10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended DECEMBER 31, 2006

OR

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

For the transition period from                      to                     

Commission File No. 0-18014

PAMRAPO BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

611 AVENUE C, BAYONNE, NEW JERSEY 07002

(Address and zip code of principal executive offices)

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

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

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

Common Stock, par value $0.01 per share

(Title of class)

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

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

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

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

Large accelerated filer  ¨                                    Accelerated filer  x                                     Non-accelerated filer  ¨

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 $19.85 as quoted on The Nasdaq Stock Market for June 30, 2006, 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 $75,309,800.

The Registrant had 4,975,542 shares of Common Stock outstanding as of March 7, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31, 2006 are incorporated by reference into Parts I and II of this Form 10-K.

Portions of the Proxy Statement for the 2007 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

INDEX

			PAGE
PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	28
	Item 1B.	Unresolved Staff Comments	30
	Item 2.	Properties	31
	Item 3.	Legal Proceedings	31
	Item 4.	Submission of Matters to a Vote of Security Holders	31
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
	Item 6.	Selected Financial Data	32
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
	Item 8.	Financial Statements and Supplementary Data	32
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	33
	Item 9A.	Controls and Procedures	33
	Item 9B.	Other Information	36
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	36
	Item 11.	Executive Compensation	36
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
	Item 13.	Certain Relationships, Related Transactions and Directors’ Independence	36
	Item 14.	Principal Accountants’ Fee and Services	37
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	37
SIGNATURES

Forward-Looking Statements

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

PART I

Item 1. Business.

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

Pamrapo was organized in 1887 as Pamrapo Building and Loan Association. On October 6, 1952, it changed its name to Pamrapo Savings and Loan Association, a New Jersey chartered savings and loan association in mutual form, and in 1988 it changed its name to Pamrapo Savings Bank, S.L.A. The Bank’s principal office is located in Bayonne, New Jersey. Its deposits are insured up to applicable limits by the Deposit Insurance Fund (the “DIF”) which is administered by the FDIC. At December 31, 2006, the Bank had total assets of $636.6 million, deposits of $475.4 million and stockholders’ equity of $53.0 million before elimination of intercompany accounts with the Company.

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

Market Area

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

Lending Activities

General. Pamrapo principally originates fixed-rate mortgage loans on one- to four-family residential dwellings for retention in its own portfolio. The Bank also originates acquisition, development and construction loans in addition to multi-family and commercial real estate loans. At December 31, 2006, the Bank’s total gross loans outstanding amounted to $460.3 million, of which $276.2 million consisted of loans secured by one- to four-family residential properties, $17.2 million consisted of construction and land loans, $155.4 million consisted of loans secured by multi-family and commercial real estate, and $9.0 million consisted of commercial loans. Substantially all of the Bank’s real estate loan portfolio consists of conventional mortgage loans.

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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,
	2002					2003					2004					2005					2006
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real Estate Mortgage Loans:
Permanent:
Fixed-rate	$	320,715		82.26	%	$	308,437		81.46	%	$	319,043		80.61	%	$	346,456		79.05	%	$	352,913		77.59	%
Adjustable rate		2,137		.55			1,804		.48			3,039		.77			6,316		1.44			8,188		1.80
Construction (1)		7,893		2.02			12,599		3.32			18,272		4.61			16,299		3.72			17,224		3.78
Total mortgage loans		330,745		84.83			322,840		85.26			340,354		85.99			369,071		84.21			378,325		83.17
Commercial Loans		658		.17			407		.11			659		.17			5,858		1.34			9,037		1.99
Consumer Loans:
Passbook or certificate		552		.14			586		.16			733		.19			763		.18			719		.16
Home improvement		336		.09			229		.06			133		.03			57		.01			36		.01
Equity and second mortgages		59,234		15.19			59,758		15.78			59,015		14.91			66,494		15.17			70,507		15.50
Automobile		1,243		.32			734		.19			637		.16			680		.16			536		.12
Personal		1,298		.33			1,144		.30			1,041		.26			1,052		.24			1,146		.25
Total consumer loans		62,663		16.07			62,451		16.49			61,559		15.55			69,046		15.76			72,944		16.04
Total loans		394,066		101.07			385,698		101.86			402,572		101.71			443,975		101.31			460,306		101.20
Less:
Allowance for loan losses		2,550		.65			2,515		.66			2,495		.63			2,755		.63			2,651		.58
Loans in process		1,882		.48			5,168		1.36			5,155		1.30			4,020		.92			4,012		.88
Deferred loan fees (costs)		(231	)	(.06	)		(626	)	(.16	)		(878	)	(.22	)		(1,050	)	(.24	)		(1,216	)	(.26	)
Total		4,201		1.07			7,057		1.86			6,772		1.71			5,725		1.31			5,447		1.20
Total net loans	$	389,865		100.00	%	$	378,641		100.00	%	$	395,800		100.00	%	$	438,250		100.00	%	$	454,859		100.00	%
Mortgage-Backed Securities:
GNMA (2)	$	1,214		.82	%	$	682		.31	%	$	421		.21	%	$	253		.15	%	$	168		.12	%
FHLMC (3)(6)		99,981		67.38			147,341		66.98			140,821		69.99			118,507		70.63			100,185		70.69
FNMA (4)(6)		38,846		26.18			55,246		25.12			42,660		21.20			32,623		19.44			27,127		19.14
CMO (5)		7,670		5.17			15,054		6.84			16,027		7.97			15,428		9.20			13,334		9.41
Total mortgage-backed securities		147,711		99.55			218,323		99.25			199,929		99.37			166,811		99.42			140,814		99.36
Add/Less:
Premiums (discounts), net (6)		617		.41			1,632		.74			1,246		.62			970		.58			903		.64
Unrealized gain on securities available for sale		58		.04			25		.01			16		.01			8		—			7		—
Net mortgage-backed securities	$	148,386		100.00	%	$	219,980		100.00	%	$	201,191		100.00	%	$	167,789		100.00	%	$	141,724		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.

(6) Includes available for sale securities having a principal balance of $2,188,000 and a net premium of $2,000 for 2002, a principal balance of $1,537,000 for 2003, a principal balance of $1,098,000 for 2004, a principal balance of $772,000 for 2005 and a principal balance of $662,000 for 2006.

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

	As of December 31,
	2004				2005				2006
	(Dollars in thousands)
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
One-to four-family (2)	$	263,416	65.43	%	$	273,555	61.62	%	$	276,232	60.01	%
Multi-family (2)		55,630	13.82			63,501	14.30			71,323	15.50
Commercial real estate (2)		62,183	15.45			82,267	18.53			84,088	18.27
Construction and land		18,272	4.54			16,299	3.67			17,224	3.74
Commercial		659	.16			5,858	1.32			9,037	1.96
Consumer-secured and unsecured		2,412	.60			2,495	.56			2,402	.52
Total gross loans	$	402,572	100.00	%	$	443,975	100.00	%	$	460,306	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,
	2004		2005		2006
	(Dollars in thousands)
Mortgage Loans (gross):
At beginning of period	$	322,840	$	340,354	$	369,071
Mortgage loans originated:
One- to four-family residential		56,591		63,019		46,533
Multi-family residential		8,301		11,295		9,456
Commercial		8,557		18,635		12,975
Construction (1)		12,220		12,827		12,350
Total mortgage loans originated		85,669		105,776		81,314
Mortgage loans sold		515		—		—
Charge-offs		39		—		86
Repayments		67,601		77,059		71,974
At end of period	$	340,354	$	369,071	$	378,325
Commercial Loans (gross):
At beginning of period	$	407	$	659	$	5,858
Commercial loans originated		871		10,915		5,005
Repayments		619		5,716		1,826
At end of period	$	659	$	5,858	$	9,037
Consumer Loans (gross) (2)
At beginning of period	$	62,451	$	61,559	$	69,046
Consumer loans originated		23,649		29,484		26,782
Charge-offs		68		21		27
Repayments		24,473		21,976		22,857
At end of period	$	61,559	$	69,046	$	72,944
Mortgage-backed securities (gross):
At beginning of period	$	218,323	$	199,929	$	166,811
Mortgage-backed securities purchased		34,453		9,993		—
Sold		—		3,912		—
Repayments		52,847		39,199		25,997
At end of period	$	199,929	$	166,811	$	140,814

(1) Includes acquisition, development and land loans.

(2) Includes equity and second mortgages.

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LOAN MATURITY. The following table sets forth the maturity of the Bank’s gross loan portfolio at December 31, 2006. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totaled $92.7 million, $104.8 million and $96.7 million for the years ended December 31, 2004, 2005 and 2006, respectively.

	One- to four- family residential mortgage loans (1)		Multi-family and commercial real estate loans (1)		Construction Loans (2)		Consumer- secured and unsecured loans		Commercial Loans		Total
	(In thousands)
Amounts due:
Within 1 year	$	421	$	769	$	15,681	$	59	$	5,323	$	22,253
After 1 year:
1 to 3 years		1,575		1,848		1,400		585		330		5,738
3 to 5 years		2,047		2,773		26		894		2,957		8,697
5 to 10 years		21,060		16,292		117		608		84		38,161
10 to 20 years		84,056		131,875		—		256		—		216,187
Over 20 years		167,073		1,854		—		—		343		169,270
Total due after 1 year		275,811		154,642		1,543		2,343		3,714		438,053
Total amounts due	$	276,232	$	155,411	$	17,224	$	2,402	$	9,037		460,306
Less:
Allowance for loan losses												2,651
Loans in process												4,012
Deferred loan fees (costs)												(1,216	)
Total											$	454,859

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

(2) Includes acquisition, development and land loans.

The following table sets forth at December 31, 2006, the dollar amount of all mortgage, consumer, commercial and construction loans, due after December 31, 2007, which have fixed interest rates or adjustable interest rates:

	Due after December 31, 2007
	Fixed Rates		Floating or Adjustable Rates		Total Due After One Year
	(In thousands)
One- to four-family residential (1)	$	264,007	$	11,804	$	275,811
Construction loans		1,543		—		1,543
Multi-family and commercial real estate (1)		148,936		5,706		154,642
Commercial loans		3,714		—		3,714
Consumer-secured and unsecured loans		1,643		700		2,343
Totals	$	419,843	$	18,210	$	438,053

(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, 2006, 96.20% of the gross loan portfolio were fixed-rate loans and 3.80% were ARMs, and

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were 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, 2006, $347.5 million or 75.5% of the Bank’s total gross loan portfolio consisted of one- to four-family and multi-family residential mortgage loans. Of this amount $276.2 million were one- to four-family loans and $71.3 million were multi-family loans.

The one- to four-family residential loans originated by the Bank are primarily fixed-rate mortgages, generally with terms of 15 or 25 years. Typically, such homes in the Bayonne area are one- or two-family owner-occupied dwellings. The Bank generally makes one- to four-family residential mortgage loans in amounts up to 80% of the appraised value of the secured property. The Bank will originate loans with loan-to-value ratios up to 90% within the local community, provided that private mortgage insurance on the amount in excess of such 80% ratio is obtained. Mortgage loans in the Bank’s portfolio generally include due-on-sale clauses, which provide the Bank with the contractual right to demand the loan immediately due and payable in the event that the borrower transfers ownership of the property that is subject to the mortgage. It is the Bank’s policy to enforce due-on-sale provisions. As of December 31, 2006, the interest rate for one- to four-family residential fixed-rate mortgages offered by the Bank was 6.25% on 15-year loans and 6.50% on 25-year loans.

The Bank also originates loans on multi-family residences. Such residences generally consist of 6 to 24 units. Such loans are generally fixed-rate loans with interest rates ranging from 1.0% to 1.5% higher than those offered on one- to four-family residences. The Bank generally makes multi family residential loans in amounts up to 75% of the appraised value of the secured property. Such appraisals are based primarily on the income producing ability of the property. The terms of multi-family residential loans range from 10 to 15 years. As of December 31, 2006, $71.3 million or 15.5% of the Bank’s total gross loan portfolio consisted of multi-family residential loans.

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

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

The interest rates and terms of the construction and land development loans vary, depending upon market conditions, the size of the construction or development project and negotiations with the borrower. Advances are generally made to the borrower to cover actual construction costs incurred. On larger constructions loans, the Bank requires the project to be built out in phases. Advancement of funds is dependent upon completion of the project stages. The Bank generally limits its exposure to 75% of the projected market value of the completed project. The amount of the loans are generally determined as follows: (i) land acquisition loans with no immediate plans for construction are limited to 65% of the appraised value of the land; (ii) acquisition and development loans are limited to 65% of appraised value of the improved lot not to exceed 150% of the original acquisition cost; (iii) in addition to the disbursement for acquisition and development, in an acquisition, development and construction loan, the Bank will not advance more than 90% of the construction costs; and (iv) loans secured by previously owned vacant land are limited to 65%. Prior to making any disbursements, the Bank requires that the projects securing the construction and development loans be inspected. The Bank will finance the construction of properties without a prospective buyer or without permanent take-out financing in place at the time of origination.

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

Acquisition, development and construction lending is generally considered to involve a higher level of risk than one- to four-family permanent residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on development projects, real estate developers and managers. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As of December 31, 2006, $17.2 million or 3.7% of the Bank’s gross loan portfolio consisted of acquisition, development, construction and land loans varied in size from $27,000 to $1.3 million.

Commercial Real Estate Lending. Loans secured by commercial real estate totaled $84.1 million, or 18.3% of the Bank’s total gross loan portfolio, at December 31, 2006. 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, 2006, the balance of such loans was $11.4 million, or 2.5% of the Bank’s total gross loan portfolio.

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

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

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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, 2006, the Bank was servicing $281,000 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, 2006.

Non-Performing Assets

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

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

	At December 31,
	2002		2003		2004		2005		2006
	(Dollars in thousands)
One- to four-family residential real estate loans (1):
Non-accrual loans	$	984	$	511	$	696	$	493	$	529
Accruing loans 90 days overdue		633		378		81		332		993
Total		1,617		889		777		825		1,522
Multi-family residential and commercial real estate loans (1):
Non-accrual loans		468		298		1,067		647		345
Accruing loans 90 days overdue		440		236		236		463		383
Total		908		534		1,303		1,110		728
Construction loans (2):
Non-accrual loans		—		—		456		—		—
Accruing loans 90 days overdue		—		—		—		—		—
Total		—		—		456		—		—
Commercial loans:
Non-accrual loans		—		—		—		—		—
Accruing loans 90 days overdue		137		119		—		—		—
Total		137		119		—		—		—

7

	At December 31,
	2002			2003			2004			2005			2006
	(Dollars in thousands)
Consumer loans:
Non-accrual loans		33			—			42			33			22
Accruing loans 90 days overdue		6			15			9			1			7
Total		39			15			51			34			29
Total non-performing loans:
Non-accrual loans		1,485			809			2,261			1,173			896
Accruing loans 90 days overdue		1,216			748			326			796			1,383
Total	$	2,701		$	1,557		$	2,587		$	1,969		$	2,279
Total foreclosed real estate, net of related reserves	$	155		$	—		$	—		$	—		$	—
Total non-performing loans and foreclosed real estate to total assets		0.49	%		0.24	%		0.41	%		0.30	%		0.36	%

(1) Includes equity and second mortgage loans.

(2) Includes acquisition and development loans.

At December 31, 2004, 2005 and 2006, non-accrual loans for which interest has been discontinued totaled approximately $2.3 million, $1.2 million, and $896,000 respectively. During the years ended December 31, 2004, 2005 and 2006, the Bank recognized interest income of approximately $94,000, $32,000 and $10,000 respectively, on these loans. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to approximately $179,000, $88,000 and $67,000 for the years ended December 31, 2004, 2005 and 2006, 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, 2004, 2005 and 2006, respectively, delinquencies in the Bank’s portfolio were as follows:

	At December 31, 2004								At December 31, 2005								At December 31, 2006
	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	$	694		28	$	2,587		10	$	464		18	$	1,969		19	$	2,513		25	$	2,279
As a percent of total gross loans			0.17	%			0.64	%			0.10	%			0.44	%			0.55	%			0.50	%

As of December 31, 2006, the Bank had 25 loans which were 90 days or more past due totaling $2.3 million. The average balance of such loans was approximately $91,000. Management is of the opinion that the Bank will not incur any additional substantial losses on such loans, giving consideration to existing loan loss reserves. Most of the loans are of moderate size, with the largest balance being $345,000. All loans are within the Bank’s lending areas.

The Bank’s level of non-performing loans 90 days or more delinquent increased from $2.0 million at December 31, 2005 to $2.3 million at December 31, 2006. The total of such loans in the lower risk one- to four-family residential category increased to $1.5 million or 66.8% of non-performing loans 90 days or more delinquent at December 31, 2006 when compared with $825,000 or 41.9% of non-performing loans 90 days or

8

more delinquent at December 31, 2005. Non-performing multi-family residential, commercial real estate and construction loans, loans normally having greater elements of risk, decreased from $1.1 million at December 31, 2005 to $728,000 at December 31, 2006.

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

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

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

Management of the Bank has classified $2.3 million of its assets as substandard and approximately $22,000 as related loss allowance 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, 2006, the allowance for loan losses totaled $2.7 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, 2004, 2005 and 2006, gross charge-offs totaled $107,000, $21,000 and $113,000 respectively.

9

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

	At or for the year ended December 31,
	2002			2003			2004			2005			2006
	(Dollars in thousands)
Balance at beginning of period	$	2,150		$	2,550		$	2,515		$	2,495		$	2,755
Provision for loan losses		634			84			82			110			—
Net charge-offs (recoveries):
Real estate mortgage loans		143			35			39			—			86
Consumer loans		101			91			68			21			27
Commercial loans		—			—			—			—			—
Recoveries		(10	)		(7	)		(5	)		(171	)		(9	)
Net charge-offs (recoveries)		234			119			102			(150	)		104
Balance at end of period	$	2,550		$	2,515		$	2,495		$	2,755		$	2,651
Ratio of net charge offs during the period to average loans receivable during the period		.06	%		.04	%		.03	%		—			.02	%
Ratio of allowance for loan losses to total outstanding loans (gross) at the end of period		.65	%		.65	%		.62	%		.62	%		.58	%
Ratio of allowance for loan losses to non-performing loans		94.41	%		161.53	%		96.44	%		139.93	%		116.32	%

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,
	2002						2003						2004						2005						2006
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate mortgage loans	$	2,150	84.32	%	99.04	%	$	2,240	89.07	%	99.25	%	$	2,270	90.98	%	99.24	%	$	2,470	89.66	%	98.12	%	$	2,201	83.03	%	97.52	%
Consumer loans		300	11.76		0.79			200	7.95		0.64			150	6.01		0.60			110	3.99		0.56			150	5.65		0.52
Commercial loans		100	3.92		0.17			75	2.98		0.11			75	3.01		0.16			175	6.35		1.32			300	11.32		1.96
Total allowance	$	2,550	100.00	%	100.00	%	$	2,515	100.00	%	100.00	%	$	2,495	100.00	%	100.00	%	$	2,755	100.00	%	100.00	%	$	2,651	100.00	%	100.00	%

10

Mortgage-Backed Securities. The Bank has significant investments in mortgage-backed securities and has, during periods when loan demand was low and the interest yields on alternative investments were minimal, utilized such investments as an alternative to mortgage lending. All of the securities in the portfolio were insured or guaranteed by GNMA, FNMA or FHLMC and have coupon rates as of December 31, 2006 ranging from 4% to 10%. At December 31, 2006, the unamortized principal balance of mortgage-backed securities, both held to maturity and available for sale, totaled $140.8 million or 22.1% of total assets. The carrying value of such securities amounted to $201.2 million, $167.8 million and $141.7 million at December 31, 2004, 2005, and 2006, respectively, and the fair market value of such securities totaled approximately $201.4 million, $163.9 million and $137.1 million at December 31, 2004, 2005, and 2006, 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, 2006.

	Contractual Maturities Due in Year(s) Ended December 31,
	2006-2007		2008-2009		2010-2014		2015-2024		2025 and Thereafter		Total
	(In thousands)
Mortgage-backed securities:
Held to maturity	$	—	$	347	$	4,511	$	134,128	$	1,166	$	140,152
Available for sale		—		—		—		552		110		662
Total	$	—	$	347	$	4,511	$	134,680	$	1,276	$	140,814

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

Investment Activities

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

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

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

11

Investment Portfolio

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

	At December 31,
	2004				2005				2006
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investments:
Mutual Fund available for sale (1)(2)	$	1,509	$	1,488	$	1,561	$	1,520	$	—	$	—
Equity securities available for sale (1)(2)		7		505		7		521		—		—
FHLB-NY stock (1)		5,152		5,152		5,954		5,954		5,721		5,721
Subordinated Notes (3)		9,309		9,831		10,287		10,795		9,168		9,599
Trust originated preferred security (2)		500		532		500		500		500		500
Net unrealized gain on available for sale securities		510		—		473		—		—		—
Total investment securities	$	16,987	$	17,508	$	18,782	$	19,290	$	15,389	$	15,820
Other interest-earning assets:
Interest bearing deposits	$	9,579	$	9,579	$	4,161	$	4,161	$	8,790	$	8,790
Total investment portfolio	$	26,566	$	27,087	$	22,943	$	23,451	$	24,179	$	24,610

(1) No stated maturity.

(2) For further information, see Note 2 to the Company’s Consolidated Financial Statements in the 2006 Annual Report to Shareholders.

(3) For further information, see Note 3 to the Company’s Consolidated Financial Statements in the 2006 Annual Report to Shareholders.

At December 31, 2006, the Bank had $6.0 million invested in subordinated notes with Columbia Financial Inc. Other than this investment, the Bank had no other investments with any one issuer that exceeded 10% of stockholders’ equity.

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

	At December 31, 2006
	One Year of 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	$	—	—	%	$	9,168	8.48	%	$	—	—	%	$	—	—	%	$	9,168	8.48	%
Trust originated preferred security		—	—			—	—			—	—			500	7.75			500	7.75
Total Debt securities	$	—	—	%	$	9,168	8.48	%	$	—	—	%	$	500	7.75	%	$	9,668	8.45	%

12

Sources of Funds

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

Deposits. Pamrapo offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank’s deposits consist of regular savings, non-interest bearing demand, NOW and Super NOW, money market and certificate accounts. Pamrapo’s deposits are obtained primarily from the Hudson County area. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain deposits. Deposits decreased by $4.1 million or .87% from $474.0 million at December 31, 2005 to $469.9 million at December 31, 2006.

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,
	2004						2005						2006
	Amount		% of Total Deposits		Weighted Average Nominal Rate		Amount		% of Total Deposits		Weighted Average Nominal Rate		Amount		% of Total Deposits		Weighted Average Nominal Rate
	(Dollars in thousands)
Passbook and club Accounts	$	171,573	35.06	%	1.25	%	$	155,913	32.89	%	1.25	%	$	135,503	28.83	%	1.41	%
0.00% demand		37,277	7.62		0.00			37,965	8.01		0.00			43,848	9.33		0.00
NOW		38,699	7.91		1.00			40,016	8.44		1.00			36,455	7.76		1.00
Super NOW		366	.07		1.00			238	.05		1.00			163	.03		1.00
Money market demand		38,263	7.82		1.50			33,647	7.10		1.24			24,148	5.14		1.25
Total passbook, club, NOW, and money market accounts		286,178	58.48		1.09			267,779	56.49		1.03			240,117	51.09		1.07
Certificate accounts:
91-day		1,307	.27		1.41			41,931	8.85		2.77			62,027	13.20		4.34
26-week		21,898	4.47		1.87			88,711	18.72		3.22			106,204	22.60		4.63
12- to 30-month		127,064	25.97		2.41			23,770	5.01		3.15			15,018	3.20		4.27
30- to 48-month		20,307	4.15		3.54			20,774	4.38		3.64			15,989	3.40		4.02
IRA and KEOGH		32,596	6.66		2.40			31,038	6.55		2.89			30,586	6.51		3.94
Total certificates		203,172	41.52		2.45			206,224	43.51		3.12			229,824	48.91		4.39
Total deposits	$	489,350	100.00	%	1.65	%	$	474,003	100.00	%	1.94	%	$	469,941	100.00	%	2.69	%

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

	Year Ended December 31,
	2004			2005			2006
	(In thousands)
Withdrawals net of deposits	$	(10,933	)	$	(24,082	)	$	(15,376	)
Interest credited		8,122			8,735			11,314
Net (decrease) in deposits	$	(2,811	)	$	(15,347	)	$	(4,062	)

13

The following table sets forth, by various rate categories, the amount of certificate accounts outstanding as of the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2006.

	At December 31,						At December 31, 2006, Maturing in
	2004		2005		2006		One Year or Less		Two Years		Three Years		Greater than Three Years
	(In thousands)
2.99% or less	$	181,566	$	91,018	$	4,862	$	4,745	$	57	$	—	$	60
3.00% to 4.99%		19,204		113,300		206,519		189,546		10,942		4,061		1,970
5.00% to 5.99%		2,402		1,865		18,443		14,911		1,305		1,086		1,141
6.00% to 6.99%		—		41		—		—		—		—		—
Total	$	203,172	$	206,224	$	229,824	$	209,202	$	12,304	$	5,147	$	3,171

At December 31, 2006, the Bank had outstanding $101.0 million in certificate accounts in amounts of $100,000 or more maturing as follows:

	Amount
	(In thousands)
Three months or less	$	29,855
Over three through six months		22,719
Over six through twelve months		39,539
Over twelve months		8,974
Total	$	101,087

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

Pamrapo obtains advances from the FHLB-NY upon the security of its capital stock of the FHLB-NY and a blanket assignment of the Bank’s unpledged qualifying mortgage loans, mortgage-backed securities and investment securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. As of December 31, 2006, outstanding advances from the FHLB-NY amounted to $101.0 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,
	2004				2005				2006
	(Dollars in thousands)
Maturing by December 31,	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
2005	3.21	%	$	20,000	—	%	$	—	—	%	$	—
2006	3.31			32,000	3.49			38,400	—			—
2007	2.83			15,000	2.91			17,000	2.91			17,000
2008	4.53			12,000	4.43			22,000	4.24			15,000
2009	—			—	5.58			15,000	5.25			18,000
2010	6.19			10,000	4.93			8,000	5.59			23,000
2011	—			—	4.67			3,000	5.24			10,000
2015	—			—	4.80			3,000	4.80			3,000
2016	—			—	—			—	4.05			15,000
	3.69	%	$	89,000	4.07	%	$	106,400	4.59	%	$	101,000

14

Competition

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

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

Subsidiaries

Pamrapo is generally permitted under New Jersey law and the regulations of the Commissioner of the New Jersey Department of Banking and Insurance (the “Commissioner”) to invest, without regulatory approval, an amount equal to 3% of its assets in subsidiary service corporations. As of December 31, 2006, Pamrapo had $221,000 and $208.8 million of its assets invested in Pamrapo Service Corporation and Pamrapo Investment Company, respectively, each of which is a wholly owned subsidiary of the Bank. Currently, Pamrapo Service Corporation’s only activity is marketing products such as annuities, life insurance, mutual funds and other equity securities and providing financial planning services. Pamrapo Investment Company manages and maintains certain tangible assets of the Bank for investment purposes.

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, 2006, approximately 92.0% 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.

15

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 month-end amounts.

	Year Ended December 31,																		At December 31,
	2004						2005						2006						2006
	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Actual Balance		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	385,628	$	24,861	6.45	%	$	417,699	$	26,616	6.37	%	$	448,917	$	28,937	6.45	%	$	454,859	6.42	%
Mortgage-backed securities		215,855		10,091	4.67			184,341		8,667	4.70			154,471		7,222	4.68			141,723	4.77
Investments		11,773		845	7.18			11,886		800	6.73			16,269		1,096	6.74			15,389	7.37
Other interest-earning assets		13,785		187	1.36			13,295		434	3.26			8,539		282	3.28			8,790	4.92
Total interest-earning assets		627,041		35,984	5.74			627,221		36,517	5.82			628,196		37,537	5.98			620,761
Non-interest-earning assets		14,304						14,633						14,932						15,799
Total assets (1)	$	641,345					$	641,854					$	643,128					$	636,560
Interest-bearing liabilities:
Passbook and club account	$	176,158		2,391	1.36			164,229		2,219	1.35			146,117		2,017	1.38			135,503	1.41
NOW and money market accounts		78,994		949	1.20			75,839		886	1.17			67,523		780	1.15			60,767	1.10
Certificates of Deposits		203,503		4,782	2.35			205,306		5,630	2.74			218,635		8,517	3.90			229,823	4.39
Advances and other borrowings		90,303		3,270	3.62			94,778		3,695	3.90			104,042		4,667	4.59			101,000	4.59
Total interest-bearing liabilities		548,958		11,392	2.08			540,152		12,430	2.30			536,317		15,981	2.98			527,093
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts		32,878						38,021						39,361						43,848
Other		6,558						7,043						7,690						7,051
Total non-interest-bearing Liabilities		39,436						45,064						47,051						50,899
Total liabilities		588,394						585,216						583,368						577,992
Stockholders’ equity		52,951						56,638						59,760						58,568
Total liabilities and stockholders’ equity	$	641,345					$	641,854					$	643,128					$	636,560
Net interest income/interest rate spread			$	24,592	3.66	%			$	24,087	3.52	%			$	21,556	3.00	%
Net interest-earning assets/net yield on interest- earning assets	$	78,083			3.92	%	$	87,069			3.84	%	$	91,879			3.43	%
Ratio of average interest-earning assets to average interest-bearing liabilities					1.14	x					1.16	x					1.17	x

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

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Interest Rate Sensitivity Analysis

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

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2006, 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 $135.5 million at December 31, 2006, are withdrawn at the following rates: 25.21% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 16.88% on the cumulative declining balance of such accounts during the periods shown. The Bank has further assumed that its money market accounts, which totaled $24.1 million at December 31, 2006, are withdrawn at the following rates: 26.59% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 22.74% on the cumulative declining balance of such accounts during the periods shown.

Additionally, the Bank has assumed that its NOW and Super NOW accounts, which totaled $36.6 million at December 31, 2006, are withdrawn at the following rates: 20.97% are rate sensitive within a one year time frame and the remainder will be withdrawn at an annual rate of 15.56% on the cumulative declining balance of such accounts during the periods shown.

	1 Year or Less		More than 1 Year to 3 Years		More than 3 Years to 5 Years		More than 5 Years to 10 Years		More than 10 Years to 20 Years		More than 20 Years		Total
	(In thousands)
Interest-earning Assets:
Loans	$	22,253	$	5,738	$	8,697	$	38,161	$	216,187	$	169,270	$	460,306
Mortgage-backed securities		—		347		841		6,918		131,432		1,276		140,814
Investments (1)		5,721		—		9,000		—		—		500		15,221
Other interest-earning assets (2)		8,790		—		—		—		—		—		8,790
Total interest-earning assets		36,764		6,085		18,538		45,079		347,619		171,046		625,131

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	1 Year or Less			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years to 10 Years			More than 10 Years to 20 Years			More than 20 Years			Total
	(In thousands)
Interest-bearing Liabilities:
NOW and Super NOW Accounts (3)		7,679			8,305			5,922			8,397			5,152			1,163			36,618
Money market accounts		6,421			7,146			4,265			4,577			1,607			132			24,148
Passbook and club accounts		34,160			31,326			21,643			29,181			16,172			3,021			135,503
Certificate accounts		209,201			17,451			2,704			468			—			—			229,824
Advances		17,000			33,000			33,000			18,000			—			—			101,000
Total interest-bearing Liabilities		274,461			97,228			67,534			60,623			22,931			4,316			527,093
Interest sensitivity gap per period		(237,697	)		(91,143	)		(48,996	)		(15,544	)		324,688			166,730		$	98,038
Cumulative interest sensitivity gap	$	(237,697	)	$	(328,840	)	$	(377,836	)	$	(393,380	)	$	(68,692	)	$	98,038
Cumulative gap as a percent of interest-earning assets		(38.02	)%		(52.60	)%		(60.44	)%		(62.93	)%		(10.99	)%		15.68	%
Cumulative interest-sensitive assets as a percent of interest-sensitive liabilities		13.39	%		11.53	%		13.98	%		21.30	%		86.86	%		118.60	%

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

(2) Includes interest-earning deposits in banks.

(3) Excludes non-interest bearing accounts.

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Rate/Volume Analysis

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

	Year Ended December 31,
	2005 v. 2004									2006 v. 2005
	Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	2,074		$	(319	)	$	1,755		$	1,965		$	355		$	2,321
Mortgaged-backed securities		(1,475	)		51			(1,424	)		(1,412	)		(32	)		(1,445	)
Investments		8			(53	)		(45	)		295			2			297
Other interest-earning assets		(6	)		253			247			(155	)		2			(153	)
Total interest income		601			(68	)		533			693			327			1,020
Interest expense:
Passbook and club accounts		(158	)		(14	)		(172	)		(247	)		45			(202	)
NOW and money market accounts		(39	)		(24	)		(63	)		(92	)		(13	)		(105	)
Certificates of deposit		45			803			848			364			2,522			2,886
Advance and other borrowings		161			264			425			325			647			972
Total interest expense		9			1,029			1,038			350			3,201			3,551
Net change in net interest	$	592		$	(1,097	)	$	(505	)	$	343		$	(2,874	)	$	(2,531	)

REGULATION AND SUPERVISION

General

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

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

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

Holding Company Regulation

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

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

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

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

Federal Savings Institution Regulation

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

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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, 2006, the Bank met each of its capital requirements.

The following table presents the Bank’s capital position at December 31, 2006:

	Actual Amount		Required Amount		Excess Amount		Actual Percent		Required Percent
	(Dollars in thousands)
Tangible	$	54,624	$	9,542	$	45,082	8.59	%	1.50	%
Core (Leverage)		54,624		25,446		29,178	8.59	%	4.00	%
Risk-based		57,253		29,209		28,044	15.68	%	8.00	%

Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a total risk-based capital of less than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the banking regulator is required to appoint a receiver or conservator for an institution that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with

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the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to the institution depending upon its category, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Insurance of Deposit Accounts. Deposits of the Bank are presently insured by DIF. The FDIC maintains a risk-based assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution’s assessment rate depends upon the categories to which it is assigned. Assessment rates for DIF member institutions are determined semiannually by the FDIC and currently range from zero basis points for the healthiest institutions to 27 basis points for the riskiest.

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 the predecessor to the SAIF (now a predecessor to DIF).

The Bank’s assessment rate for the year ended December 31, 2006 was 0 basis points and no premiums were paid for this period. Payments on the FICO bonds amounted to $60,000. A significant increase in DIF insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank.

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.

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, 2006, the Bank’s limit on loans to one borrower was $8.0 million. At December 31, 2006, the Bank’s largest aggregate outstanding balance of loans to one borrower was $3.5 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, 2006, the Bank maintained 73.71% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test.

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

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that exceeds all fully phased-in capital requirements before and after a proposed capital distribution (“Tier 1 Bank”) and has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its “surplus capital ratio” (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event the Bank’s capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, the Bank’s ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. At December 31, 2006, 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 2006 calculated using the ratio calculation of HOLA prior to March 15, 2001 was 1.52%, 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, 2006 totaled $144,000.

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

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

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

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

Standards for Safeguarding Customer Information. In 1999, the President signed the Gramm-Leach-Bliley Act was 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 the 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.

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

24

maintained against aggregate transaction accounts as follows: for accounts aggregating $45.8 million or less (subject to adjustment by the Federal Reserve Board) the reserve requirement was 3%; and for accounts aggregating greater than $45.8 million, the reserve requirement was $1.1 million plus 10% (subject to adjustment by the Federal Reserve Board) against that portion of total transaction accounts in excess of $45.8 million. The first $8.5 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

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Act”), implementing legislative reforms intended to address corporate and accounting improprieties. The Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of specified issues by the SEC and the Comptroller General.

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The Act addresses, among other matters:

• audit committees;

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

• 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;

• expedited filing requirements for Forms 4’s;

• disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;

• “real time” filing of periodic reports;

• the formation of a public accounting oversight board;

• auditor independence; and

• various increased criminal penalties for violations of securities laws.

The Company is continuing to monitor the passage of the new and amended regulations and is taking appropriate measures to comply with them. Although the Company will incur additional expense in complying with the various provisions of the Act and the new and amended regulations, management does not expect that such compliance will have a material impact on the Company’s results of operations or financial condition.

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.

FEDERAL AND STATE TAXATION

Federal Taxation

General. The Company and the Bank report their income on a consolidated basis and the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company. The Bank has not been audited by the IRS in the past nine years. For its 2006 taxable year, the Bank is subject to a maximum federal income tax rate of 35%.

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.

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

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

Distributions. Under the 1996 Act, if the Bank makes “non-dividend distributions” to the Company, such distributions will be considered to have been made from the Bank’s unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from the Bank’s supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in the Bank’s income. Non-dividend distributions include distributions in excess of the Bank’s current and accumulated earnings and profits, as 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% 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, 2006, the Bank had 92 full-time employees and 8 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 Exchange Act as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC.

27

Item 1A. Risk Factors.

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

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

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

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

• Inflation;

• Recession;

• A rise in unemployment;

• Tightening money supply; and

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

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.

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

Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. Our allowance for loan losses is based on our historical loss experience, as well as an evaluation of the risks associated with our loans held for investment. During the year ended December 31, 2006, we experienced negligible losses. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. While we believe that our allowance for loan losses is adequate to cover current losses, we cannot provide assurance that we will not need to increase our allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

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

Changes in economic conditions, particularly an economic slowdown 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. Deterioration in economic conditions, in particular an economic slowdown 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 downturn in the New Jersey real estate market could hurt our business. Our business activities and credit exposure are concentrated in New Jersey. A 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 there is a significant decline in real estate values, especially in New Jersey, the collateral for our loans will provide less security. As a result, our ability to recover on defaulted loans by selling the underlying real estate would be diminished, and we would be more likely to suffer losses on defaulted loans.

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

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

Our 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, 2006, William J. Campbell, our President and Chief Executive Officer, owned approximately 12% of our outstanding common stock. As a result, he will have the ability to significantly

29

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 interests of our 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. We believe that we are in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. There can be no assurance that there will be no laws, rules or regulations adopted in the future, which could make compliance more difficult or expensive, or otherwise adversely affect our business, financial condition or prospects.

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

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

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

Item 1B. Unresolved Staff Comments.

Not Applicable.

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Item 2. Properties.

The Bank conducts its business through eleven branch offices and one administrative office. Four offices have drive-up facilities. The Bank has eleven automatic teller machines at its branch facilities and five other off-site locations. The following table sets forth information relating to each of the Bank’s offices as of December 31, 2006. The total net book value of the Bank’s premises and equipment at December 31, 2006 was $3.7 million.

Location	Year Office Opened	Net Book Value
		(In thousands)
Executive Office
591-597 Avenue C Bayonne, New Jersey	1985	$	1,447
Branch Offices
611 Avenue C Bayonne, New Jersey	1984		605
155 Broadway Bayonne, New Jersey	1973		88
175 Broadway Bayonne, New Jersey	1985		—	(1)
861 Broadway Bayonne, New Jersey	1962		88
987 Broadway Bayonne, New Jersey	1977		231
1475 Bergen Boulevard Fort Lee, New Jersey	1990		—	(1)
544 Broadway Bayonne, New Jersey	1995		16	(1)
401 Washington Street Hoboken, New Jersey	1990		68	(1)
473 Spotswood Englishtown Road Monroe, New Jersey	1998		120	(1)
181 Avenue A Bayonne, New Jersey	2004		134	(1)
211-A Washington Street Jersey City, New Jersey	2006		131	(1)
Net book value of properties			2,928
Furnishings and equipment (2)			803
Total premises and equipment		$	3,731

(1) Leased Property.

(2) Includes off-site ATMs.

Item 3. Legal Proceedings.

The Company is from time to time a party to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of any such existing litigation should not have a material effect on the consolidated financial position of the Company.

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

None.

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PART II

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

Information relating to the market for Registrant’s common stock and related stockholder matters appears under Market for Common Stock and Related Matters in the Registrant’s 2006 Annual Report to Shareholders on pages 40 and 41 and is incorporated herein by reference.

The following table contains information about the Company’s purchases of its equity securities during the fourth quarter of 2006.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)(2)
October 1, 2006 to October 31, 2006	10,000	$	21.85	10,000	53,465
November 1, 2006 to November 30, 2006	6,000		24.68	6,000	47,465
December 1, 2006 to December 31, 2006	6,000		26.34	6,000	41,465
Total	22,000			22,000

(1) As of December 31, 2006.

(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.

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 2006 Annual Report to Shareholders on pages 38 and 39 and is incorporated herein by reference.

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

The above-captioned information appears under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Registrant’s 2006 Annual Report to Shareholders on pages 4 through 9 and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information about market risk appears under Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Interest Rate Risk and—Net Portfolio Value in the Registrant’s 2006 Annual Report to Shareholders on pages 8 and 9 and is incorporated herein by reference.

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 2006 Annual Report to Shareholders on pages 10 through 37 and are incorporated herein by reference.

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

Not Applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), each of the chief executive officer and the chief financial officer of the Company has concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms. There are inherent limitations to the effectiveness of any systems of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

Management’s Annual Report on Internal Control Over Financial Reporting

March 9, 2007

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

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

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

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment we believe that, as of December 31, 2006, the Company’s internal control over financial reporting is effective based on those criteria.

The Registered Public Accounting Firm that audited the consolidated financial statements included in the Registrant’s 2006 Annual Report to Shareholders has issued an attestation on management’s assessment of the Company’s internal control over financial reporting.

/s/     WILLIAM J. CAMPBELL        

William J. Campbell

Chief Executive Officer

/s/     KENNETH D. WALTER        

Kenneth D. Walter

Chief Financial Officer

34

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Pamrapo Bancorp, Inc.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Pamrapo Bancorp, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO criteria). Management of the Company is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, management’s assessment that Pamrapo Bancorp, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Pamrapo Bancorp, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders’ equity and cash flows of Pamrapo Bancorp, Inc. and Subsidiaries and our report dated March 9, 2007 expressed an unqualified opinion thereon.

/s/ Beard Miller Company LLP

Beard Miller Company LLP

Pine Brook, New Jersey

March 9, 2007

35

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance of the Registrant.

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

The information relating to directors and executive officers of the Registrant and with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2007, which will be filed with the SEC not later than 120 days after the end of the Registrant’s fiscal year 2006 (“Proxy Statement”).

Item 11. Executive Compensation.

The information relating to executive compensation is incorporated herein by reference to the Registrant’s Proxy Statement.

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

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

Equity Compensation Plan Information

The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans as of December 31, 2006.

Equity Compensation Plan Information

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity Compensation Plans Approved by Stockholders	67,000	$	24.72	22,380
Equity Compensation Plans Not Approved by Stockholders	—		—	—
Total	67,000	$	24.72	22,380

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

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

36

Item 14. Principal Accountants’ Fee and Services.

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

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

1.      Consolidated Financial Statements of Pamrapo Bancorp, Inc. are incorporated by reference to the indicated pages of the 2006 Annual Report to Shareholders.
		Page
	Report of Independent Registered Public Accounting Firm	10
	Consolidated Statements of Financial Condition as of December 31, 2006 and 2005	11
	Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004	12
	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004	13
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	14
	Notes to Consolidated Financial Statements	16

The remaining information appearing in the 2006 Annual Report to Shareholders is not deemed to be filed as part of this report, except as expressly provided herein.

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

3. Exhibits.

37

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

3.1.1	Certificate of Incorporation of Pamrapo Bancorp, Inc.1
3.1.2	Certificate of Amendment to Certificate of Incorporation of Pamrapo Bancorp, Inc.2
3.2	Bylaws of Pamrapo Bancorp, Inc.1
4	Stock Certificate of Pamrapo Bancorp, Inc.3
10.1	Employment Agreement between Pamrapo Savings Bank, S.L.A. and William J. Campbell.3 *
10.2	Employment Agreement between Pamrapo Bancorp, Inc. and William J. Campbell.3 *
10.3	Special Termination Agreement (Margaret Russo).3 *
10.4	Change in Control Agreement by and between Pamrapo Bancorp, Inc. and Kenneth D. Walter.4*
10.5	Outside Director Consultation and Retirement Plan.7
10.6	Pamrapo Bancorp, Inc. 2003 Stock-Based Incentive Plan.5
11	Computation of earnings per share (filed herewith).
13	Portions of the 2006 Annual Report to Shareholders (filed herewith).
14	Code of Ethics.6
21	Subsidiary information is incorporated herein by reference to “Part I—Subsidiaries.”
23	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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

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

³ Incorporated herein by reference to the Registration Statement on Form S-1 (Registration No. 33-30370), as amended, filed on August 8, 1989.

⁴ Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 27, 2002.

⁵ Incorporated herein by reference to the 2003 Annual Meeting Proxy Statement, filed on March 31, 2003.

⁶ Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 15, 2004.

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

^* Management contract or compensatory plan or arrangement.

38

SIGNATURES

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

	PAMRAPO BANCORP, INC.
Dated: March 16, 2007
	By:	/s/    WILLIAM J. CAMPBELL
		William J. Campbell
		President and Chief Executive Officer

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

Name	Title	Date
/s/    WILLIAM J. CAMPBELL         William J. Campbell	President, Chief Executive Officer and Director (Principal Executive Officer)	March 16, 2007
/s/    KENNETH D. WALTER         Kenneth D. Walter	Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)	March 16, 2007
/s/    DANIEL J. MASSARELLI         Daniel J. Massarelli	Chairman of the Board and Director	March 16, 2007
/s/    JOHN A. MORECRAFT         John A. Morecraft	Vice Chairman of the Board and Director	March 16, 2007
Patrick D. Conaghan	Director	March 16, 2007
Francis J. O’Donnell	Director	March 16, 2007
/s/    KENNETH POESL         Kenneth Poesl	Director	March 16, 2007
/s/    ROBERT DORIA         Robert Doria	Director	March 16, 2007
/s/    HERMAN L. BROCKMAN         Herman L. Brockman	Director	March 16, 2007

EX-11

Exhibit 11

STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE

	Year Ended December 31, 2006
Income available to common stockholders	$	6,541,867
Weighted average shares outstanding		4,975,542
Basic earnings per share	$	1.31
Income for diluted earnings per share	$	6,541,867
Total weighted average common shares and equivalents outstanding for diluted computation		4,980,708
Diluted earnings per share	$	1.31

EX-13

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

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

General

Pamrapo Bancorp, Inc. (the “Company”) owns 100% of the issued and outstanding stock of Pamrapo Savings Bank, SLA (the “Bank”), which is the primary asset of the Company. The Company’s business is conducted principally through the Bank.

Business Of The Company

The Bank’s principal business has been and continues to be attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, primarily in one-to-four family, owner occupied residential mortgage loans. In addition, in times of low loan demand, the Bank will invest in mortgage-backed securities to supplement its lending portfolio. The Bank also invests, to a lesser extent, in multi-family residential mortgage loans, commercial real estate loans, home equity and second mortgage loans, consumer loans and commercial loans.

The earnings of the Bank depend primarily upon the level of net interest income, which is the difference between the interest earned on assets such as loans, mortgage-backed securities, investments and other interest-earning assets and the interest paid on liabilities such as deposits and borrowings. Net interest income is affected by many factors, including regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flow. Net interest income is also affected by the amount, composition and relative interest rates of the Bank’s assets and liabilities and by the repricing of such assets and liabilities. The Bank is vulnerable to interest rate fluctuations to the extent that its interest-bearing liabilities mature or reprice more rapidly than its interest-earning assets. Such asset/liability structure may result in lower net interest income during periods of rising interest rates and may be beneficial in times of declining interest rates. The Bank’s net income is also affected by provisions for loan losses, non-interest income, non-interest expenses and income taxes.

Critical Accounting Estimates

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, at a minimum, and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectibility of the loan portfolio. Since there has been no material shift in the loan portfolio, the level of the allowance for loan losses has changed primarily due to changes in the size of the loan portfolio and the level of nonperforming loans. We have allocated the allowance among categories of loan types as well as classification status at each period-end date. Assumptions and allocation percentages based on loan types and classification status have been consistently applied. Management regularly evaluates various risk factors related to the loan portfolio, such as type of loan, underlying collateral and payment status, and the corresponding allowance allocation percentages.

Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the regulatory authorities, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

Financial Condition

The Company’s consolidated assets at December 31, 2006 totaled $636.6 million, which represents a decrease of $9.5 million or 1.47% when compared to $646.1 million at December 31, 2005, primarily due to a decrease in mortgage-backed securities.

Securities available for sale decreased $2.1 million or 63.64% to $1.2 million at December 31, 2006 when compared to $3.3 million at December 31, 2005. The decrease during the year ended December 31, 2006, resulted primarily from the sale of securities available for sale with a carrying value of $1.6 million resulting in a net realized gain of $430,000. Investment securities held to maturity decreased $1.1 million or 10.68% to $9.2 million at December 31, 2006 when compared to $10.3 million at December 31, 2005. The decrease during the year ended December 31, 2006 resulted primarily from a maturity of an investment security held to maturity amounting to $1.0 million.

Mortgage-backed securities held to maturity decreased $25.9 million or 15.51% to $141.1 million at December 31, 2006 from $167.0 million at December 31, 2005. The decrease during the year ended December 31, 2006 resulted primarily from principal repayments of $25.9 million on mortgage-backed securities.

Net loans amounted to $454.9 million and $438.3 million at December 31, 2006 and 2005, respectively, which represents an increase of $16.6 million or 3.79%, primarily due to loan originations exceeding loan repayments.

Total deposits at December 31, 2006 decreased $4.1 million or .86% to $469.9 million compared to $474.0 million at December 31, 2005.

Advances from the Federal Home Loan Bank of New York (“FHLB-NY”) totaled $101.0 million and $106.4

4

million at December 31, 2006 and 2005, respectively. The net decrease of $5.4 million or 5.08% during the year ended December 31, 2006, resulted from repayments on advances from the FHLB-NY.

Stockholders’ equity amounted to $58.6 million and $58.6 million at December 31, 2006 and 2005, respectively. During the years ended December 31, 2006 and 2005, net income of $6.5 million and $8.0 million, respectively, was recorded and cash dividends of $4.6 million and $4.4 million, respectively, were paid on the Company’s common stock. During the year ended December 31, 2006, the Company adopted SFAS No. 158 which resulted in a charge to equity of $1.6 million. For details, see Notes 1 and 11 to the consolidated financial statements.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Net Income

Net income decreased by $1.5 million or 18.79% to $6.5 million during the year ended December 31, 2006 when compared to $8.0 million for the year ended December 31, 2005. The decrease in net income during the 2006 period was primarily due to an increase in total interest expense of $3.6 million and non-interest expenses of $342,000, which more than offset increases in total interest income of $1.0 million and non-interest income of $257,000 along with decreases in the provision for loan losses of $110,000 and income taxes of $1.1 million.

Interest Income

Interest income on loans during the year ended December 31, 2006 increased by $2.3 million or 8.65% to $28.9 million when compared to $26.6 million during 2005. During the years ended December 31, 2006 and 2005, the yield earned on the loan portfolio was 6.45% and 6.37%, respectively. The average balance of loans outstanding during the years ended December 31, 2006 and 2005, totaled $448.9 million and $417.7 million, respectively.

Interest on mortgage-backed securities decreased $1.5 million or 17.24% during the year ended December 31, 2006 to $7.2 million compared to $8.7 million for 2005. During the years ended December 31, 2006 and 2005, the average balance of mortgage-backed securities totaled $154.5 million and $184.3 million, respectively, resulting in a net decrease of $29.8 million or 16.17%. The yield earned on the mortgage-backed securities portfolio was 4.68% and 4.70% during 2006 and 2005, respectively. Interest earned on investment securities increased by $297,000 or 37.13% to $1.1 million for the year ended December 31, 2006, when compared to $800,000 for 2005. The increase during the year ended December 31, 2006, resulted from an increase of thirty-six basis points in the yield earned on the investment securities portfolio from 6.02% in 2005 to 6.38% in 2006, and an increase of $107,000 in the average balance of the investment securities portfolio. Interest on other interest-earning assets amounted to $282,000 and $434,000 during the years ended December 31, 2006 and 2005, respectively.

Interest Expense

Interest on deposits increased $2.6 million or 29.89% to $11.3 million during the year ended December 31, 2006 compared to $8.7 million for 2005. The increase during 2006 was attributable to an increase of sixty-six basis points in the Bank’s average cost of interest-bearing deposits to 2.62% for 2006 from 1.96% for 2005, which more than offset a decrease of $13.1 million or 2.94% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money increased $1.0 million or 27.03% to $4.7 million during the year ended December 31, 2006 compared to $3.7 million for 2005. The increase during 2006 was attributable to an increase of fifty-nine basis points in the Bank’s cost of borrowings from 3.90% for 2005 to 4.49% for 2006, along with an increase of $9.3 million or 9.70% in the average balance of advances and other borrowed money outstanding.

Net Interest Income

Net interest income for the year ended December 31, 2006, decreased $2.5 million or 10.37% to $21.6 million for 2006 as compared to $24.1 million for 2005. The Bank’s net interest rate spread decreased from 3.52% in 2005 to 3.00% in 2006 and its interest rate margin decreased from 3.84% in 2005 to 3.43% in 2006. The decrease in net interest rate spread primarily resulted from a sixty-eight basis point increase in the cost of interest-bearing liabilities from 2.30% in 2005 to 2.98% in 2006, sufficient to offset a sixteen basis point increase in the yield of average interest-earning assets from 5.82% in 2005 to 5.98% in 2006. The average balance of interest-earning assets amounted to $628.2 million in 2006 and $627.2 million in 2005 and the average balance of interest-bearing liabilities amounted to $536.3 million in 2006 and $540.2 million in 2005.

Provision For Loan Losses

During the years ended December 31, 2006 and 2005, the Bank provided $0 and $110,000, respectively, for loan losses. At December 31, 2006 and 2005, the Bank’s loan portfolio included loans totaling $2.3 million and $2.0 million, respectively which were delinquent ninety days or more. The Bank maintains an allowance for loan losses based on management’s evaluation of the risk inherent in its loan portfolio, which gives due consideration to changes in general market conditions and in the nature and volume of the Bank’s loan activity. The allowance for loan losses amounted to $2.65 million at December 31, 2006, representing ..58% of total loans

5

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

and 116.32% of loans delinquent ninety days or more compared to an allowance of $2.76 million at December 31, 2005, representing .62% of total loans and 139.93% of loans delinquent ninety days or more. During the years ended December 31, 2006 and 2005, the Bank charged off loans aggregating $113,000 and $21,000, respectively. Recoveries totaled $9,000 and $171,000, respectively. The Bank monitors its loan portfolio and intends to continue to provide for loan losses based on its ongoing periodic review of the loan portfolio and general market conditions.

Non-Interest Income

Non-interest income increased by $257,000 or 10.11% to $2.8 million during the year ended December 31, 2006 as compared to $2.5 million for 2005. The increase in non-interest income during 2006 resulted primarily from an increase in the gain on sale of securities of $331,000 and miscellaneous income of $27,000, sufficient to offset a decrease in fees and service charges of $101,000.

Non-Interest Expenses

Non-interest expenses increased $342,000 or 2.53% to $13.9 million during the year ended December 31, 2006 compared to $13.5 million for 2005. Occupancy costs, advertising, professional fees and miscellaneous expenses increased $65,000, $88,000, $76,000, and $182,000, respectively, during the year ended December 31, 2006, which were partially offset by a decrease in salary and employee benefits and equipment of $51,000 and $18,000, respectively.

Income Taxes

Income tax expense totaled $3.9 million and $5.0 million during the years ended December 31, 2006 and 2005, respectively. The decrease in 2006 resulted from a decrease in pre-tax income of $2.5 million.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Net Income

Net income increased by $20,000 or 0.25% to $7.96 million during the year ended December 31, 2005 compared to $7.94 million for the year ended December 31, 2004. The increase in net income during the 2005 period was primarily due to an increase in total interest income of $534,000, along with decreases in non-interest expenses of $249,000 and income taxes of $361,000, which more than offset increases in total interest expense of $1.04 million and the provision for loan losses of $28,000 along with a decrease in non-interest income of $58,000.

Interest Income

Interest income on loans during the year ended December 31, 2005 increased by $1.8 million or 7.23% to $26.7 million when compared to $24.9 million during 2004. During the years ended December 31, 2005 and 2004, the yield earned on the loan portfolio was 6.37% and 6.45%, respectively. The average balance of loans outstanding during the years ended December 31, 2005 and 2004, totaled $417.7 million and $385.6 million, respectively.

Interest on mortgage-backed securities decreased $1.4 million or 13.86% during the year ended December 31, 2005 to $8.7 million compared to $10.1 million for 2004. During the years ended December 31, 2005 and 2004, the average balance of mortgage-backed securities totaled $184.3 million and $215.9 million, respectively, resulting in a net decrease of $31.6 million or 14.64%. The yield earned on the mortgage-backed securities portfolio was 4.70% and 4.67% during 2005 and 2004, respectively. Interest earned on investment securities decreased by $45,000 or 5.33% to $800,000 for the year ended December 31, 2005, when compared to $845,000 for 2004. The decrease during the year ended December 31, 2005, resulted from a decrease of forty-five basis points in the yield earned on the investment securities portfolio from 7.18% in 2004 to 6.73% in 2005, partially offset by an increase of $100,000 or 0.85% in the average balance of the investment securities portfolio. Interest on other interest-earning assets amounted to $434,000 and $187,000 during the years ended December 31, 2005 and 2004, respectively.

Interest Expense

Interest on deposits increased $613,000 or 7.55% to $8.7 million during the year ended December 31, 2005 compared to $8.1 million for 2004. The increase during 2005 was attributable to an increase of nineteen basis points in the Bank’s average cost of interest-bearing deposits to 1.96% for 2005 from 1.77% for 2004, partially offset by a decrease of $13.3 million or 2.90% in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowed money increased $425,000 or 13.00% to $3.7 million during the year ended December 31, 2005 compared to $3.3 million for 2004. The increase during 2005 was attributable to an increase of twenty-eight basis points in the Bank’s cost of borrowings from 3.62% for 2004 to 3.90% for 2005, along with an increase of $4.5 million in the average balance of advances and other borrowed money outstanding.

Net Interest Income

Net interest income for the year ended December 31, 2005, decreased $505,000 or 2.1% to $24.1 million for 2005 as compared to $24.6 million for 2004. The Bank’s net interest rate spread decreased from 3.66% in 2004 to 3.52% in 2005 and its interest rate margin decreased from 3.92% in 2004 to 3.84% in 2005. The decrease in net interest rate spread primarily resulted from a twenty-two basis point increase in the cost of

6

interest-bearing liabilities from 2.08% in 2004 to 2.30% in 2005, sufficient to offset an eight basis point increase in the yield of average interest-earning assets from 5.74% in 2004 to 5.82% in 2005. The average balance of interest-earning assets amounted to $627.2 million in 2005 and $627.0 in 2004 and the average balance of interest-bearing liabilities amounted to $540.2 million in 2005 and $549.0 million in 2004.

Provision For Loan Losses

During the years ended December 31, 2005 and 2004, the Bank provided $110,000 and $82,000, respectively, for loan losses. At December 31, 2005 and 2004, the Bank’s loan portfolio included loans totaling $2.0 million and $2.6 million, respectively which were delinquent ninety days or more. The Bank maintains an allowance for loan losses based on management’s evaluation of the risk inherent in its loan portfolio, which gives due consideration to changes in general market conditions and in the nature and volume of the Bank’s loan activity. The allowance for loan losses amounted to $2.76 million at December 31, 2005, representing .62% of total loans and 139.93% of loans delinquent ninety days or more compared to an allowance of $2.50 million at December 31, 2004, representing .62% of total loans and 96.44% of loans delinquent ninety days or more. During the years ended December 31, 2005 and 2004, the Bank charged off loans aggregating $21,000 and $107,000, respectively. Recoveries totaled $171,000 and $5,000, respectively.

Non-Interest Income

Non-interest income decreased by $58,000 or 2.23% to $2.5 million during the year ended December 31, 2005 as compared to $2.6 million for 2004. The decrease in non-interest income during 2005 resulted primarily from a decrease in the gain on sale of investment in real estate of $170,000 and income from fees and service charges of $11,000, sufficient to offset an increase in gain on sale of mortgage-backed securities of $100,000 and miscellaneous income of $23,000. During the year ended December 31, 2005, the Bank sold mortgage-backed securities with a carrying value of $3.9 million for $4.0 million. During the year ended December 31, 2004 the Bank sold its investment in real estate with a carrying value of $124,000 for $294,000.

Non-Interest Expenses

Non-interest expenses decreased $249,000 or 1.81% to $13.5 million during the year ended December 31, 2005 compared to $13.8 million for 2004. Salaries and employee benefits, equipment, advertising and miscellaneous expenses decreased $12,000, $28,000, $1,000, and $331,000, respectively, during the year ended December 31, 2005, which were partially offset by increases in occupancy costs and professional fees of $117,000 and $6,000 respectively.

Income Taxes

Income tax expense totaled $5.0 million and $5.4 million during the years ended December 31, 2005 and 2004, respectively. The decrease in 2005 resulted from a decrease in pre-tax income and the commencement of operations of the Investment Company effective April 1, 2005. The Investment Company is subject to the investment company provisions of the New Jersey Corporation Business Tax Act and pays a 3.6% tax rate as compared to the 9% rate to which the Company and the Bank are subject. During the year ended December 31, 2005, the Investment Company’s lower tax rate led to a reduction of income taxes as compared to the prior year which totaled approximately $220,000.

LIQUIDITY AND CAPITAL RESOURCES

The Bank’s primary sources of funds are deposits, amortization and prepayments of loan and mortgage-backed securities principal, FHLB-NY advances, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturities of investment securities are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition.

The Bank is required to maintain sufficient liquidity to ensure its safe and sound operation by the Office of Thrift Supervision (“OTS”) regulations. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payments of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity level as appropriate to meet its asset/liability objectives. In addition, the Bank invests its excess funds in federal funds and interest-bearing deposits with the FHLB-NY, which provides liquidity to meet lending requirements.

The Bank’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Cash was generated by operating activities in each of the above periods. The primary source of cash from operating activities during each period was net income.

The primary sources of investing activities of the Bank are lending and investment in mortgage-backed securities. In addition to funding new loan production and the purchase of mortgage-backed securities through operations and financing activities, new loan production and purchases of mortgage-backed securities were also funded by principal repayments on existing loans and mortgage-backed securities.

7

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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, 2006 and 2005, advances from the FHLB-NY amounted to $101.0 million and $106.4 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At December 31, 2006, the Bank had outstanding commitments to originate loans and fund unused credit lines of $18.7 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 2006, totaled $209.2 million. Management believes that, based upon historical experience, a significant portion of such deposits will remain with the Bank.

At December 31, 2006, the Bank exceeded each of the three OTS capital requirements. The Bank’s tangible, core and total risk-based capital ratios were 8.59%, 8.59% and 15.68%, respectively. The Bank was categorized as “well-capitalized” under the prompt corrective action regulations of the OTS.

Contractual Obligations And Off-Balance Sheet Arrangements

The following table sets forth our contractual obligations and commercial commitments at December 31, 2006.

	Payment Due By Period
Contractual Obligations	Total		Less Than One Year		More Than One Year Through Three Years		More Than Three Years Through Five Years		More Than Five Years
	(In Thousands)
FHLB advances	$	101,000	$	17,000	$	33,000	$	33,000	$	18,000
Certificates of deposit		229,824		209,202		17,451		3,171		—
Lease obligations		2,428		426		567		501		934
Total	$	333,252	$	226,628	$	51,018	$	36,672	$	18,934

In the normal course of business, the Bank enters into off-balance sheet arrangements consisting of commitments to fund mortgage loans and lines of credit secured by real estate. The following table presents these off-balance sheet arrangements at December 31, 2006. For more information regarding these commitments, please see Note 13 of the Notes to Consolidated Financial Statements.

Off-Balance Sheet Arrangements	Total		Less Than One Year		More Than One Year Through Three Years		More Than Three Years Through Five Years		More Than Five Years
	(In Thousands)
To originate loans	$	7,680	$	7,680	$	—	$	—	$	—
Unused lines of credit		10,981		10,981		—		—		—
Total	$	18,661	$	18,661	$	—	$	—	$	—

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

8

interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would result in a decrease in net interest income.

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

The Bank’s current investment strategy is to maintain an overall securities portfolio that provides a source of liquidity and that contributes to the Bank’s overall profitability and asset mix within given quality and maturity considerations. Securities classified as available for sale provide management with the flexibility to make adjustments to the portfolio given changes in the economic or interest rate environment, to fulfill unanticipated liquidity needs, or to take advantage of alternative investment opportunities.

Net Portfolio Value

The Bank’s interest rate sensitivity is monitored by management through the use of the OTS model which estimates the change in the Bank’s net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The OTS produces its analysis based upon data submitted on the Bank’s quarterly Thrift Financial Reports. The following table, which sets forth the Bank’s NPV as of December 31, 2006, was calculated by the OTS:

Change in Interest Rates In Basis Points (Rate Shock)	Net Portfolio Value						NPV as Percent of Portfolio Value of Assets
	Amount		Dollar Change		Percent Change		NPV Ratio		Change In Basis Points
	(Dollars in Thousands)
+300 bp	$	31,728	$	-51,200	-62	%	5.24	%	-722 bp
+200 bp	$	48,887	$	-34,040	-41	%	7.82	%	-464 bp
+100 bp	$	66,341	$	-16,587	-20	%	10.28	%	-219 bp
0	$	82,928	$	—	—		12.46	%	—
-100 bp	$	96,165	$	13,237	+16	%	14.10	%	+163 bp
-200 bp	$	105,896	$	22,969	+28	%	15.21	%	+275 bp

Certain shortcomings are inherent in the methodology used in these 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.

9

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Pamrapo Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition of Pamrapo Bancorp, Inc. (the “Company”) and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ending December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pamrapo Bancorp, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1, the Company changed its method of accounting for Defined Benefit Pension and Other Post Retirement Plans in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the effectiveness of Pamrapo Bancorp, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2007 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.

Beard Miller Company LLP

Pine Brook, New Jersey

March 9, 2007

10

Consolidated Statements of Financial Condition

	December 31,
	2006			2005
ASSETS
Cash and amounts due from depository institutions	$	4,557,390		$	4,408,982
Interest-bearing deposits in other banks		8,789,549			4,161,099
Cash and Cash Equivalents		13,346,939			8,570,081
Securities available for sale		1,169,620			3,320,974
Investment securities held to maturity (estimated fair value of $9,598,800 and $10,794,500, respectively)		9,167,703			10,286,578
Mortgage-backed securities held to maturity (estimated fair value of $136,448,837 and $163,122,692, respectively)		141,053,489			167,009,237
Loans receivable (net of allowance for loan losses of $2,650,679 and $2,755,000, respectively)		454,859,315			438,250,023
Premises and equipment		3,730,636			3,855,907
Federal Home Loan Bank of New York stock		5,721,100			5,954,200
Interest receivable		2,894,089			2,809,337
Deferred tax asset		2,227,761			1,002,842
Other assets		2,389,546			5,027,292
Total Assets	$	636,560,198		$	646,086,471
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	469,941,066		$	474,003,280
Advances from Federal Home Loan Bank of New York		101,000,000			106,400,000
Advance payments by borrowers for taxes and insurance		3,654,164			3,688,029
Other liabilities		3,397,222			3,379,174
Total Liabilities		577,992,452			587,470,483
Commitments and Contingencies		—			—
Stockholders’ Equity
Preferred stock; 3,000,000 shares authorized; none issued and outstanding		—			—
Common stock; $0.01 par value; 25,000,000 shares authorized; 6,900,000 shares issued; 4,975,542 shares outstanding, 2006 and 2005		69,000			69,000
Paid-in capital		19,339,615			19,158,343
Retained earnings		63,936,702			61,972,334
Accumulated other comprehensive income (loss)		(1,598,867	)		284,603
Treasury stock, at cost, 1,924,458 shares, 2006 and 2005		(23,178,704	)		(22,868,292	)
Total Stockholders’ Equity		58,567,746			58,615,988
Total Liabilities and Stockholders’ Equity	$	636,560,198		$	646,086,471

See Notes to Consolidated Financial Statements

11

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

	Years Ended December 31,
	2006		2005		2004
Interest Income
Loans	$	28,936,780	$	26,615,913	$	24,861,002
Mortgage-backed securities		7,222,162		8,667,286		10,091,066
Investments		1,096,555		799,897		844,704
Other interest-earning assets		281,764		433,802		186,577
Total Interest Income		37,537,261		36,516,898		35,983,349
Interest Expense
Deposits		11,313,907		8,735,004		8,121,943
Advances and other borrowed money		4,666,907		3,694,720		3,269,682
Total Interest Expense		15,980,814		12,429,724		11,391,625
Net Interest Income		21,556,447		24,087,174		24,591,724
Provision for Loan Losses		—		109,863		82,051
Net Interest Income after Provision for Loan Losses		21,556,447		23,977,311		24,509,673
Non-Interest Income
Fees and service charges		1,183,073		1,284,125		1,294,644
Gain on sale of mortgage-backed securities		—		99,575		—
Gain on sale of securities available for sale		430,089		—		—
Gain on sale of investment in real estate		—		—		169,869
Other		1,184,849		1,157,579		1,134,395
Total Non-Interest Income		2,798,011		2,541,279		2,598,908
Non-Interest Expenses
Salaries and employee benefits		7,637,767		7,688,655		7,700,570
Net occupancy expense of premises		1,183,348		1,118,607		1,001,576
Equipment		1,294,678		1,312,591		1,340,958
Advertising		306,779		219,066		219,516
Professional fees		594,923		519,495		513,807
Other		2,867,354		2,684,803		3,015,827
Total Non-Interest Expenses		13,884,849		13,543,217		13,792,254
Income before Income Taxes		10,469,609		12,975,373		13,316,327
Income Taxes		3,927,742		5,011,590		5,372,549
Net Income	$	6,541,867	$	7,963,783	$	7,943,778
Net Income per Common Share
Basic	$	1.31	$	1.60	$	1.60
Diluted	$	1.31	$	1.60	$	1.59
Weighted Average Number of Common Shares Outstanding
Basic		4,975,542		4,975,470		4,974,783
Diluted		4,980,708		4,986,762		4,995,050
Dividends per Common Share	$	0.92	$	0.88	$	0.84

See Notes to Consolidated Financial Statements

12

Consolidated Statements of Changes in Stockholders’ Equity

	Common Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance - December 31, 2003	$	69,000	$	18,957,298	$	54,621,926		$	243,170		$	(22,568,051	)	$	51,323,343
Comprehensive income:
Net income		—		—		7,943,778			—			—			7,943,778
Unrealized gain on securities available for sale, net of income taxes of $ 48,200		—		—		—			72,298			—			72,298
Total Comprehensive Income															8,016,076
Purchase of treasury stock		—		—		—			—			(271,823	)		(271,823	)
Sale of treasury stock		—		76,263		—			—			134,182			210,445
Award of treasury stock		—		7,796		—			—			7,054			14,850
Cash dividends		—		—		(4,178,676	)		—			—			(4,178,676	)
Balance - December 31, 2004		69,000		19,041,357		58,387,028			315,468			(22,698,638	)		55,114,215
Comprehensive income:
Net income		—		—		7,963,783			—			—			7,963,783
Unrealized loss on securities available for sale, net of income taxes of $ 13,300		—		—		—			(30,865	)		—			(30,865	)
Total Comprehensive Income															7,932,918
Purchase of treasury stock		—		—		—			—			(372,862	)		(372,862	)
Sale of treasury stock		—		109,246		—			—			195,789			305,035
Award of treasury stock		—		7,740		—			—			7,419			15,159
Cash dividends		—		—		(4,378,477	)		—			—			(4,378,477	)
Balance - December 31, 2005		69,000		19,158,343		61,972,334			284,603			(22,868,292	)		58,615,988
Comprehensive income:
Net income		—		—		6,541,867			—			—			6,541,867
Unrealized loss of securities available for sale, net of income taxes of $ 14,214		—		—		—			(21,977	)		—			(21,977	)
Realized gain on securities available for sale, net of income taxes of $ 171,778		—		—		—			(258,311	)		—			(258,311	)
Total Comprehensive Income															6,261,579
Adjustment to initially apply SFAS No. 158, net of income taxes of $ 1,068,789		—		—		—			(1,603,182	)		—			(1,603,182	)
Purchase of treasury stock		—		—		—			—			(644,620	)		(644,620	)
Sale of treasury stock		—		181,272		—			—			334,208			515,480
Cash dividends		—		—		(4,577,499	)		—			—			(4,577,499	)
Balance - December 31, 2006	$	69,000	$	19,339,615	$	63,936,702		$	(1,598,867	)	$	(23,178,704	)	$	58,567,746

See Notes to Consolidated Financial Statements

13

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2006			2005			2004
Cash Flows from Operating Activities
Net income	$	6,541,867		$	7,963,783		$	7,943,778
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment and investment in real estate		568,252			565,377			533,648
Amortization of deferred fees, premiums and discounts, net		256,692			397,651			588,451
Provision for loan losses		—			109,863			82,051
Gain on sale of real estate held for investment		—			—			(169,869	)
Gain on sale of mortgage-backed securities held to maturity		—			(99,575	)		—
Gain on sale of securities available for sale		(430,089	)		—			—
Deferred income taxes		37,470			(49,261	)		(144,938	)
Award of treasury stock		—			15,159			14,850
(Increase) decrease in interest receivable		(84,752	)		(106,805	)		135,965
(Increase) decrease in other assets		(42,176	)		(1,365,995	)		56,013
Increase in other liabilities		65,908			317,999			216,717
Net Cash Provided by Operating Activities		6,913,172			7,748,196			9,256,666
Cash Flows from Investing Activities
Principal repayments on securities available for sale		109,817			326,102			438,179
Purchases of securities available for sale		(27,483	)		(52,059	)		(34,961	)
Proceeds from sale of securities available for sale		2,025,221			—			—
Purchases of investment securities held to maturity		—			(1,085,000	)		—
Proceeds from sale of mortgage-backed securities held to maturity		—			4,011,840			—
Proceeds from maturity of investment securities held to maturity		1,000,000			—			—
Principal repayments on mortgage-backed securities held to maturity		25,888,579			38,872,142			52,408,257
Purchases of mortgage-backed securities held to maturity		—			(9,776,945	)		(34,331,420	)
Proceeds from sale of loans		—			—			523,817
Net change in loans receivable		(16,679,941	)		(42,789,545	)		(17,736,201	)
Additions to premises and equipment		(442,981	)		(402,784	)		(453,941	)
Proceeds from sale of investment in real estate		—			—			53,985
Redemption (purchase) of Federal Home Loan Bank of New York stock		233,100			(802,300	)		(408,000	)
Net Cash Provided by (Used in) Investing Activities		12,106,312			(11,698,549	)		459,715

14

	Years Ended December 31,
	2006			2005			2004
Cash Flows from Financing Activities
Net decrease in deposits		(4,062,214	)		(15,346,408	)		(2,811,077	)
Advances from Federal Home Loan Bank of New York		40,000,000			37,400,000			19,000,000
Repayment of advances from Federal Home Loan Bank of New York		(37,000,000	)		(20,000,000	)		(17,000,000	)
Repayment in Federal Home Loan Bank overnight borrowing		(8,400,000	)		—			—
Net decrease in other borrowed money		(39,908	)		(36,850	)		(34,026	)
Net (decrease) increase in payments by borrowers for taxes and insurance		(33,865	)		351,285			(158,995	)
Cash dividends paid		(4,577,499	)		(4,378,477	)		(4,178,676	)
Sale of treasury stock		515,480			305,035			210,445
Purchase of treasury stock		(644,620	)		(372,862	)		(271,823	)
Net Cash (Used in) Financing Activities		(14,242,626	)		(2,078,277	)		(5,244,152	)
Net Increase (Decrease) in Cash and Cash Equivalents		4,776,858			(6,028,630	)		4,472,229
Cash and Cash Equivalents - Beginning		8,570,081			14,598,711			10,126,482
Cash and Cash Equivalents - Ending	$	13,346,939		$	8,570,081		$	14,598,711
Supplementary Cash Flows Information
Income taxes paid	$	3,523,899		$	5,791,868		$	5,679,241
Interest paid	$	15,990,049		$	12,383,218		$	11,245,680
Loan to facilitate sale of investment in real estate	$	—		$	—		$	240,000

15

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidated Financial Statement Presentation

The consolidated financial statements include the accounts of Pamrapo Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Pamrapo Savings Bank, S.L.A. (the “Bank”) and the Bank’s wholly-owned subsidiaries, Pamrapo Service Corp., Inc. (the “Service Corp.”) and Pamrapo Investment Company (the “Investment Company”). The Company’s business is conducted principally through the Bank. All significant inter-company accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses, the assessment of prepayment risks associated with mortgage-backed securities and the determination of the amount of deferred tax assets which are more likely than not to be realized. Management believes that the allowance for loan losses is adequate, prepayment risks associated with mortgage-backed securities are properly recognized and all deferred tax assets are more likely than not to be recognized. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area.

Additionally, assessments of prepayment risks related to mortgage-backed securities are based upon current market conditions, which are subject to frequent change. Finally, the determination of the amount of deferred tax assets more likely than not to be realized is dependent on projections of future earnings, which are subject to frequent change.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

Cash and Cash Equivalents

Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits in other banks having original maturities of three months or less.

Investment and Mortgage-Backed Securities

Investments in debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in a separate component of stockholders’ equity.

On a quarterly basis, management makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. Management considers many factors including the severity and duration of the impairment; the intent and ability of the Bank to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss.

Premiums and discounts on all securities are amortized/ accreted using the interest method. Interest and dividend income on securities, which includes amortization of premiums and accretion of discounts, is recognized in the consolidated financial statements when earned. The adjusted cost basis of an identified security sold or called is used for determining security gains and losses recognized in the consolidated statements of income.

Loans Receivable

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

The Bank defers loan origination fees and certain direct loan origination costs and amortizes/ accretes such amounts as an adjustment of yield over the contractual lives of the related loans. Discounts on loans purchased are recognized as income by use of the level-yield method over the terms of the respective loans.

The accrual of interest on loans is discontinued at the time of the loan being 120 days past due unless the credit is well secured and in the process of collection. Uncollectible interest on loans is charged off, or an allowance is established based on management’s evaluation. An allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management’s

16

judgment, the borrower’s ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual status.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level considered adequate to absorb loan losses. Management of the Bank, in determining the allowance for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions.

The Bank utilizes a two tier approach: (1) identification of impaired loans and the establishment of specific loss allowances, if necessary, on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of loan portfolio, current economic conditions and management’s judgment.

Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the allowance for loan losses may be necessary.

An impaired loan is evaluated based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Bank, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Bank expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. Thus, a demand loan or other loan with no stated maturity is not impaired if the Bank expects to collect all amounts due, including interest accrued at the contractual interest rate, during the period the loan is outstanding. All loans identified as impaired are evaluated independently. The Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

Foreclosed Real Estate and Investment in 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.

Real estate held for investment is carried at cost less accumulated depreciation. Income and expense of operating the property are recorded in operations.

Advertising

Advertising expense is recorded when occurred.

Benefit Plans

The Company has a non-contributory defined benefit pension plan covering all eligible employees. The benefits are based on years of service and employees’ compensation. The defined benefit plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the defined benefit plan generally are amortized over the estimated remaining service periods of employees.

Certain employees are covered under a Supplemental Executive Retirement Plan (“SERP”). 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

17

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

active plan participants or, for retired participants, the average remaining life expectancy.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires two major changes to accounting for defined benefit and postretirement plans, with two different effective dates. The first requirement of SFAS No. 158, which the Company adopted as of December 31, 2006, requires the recognition of the over-funded and under-funded status of a defined benefit postretirement plan as an asset or liability in the consolidated statement of financial condition, with changes in the funded status recorded through other comprehensive income in the year in which those changes occur. The impact of adoption of SFAS No. 158 on the defined benefit pension plan is more fully described in Note 11 to the consolidated financial statements. The impact of adoption of SFAS No. 158 on SERP is deemed immaterial.

The second requirement of SFAS No. 158, which is effective for the Company as of December 31, 2008, requires that the funded status be measured as of the entity’s fiscal year-end rather than as of an earlier date currently permitted. The Company currently uses a measurement date of October 1 for its defined benefit pension plan and SERP.

Premises and Equipment

Premises and equipment are comprised of land, at cost, and buildings, building improvements, leaseholds and furnishings and equipment, at cost, less accumulated depreciation and amortization. Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are expensed in the year incurred. Rental income is netted against occupancy expense in the consolidated statements of income.

Income Taxes

The Company, Bank, Service Corp. and Investment Company file a consolidated federal income tax return. Income taxes are allocated to the Company, Bank, Service Corp. and Investment Company based on their respective income or loss included in the consolidated income tax return. Separate state income tax returns are filed by the Company, Bank, Service Corp. and Investment Company.

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the Company’s and subsidiaries’ tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes.

Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.

Interest Rate Risk

The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to invest in securities, to make loans secured by real estate and, to a lesser extent, make consumer loans. The potential for interest-rate risk exists as a result of the generally shorter duration of the Bank’s interest-sensitive liabilities compared to the generally longer duration of its interest-sensitive assets. In a rising interest rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Bank’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Disclosure About Fair Value of Financial Instruments

The following methods and assumptions were used in estimating the fair value of its financial instruments:

Cash and cash equivalents and interest receivable: The carrying amounts reported in the consolidated financial statements for cash and cash equivalents and interest receivable approximate their fair values.

Securities: The fair value of securities is determined by reference to quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

FHLB stock: The estimated fair value of the Bank’s investment in FHLB stock is deemed equal to its carrying value, which represents the price at which it may be redeemed.

Loans receivable: Fair value is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.

Deposits: The carrying amounts reported in the consolidated financial statements for non-interest-bearing demand, NOW, Money Market, savings and club

18

accounts approximate their fair values. For fixed-maturity certificates of deposit, fair value is estimated using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank of New York: Fair value is estimated using rates currently offered for liabilities of similar remaining maturities, or when available, quoted market prices.

Commitments to extend credit: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

Stock-Based Compensation

The Company, under a plan approved by its stockholders in 2003, has granted stock options to certain employees. Prior to 2006, the Company accounted for options granted using the intrinsic value method, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation expense had been reflected in net income for the options granted as all such grants have an exercise price equal to the market price of the underlying stock at the date of grant. The following table provides information as to net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” as amended, to all option grants.

	Years Ended December 31,
	2005			2004
Net income as reported	$	7,963,783		$	7,943,778
Total stock-based compensation expense, net of income taxes, that would have been included in the determination of net income if the fair value method had been applied to all grants		(18,986	)		(416,198	)
Pro Forma Net Income	$	7,944,797		$	7,527,580
Net income per common share, as reported:
Basic	$	1.60		$	1.60
Diluted	$	1.60		$	1.59
Pro forma net income per common share:
Basic	$	1.60		$	1.51
Diluted	$	1.60		$	1.50

The Company adopted SFAS No. 123(R) on January 1, 2006 under the modified prospective method. Since all of the Company’s stock options were vested prior to 2006, the adoption of SFAS No. 123(R) had no impact on the consolidated financial statements.

Net Income per Common Share

Basic net income per common share is based on the weighted average number of common shares actually outstanding. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options, if dilutive, using the treasury stock method.

Reclassification

Certain amounts for prior periods have been reclassified to conform to the current period’s presentation.

Recent Accounting Pronouncements

FIN 48

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be

19

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

taken in a tax return. The interpretation also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The interpretation is effective for fiscal years beginning after December 15, 2006. The Company is evaluating the impact of this new pronouncement on its consolidated financial statements.

FAS 157

In September 2006, the FASB issued SFAS Statement No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of SFAS Statement No. 157 on our consolidated financial position, results of operations and cash flows.

SAB 108

On September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior-year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, Companies might evaluate the materiality of financial statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a Company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial condition.

EITF 06-4

In September 2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements” (“EITF 06-4”). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The disclosures are required in fiscal years beginning after December 15, 2007, with early adoption permitted.

FAS 159

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for the Company January 1, 2008. The Company is evaluating the impact that the adoption of SFAS No. 159 will have on its consolidated financial statements.

20

NOTE 2. SECURITIES AVAILABLE FOR SALE

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2006:
Mortgage-backed securities	$	662,405	$	7,215		—	$	669,620
Trust originated preferred security, maturing after twenty years		500,000		—		—		500,000
	$	1,162,405	$	7,215		—	$	1,169,620
December 31, 2005:
Mortgage-backed securities	$	772,221	$	7,943	$	178	$	779,986
Mutual fund		1,560,630		—		40,243		1,520,387
Trust originated preferred security, maturing after twenty years		500,000		—		—		500,000
Equity security		7,020		513,581		—		520,601
	$	2,839,871	$	521,524	$	40,421	$	3,320,974

The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale are as follows:

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2005:
Mortgage-backed securities	$	46,298	$	178	$	—	$	—	$	46,298	$	178
Mutual fund		—		—		1,520,387		40,243		1,520,387		40,243
	$	46,298	$	178	$	1,520,387	$	40,243	$	1,566,685	$	40,421

During the year ended December 31, 2006, a mutual fund with a book value of $1,588,112 was redeemed and a loss of $43,825 was realized and an equity security with a book value of $7,020 was sold and a profit of $473,914 was realized. There were no sales of securities available for sale during the years ended December 31, 2005 and 2004.

21

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

NOTE 3. INVESTMENT SECURITIES HELD TO MATURITY

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2006:
Subordinated notes:
Due after one within five years	$	9,167,703	$	431,097	$	—	$	9,598,800
December 31, 2005:
Subordinated notes:
Due within one year	$	1,000,000	$	17,500	$	—	$	1,017,500
After one within five years		3,203,578		108,422		—		3,312,000
After five years through ten years		6,083,000		387,500		5,500		6,465,000
	$	10,286,578	$	513,422	$	5,500	$	10,794,500

The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related investment securities held to maturity are as follows:

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2005:
Subordinated note due after five years through ten years	$	1,077,500	$	5,500	$	—	$	—	$	1,077,500	$	5,500

Management does not believe that any of the unrealized losses at December 31, 2005 represent an other-than-temporary impairment. The unrealized losses are on subordinated notes that earn interest at a fixed rate. Such unrealized losses are due to changes in market interest rates while the above investments are at a fixed rate. The Bank has the intent and ability to hold the subordinated notes for a time necessary to recover the amortized cost.

There were no sales of investment securities held to maturity during the years ended December 31, 2006, 2005 and 2004.

22

NOTE 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2006:
Federal Home Loan Mortgage Corporation	$	100,162,445	$	111,051	$	3,077,794	$	97,195,702
Federal National Mortgage Association		27,405,052		55,780		1,239,664		26,221,168
Government National Mortgage Association		167,848		8,407		—		176,255
Collateralized mortgage obligations		13,318,144		—		462,432		12,855,712
	$	141,053,489	$	175,238	$	4,779,890	$	136,448,837
December 31, 2005:
Federal Home Loan Mortgage Corporation	$	118,541,832	$	250,008	$	2,721,158	$	116,070,682
Federal National Mortgage Association		32,971,472		110,458		1,267,296		31,814,634
Government National Mortgage Association		252,865		15,312		—		268,177
Collateralized mortgage obligations		15,243,068		2		273,871		14,969,199
	$	167,009,237	$	375,780	$	4,262,325	$	163,122,692

23

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related mortgage-backed securities held to maturity are as follows:

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2006:
Federal Home Loan Mortgage Corp.	$	—	$	—	$	89,927,413	$	3,077,794	$	89,927,413	$	3,077,794
Federal National Mortgage Assn.		22,404		79		23,416,012		1,239,585		23,438,416		1,239,664
Collateralized mortgage obligations		1,150		16		12,854,562		462,416		12,855,712		462,432
	$	23,554	$	95	$	126,197,987	$	4,779,795	$	126,221,541	$	4,779,890
December 31, 2005:
Federal Home Loan Mortgage Corp.	$	43,566,029	$	600,615	$	62,234,914	$	2,120,543	$	105,800,943	$	2,721,158
Federal National Mortgage Assn.		—		—		27,872,977		1,267,296		27,872,977		1,267,296
Collateralized mortgage obligations		11,399,951		108,936		3,567,851		164,935		14,967,802		273,871
	$	54,965,980	$	709,551	$	93,675,742	$	3,552,774	$	148,641,722	$	4,262,325

Management does not believe that any of the unrealized losses at December 31, 2006 and 2005, represent an other-than-temporary impairment. The unrealized losses on the mortgage-backed securities portfolio is due primarily to increases in market interest rates. The securities with unrealized losses are primarily at fixed interest rates. The Bank has the intent and ability to hold these securities for a time necessary to recover the amortized cost.

There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2006 and 2004. During the year ended December 31, 2005, proceeds from the sales of mortgage-backed securities held to maturity totaled $4,011,840 and resulted in gross gains of $99,575. The securities sold had an outstanding principal balance of less than 15% of their original principal balances and, as provided for in FASB Statement No. 115, were permitted to be sold out of the held to maturity portfolio.

24

NOTE 5. LOANS RECEIVABLE

	December 31,
	2006			2005
Real estate mortgage:
One-to-four family	$	230,520,981		$	228,994,536
Multi-family		59,807,860			53,651,846
Commercial		70,771,387			70,126,334
		361,100,228			352,772,716
Real estate construction		17,080,557			14,942,198
Land		143,769			1,356,605
Commercial		9,037,046			5,857,776
Consumer:
Passbook or certificate		719,243			763,397
Home improvement		36,244			57,186
Equity and second mortgage		70,506,508			66,493,820
Automobile		535,988			679,793
Personal		1,146,181			1,051,884
		72,944,164			69,046,080
Total Loans		460,305,764			443,975,375
Loans in process		4,012,011			4,019,993
Allowance for loan losses		2,650,679			2,755,000
Deferred loan fees		(1,216,241	)		(1,049,641	)
		5,446,449			5,725,352
	$	454,859,315		$	438,250,023

At December 31, 2006, 2005 and 2004, loans serviced by the Bank for the benefit of others totaled approximately $281,000, $409,000, and $929,000, respectively.

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

	Years Ended December 31,
	2006			2005			2004
Balance, beginning	$	2,755,000		$	2,495,000		$	2,515,000
Provisions charged to operations		—			109,863			82,051
Recoveries credited to allowance		8,570			171,319			5,312
Loan losses charged to allowance		(112,891	)		(21,182	)		(107,363	)
Balance, ending	$	2,650,679		$	2,755,000		$	2,495,000

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

	December 31,
	2006		2005
Recorded investment in impaired loans:
With recorded allowances	$	21,932	$	240,373
Without recorded allowances		1,704,296		1,094,131
Total Impaired Loans		1,726,228		1,334,504
Related allowance for loan losses		21,932		132,788
Net Impaired Loans	$	1,704,296	$	1,201,716
Total loans past due ninety days or more and still accruing	$	1,383,000	$	796,000

At December 31, 2006, 2005 and 2004, non-accrual loans for which interest has been discontinued totaled approximately $896,000, $1,173,000, and $2,261,000, respectively. During the years ended December 31, 2006, 2005 and 2004, the Bank recognized interest income of approximately $10,000, $32,000, and $94,000, 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, $88,000, and $179,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on nonaccrual status.

The activity with respect to loans to directors, officers and associates of such persons, is as follows:

	Years Ending December 31,
	2006			2005
Balance, beginning	$	4,025,218		$	2,382,849
Loans originated (1)		2,687,398			3,683,116
Persons no longer associated		—			(493,221	)
Collection of principal		(193,043	)		(1,547,526	)
Balance, ending	$	6,519,573		$	4,025,218

(1) Includes net change in line of credit loans

25

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

NOTE 6. PREMISES AND EQUIPMENT

	December 31,
	2006			2005
Land	$	701,625		$	701,625
Buildings and improvements		4,086,680			4,065,751
Accumulated depreciation		(2,328,621	)		(2,201,082	)
		1,758,059			1,864,669
Leasehold improvements		1,525,317			1,384,103
Accumulated depreciation		(1,056,114	)		(903,408	)
		469,203			480,695
Furnishings and equipment		6,746,581			6,465,744
Accumulated depreciation		(5,944,832	)		(5,656,826	)
		801,749			808,918
	$	3,730,636		$	3,855,907

Depreciation expense for the years ended December 31, 2006, 2005, and 2004 totaled approximately $568,000, $565,000, and $527,000, respectively. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

	Years
Buildings and improvements	10 - 50
Leasehold improvements	Shorter of useful lives or terms of lease
Furnishings and equipment	3 - 10

NOTE 7. INTEREST RECEIVABLE

	December 31,
	2006		2005
Loans	$	2,158,171	$	1,943,392
Mortgage-backed securities		565,089		671,153
Investment securities		170,829		194,792
	$	2,894,089	$	2,809,337

NOTE 8. DEPOSITS

	December 31,
	2006						2005
	Weighted Average Rate		Amount		Percent		Weighted Average Rate		Amount		Percent
Demand:
Non-interest bearing	0.00	%	$	43,847,573	9.33	%	0.00	%	$	37,965,199	8.01	%
NOW	1.00	%		36,618,187	7.79	%	1.00	%		40,254,305	8.49	%
	.46	%		80,465,760	17.12	%	0.52	%		78,219,504	16.50	%
Money market	1.25	%		24,148,390	5.14	%	1.24	%		33,646,671	7.10	%
Savings and club	1.41	%		135,503,290	28.84	%	1.25	%		155,913,477	32.89	%
Certificates of deposit	4.39	%		229,823,626	48.90	%	3.12	%		206,223,628	43.51	%
	2.69	%	$	469,941,066	100.00	%	1.94	%	$	474,003,280	100.00	%

26

The scheduled maturities of certificates of deposit are as follows:

	December 31,
	2006		2005
	(In Thousands)
One year or less	$	209,202	$	173,179
After one year to three years		17,451		26,429
After three years		3,171		6,616
	$	229,824	$	206,224

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

	December 31,
	2006		2005
	(In Thousands)
Three months or less	$	29,855	$	13,850
After three months through six months		22,719		16,273
After six months through twelve months		39,539		35,654
After twelve months		8,974		13,232
	$	101,087	$	79,009

A summary of interest on deposits follows:

	Years Ended December 31,
	2006		2005		2004
Demand	$	779,597	$	884,854	$	949,185
Savings, club and money market		2,017,648		2,219,739		2,391,441
Certificates of deposit		8,516,662		5,630,411		4,781,317
	$	11,313,907	$	8,735,004	$	8,121,943

NOTE 9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK

	December 31,
	2006				2005
	Weighted Average Rate		Amount		Weighted Average Rate		Amount
Maturing by December 31,
2006		%	$	—	3.49	%	$	38,400,000
2007	2.91	%		17,000,000	2.91	%		17,000,000
2008	4.24	%		15,000,000	4.43	%		22,000,000
2009	5.25	%		18,000,000	5.58	%		15,000,000
2010	5.59	%		23,000,000	4.93	%		8,000,000
2011	5.24	%		10,000,000	4.67	%		3,000,000
Thereafter	4.17	%		18,000,000	4.80	%		3,000,000
	4.59	%	$	101,000,000	4.07	%	$	106,400,000

At December 31, 2006 and 2005, all the advances were fixed interest rate advances.

At December 31, 2006 and 2005, the advances were secured by pledges of the Bank’s investment in the capital stock of the Federal Home Loan Bank of New York (the “FHLB”) totaling $5,721,100 and $5,954,200, respectively, and a blanket assignment of the Bank’s unpledged qualifying mortgage loans, mortgage-backed securities and investment securities portfolios.

At December 31, 2006 and 2005, the Company also had available to it $58,817,500 and $55,730,900, respectively, under a revolving overnight line of credit, expiring July 31, 2007 and July 31, 2006, respectively, with the FHLB. The line of credit is secured by a specific pledge of mortgage-backed securities with carrying values and fair values of approximately $48,723,000 and $47,170,000 (2006) and $33,564,000 and $32,931,000 (2005). Borrowings are at the lender’s cost of funds plus .25%. At December 31, 2005, outstanding borrowings under the line of credit amounted to $8,400,000 bearing an interest rate of 4.19%. There were no outstanding borrowings under the line of credit at December 31, 2006.

NOTE 10. REGULATORY MATTERS

For the purpose of granting to eligible account holders a priority in the event of future liquidation, the Bank, at the time of conversion, established a special account in an amount equal to its total retained earnings of $18.4 million at June 30, 1989. In the event of a future liquidation of the converted Bank (and only in such event), an eligible account holder who continues to maintain his deposit account shall be entitled to receive a distribution from the special account. The total amount of the special account is decreased (but never increased) in an amount proportionately corresponding to decreases in the deposit account balances of eligible account holders as of each subsequent year end. After conversion, no dividends may be paid to stockholders if such dividends would reduce the retained earnings of the converted Bank below the amount required by the special account.

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

27

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

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

	December 31,
	2006			2005
	(In Thousands)
GAAP capital	$	53,025		$	53,139
Unrealized gain on securities available for sale		(4	)		(285	)
SFAS No. 158 adjustment		1,603			—
Core and tangible capital		54,624			52,854
General valuation allowance		2,629			2,622
Total Regulatory Capital	$	57,253		$	55,476

As of January 23, 2006, the most recent notification from the Office of Thrift Supervision, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions existing or events which have occurred since notification that management believes have changed the institution’s category.

	Actual				For Capital Adequacy Purposes					To be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2006:
Total capital (to risk-weighted assets)	$	57,253	15.68	%	$	³29,209	³	8.00	%	$	³36,511	³10.00	%
Tier 1 capital (to risk-weighted assets)		54,624	14.96			³—	³	—			³21,906	³6.00
Core (Tier 1) capital (to adjusted total assets)		54,624	8.59			³25,446	³	4.00			³31,808	³5.00
Tangible capital (to adjusted total assets)		54,624	8.59			³9,542	³	1.50			³—	³—
December 31, 2005:
Total capital (to risk-weighted assets)	$	55,476	15.25	%	$	³29,099	³	8.00	%	$	³36,373	³10.00	%
Tier 1 capital (to risk-weighted assets)		52,854	14.53			³—	³	—			³21,824	³6.00
Core (Tier 1) capital (to adjusted total assets)		52,854	8.18			³25,844	³	—			³32,306	³5.00
Tangible capital (to adjusted total assets)		52,854	8.18			³9,692	³	1.50			³—	³—

NOTE 11. BENEFITS PLANS

Pension Plan (“Plan”)

The following summarizes the impact of the adoption of SFAS No. 158 on the consolidated statement of financial condition as of December 31, 2006: (in thousands)

	Prior to SFAS No. 158 Adoption		Impact of SFAS No. 158 Adoption Increase (Decrease)			After SFAS No. 158 Adoption
Prepaid pension costs (other assets)	$	2,202	$	(2,202	)	$	—
Accrued pension liabilities (other liabilities)		—		478			478
Deferred income tax liability on pension costs		880		(880	)		—
Deferred income tax asset on pension costs		—		192			192
Accumulated other comprehensive loss on pension costs		—		1,608			1,608

28

The following tables set forth the Plan’s funded status and components of net periodic pension cost:

	December 31,
	2006			2005
Measurement Date		October 1, 2006			October 1, 2005
Change in Benefit Obligation
Benefit obligation, beginning	$	7,417,361		$	6,835,553
Service cost		257,724			238,844
Interest cost		431,744			423,100
Actuarial (gain) loss		(13,528	)		572,228
Benefits paid		(190,737	)		(652,364	)
Benefit obligation, ending	$	7,902,564		$	7,417,361
Change in Plan Assets
Fair value of assets, beginning	$	6,900,126		$	6,585,786
Actual return on plan assets		565,274			353,658
Employer contributions		150,000			613,046
Benefits paid		(190,737	)		(652,364	)
Fair value of assets, ending	$	7,424,663		$	6,900,126
Reconciliation of Funded Status
Accumulated benefit obligation	$	7,035,564		$	6,575,208
Projected benefit obligation	$	7,902,564		$	7,417,361
Fair value of assets		(7,424,663	)		(6,900,126	)
Funded status at end of year	$	477,901		$	517,235
Assumptions Used
Discount rate		6.25	%		5.875	%
Rate of increase in compensation		3.50	%		3.00	%

	Years Ended December 31,
	2006			2005			2004
Net Periodic Pension Expense
Service cost	$	257,724		$	238,844		$	259,724
Interest cost		431,744			423,100			416,240
Expected return on assets		(549,860	)		(524,220	)		(479,336	)
Amortization of unrecognized loss		214,968			163,988			224,276
Unrecognized past service liability		17,772			17,772			17,772
Net Periodic Pension Expense	$	372,348		$	319,484		$	438,676
Assumption Used
Discount rate		5.88	%		6.25	%		6.25	%
Rate of increase in compensation		3.00	%		3.50	%		3.50	%
Long-term rate of return on plan assets		8.00	%		8.00	%		8.00	%

At December 31, 2006, unrecognized net loss of $2,589,462 and unrecognized prior service cost of $90,462 were included in accumulated other comprehensive income in accordance with SFAS No. 158. As required under SFAS No. 158, for the fiscal year ending December 31, 2007, $188,992 of net loss and $17,772 of prior service cost is expected to be recognized as a component of net periodic pension cost.

Plan Assets

For 2006 and 2005, the Plan’s assets realized an annual return of 11.6% and 2.0%, respectively. The weighted-average allocations by asset category are as follows:

	December 31,
	2006		2005
Certificates of deposit	41	%	32	%
Mutual fund	26	%	35	%
Mortgage-backed securities	2	%	2	%
Equity securities	31	%	31	%
	100	%	100	%

For 2006, the Company intends to maintain the current asset mix and seeks to achieve an optimal risk/reward profile by limiting market exposure to present levels. Based on an analysis of the current market environment, we project a 4% return from cash, a 5% return from fixed income and a 7% return from equities, for an overall expected return of approximately 6%.

The long-term rate of return on assets assumption is set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plan’s actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5-8% and 2-6%, respectively. Additionally, the long-term inflation rate is projected to be 3%. When these overall return expectations are applied to a typical plan’s target allocation, the result is an expected return of 6% to 8%.

Equity securities include Pamrapo Bancorp, Inc. common stock in the amounts of $657,000 (9% of total plan assets) and $622,000 (9% of total plan assets) at December 31, 2006 and 2005, respectively.

29

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

Contributions

The Company expects to contribute, based upon actuarial estimates, approximately $450,000 to the pension plan in 2007.

Estimated Future Benefit Payments

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the years ended December 31 as follows:

2007	$	424,801
2008		468,379
2009		492,928
2010		496,349
2011		505,139
2012-2016		2,922,497
	$	5,310,093

Savings and Investment Plan (“SIP”)

The Bank sponsors a SIP pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees. Employees may elect to save up to 25% of their compensation of which the Savings Bank will match 25% of the first 10% of the employee’s contribution up to a maximum of 2.5% of compensation. The SIP expense amounted to approximately $72,000, $139,000, and $120,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Supplemental Executive Retirement Plan (“SERP”)

The following tables set forth the SERP’s funded status and components of net periodic SERP cost:

	December 31,
	2006			2005
Measurement Date		October 1, 2006			October 1, 2005
Projected benefit obligation, beginning	$	2,364,510		$	2,698,097
Interest cost		130,116			158,360
Actuarial gain		(332,135	)		(351,563	)
Benefit payments		(140,384	)		(140,384	)
Projected benefit obligation, ending		2,022,107			2,364,510
Plan assets at fair value		—			—
Projected benefit obligation in excess of plan assets	$	2,022,107		$	2,364,510
Assumptions:
Discount rate		6.25	%		5.875	%
Rate of increase in compensation		3.50	%		3.000	%

The impact of adoption of SFAS No. 158 on the accumulated other comprehensive loss as of December 31, 2006 totaled $5,000.

Net periodic SERP cost includes the following components:

	Years Ended December 31,
	2006			2005			2004
Service cost	$	—		$	—		$	—
Interest cost		130,116			158,360			174,024
Net amortization		92,052			124,100			149,580
Net periodic SERP cost	$	222,168		$	282,460		$	323,604
Benefit payments	$	140,384		$	140,384		$	110,384
Contributions made	$	140,384		$	140,384		$	110,384
Assumption Used
Discount rate		5.875	%		6.25	%		6.25	%
Rate of increase in compensation		3.00	%		3.50	%		3.50	%
Amortization period (in years)		6.88			7.75			8.63

30

Contributions

The Company expects to contribute, based upon actuarial estimates, approximately $262,000 to the SERP plan in 2007.

Estimated Future Benefit Payments

Benefit payments, which reflect expected future service as appropriate, are expected to be paid for the years ended December 31 as follows:

2007	$	262,176
2008		257,176
2009		247,657
2010		247,657
2011		246,027
2012-2016		857,490
	$	2,118,183

Stock Options

Stock options granted under a stockholder approved stock option plan may be either options that qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory options. Options vest in accordance with the plan and may be exercised up to ten years from the date of grant or within one year after retirement. All options granted will be exercisable in the event the optionee terminates his employment, or due to death or disability. A summary of stock option activity follows:

	Number of Options Shares						Range of Exercise Price		Weighted Average Exercise Price
	Vested		Non-Vested		Total
December 31, 2003	65,741		18,259		84,000		$	18.41	$	18.41
Vesting	18,259		(18,259	)	—			18.41		18.41
Options granted	36,000		9,000		45,000			29.25		29.25
Exercised	(11,431	)	—		(11,431	)		18.41		18.41
December 31, 2004	108,569		9,000		117,569			18.41 - 29.25		22.56
Vesting	9,000		(9,000	)	—			29.25		29.25
Exercised	(16,569	)	—		(16,569	)		18.41		18.41
December 31, 2005	101,000		—		101,000			18.41 - 29.25		23.24
Forfeitures	(6,000	)			(6,000	)		29.25		29.25
Exercised	(28,000	)	—		(28,000	)		18.41		18.41
December 31, 2006	67,000		—		67,000		$	18.41 - 29.25	$	24.72

The total intrinsic value of options exercised during the year ended December 31, 2006 was $129,140. As of December 31, 2006, the intrinsic value of options outstanding was $121,334.

At December 31, 2006 and 2005, the weighted average remaining contractual life of the stock options granted was approximately 7.1 years and 7.8 years, respectively, and stock options for up to 22,380 additional shares of common stock were available for future grants. There were 6,000 options forfeited during 2006 and none forfeited in 2005 and 2004.

The grant-date fair values of the stock options granted during 2004, which have exercise prices equal to the market price of the common stock at the grant date, were estimated using the Black-Scholes option-pricing model. Such fair value and the assumptions used for estimating fair value are as follows:

	Year Ended December 31, 2004
Grant-date fair value per share	$	9.39
Expected common stock dividend yield		2.87	%
Expected option life		7.0 years
Risk-free interest rate		3.23	%
Volatility		37.99	%

31

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

NOTE 12. INCOME TAXES

The Bank qualifies as a savings institution under the provisions of the Internal Revenue Code and was therefore, prior to January 1, 1996, permitted to deduct from taxable income an allowance for bad debts based upon eight percent of taxable income before such deduction, less certain adjustments. Retained earnings at December 31, 2006 and 2005, include approximately $6,907,000 of such bad debt, which, in accordance with SFAS No. 109, “Accounting for Income Taxes,” is considered a permanent difference between the book and income tax basis of loans receivable, and for which income taxes have not been provided. If such amount is used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate.

The tax effects of existing temporary differences which give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

	December 31,
	2006		2005
Deferred tax assets:
Allowance for loan losses	$	1,082,802	$	1,116,882
Benefit plans		890,849		—
Deferred loan fees		25,771		50,396
Depreciation		223,247		206,673
Reserve for uncollected interest		7,992		15,092
		2,230,661		1,389,043
Deferred tax liabilities:
Benefit plans		—		189,701
Unrealized gain on securities available for sale		2,900		196,500
		2,900		386,201
Net Deferred Tax Assets	$	2,227,761	$	1,002,842

The components of income taxes are summarized as follows:

	Years Ended December 31,
	2006		2005			2004
Current expense:
Federal	$	3,372,510	$	4,196,641		$	4,247,060
State		517,762		864,210			1,270,427
		3,890,272		5,060,851			5,517,487
Deferred tax expense (benefit):
Federal		27,756		(46,894	)		(99,914	)
State		9,714		(2,367	)		(45,024	)
		37,470		(49,261	)		(144,938	)
	$	3,927,742	$	5,011,590		$	5,372,549

The following table presents a reconciliation between the reported income taxes and the income taxes which would be computed by applying the normal federal income tax rate of 34% to income before income taxes:

	Years Ended December 31,
	2006			2005			2004
Federal income tax	$	3,559,667		$	4,411,627		$	4,527,551
Increases in income taxes resulting from:
New Jersey income tax, net of federal income tax effect		348,134			568,816			808,766
Other items, net		19,941			31,147			36,232
Effective Income Tax	$	3,927,742		$	5,011,590		$	5,372,549
Effective Income Tax Rate		37.52	%		38.62	%		40.35	%

32

NOTE 13. COMMITMENTS AND CONTINGENCIES

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to originate loans. The commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of financial condition. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily includes residential real estate and income-producing commercial properties.

The Bank had loan commitments outstanding as follows:

	December 31,
	2006		2005
To originate loans	$	7,680,000	$	14,912,000

At December 31, 2006, the outstanding commitments to originate fixed rate loans were $7,105,000 with interest rates ranging from 6.50% to 13.00%. The outstanding commitments to originate adjustable rate loans were $575,000 with interest rates ranging from 5.75% to 8.25%. All commitments are due to expire within ninety days.

At December 31, 2006, undisbursed funds from approved lines of credit under a homeowners’ equity and a commercial equity lending program amounted to approximately $8,929,000 and $2,052,000, respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand. The interest rates charged for any month on funds disbursed under these programs range from (.5%) to 3.75% above the prime rate.

Rental expenses related to the occupancy of premises totaled $457,000, $428,000, and $273,000 for the years ended December 31, 2006, 2005 and 2004, respectively. At December 31, 2006, minimum non-cancelable obligations under lease agreements with original terms of more than one year are as follows:

December 31,
2007	$	426,017
2008		297,493
2009		268,980
2010		246,311
2011		254,350
Thereafter		934,457
	$	2,427,608

The Company, Bank, Service Corp., and Investment Company are also parties to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of such litigation should not have a material effect on the consolidated financial position of the Company.

NOTE 14. COMPREHENSIVE INCOME

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

	Years Ended December 31,
	2006			2005
Net unrealized gain on securities available for sale	$	7,215		$	481,103
Tax effect		(2,900	)		(196,500	)
Net of tax amount		4,315			284,603
Adjustments to initially apply SFAS No. 158		(2,671,971	)		—
Tax effect		1,068,789			—
Net of tax amount		(1,603,182	)		—
Accumulated other comprehensive income (loss)	$	(1,598,867	)	$	284,603

33

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

	December 31,
	2006				2005
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	13,347	$	13,347	$	8,570	$	8,570
Securities available for sale		1,170		1,170		3,321		3,321
Investment securities held to maturity		9,168		9,599		10,287		10,795
Mortgage-backed securities held to maturity		141,053		136,449		167,009		163,123
FHLB stock		5,721		5,721		5,954		5,954
Loans receivable		454,859		449,785		438,250		432,644
Interest receivable		2,894		2,894		2,809		2,809
Financial liabilities:
Deposits		469,941		469,370		474,003		474,925
Advances		101,000		99,157		106,400		104,806

For financial instruments with off-balance sheet risk (primarily loan commitments), the carrying value (deferred loan fees and costs) and the fair value are not deemed material.

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include mortgage servicing rights, premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

34

NOTE 16. PARENT COMPANY FINANCIAL INFORMATION

STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2006			2005
Assets
Cash and cash equivalents	$	5,486,043		$	5,450,496
Investment in subsidiary		53,024,620			53,139,486
Refundable income taxes		116,763			86,416
Total Assets	$	58,627,426		$	58,676,398
Liabilities and Stockholders’ Equity
Liabilities, other	$	59,680		$	60,410
Stockholders’ equity
Common stock		69,000			69,000
Paid-in capital in excess of par value		19,339,615			19,158,343
Retained earnings		63,936,702			61,972,334
Accumulated other comprehensive income (loss)		(1,598,867	)		284,603
Treasury stock, at cost		(23,178,704	)		(22,868,292	)
Total Stockholders’ Equity		58,567,746			58,615,988
Total Liabilities and Stockholders’ Equity	$	58,627,426		$	58,676,398

35

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

STATEMENTS OF INCOME

	Years Ended December 31,
	2006			2005			2004
Dividends from subsidiary	$	5,000,000		$	6,000,000		$	4,000,000
Interest income		3,160			3,121			3,091
Income before Expenses		5,003,160			6,003,121			4,003,091
Non-interest expenses		344,580			255,787			378,818
Income before Equity in Undistributed Earnings of Subsidiary and Income Taxes (Benefit)		4,658,580			5,747,334			3,624,273
Equity in undistributed earnings of subsidiary		1,768,604			2,131,533			4,192,104
Income before Income Taxes (Benefit)		6,427,184			7,878,867			7,816,377
Income taxes (benefit)		(114,683	)		(84,916	)		(127,401	)
Net Income	$	6,541,867		$	7,963,783		$	7,943,778
STATEMENTS OF CASH FLOW
	Years Ended December 31,
	2006			2005			2004
Cash Flows from Operating Activities
Net income	$	6,541,867		$	7,963,783		$	7,943,778
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary		(1,768,604	)		(2,131,532	)		(4,192,104	)
Award of treasury stock		—			15,159			14,850
(Increase) decrease in refundable income taxes		(30,347	)		41,518			(6,444	)
Decrease in other assets		—			—			200,658
(Decrease) in other liabilities		(730	)		(1,740	)		(500	)
Net Cash Provided by Operating Activities		4,742,186			5,887,188			3,960,238
Cash Flows from Financing Activities
Cash dividends paid		(4,577,499	)		(4,378,477	)		(4,178,676	)
Sale of treasury stock		515,480			305,035			210,445
Purchase of treasury stock		(644,620	)		(372,862	)		(271,823	)
Net Cash Used in Financing Activities		(4,706,639	)		(4,446,304	)		(4,240,054	)
Net Increase (Decrease) in Cash and Cash Equivalents		35,547			1,440,884			(279,816	)
Cash and Cash Equivalents – Beginning		5,450,496			4,009,612			4,289,428
Cash and Cash Equivalents – Ending	$	5,486,043		$	5,450,496		$	4,009,612

36

NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)

	Year Ended December 31, 2006
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In Thousands, Except Per Share Amounts)
Interest income	$	9,229	$	9,413	$	9,505	$	9,390
Interest expense		3,525		3,898		4,170		4,388
Net Interest Income		5,704		5,515		5,335		5,002
Provision for loan losses		—		—		—		—
Net Interest Income after Provision for Loan Losses		5,704		5,515		5,335		5,002
Non-interest income		561		584		952		701
Non-interest expenses		3,354		3,683		3,411		3,436
Income before Income Taxes		2,911		2,416		2,876		2,267
Income taxes		1,099		896		1,084		849
Net Income	$	1,812	$	1,520	$	1,792	$	1,418
Net income per common share:
Basic	$	0.36	$	0.31	$	0.36	$	0.28
Diluted	$	0.36	$	0.31	$	0.36	$	0.28
Dividends per common share	$	0.23	$	0.23	$	0.23	$	0.23
	Year Ended December 31, 2005
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In Thousands, Except Per Share Amounts)
Interest income	$	9,015	$	9,140	$	9,173	$	9,189
Interest expense		2,887		2,972		3,173		3,398
Net Interest Income		6,128		6,168		6,000		5,791
Provision for loan losses		60		40		5		5
Net Interest Income after Provision for Loan Losses		6,068		6,128		5,995		5,786
Non-interest income		623		689		591		638
Non-interest expenses		3,367		3,630		3,247		3,299
Income before Income Taxes		3,324		3,187		3,339		3,125
Income taxes		1,341		1,221		1,275		1,174
Net Income	$	1,983	$	1,966	$	2,064	$	1,951
Net income per common share:
Basic	$	0.40	$	0.40	$	0.41	$	0.39
Diluted	$	0.40	$	0.39	$	0.41	$	0.39
Dividends per common share	$	0.22	$	0.22	$	0.22	$	0.22

37

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Selected Consolidated Financial Condition and Operating Data of the Corporation

	At December 31,
Financial condition data:	2002			2003			2004			2005			2006
	(In Thousands)
Total amount of:
Assets	$	588,659		$	636,895		$	639,899		$	646,086		$	636,560
Loans receivable		389,865			378,641			395,800			438,250			454,859
Securities available for sale		4,543			3,922			3,639			3,321			1,170
Mortgage-backed securities		146,138			218,418			200,077			167,009			141,053
Investment securities		7,095			9,422			9,309			10,287			9,168
Deposits		445,507			492,161			489,350			474,003			469,941
Advances and other borrowed money		84,489			87,118			89,000			106,400			101,000
Stockholders’ equity		50,756			51,323			55,114			58,616			58,568
	Year Ended December 31,
Operating data:	2002			2003			2004			2005			2006
	(In Thousands)
Interest income	$	38,058		$	36,755		$	35,983		$	36,517		$	37,537
Interest expense		15,290			13,433			11,391			12,430			15,981
Net interest income		22,768			23,322			24,592			24,087			21,556
Provision for loan losses		634			84			82			110			—
Non-interest income		2,566			2,555			2,599			2,541			2,798
Non-interest expenses		12,791			12,809			13,792			13,543			13,884
Income taxes		4,786			5,203			5,373			5,011			3,928
Net income	$	7,123		$	7,781		$	7,944		$	7,964		$	6,542
Net income per share
Basic	$	1.39		$	1.54		$	1.60		$	1.60		$	1.31
Diluted		1.39			1.54			1.59			1.60			1.31
Dividends per share	$	0.75		$	0.80		$	0.84		$	0.88		$	0.92
Dividend payout ratio		54.12	%		52.02	%		52.60	%		54.97	%		69.97	%

38

Selected Consolidated Financial Condition and Operating Data of the Corporation (continued)

	At Or For Year Ended December 31,
Selected Financial Ratios:	2002		2003		2004		2005		2006
Return on average assets	1.26	%	1.25	%	1.24	%	1.24	%	1.02	%
Return on average equity	14.52	%	15.45	%	15.00	%	14.06	%	10.95	%
Average equity/average assets	8.70	%	8.08	%	8.26	%	8.82	%	9.29	%
Interest rate spread	3.77	%	3.57	%	3.66	%	3.52	%	3.00	%
Net yield on average interest-earning assets	4.18	%	3.86	%	3.92	%	3.84	%	3.43	%
Non-interest expenses to average assets	2.27	%	2.06	%	2.15	%	2.11	%	2.16	%
Equity/total assets	8.62	%	8.06	%	8.61	%	9.07	%	9.20	%
Capital ratios:
Tangible	7.08	%	7.26	%	7.92	%	8.18	%	8.59	%
Core	7.08	%	7.26	%	7.92	%	8.18	%	8.59	%
Risk-based	14.35	%	15.13	%	15.89	%	15.25	%	15.68	%
Non-performing loans to total assets	0.46	%	0.24	%	0.41	%	0.30	%	0.36	%
Non-performing loans to loans receivable	0.69	%	0.41	%	0.67	%	0.44	%	0.50	%
Non-performing assets to total assets	0.49	%	0.24	%	0.41	%	0.30	%	0.36	%
Allowance for loan losses to non-performing loans	94.41	%	161.53	%	96.44	%	139.93	%	116.32	%
Average interest-earning assets/average interest-bearing liabilities	1.14	x	1.13	x	1.14	x	1.16	x	1.17	x
Net interest income after provision for loan losses to non-interest expenses	1.73	x	1.81	x	1.79	x	1.77	x	1.55	x

39

PAMRAPO BANCORP, INC. AND SUBSIDIARIES

Stockholder Information

MARKET FOR COMMON STOCK AND RELATED MATTERS

Pamrapo Bancorp, Inc.’s common stock is presently quoted on The NASDAQ Stock Market under the symbol “PBCI.” At March 7, 2007, the Company’s 4,975,542 outstanding shares of common stock were held by approximately 1,700 persons or entities.

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

	CLOSING PRICES
QUARTER ENDED	HIGH		LOW
March 31, 2005	$	24.75	$	21.90
June 30, 2005		23.38		21.31
September 30, 2005		22.65		20.74
December 31, 2005		21.99		21.00
March 31, 2006		22.00		19.82
June 30, 2006		20.85		19.00
September 30, 2006		20.00		19.02
December 31, 2006		26.50		19.09
DIVIDENDS WERE PAID AS FOLLOWS:
March, 2005	$	.22
June, 2005		.22
September, 2005		.22
December, 2005		.22
March, 2006		.23
June, 2006		.23
September, 2006		.23
December, 2006		.23

Future dividend policy will be determined by the Board of Directors after giving consideration to the Company’s financial condition, results of operations, tax status, industry standards, economic conditions and other factors. Dividends will also depend upon dividend payments by the Bank to the Company, which is its primary source of income. The Board may also consider the payment of stock dividends from time to time, in addition to, or in lieu of cash dividends.

Under federal regulations, the Bank may not declare or pay a cash dividend on any of its common stock if the effect thereof would cause the Bank’s regulatory capital to be reduced below the amount required for the liquidation account or the regulatory capital requirements imposed by the Office of Thrift Supervision (“OTS”). The Bank must provide at least 30 days advance notice to the OTS before declaring a dividend.

40

Stock Performance Chart

The following graph shows a five year comparison of shareholder return on the Company’s Common Stock with the cumulative total returns of companies on the Russell 2000 Index and the SNL NASDAQ Thrift Index. Total return assumes the reinvestment of all dividends. The graph assumes $100 was invested on December 31, 2001.

COMPARATIVE FIVE-YEAR TOTAL RETURNS

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

(Performance Results Through 12/31/06)

	Period Ending
Index	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
Pamrapo Bancorp, Inc.	100.00	137.12	212.83	214.78	193.78	222.15
Russell 2000	100.00	79.52	117.09	138.55	144.86	171.47
SNL NASDAQ Thrift Index	100.00	127.57	193.15	217.49	216.57	258.32

Source : SNL Financial LC, Charlottesville, VA    (434) 977-1600    © 2007    www.snl.com

41

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 of Pamrapo Bancorp, Inc. (the “Company”) of our report dated March 9, 2007 relating to the consolidated financial statements, which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K and the effectiveness of the Company’s internal control over financial reporting, which is included herein.

/s/ Beard Miller Company LLP

Beard Miller Company LLP

Pine Brook, New Jersey

March 16, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William J. Campbell, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: March 16, 2007

/s/    WILLIAM J. CAMPBELL        

William J. Campbell

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kenneth D. Walter, certify that:

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

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

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

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

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

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

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

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

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

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

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

March 16, 2007

/s/     KENNETH D. WALTER        

Kenneth D. Walter

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Pamrapo Bancorp, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William J. Campbell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/    WILLIAM J. CAMPBELL        

William J. Campbell

Chief Executive Officer

March 16, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Pamrapo Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth D. Walter, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/    KENNETH D. WALTER        

Kenneth D. Walter

Chief Financial Officer

March 16, 2007