As filed with the Securities and Exchange Commission on January 14, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ________
Commission File Number: 0-23293
WARWICK COMMUNITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1497903
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
18 OAKLAND AVENUE, WARWICK, NEW YORK 10990-0591
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(914) 986-2206
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 for the past 90 days.
Yes No X
--- ---
As of January 12, 1998, there were 6,606,548 shares of the Registrant's
common stock outstanding.
<PAGE>
FORM 10-Q
WARWICK COMMUNITY BANCORP, INC.
INDEX
Page
PART I -- FINANCIAL INFORMATION Number
- ------------------------------- ------
Item 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
November 30, 1997 and May 31, 1997 3
Consolidated Statements of Income for the three and six
months ended November 30, 1997 and 1996 4
Consolidated Statement of Changes in Net Worth
the six months ended November 30, 1997 5
Consolidated Statements of Cash Flows for the six
months ended November 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
================================================================================
Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties included potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the Securities and Exchange Commission from
time to time.
================================================================================
2
<PAGE>
PART I -- FINANCIAL INFORMATION
- --------- ---------------------
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED
---------------------------------
<TABLE>
<CAPTION>
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
November 30, 1997 May 31, 1997
--------------------------- ---------------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash on hand and in banks.............................. $10,486 $10,367
Federal funds sold..................................... -- 1,315
Securities:
Trading, at fair value.............................. -- --
Available-for-sale, at fair value................... 100,171 120,301
Held-to-maturity, at amortized cost (fair value of
$4,830 at November 30, 1997 and $6,116 at
May 31,1997...................................... 4,705 6,092
--------------------------- ---------------------
Total securities.............................. 104,876 126,393
--------------------------- ---------------------
Mortgage loans, net.................................... 128,117 97,440
Mortgage loans held-for-sale........................... 3,883 4,831
Other loans, net....................................... 39,440 36,051
Mortgage servicing rights.............................. 909 835
Accrued interest receivable............................ 2,016 2,097
Federal Home Loan Bank stock........................... 1,731 1,731
Bank premises and equipment, net....................... 3,209 2,426
Other real estate owned, net........................... 245 224
Other assets........................................... 3,258 2,835
--------------------------- ---------------------
Total assets........................ $298,170 $286,545
=========================== =====================
LIABILITIES AND NET WORTH
Liabilities:
Deposits............................................... $216,152 $221,211
Mortgage escrow funds.................................. 1,082 1,398
Accrued interest on deposits........................... 1,294 1,212
Securities sold under agreements to repurchase......... 22,840 23,090
Federal Home Loan Bank advances........................ 20,510 5,250
Other liabilities...................................... 5,965 6,270
--------------------------- ---------------------
Total liabilities............................. 267,843 258,431
--------------------------- ---------------------
Net Worth:
Retained income........................................ 28,727 27,494
Net unrealized gain (loss) on securities, net of taxes. 1,600 620
--------------------------- ---------------------
Total net worth............................... 30,327 28,114
--------------------------- ---------------------
Total liabilities and net worth...... $298,170 $286,545
=========================== =====================
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months For the six months
ended November 30, ended November 30,
1997 1996 1997 1996
----------------------------- -------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Interest income:
Interest on mortgage loans........................ $2,401 $1,757 $4,612 $3,347
Interest on other loans........................... 886 843 1,756 1,623
Interest and dividends on securities.............. 1,995 2,545 4,102 5,075
Interest on federal funds sold.................... -- -- 38 7
Interest on short-term money market instruments... 9 5 15 9
----------------------------- -------------------------
Total interest income........................ 5,291 5,150 10,523 10,061
----------------------------- -------------------------
Interest expense:
Time Deposits..................................... 983 956 1,964 2,038
Money market deposits............................. 211 219 430 453
Savings Deposits.................................. 630 631 1,284 1,301
Mortgagors' deposits.............................. 15 9 57 29
Interest on borrowings............................ 595 539 1,058 813
----------------------------- -------------------------
Total interest expense....................... 2,434 2,354 4,793 4,634
----------------------------- -------------------------
Net interest income......................... 2,857 2,796 5,731 5,427
----------------------------- -------------------------
Provision for loan losses (60) (30) (364) (50)
Net interest income after provision for
loan losses..................................... 2,797 2,766 5,367 5,377
----------------------------- -------------------------
Other income (loss):
Service and fee income............................ 553 514 1,045 960
Securities transactions........................... 40 104 194 800
Loan transactions................................. 29 31 53 49
Other income (loss)............................... 89 34 97 (142)
----------------------------- -------------------------
Total other income, net...................... 711 683 1,389 1,667
----------------------------- -------------------------
Other expenses:
Salaries and employee benefits.................... 1,337 1,255 2,631 2,531
FDIC insurance.................................... 7 1 14 1
Occupancy......................................... 354 326 685 613
Data processing................................... 149 167 306 331
Advertising....................................... 49 54 96 77
Professional Fees................................. 60 53 141 120
Other............................................. 387 496 820 907
----------------------------- -------------------------
Total other expenses......................... 2,343 2,352 4,693 4,580
----------------------------- -------------------------
Income before provision for income taxes.......... 1,165 1,097 2,062 2,464
Provision for income taxes (471) (417) (830) (936)
----------------------------- -------------------------
Income before cumulative effect of change in
accounting principle............................ 694 680 1,232 1,528
----------------------------- -------------------------
Cumulative effect of change in accounting principle -- -- -- --
----------------------------- -------------------------
Net income................................... $694 $680 $1,232 $1,528
============================= =========================
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET WORTH
(UNAUDITED)
Unrealized
Appreciation
(Depreciation)
on Securities
Undivided Available-For-
Surplus Profits Sale, net Total
---------- -------------- ----------------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
BALANCE, May 31, 1996 $6,026 $18,603 $141 $24,770
Net Income, June 1, 1996 - Nov. 30, 1996 -- 1,528 -- 1,528
Unrealized appreciation (depreciation) on
securities available-for-sale, net -- -- 1,214 1,214
---------- -------------- -----------------------------
BALANCE, November 30, 1996 6,026 20,131 1,355 27,512
BALANCE, May 31, 1997 6,026 21,469 620 28,115
Net Income, June 1, 1997 - Nov. 30, 1997 -- 1,232 -- 1,232
Unrealized appreciation (depreciation) on
securities available-for-sale, net -- -- 980 980
---------- -------------- -----------------------------
BALANCE, November 30, 1997 $6,026 $22,701 $1,600 $30,327
========== ============== =============================
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE WARWICK SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended November 30,
1997 1996
----------------- --------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................................. $1,232 $1,528
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Cumulative effect of change in accounting principle............... -- --
Depreciation...................................................... 224 223
Amortization of premium on investment securities.................. 58 133
Accretion of discount on investment securities.................... (45) (118)
Net (increase) decrease in accrued interest receivable............ 80 (190)
Net (increase) decrease in mortgage servicing rights and other
assets......................................................... (853) 6,024
Provision for loan losses......................................... 364 50
Net (gain) loss on sale of loans.................................. (53) (49)
Net (gain) loss on sale of securities............................. (194) (800)
Increase (decrease) in accrued interest payable................... 82 7
Increase (decrease) in accrued expenses and other liabilities..... (522) (2,227)
Purchase of trading securities.................................... (8,607) (15,397)
Sales of trading securities....................................... 8,607 11,545
----------------- --------------
Total reconciliation adjustments........................................... (857) (799)
Net cash provided by (used in) operating activities............... 375 729
----------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held-to-maturity.......... 300 1,223
Proceeds from maturities and calls of securities available-for-sale........ 8,500 6,000
Purchases of securities held-to-maturity................................... -- (200)
Purchases of securities available-for-sale................................. (19,122) (35,181)
Proceeds from sale of trading securities and securities
available-for-sale...................................................... 28,138 31,984
Principal repayments from mortgage-backed securities....................... 5,429 5,280
Purchases of Federal Home Loan Bank stock.................................. -- --
Net (increase) decrease in loans........................................... (33,495) (15,592)
Purchases of fixed assets, net............................................. (1,008) (178)
----------------- --------------
Net cash used in investing activities............................. (11,258) (6,664)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits........................................ (5,014) (17,720)
Net increase (decrease) in escrow funds.................................... (308) (516)
Net increase (decrease) in borrowed funds.................................. 15,010 26,970
Net cash provided by financing activities......................... 9,688 8,734
----------------- --------------
Net increase (decrease) in cash................................... (1,196) 2,800
CASH AT BEGINNING OF PERIOD................................................ 20,972 16,039
----------------- --------------
CASH AT END OF PERIOD...................................................... $19,777 $18,838
================= ==============
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
</TABLE>
6
<PAGE>
THE WARWICK SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Warwick Community Bancorp, Inc. ("Company") is a Delaware corporation
organized in September 1997 by The Warwick Savings Bank ("Bank") in connection
with the conversion of the Bank from a New York mutual savings bank to a New
York stock savings bank, as described more fully below. At November 30, 1997,
the Company had not yet issued any stock, had no assets and no liabilities and
had not conducted any business other than of an organizational nature.
Accordingly, the unaudited financial statements and the Management's Discussion
and Analysis of Financial Condition and Results of Operations presented herein
are for the Bank, as a predecessor entity to the Company. No pro forma effect
has been given to the sale of the Company's common stock in the Conversion.
The unaudited consolidated financial statements included herein reflect
all normal recurring adjustments which are, in the opinion of management,
necessary to present a fair statement of the results for the interim periods
presented. The results of operations for the three and six months ended November
30, 1997 are not necessarily indicative of the results of operations that may be
expected for the entire year ending May 31, 1998. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission.
These unaudited consolidated financial statements should be read in
conjunction with the Bank's audited consolidated financial statements and notes
thereto included in the Company's Prospectus dated November 18, 1997.
2. CONVERSION TO STOCK OWNERSHIP
On July 10, 1997, the Board of Trustees of the Bank adopted a Plan of
Conversion, as amended as of August 19 and October 21, 1997 ("Plan") pursuant to
which the Bank was converted from a New York mutual savings bank to a New York
stock savings bank and the Company acquired all of the outstanding capital stock
of the Bank in exchange for 50% of the net proceeds from the initial public
offering of the Company's common stock ("Conversion").
The Conversion was completed on December 23, 1997, and the Company sold
6,414,125 shares of its common stock at $10.00 per share to eligible depositors
of the Bank. The Company received gross proceeds of $64,141,250, before the
deduction of approximately $2.4 million of Conversion related expenses. The net
proceeds retained by the Company will be used for general business activities
and will initially be invested primarily in federal funds, government and
federal agency mortgage-backed securities, other debt securities, equity
securities, deposits of or loans to the Bank, or a combination thereof.
Concurrent with the sale of shares of common stock in the offering, the Company
donated an additional 192,423 shares of authorized but unissued common stock to
The Warwick Savings Foundation, a charitable foundation formed in connection
with the Conversion to be dedicated to charitable purposes within the Bank's
local community.
Of the shares sold in the initial public offering, the Company's
Employee Stock Ownership Plan ("ESOP") acquired 528,523 shares. In addition, the
Company utilized $8.5 million of the proceeds to fund a loan to the ESOP for the
ESOP's purchase of shares of common stock.
7
<PAGE>
3. LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At November 30, 1997 At May 31, 1997
Percent Percent
Amount of Total Amount of Total
----------- ---------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
Conventional one- to four-family loans....... $109,619 63.35% $81,803 58.56%
Mortgage loans held for sale................. 3,883 2.24 4,832 3.46
VA and FHA loans............................. 342 0.20 749 0.54
Home equity loans............................ 15,133 8.74 13,449 9.63
Residential construction loans............... 5,488 3.17 4,110 2.94
Undisbursed portion of construction loans.... (1,940) (1.12) (2,118) (1.52)
----------- ---------- ---------- ----------
Total mortgage loans................ 132,525 76.58 102,825 73.60
----------- ---------- ---------- ----------
CONSUMER AND OTHER LOANS:
Commercial loans by type:
Non-farm and non-residential.............. 13,358 7.72 10,372 7.42
One- to four-family residential........... 1,132 0.65 1,157 0.83
Multi-family.............................. 3,674 2.12 3,022 2.16
Farm...................................... 412 0.24 318 0.23
Acquisition, development and construction. 2,508 1.45 2,781 1.99
Term loans................................ 427 0.25 258 0.18
Installment loans......................... 2,042 1.18 1,796 1.29
Demand loans.............................. 440 0.25 498 0.36
Time loans................................ 112 0.06 300 0.21
SBA loans................................. 538 0.31 636 0.46
Lines-of-credit........................... 2,237 1.29 2,166 1.55
Loans and draws disbursed................. 0 0.00 88 0.06
Non-accrual............................... 211 0.12 26 0.02
----------- ---------- ---------- ----------
Total commercial loans.............. 27,091 15.66 23,418 16.76
Automobile................................... 7,983 4.61 7,738 5.54
Student...................................... 1,116 0.64 1,332 0.95
Credit card.................................. 1,350 0.78 1,334 0.95
Other consumer loans......................... 2,985 1.72 3,054 2.19
----------- ---------- ---------- ----------
Total consumer and other loans...... 40,525 23.42 36,876 26.40
----------- ---------- ---------- ----------
Total loans................ 173,050 100.00% 139,701 100.00%
========== ==========
Discounts, premiums and deferred
loan fees, net............................ (231) (146)
Allowance for loan losses.................... (1,379) (1,232)
----------- ----------
Total loans, net.................... $171,440 $138,323
=========== ==========
</TABLE>
8
<PAGE>
4. NON-PERFORMING ASSETS
The following table sets forth information regarding non-accrual loans,
other past due loans and other real estate owned at the dates indicated.
<TABLE>
<CAPTION>
At November 30, 1997 At May 31, 1997
--------------------------- -------------------
(Dollars In Thousands)
<S> <C> <C>
Non-accrual mortgage loans delinquent
more than 90 days....................................... $1,466 $1,111
Non-accrual other loans delinquent
more than 90 days....................................... 301 83
--------------------------- ----------------------
Total non-accrual loans.......................... 1,767 1,194
Total 90 days or more delinquent and still accruing....... 45 237
--------------------------- ----------------------
Total non-performing loans....................... $1,812 $1,431
Total foreclosed real estate, net of related allowance
for losses.............................................. 245 224
Total non-performing assets............................... $2,057 $1,655
=========================== ======================
Non-performing loans to total loans....................... 1.05% 1.02%
Total non-performing assets to total assets............... 0.69% 0.58%
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the Bank's allowance for
loan losses at for the periods indicated.
<TABLE>
<CAPTION>
At or For the Six Months Ended At or For the Year
November 30, Ended May 31,
------------------------------------ ---------------------
1997 1996 1997
---------------- --------------- ---------------------
(Dollars In Thousands)
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period........................ $1,232 $1,305 $1,305
CHARGE-OFFS:
Real estate mortgage loans................... 151 110 119
Commercial loans............................. 1 -- --
Consumer loans............................... 69 32 94
---------------- --------------- ---------------------
Total charge-offs................... 221 142 213
RECOVERIES:
Real estate mortgage loans................... -- -- --
Commercial loans............................. -- -- --
Consumer loans............................... 4 2 10
---------------- --------------- ---------------------
Total recoveries.................... 4 2 10
Provision for loan losses............................. 364 50 130
---------------- --------------- ---------------------
Balance at end of period.............................. $1,379 $1,215 $1,232
================ =============== =====================
Ratio of net charge-offs during the period to
average loans outstanding........................... 0.14% 0.12% 0.16%
Ratio of allowance for loan losses
to total loans at end of period..................... 0.80% 0.97% 0.88%
Ratio of allowance for loan losses
to non-performing loans ............................ 76.11% 81.16% 86.09%
</TABLE>
9
<PAGE>
6. EARNINGS PER SHARE
At November 30, 1997, the Bank had not yet completed its conversion to
stock form and the Company had not yet issued any common stock. Accordingly,
earnings per share for the three and six months ended November 30, 1997 is not
applicable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
At November 30, 1997, the Company had not yet issued any stock, had no
assets and no liabilities and had not conducted any business other than of an
organizational nature. Accordingly, the following discussion of financial
condition and results of operations reflects the Bank's activities, as a
predecessor entity to the Company. The Bank's results of operations are
dependent primarily on net interest income, which is the difference between the
interest income earned on its interest-earning assets, such as loans and
securities, and the interest expense on its interest-bearing liabilities, such
as deposits and borrowed funds. The Bank also generates other income, such as
service charges and other fees, primarily servicing fees received from
residential mortgage loans sold with servicing retained. Other expenses consist
of employee compensation and benefits, occupancy expenses, federal deposit
insurance premiums, net costs of real estate owned, data processing fees and
other operating expenses. The Bank's results of operations are also
significantly affected by general economic and competitive conditions
(particularly changes in market interest rates), government policies, changes in
accounting standards and actions of regulatory agencies.
FINANCIAL CONDITION
Total assets of the Bank increased $11.6 million, or 4.1%, from $286.5
million at May 31, 1997 to $298.2 million at November 30, 1997. This increase in
total assets was primarily due to a $33.1 million, or 23.9%, increase in total
loans net, which increased from $138.3 million at May 31, 1997 to $171.4 million
at November 30, 1997. Such increase was due to continued growth in the loan
portfolio.
Deposits declined $5.1 million, or 2.3%, from $221.2 million at May 31,
1997 to $216.2 million at November 30, 1997, primarily as a result of the higher
yields obtainable in mutual funds and other investment alternatives as compared
to the rates paid on deposit products offered by the Bank during the period.
Borrowed funds totaled $43.4 million at November 30, 1997, as compared
to $28.3 million at May 31, 1997. The approximate $15.0 million increase was
centered in overnight and 1-month advances from the Federal Home Loan Bank of
New York and was used to fund loan growth. The amounts shown in the securities
sold under agreements to repurchase category were essentially unchanged and
represent the Bank's ongoing leveraging program and use of borrowed funds in the
Bank's investment portfolio to achieve an acceptable spread.
Total net worth increased by $2.2 million, or 7.9%, from $28.1 million
at May 31, 1997 to $30.3 million at November 30, 1997. The increase was
attributable to net income of $1.2 million and an unrealized appreciation on
securities available for sale of $1.6 million at November 30, 1997, as compared
to $620,000 at May 31, 1997. Improving market conditions (lower rates and higher
prices) have resulted in the appreciation in value of the Bank's investment
portfolio.
10
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of earning assets and interest-bearing liabilities and the
interest rates earned or paid on them.
AVERAGE BALANCE SHEETS. The following tables set forth certain
information relating to the Bank for the three and six months ended November 30,
1997 and 1996. The yields and costs were derived by dividing interest income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances were computed based on month-end balances.
Management believes that the used of average monthly balances instead of average
daily balances does not have a material effect on the information presented. The
yields include deferred fees and discounts which are considered yield
adjustments.
<TABLE>
<CAPTION>
Three Months Ended November 30,
--------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ --------- ---------- ------------- --------- -----------
ASSETS: (Dollars In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans, net (1)................ $124,549 $2,401 7.71% $88,353 $1,757 7.95%
Consumer and other loans, net (1)...... 38,915 886 9.11 35,267 843 9.56
Mortgage-backed securities............. 67,953 1,266 7.45 79,823 1,485 7.44
Federal funds sold..................... -- -- 0.00 21 -- 0.00
Interest earning accounts at banks..... 700 9 5.14 403 5 4.97
Investment securities.................. 44,678 729 6.53 67,056 1,060 6.32
------------ --------- ------------ ---------
Total interest-earning assets..... 276,796 5,291 7.65 270,923 5,150 7.60
--------- ---------
Non-interest earning assets............ 17,414 14,780
------------ ------------
Total assets...................... $294,211 $285,703
============ ============
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Passbook accounts...................... $77,382 590 3.05% $77,146 592 3.07%
Escrow deposits........................ 1,049 15 5.72 805 10 4.97
NOW accounts .......................... 14,487 40 1.10 14,050 39 1.11
Money market accounts.................. 25,824 211 3.27 26,797 219 3.27
Certificate accounts................... 76,380 983 5.15 77,102 956 4.96
------------ --------- ------------ ---------
Total deposits................ 195,122 1,839 3.77 195,900 1,816 3.71
Borrowed funds......................... 38,807 595 6.13 35,492 538 6.06
------------ --------- ------------ ---------
Total interest-bearing
liabilities................ 233,929 2,434 4.16 231,392 2,354 4.07
--------- ---------
Non-interest bearing liabilities.............. 31,008 28,702
------------ ------------
Total liabilities............. 264,937 260,094
Retained earnings............................. 29,274 25,609
------------ ------------
Total liabilities and
retained earnings.......... $294,211 $285,703
============ ============
Net interest income/interest rate spread (2).. $2,857 3.48% $2,796 3.53%
========= ========= ========= ===========
Net interest-earning assets/net
interest margin (3)........................ $42,868 4.13% $39,531 4.13%
============ ========= ============ ===========
Ratio of interest-earning assets to
interest-bearing liabilities............... 118.33% 117.08%
========= ===========
(SEE FOOTNOTES ON NEXT PAGE)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended November 30,
-------------------------------------------------------------------------------------
1997 1996
------------------------------------------ ----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS: (Dollars In Thousands)
Interest-earning assets:
Mortgage loans, net (1)........... $117,441 $4,612 7.85% $85,680 $3,347 7.81%
Consumer and other loans, net (1). 37,675 1,756 9.32 33,764 1,623 9.61
Mortgage-backed securities........ 68,567 2,562 7.47 79,684 2,921 7.33
Federal funds sold................ 1,393 38 5.46 285 7 4.91
Interest earning accounts at banks 587 15 5.11 375 9 4.81
Investment securities............. 47,611 1,540 6.47 68,764 2,154 6.26
------------ ----------- ------------ ----------
Total interest-earning assets 273,274 10,523 7.70 268,550 10,061 7.49
----------- ----------
Non-interest earning assets....... 16,702 15,128 10,061
------------ ------------
Total assets................. $289,977 $283,678
============ ============
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Passbook accounts................. $78,476 1,202 3.06% $79,206 1,221 3.08%
Escrow deposits................... 1,434 57 7.95 1,162 29 4.99
NOW accounts ..................... 14,628 82 1.12 14,405 80 1.11
Money market accounts............. 26,123 430 3.29 27,699 453 3.27
Certificate accounts.............. 75,854 1,964 5.18 80,720 2,038 5.05
------------ ----------- ------------ ----------
Total deposits........... 196,515 3,735 3.80 203,193 3,821 3.76
Borrowed funds.................... 34,012 1,058 6.22 26,570 813 6.12
------------ ----------- ------------ ----------
Total interest-bearing
liabilities........... 230,527 4,793 4.16 229,762 4,634 4.03
----------- ----------
Non-interest bearing liabilities......... 30,682 28,771
------------ ------------
Total liabilities........ 261,210 258,533
Retained earnings........................ 28,767 25,145
------------ ------------
Total liabilities and
retained earnings..... $289,977 $283,678
============ ============
Net interest income/interest rate
spread (2)............................ $5,730 3.54% $5,427 3.46%
=========== ========== ========== ========
Net interest-earning assets/net
interest margin (3)................... $42,747 4.19% $38,788 4.04%
============ ========== ============ ========
Ratio of interest-earning assets to
interest-bearing liabilities.......... 118.54% 116.88%
========== ========
</TABLE>
- ------------------
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin on interest-earning assets represents net interest
income as a percentage of average interest-earning assets.
12
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Three Months Ended November 30, 1997 Six Months Ended November 30, 1997
Compared to Compared to
Three Months Ended November 30, 1996 Six Months Ended November 30, 1996
---------------------------------------- --------------------------------------
Increase (Decrease) in Net Increase (Decrease) in Net
Interest Income Due to Interest Income Due to
---------------------------- --------------------------
Volume Rate Net Volume Rate Net
-------------- ----------- --------- ------------- ---------- --------
(In Thousands)
INTEREST - EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans, net...................... $720 $(76) $644 $1,241 $24 $1,265
Consumer and other loans, net............ 87 (44) 43 188 (55) 133
Mortgage - backed securities............. (221) 2 (219) (408) 49 (359)
Federal funds sold....................... 0 0 0 27 4 31
Interest earning accounts at banks 4 0 4 5 1 6
Investment securities.................... (354) 23 (331) (663) 49 (614)
-------------- ----------- --------- ------------- ---------- --------
Total.......................... 236 (95) 141 391 71 462
============== =========== ========= ============= ========== ========
INTEREST - BEARING LIABILITIES:
Passbook accounts........................ 2 (4) (2) (11) (8) (19)
Escrow accounts.......................... 3 2 5 7 21 28
NOW accounts............................. 1 (0) 1 1 1 2
Money market accounts.................... (8) (0) (8) (26) 3 (23)
Certificates of deposits................. (9) 36 27 (123) 49 (74)
Borrowed funds........................... 50 7 57 228 17 245
-------------- ----------- --------- ------------- ---------- --------
Total.......................... 39 41 80 76 83 159
-------------- ----------- --------- ------------- ---------- --------
Net change in net interest income........ $197 $(136) $61 $315 $(12) $303
============== =========== ========= ============= ========== ========
</TABLE>
13
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND
1996
GENERAL. Net income increased $14,000, or 2.1%, to $694,000 for the
three months ended November 30, 1997, as compared to $680,000 for the three
months ended November 30, 1996.
INTEREST INCOME. Interest income totaled $5.3 million for the three
months ended November 30, 1997, compared to $5.2 million for the three months
ended November 30, 1996. This increase of $141,000, or 2.7%, reflects an
increase of $644,000 in interest on mortgage loans and a $43,000 increase in
interest on consumer and other loans. These increases were partially offset by a
$550,000 decrease in interest and dividends on securities.
The primary reason for the increase in interest income from loans was
an increase of $36.2 million in the average balance of mortgage loans and an
increase of $3.6 million in the average balance of consumer and other loans.
These increases in average balances were partially offset by a decrease of 24
basis points in the average yield on mortgage loans, from 7.95% to 7.71%, and a
decrease of 45 basis points in the average yield on consumer and other loans,
from 9.56% to 9.11%. The average balances of the loan portfolio increased due to
increased loan demand, particularly in the Bank's bi-weekly mortgage loan
product, and continued emphasis on commercial lending. The decrease in the
average yield on the loan portfolio was primarily due to a declining trend in
the long term interest rate environment and corresponding long term fixed rate
mortgages, which experienced significant increases.
The decrease in interest and dividends on securities was primarily the
result of a decrease of $22.4 million in the average balance of investment
securities, which was partially offset by an increase of 21 basis points in the
average yield on investment securities, from 6.32% to 6.53%. The increase in the
average yield reflects the sale of lower rate (coupon) securities to purchase
higher yielding securities in connection with the Bank's restructuring of some
of its investment securities portfolio in the past twelve months, while the
decrease in the average balance is a result of paydowns and maturities earlier
in the period exceeding the reinvestment due to the funding of lending
activities.
INTEREST EXPENSE. Interest expense on deposits and borrowings increased
$80,000, or 3.4%, to $2.4 million for the three months ended November 30, 1997.
This increase is primarily attributable to an increase of $56,000 in interest
expense on borrowed funds and $27,000 in interest expense on time deposits. The
increase in interest expense for borrowings was due to an increase of $3.3
million in average balances and a 7 basis point increase in average cost from
6.06% to 6.13%.
NET INTEREST INCOME. Net interest income for the three months ended
November 30, 1997 increased $61,000, or 2.2%, from the three months ended
November 30, 1996, to $2.9 million. The average yield on interest-earning assets
was 7.65% for the three months ended November 30, 1997, as compared with 7.60%
for the three months ended November 30, 1996. The average cost on
interest-bearing liabilities was 4.16% for the three months ended November 30,
1997, as compared with 4.07% for the three months ended November 30, 1996. The
Bank's interest rate spread and net interest margin amounted to 3.48% and 4.13%,
respectively, during the three months ended November 30, 1997, as compared to
3.53% and 4.13%, respectively, for the three months ended November 30, 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three
months ended November 30, 1997 was $60,000, as compared to $30,000 for the three
months ended November 30, 1996. The provision for loan losses was based upon
management's continuing review of the risk elements in the Bank's loan portfolio
and anticipated growth of the portfolio.
OTHER INCOME. Other income, net, for the three months ended November
30, 1997 increased $28,000 to $711,000 from $683,000 for the three months ended
November 30, 1996. This increase was
14
<PAGE>
primarily due to a $39,000 increase in service and fee income and a $55,000
increase in other income. The increase was offset by a $64,000 decline in income
from securities sales.
OTHER EXPENSES. Other expenses decreased $9,000 to $2.3 million for the
three months ended November 30, 1997. The decrease was attributable to a
$109,000 reduction in other expenses and a $18,000 decline in data processing
costs, which was partially offset by an $82,000 increase in salaries and
employee benefits and a $28,000 increase in occupancy expenses.
PROVISION FOR INCOME TAXES. For the three-month period ended November
30, 1997, the provision for income taxes increased by $54,000, or 12.9%, to
$471,000, as compared to $417,000 for the three- month period ended November 30,
1996.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997 AND
1996
GENERAL. The Bank reported net income of $1.2 million for the six
months ended November 30, 1997, as compared to $1.5 million for the six months
ended November 30, 1996. The decline of $296,000, or 19.4%, was primarily due to
an increase of $314,000 in the provision for loan losses and a $606,000
reduction in gains on sales of securities. These changes were partially offset
by a $304,000 reduction in the Bank's provision for income taxes.
INTEREST INCOME. For the six months ended November 30, 1997, interest
income totaled $10.5 million, as compared to $10.1 million for the six months
ended November 30, 1996. The $462,000, or 4.6%, increase was primarily the
result of a $1.3 million increase in interest on mortgage loans, from $3.3
million to $4.6 million, and a $133,000 increase in interest on consumer and
other loans, from $1.6 million to $1.8 million, and was partially offset by a
$973,000 decrease in interest and dividends on securities.
The primary reason for the increase in interest income from loans was
an increase of $31.8 million in the average balance of mortgage loans and a
corresponding increase in the average yield on mortgage loans of 4 basis points,
from 7.81% to 7.85%. Additionally, the increase in interest income from consumer
and other loans was caused by an increase of $3.9 million in the average balance
of consumer and other loans, although this was partially offset by a decline in
the average yield on consumer and other loans of 29 basis points, from 9.61% to
9.32%. These changes for the six-month period were due primarily to continuing
loan growth in a volatile interest rate environment, which was mostly higher
than the preceding period.
The decrease in interest and dividends on securities was primarily the
result of a decrease of $21.2 million in the average balance of investment
securities, which was partially offset by an increase of 21 basis points in the
average yield on investment securities, from 6.26% to 6.47%. The increase in the
average yield reflects the sale of lower rate (coupon) securities to purchase
higher yielding securities in connection with the Bank's restructuring of some
of its investment securities portfolio in the past twelve months, while the
decrease in the average balance is a result of paydowns and maturities earlier
in the period exceeding the reinvestment due to the funding of lending
activities.
INTEREST EXPENSE. Interest expense was $4.8 million for the six months
ended November 30, 1997, as compared to $4.6 million for the six months ended
November 30, 1996, an increase of $159,000, or 3.4%. Interest on borrowed funds
increased $245,000 due to a $7.4 million increase in the average balance of
borrowings. The average balance of total deposits declined by $6.7 million to
$196.5 million, from $203.2 million, so that, in order to fund continued loan
growth, it was necessary to increase the average balance of borrowings to $34.0
million from $26.6 million.
15
<PAGE>
NET INTEREST INCOME. Net interest income was $5.7 million for the six
months ended November 30, 1997, as compared to $5.4 million for the six months
ended November 30, 1996. This represents an increase of $304,000, or 5.6%. This
increase resulted primarily from a $462,000 increase in interest income, which
was partially offset by a $159,000 increase in interest expense. The increase in
interest income resulted from an increase of $4.7 million in the average balance
of interest earning assets and an increase of 21 basis points in the average
yield on interest earning assets, from 7.49% for the six months ended November
30, 1996 to 7.70% for the six months ended November 30, 1997. Interest expense
increased due to a $765,000 increase in the average balance of interest bearing
liabilities, coupled with an increase of 13 basis points in the average rate
paid, from 4.03% for the six months ended November 30, 1996 to 4.16% for the six
months ended November 30, 1997. The Bank's interest rate spread and net interest
margin increased to 3.54% and 4.19%, respectively, during the six months ended
November 30, 1997, as compared to 3.46% and 4.04%, respectively, for the six
months ended November 30, 1996.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses totaled
$364,000 for the six months ended November 30, 1997, as compared to $50,000 for
the six months ended November 30, 1996, an increase of $314,000. The Bank
increased its monthly provision to $20,000 per month beginning in April of 1997,
and in June and August of 1997 the Bank took additional charges of $44,000 and
$200,000, respectively. Such additional provisions were taken because loan
charge-offs for the three-month period ended August 31, 1997 were $171,000, as
compared to $0 for the same period in 1996, and the level of non-performing
loans in the Bank's portfolio increased from $1.4 million at May 31, 1997 to
$1.8 million at November 30, 1997. Management has continued to provide loan loss
reserves due to the increase in the Bank's loan portfolio, including continued
originations of commercial business and commercial real estate loans and
management's evaluation of the adequacy of such reserves in the context of the
Bank's historical loan loss experience. The Bank's allowance for loan losses at
November 30, 1997 was $1.4 million, as compared to $1.2 million at May 31, 1997.
At November 30, 1997, the Bank's allowance for loan losses as a percentage of
total loans was 0.80%, compared to 0.97% at November 30, 1996, and the Bank's
allowance for loan losses as a percentage of non-performing loans was 76.11% at
November 30, 1997, as compared to 81.16% at November 30, 1996.
OTHER INCOME. Other income, net, for the six months ended November 30,
1997, declined $278,000 to $1.4 million, as compared to $1.7 million as of
November 30, 1996. This decrease was primarily due to a $606,000 decline in
income from securities sales, which was partially offset by an $85,000 increase
in service and fee income and a $239,000 increase in other income.
OTHER EXPENSES. Other expenses increased $113,000, or 2.5%, to $4.7
million, for the six-month period ended November 30, 1997, as compared to $4.6
million for the six-month period ended November 30, 1996. This increase was
primarily attributable to a $72,000 increase in occupancy costs, a $100,000 rise
in salaries and employee benefit costs and a $19,000 increase in advertising
expenses. These increases were partially offset by a $25,000 reduction in data
processing costs and an $87,000 decrease in other expenses.
PROVISION FOR INCOME TAXES. For the six-month period ended November 30,
1997, the provision for income taxes declined by $106,000, or 11.3%, to
$830,000, as compared to $936,000 for the six- month period ended November 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1997, the Bank's total approved loan origination
commitments outstanding totaled $24.6 million. At the same date, the unadvanced
portion of residential construction loans totaled $1.8 million. Certificates of
deposit scheduled to mature in one year or less at November 30, 1997 totaled
16
<PAGE>
$70.7 million. Based on historical experience, management believes that a
significant portion of such deposits will remain with the Bank.
At November 30, 1997, the Bank had cash and due from banks of $10.5
million and securities available for sale of $100.2 million. Management deems
these amounts, together with borrowings, to be more than adequate to meet its
short-term cash needs.
REGULATORY CAPITAL POSITION
At November 30, 1997, the Bank exceeded all of its regulatory capital
requirements with a Tier 1 capital level of $28.7 million, or 9.76% of average
assets, which is well above the required level of $11.8 million, or 4% of
average assets. The Bank's ratio of Tier 1 capital to risk weighted assets of
19.00% at November 30, 1997 is also well above the required level of 4%. The
Bank's ratio of total capital to risk weighted assets is 19.91%, which is well
above the required level of 8%. In addition, the Bank's capital ratios qualify
it to be deemed "well capitalized" under the Federal Deposit Insurance
Corporation Improvement Act of 1991. The following table shows the Bank's
regulatory capital positions and ratios at November 30, 1997:
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
-------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
-------- --------- --------- --------- --------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of November 30, 1997
Total Capital............. $30,106 19.91% $12,097 8.00% $18,009 11.91%
(to risk weighted assets)
Tier 1 Capital............ 28,727 19.00 6,048 4.00 22,679 15.00
(to risk weighted assets)
Tier 1 Capital............ 28,727 9.76 11,768 4.00 16,959 5.76
(to average assets)
</TABLE>
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial Data Schedule (submitted only with filing in electronic
format)
(b) REPORTS ON FORM 8-K
Not applicable.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WARWICK COMMUNITY BANCORP, INC.
(Registrant)
Date: January 13, 1998 By: /s/ Timothy A. Dempsey
---------------------------------------
Timothy A. Dempsey
President and Chief Executive Officer
Date: January 13, 1998 By: /s/ Arthur W. Budich
---------------------------------------
Arthur W. Budich
Senior Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
27. Financial Data Schedule (submitted only with filing in electronic
format)
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed statement of financial condition and the consolidated
condensed statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 9,699
<INT-BEARING-DEPOSITS> 787
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,171
<INVESTMENTS-CARRYING> 4,705
<INVESTMENTS-MARKET> 4,830
<LOANS> 169,061
<ALLOWANCE> 1,379
<TOTAL-ASSETS> 298,170
<DEPOSITS> 216,152
<SHORT-TERM> 22,840
<LIABILITIES-OTHER> 8,341
<LONG-TERM> 20,510
0
0
<COMMON> 0
<OTHER-SE> 30,327
<TOTAL-LIABILITIES-AND-EQUITY> 298,170
<INTEREST-LOAN> 6,368
<INTEREST-INVEST> 4,102
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 10,523
<INTEREST-DEPOSIT> 3,735
<INTEREST-EXPENSE> 4,793
<INTEREST-INCOME-NET> 5,367
<LOAN-LOSSES> 364
<SECURITIES-GAINS> 1,600
<EXPENSE-OTHER> 4,693
<INCOME-PRETAX> 2,062
<INCOME-PRE-EXTRAORDINARY> 2,062
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.19
<LOANS-NON> 1,767
<LOANS-PAST> 45
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 221
<ALLOWANCE-OPEN> 1,232
<CHARGE-OFFS> 221
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1,379
<ALLOWANCE-DOMESTIC> 1,379
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
