Codification, SFAS No. 168 translates to FASB ASC 105.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

In conjunction with the issuance of FASB ASC 105, the FASB issued its first Accounting Standards Update (“ASU”) No. 2009-1, “Topic 105—Generally Accepted Accounting Principles—amendments based on—Statement of Financial Accounting Standards No. 168—The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles,” which includes SFAS 168 in its entirety as a transition to the ASC. ASU 2009-1 is effective for interim and annual periods ending after September 15, 2009. The adoption of this Update did not have an effect on the amounts reported in the Company’s consolidated financial statements.

In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value.” The Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of Topic 820. The amendments in the Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. Additionally, the amendments in the Update clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price are required are level 1 fair value measurements.

The guidance provided by the Update is effective for the first reporting period (including interim periods) beginning after the issuance. The adoption of this Update did not have an effect on the amounts reported in the Company’s consolidated financial statements.

In September of 2009, the FASB issued ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which allows a company to measure the fair value of an asset that has no readily determinable fair market value on the basis of the investee’s net asset value per share as provided by the investee. This allowance assumes that the investee has calculated net asset value in accordance with the GAAP measurement principles of Topic 946 as of the reporting entity’s measurement date. Examples of such investments include hedge funds, private equity funds, real estate funds and venture capital funds. The Update also provides guidance on how the investment should be classified within the fair value hierarchy based on the value for which the investment can be redeemed. The Update is effective for interim and annual periods ending after December 15, 2009, with early adoption permitted. The adoption of this Update did not have an effect on the amounts reported in the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets. This Update amends the Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140.

The amendments in this Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

This Update is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. The adoption of this Update is not expected to have an effect on the amounts reported in the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU 2009-17, Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Update amends the Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R).

The amendments in this Update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.

In January 2010, the FASB issued ASU 2010-01, Equity (Topic 505)—Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This Update codifies the consensus reached in EITF Issue No. 09-E, “Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash.”

This Update is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this Update did not have an effect on the amounts reported in the Company’s consolidated financial statements.

The FASB has issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:

•

A reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and

•

In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:

•

For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and

•

A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.

ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The adoption of this Update is not expected to have an effect on the amounts reported in the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). Under FASB’s Codification at ASC 105-10-65-1-d, SFAS 167 will remain authoritative until integrated into the FASB Codification. SFAS 167 amends Interpretation 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest give it a controlling financial interest in the variable interest entity. SFAS 167 is effective for all interim and annual periods beginning after November 15, 2009. The adoption of this standard is not expected to have an effect on the amounts reported in the Company’s consolidated financial statements.

In June 2009 the FASB issued SFAS No. 166, “Accounting for the Transfer of Financial Assets an Amendment of FASB Statement No. 140.” Under FASB’s Codification at ASC 105-10-65-1-d, SFAS 166 will remain authoritative until integrated into the FASB Codification. SFAS 166 removes the concept of a special purpose entity (SPE) from Statement 140 and removes the exception of applying FASB Interpretation 46 “Variable Interest Entities,” to Variable Interest Entities that are SPE’s. It limits the circumstances in which a transferor derecognizes a financial asset. SFAS 166 amends the requirements for the transfer of a financial asset to meet the requirements for “sale” accounting. The statement is effective for all interim and annual periods beginning after November 15, 2009. The adoption of this standard is not expected to have an effect on the amounts reported in the Company’s consolidated financial statements.

Other accounting updates that have been issued or proposed by the FASB or other standard-setting bodies are not expected to have a material effect on amounts reported in the Company’s consolidated financial statements.

Note 2—Securities Available for Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

December 31, 2009:

Mortgage-backed securities

315,994

2,906

800

318,100

Trust originated preferred security, maturing after twenty years

400,000

—

6,000

394,000

715,994

2,906

6,800

712,100

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007


	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

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 Loss		Fair Value		Unrealized Losses		Fair Value		Unrealized Loss
December 31, 2009:
Mortgage-backed securities	$	69,102	$	139	$	82,122	$	661	$	151,224	$	800
Trust originated preferred security		—		—		394,000		6,000		394,000		6,000

	$	69,102	$	139	$	476,122	$	6,661	$	545,224	$	6,800

December 31, 2008:
Mortgage-backed securities	$	207,724	$	977		—		—	$	207,724	$	977
Trust originated preferred security		—		—		352,000		48,000		352,000		48,000

	$	207,724	$	977	$	352,000	$	48,000	$	559,724	$	48,977

All mortgage-backed securities classified as available for sale are issued by U.S. government sponsored agencies and are collateralized by residential mortgages.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent to which the fair value is below amortized cost, additional analysis is performed to determine whether another-than-temporary impairment condition exists. The analysis considers (i) whether the Bank has the intent to sell its securities prior to recovery and/or maturity, (ii) whether it is more likely than not that the Bank will have to sell its securities prior to recovery and/or maturity, and (iii) if the present value of expected cash flows is sufficient to recover the entire amortized cost basis. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair values subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Bank’s financial statements.

Management does not believe that any of the unrealized losses at December 31, 3009 represent an other-than-temporary impairment. The unrealized losses are on the trust-originated preferred security 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, 2009 unrealized losses were on three mortgage-backed securities and one trust-originated preferred security.

Pamrapo Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the years ended December 31, 2009, 2008 and 2007

There were no sales of securities available for sale during the years ended December 31, 2009, 2008 and 2007.

Note 3—Investment Securities Held to Maturity

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

December 31, 2009:

Subordinated notes:

Due within one year

4,003,546

—

3,546

4,000,000

Due after one within five years

6,000,000

—

6,000,000

Municipal Obligations:

Due after ten years through fifteen years

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · PAMRAPO BANCORP INC