As filed with the Securities and Exchange Commission on April 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 February 28, 1998
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 X No
--- ---
As of April 13, 1998, there were 6,606,548 shares of the registrant's
common stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
WARWICK COMMUNITY BANCORP, INC.
INDEX
Page
PART I -- FINANCIAL INFORMATION Number
- ------------------------------- ------
<S> <C>
Item 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
February 28, 1998 and May 31, 1997 3
Consolidated Statements of Income for the three and nine
months ended February 28, 1998 and 1997 4
Consolidated Statement of Changes in Equity for
the nine months ended February 28, 1998 5
Consolidated Statements of Cash Flows for the nine
months ended February 28, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
</TABLE>
================================================================================
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>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
February 28, 1998 May 31, 1997
--------------------- ---------------------
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash on hand and in banks.................................. $ 11,409 $ 10,367
Federal funds sold......................................... 465 1,315
Securities:
Trading, at fair value.................................. 0 0
Available-for-sale, at fair value....................... 154,403 120,301
Held-to-maturity, at amortized cost (fair value
of $10,266 at February 28, 1998 and $6,116
at May 31, 1997).................................. 10,379 6,092
--------- ---------
Total securities.................................. 164,782 126,393
--------- ---------
Mortgage loans, net........................................ 140,759 102,825
Commercial loans........................................... 28,080 23,418
Consumer loans............................................. 13,874 13,312
--------- ---------
Total loans....................................... 182,713 139,555
Allowance for loan losses.................................. (1,446) (1,232)
--------- ---------
Total loans, net.................................. 181,267 138,323
--------- ---------
Accrued interest receivable................................ 2,122 2,097
Federal Home Loan Bank stock............................... 2,072 1,731
Bank premises & equipment, net............................. 3,145 2,426
Other assets............................................... 5,580 3,893
--------- ---------
Total assets..................................... $ 370,842 $ 286,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
NOW and Money Market....................................... 39,894 42,143
Savings.................................................... 76,063 80,175
Certificates of deposit.................................... 72,802 75,038
Non-Interest bearing checking.............................. 23,633 23,855
--------- ---------
Total depositor accounts.......................... 212,392 221,211
Mortgage escrow funds...................................... 1,065 1,398
Accrued Interest on depositor accounts..................... 1,275 1,212
Securities sold under agreements to repurchase............. 27,500 23,090
FHLB advances.............................................. 35,250 5,250
Other liabilities.......................................... 7,870 6,270
--------- ---------
285,353 258,431
Total Liabilities................................. --------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 15,000,000 shares
authorized 6,606,548 shares issued and outstanding
in 1998.................................................. 66 --
Additional paid-in capital................................. 63,363 6,026
Retained earnings.......................................... 28,127 21,468
Net unrealized gain (loss) on securities, net of taxes..... 1,755 620
Unearned ESOP common stock................................. (7,821) --
Total stockholders' equity............... 85,490 28,114
--------- ---------
Total liabilities and stockholders'
equity................................... $ 370,843 $ 286,545
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months For the nine months
ended February 28, ended February 28,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Interest on mortgage loans........................ 2,650 1,797 7,261 5,145
Interest on other loans........................... 988 919 2,744 2,542
Interest and dividends on securities.............. 2,415 2,669 6,529 7,756
Interest on federal funds sold.................... 133 0 172 7
Interest on short-term money market instruments... 10 5 25 13
------- ------- -------- -------
Total interest income........................ 6,196 5,390 16,731 15,463
------- ------- -------- -------
Interest Expense:
Time Deposits..................................... 953 956 2,917 2,993
Money market deposits............................. 202 210 633 664
Savings Deposits.................................. 622 613 1,905 1,914
Mortgagors' deposits.............................. 15 9 72 37
Interest on borrowings............................ 543 554 1,601 1,368
------- ------- -------- -------
Total interest expense....................... 2,335 2,342 7,128 6,976
------- ------- -------- -------
Net interest income......................... 3,861 3,048 9,603 8,487
------- ------- -------- -------
Provision for Loan Losses (104) (30) (468) (80)
------- ------- -------- -------
Net interest income after provision for loan losses 3,757 3,018 9,135 8,407
------- ------- -------- -------
Other Income (Loss):
Service and fee income............................ 536 510 1,590 1,501
Securities transactions........................... 193 3 387 647
Loan transactions................................. 24 57 76 106
Other income or (loss)............................ (2) 12 100 78
------- ------- -------- -------
Total other income, net...................... 751 582 2,153 2,332
------- ------- -------- -------
Other Expenses:
Salaries and employee benefits.................... 1,540 1,487 4,192 4,052
ESOP benefits 708 -- 708 --
FDIC insurance.................................... 7 4 20 6
Occupancy......................................... 306 289 903 849
Data processing................................... 168 153 485 484
Advertising....................................... 22 18 118 95
Professional Fees................................. 239 62 381 182
Contribution to Warwick Savings Foundation........ 1,924 -- 1,924 --
Other............................................. 559 474 1,459 1,493
------- ------ -------- -------
Total other expenses......................... 5,473 2,487 10,192 7,161
------- ------ -------- -------
Income before provision for income taxes.......... (966) 1,114 1,097 3,578
Provision for Income Taxes (365) 423 465 1,360
------- ------ -------- -------
Net Income (600) 691 632 2,218
======= ====== ======== =======
Net Income per Share since Conversion
Basic $ (0.10) N/A $ (0.10) N/A
Diluted $ (0.10) N/A $ (0.10) N/A
======= ====== ======== =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Unrealized
Additional Gain/(Loss) Unearned
Paid In Retained on A-F-S ESOP
Common Capital Earnings Securities, net Common Stock Total
------ ------- -------- --------------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, May 31, 1996 -- -- $ 24,629 $ 141 -- $ 24,770
Net Income, June 1, 1996 - Feb. 28,
1997 -- -- 2,218 -- -- 2,218
Change in unrealized gain or loss on
securities available-for-sale,
net -- -- -- 532 -- 532
BALANCE, February 28, 1997 26,847 673 -- 27,520
BALANCE, May 31, 1997 -- -- 27,495 620 -- 28,115
Net Income, June 1, 1997 - Nov. 30,
1998 -- -- 632 -- -- 632
Issuance of 6,414,125 shares of $.01
par value common stock in
initial public offering, net
of conversion related expenses 64 61,422 -- -- -- 61,486
Issuance of 192,423 shares of $.01 par
value common stock to The
Warwick Savings Foundation 2 1,922 -- -- -- 1,924
Open market purchases of Warwick
Community Bancorp, Inc. common
stock by ESOP trustee -- -- -- -- (8,510) (8,510)
Allocation from shares purchased with
1997 contribution -- 19 -- -- 689 708
Change in unrealized gain or loss on
securities available-for-sale,
net -- -- -- 1,135 -- 1,135
-------- -------- -------- ------- -------- --------
BALANCE, February 28, 1998 $ 66 $ 63,363 $ 28,127 $ 1,755 $ (7,821) $ 85,490
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months
ended February 28,
1998 1997
----------------- --------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................................. $632 $2,219
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Charitable contribution of Warwick Bancorp, Inc. common stock to The
Warwick Savings Foundation........................................ 1,924 --
Depreciation........................................................ 339 343
Amortization of premium on investment securities.................... 74 163
(Accretion) of discount on investment securities.................... (272) (160)
Net (increase)/decrease; accrued interest receivable................ (25) (117)
(Increase)/decrease in mortgage servicing rights and other assets... (1,635) 4,143
Provision for loan losses........................................... 468 80
Net (gain) or loss on sale of loans................................. (76) (106)
Net (gain) or loss on sale of securities............................ (387) (803)
Increase/(decrease); accrued interest payable....................... 63 19
Increase/(decrease) in accrued expenses and other liabilities....... 1,600 (4,113)
Purchase of trading securities...................................... (15,654) (18,389)
Sales of trading securities......................................... 15,654 (14,537)
----------------- --------------
Total reconciliation adjustments........................................... 2,072 (4,404)
Net Cash Provided By Operating Activities........................... 2,704 (2,185)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities, H-T-M.................... 300 1,250
Proceeds from maturities and calls of securities, A-F-S.................... 26,500 10,157
Purchases of securities, H-T-M............................................. (560) (200)
Purchases of securities, A-F-S............................................. (102,417) (46,416)
Proceeds from sale of trading securities and securities available-for-sale. 30,478 43,409
Principal repayments from mortgage-backed securities....................... 9,750 7,525
Purchases of F.H.L.B. of N.Y. - Capital Stock.............................. (341) --
Net (increase)/decrease in loans........................................... (43,399) (23,721)
Purchases of fixed assets, net............................................. (1,058) (204)
----------------- --------------
Net Cash Used in Investing Activities............................... (80,746) (8,198)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits........................................ (8,819) (18,731)
Net increase (decrease) in escrow deposits................................. (333) (631)
Net increase (decrease) in borrowed funds.................................. 34,410 30,550
Payment for conversion costs............................................... (2,656) --
Proceeds from the issuance of common stock................................. 64,142 --
Purchase of ESOP common stock.............................................. (8,510) --
Net Cash Provided By Financing Activities........................... 78,234 11,188
Net increase (Decrease) In Cash .................................... 192 805
CASH AT BEGINNING OF PERIOD................................................ 11,682 7,102
CASH AT END OF PERIOD...................................................... 11,874 7,907
================= ==============
CHANGE IN CASH............................................................. 192 805
</TABLE>
6
<PAGE>
WARWICK COMMUNITY BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Warwick Community Bancorp, Inc. ("Company") was incorporated under
Delaware law in September 1997 as a holding company to purchase 100% of the
common stock of The Warwick Savings Bank ("Bank"). On December 23, 1997, Warwick
Community Bancorp, Inc. completed its initial public offering of 6,606,548
shares of common stock in connection with the conversion of the Bank from a
mutual form institution to a stock savings bank (the "Conversion"). Concurrently
with the Conversion, Warwick Community Bancorp, Inc. acquired all of the Bank's
common stock.
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 nine months ended
February 28, 1998 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. EARNINGS PER SHARE
On December 23, 1997, Warwick Community Bancorp, Inc. completed its
initial stock offering of 6,606,548 shares of common stock. Concurrent with the
offering, approximately 8% of the shares issued (528,523) were purchased by the
Warwick Community Bancorp Inc. Employee Stock Ownership Plan ("ESOP") using the
proceeds of a loan from the Company to the ESOP. On December 31, 1997, 44,352
shares were released from the ESOP trust for allocation to ESOP participants.
Consequently, the remaining 484,171 shares have not yet been released and under
AICPA Statement of Position 93-6, these shares will not be considered
outstanding for purposes of calculating per share amounts. Earnings per share
are not presented for periods prior to the initial public offering as the Bank
was a mutual savings bank, and had no stock outstanding. During the three month
period ended February 28, 1998, the Company had no outstanding securities or
other contracts which, if exercised or converted, would have resulted in the
issuance of common stock. Hence, in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share," basic and diluted earnings
per share are identical.
7
<PAGE>
3. LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At February 28, 1998 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....... $ 113,184 61.95% 81,803 58.62%
Mortgage loans held for sale................. 7,205 3.94 4,832 3.46
VA and FHA loans............................. 730 0.4 749 0.54
Home equity loans............................ 15,746 8.62 13,449 9.64
Residential construction loans............... 5,742 3.14 4,110 2.95
Undisbursed portion of construction loans.... (1,848) (1.01) (2,118) (1.52)
--------- -------- -------- -------
Total mortgage loans...................... 140,759 77.04% 102,825 73.68
--------- -------- --------- -------
CONSUMER AND OTHER LOANS:
Commercial loans by type:
Non-farm and non-residential.............. 13,697 7.5 10,372 7.43
One- to four-family residential........... 1,120 0.61 1,157 0.83
Multi-family.............................. 3,651 2 3,022 2.17
Farm...................................... 408 0.22 318 0.23
Acquisition, development and construction. 2,937 1.61 2,781 1.99
Term loans................................ 425 0.23 258 0.18
Installment loans........................ 2,040 1.12 1,796 1.29
Demand loans.............................. 450 0.25 498 0.36
Time loans................................ 25 0.01 300 0.21
SBA loans................................. 524 0.29 636 0.46
Lines-of-credit........................... 2,459 1.35 2,166 1.55
Loans and draws disbursed................. 129 0.07 88 0.06
Non-accrual............................... 215 0.12 26 0.02
--------- -------- -------- ------
Total commercial loans.................... 28,080 15.37 23,418 16.78
Automobile................................... 8,251 4.52 7,738 5.54
Student...................................... 1,371 0.75 1,332 0.95
Credit card.................................. 1,359 0.74 1,334 0.96
Other consumer loans......................... 2,893 1.58 2,908 2.08
--------- -------- -------- ------
Total Consumer Loans 13,874 7.59 13,312 9.54
Total consumer and other loans............ 41,954 22.96 36,730 26.32
--------- -------- ------- ------
Total loans........................... 182,713 100.00% 139,555 100.00%
======== =====
Allowance for loan losses.................... (1,446) (1,232)
--------- --------
Total loans, net.......................... $ 181,267 $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>
NON-PERFORMING ASSETS
February 28, May 31,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans delinquent more
than 90 days................................................... $ 1,153 $ 1,111
Non-accrual other loans delinquent more than 90 days........... 281 83
------- ------
Total non-accrual loans........................................ 1434 1194
Total 90 days or more delinquent and still accruing............ 47 237
------ -------
Total non-performing loans..................................... $ 1,481 $ 1,431
Total foreclosed real estate, net of related allowance for 435 224
losses.........................................................
Total non-performing assets.................................... $ 1,916 $ 1,655
========= =========
Non-performing loans to total loans............................ 0.81% 1.02%
Total non-performing assets to total assets.................... 0.52% 0.58%
</TABLE>
9
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the Company's
allowance for loan losses at and for the periods indicated.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
Nine Months Ended At or for the Year
February 28, ended May 31,
------------------------------------------------- ------------------
1998 1997 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 151 117 119
Commercial loans 14 0 0
Consumer loans 96 73 94
--------- --------- ---------
Total charge-offs 261 190 213
RECOVERIES:
Real estate mortgage loans 0 0 0
Commercial loans 0 0 0
Consumer loans 7 8 10
--------- --------- ---------
Total recoveries 7 8 10
Provision for loan losses 486 80 130
--------- --------- ---------
Balance at end of Period $ 1,446 $ 1,203 $ 1,232
========= ========= =========
Ratio of net charge-offs during the period to 0.16% 0.15% 0.16%
average loans outstanding
Ratio of allowance for loan losses to total 0.79% 0.87% 0.88%
loans at end of period
Ratio of allowance for loan losses to non- 97.54% 68.42% 86.09%
performing loans
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Warwick Community Bancorp, Inc. ("Company"), headquartered in Warwick,
New York, is a bank holding company incorporated in September 1997 under the
laws of the State of Delaware and is registered under the Bank Holding Company
Act of 1956, as amended. The Company was organized at the direction of The
Warwick Savings Bank ("Bank") for the purpose of acquiring all of the common
stock of the Bank issued in connection with the conversion of the Bank from
mutual to stock form ("Conversion"). On December 23, 1997, the Bank completed
its Conversion, and the Company sold 6,414,125 shares of its common stock at a
price of $10.00 per share in a subscription offering ("Offering") to certain
depositors of the Bank. In connection with the Conversion and Offering, the
Company established The Warwick Savings Foundation ("Foundation") and made a
charitable contribution of 192,423 shares of the Company's common stock to the
Foundation, which resulted in a one-time charge relating to the funding of the
Foundation of $1.9 million ($1.2 million net of tax). The net proceeds from the
Offering amounted to $61.5 million, and the Company contributed 50% of the net
proceeds from the Offering to the Bank in exchange for all of the issued and
outstanding shares of common stock of the Bank. The Company had no significant
assets or operations prior to December 23, 1997. Per share data for quarter
ended February 28, 1997 is not applicable. The period ended February 28, 1998 is
the Company's first earnings report as a public company. Presently, the only
significant assets of the Company are the capital stock of the Bank, the
Company's loan to the Employee Stock Ownership Plan of the Company and the
investments of the net proceeds from the Offering retained by the Company. The
Company is subject to the financial reporting requirements of the Securities
Exchange Act of 1934, as amended.
FINANCIAL CONDITION
For the nine month period ending February 28, 1998, total assets of the
Company increased $84.3 million, or 29.4%, from $286.5 million at May 31, 1997
to $370.8 million at February 28, 1998. This increase in total assets was
primarily attributable to a $42.9 million, or 31.0%, increase in total loans
net, which increased from $138.3 million at May 31, 1997 to $181.3 million at
February 28, 1998, and a $38.4 million, or 30.4%, increase in total securities,
which increased from $126.4 million at May 31, 1997 to $164.8 million at
February 28, 1998. These increases resulted from continued growth in the loan
portfolio, particularly mortgage loans, and from additional wholesale leverage
transactions in the securities portfolio.
Deposits decreased $8.8 million, or 4.0%, from $221.2 million at May
31, 1997, to $212.4 million at February 28, 1998. This decrease was primarily
attributable to a decrease in savings deposits of $4.1 million, while NOW and
money market accounts and time deposit accounts each decreased $2.2 million. The
decrease in deposits occurred primarily because of the higher returns available
from mutual funds and other alternative investments compared to rates offered by
the Bank during the same period.
Borrowed funds, comprised primarily of securities sold under repurchase
agreements and Federal Home Loan Bank advances, increased $34.4 million, or
121.4%, from $28.3 million at May 31, 1997 to $62.8 million at February 28,
1998. These increases were primarily used in connection with the aforementioned
wholesale leverage transactions which enabled the Company to bolster net
interest income.
Total stockholders' equity increased by $57.4 million, or 204.1%, from
$28.1 million at May 31, 1997, well before the Company's initial public offering
in December 1997, to $85.5 million at February 28, 1998. The increase was
primarily attributable to the $61.5 million in net proceeds raised by the
Company in its Offering in connection with the Bank's Conversion from a mutual
savings bank to a stock savings bank. Total stockholders' equity was also
increased by net income of $632 thousand earned over
11
<PAGE>
the nine months ended February 28, 1998, and a $1.1 million increase in
unrealized appreciation net of taxes on securities available for sale from $620
thousand at May 31, 1997 to $1.7 million at February 28, 1998.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
12
<PAGE>
AVERAGE BALANCE SHEETS. The following tables set forth certain
information relating to the Company for the three and nine months ended February
28, 1997 and 1998. 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. The yields include deferred fees and discounts which are
considered yield adjustments.
<TABLE>
<CAPTION>
Three Months Ended February 28,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
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.................... $137,971 $2,650 7.68% $92,688 $1,797 7.76%
Consumer and other loans, net.......... 40,437 988 9.77 38,057 919 9.66
Mortgage-backed securities............. 70,488 1,306 7.41 82,584 1,506 7.29
Federal funds sold..................... 9,667 133 5.50 20 0 5.34
Interest earning accounts at banks..... 736 10 5.43 365 5 5.48
Investment securities.................. 54,567 1,109 8.13 56,615 1,163 8.22
------------ --------- ------------ ---------
Total interest-earning assets..... 318,866 6,196 7.90 270,329 5,390 7.98
--------- ---------
Non-interest earning assets............ 18,002 16,086
------------ ------------
Total assets...................... $331,868 $286,415
============ ============
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Passbook accounts...................... $76,545 $561 2.93% $76,171 $559 2.94%
Escrow deposits........................ 1,142 15 5.25 717 9 5.02
NOW accounts .......................... 15,556 61 1.57 13,691 54 1.58
Money market accounts.................. 25,070 202 3.22 26,100 210 3.22
Certificate accounts................... 75,131 953 5.07 77,504 956 4.93
------------ --------- ------------ ---------
Total deposits......................... 193,444 1,792 3.71 194,183 1,788 3.68
Borrowed funds......................... 36,778 543 5.91 36,717 554 6.04
------------ --------- ------------ ---------
Total interest-bearing
liabilities................. 230,222 2,335 4.06 230,900 2,342 4.06
--------- ---------
Non-interest bearing liabilities.............. 44,860 28,618
------------ ------------
Total liabilities............. 275,082 259,518
Retained earnings............................. 56,786 26,897
------------ ------------
Total liabilities and
retained earnings.......... $331,868 $286,415
============ ============
Net interest income/interest rate spread...... $3,861 3.84% $3,048 3.92%
========= ========= ========= ===========
Net interest-earning assets/net
interest margin............................ $83,644 4.92% $39,429 4.51%
============ ========= ============ ===========
Ratio of interest-earning assets to
interest-bearing liabilities................ 136.33% 117.08%
========= ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended February 28,
-------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ----------------------------------------
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............... $124,284 $7,281 7.78% $88,016 $5,145 7.79%
Consumer and other loans, net..... 38,595 2,742 9.47 35,195 2,542 9.63
Mortgage-backed securities........ 69,208 3,867 7.45 80,651 4,426 7.32
Federal funds sold................ 4,151 172 5.52 197 7 4.74
Interest earning accounts at banks 637 25 5.23 368 13 4.71
Investment securities............. 49,930 2,664 7.11 64,236 3,330 6.91
------------ ----------- ------------ ----------
Total interest-earning assets 286,805 16,731 7.78 268,663 15,463 7.67
----------- ----------
Non-interest earning assets....... 16,810 15,967
------------ ------------
Total assets................. $303,615 $284,630
============ ============
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Passbook accounts................. $77,832 $1,727 2.96% $78,195 $1,742 2.97%
Escrow deposits................... 1,337 72 7.18 1,013 37 4.87
NOW accounts ..................... 14,937 178 1.59 14,167 172 1.62
Money market accounts............. 26,772 633 3.27 27,166 664 3.28
Certificate accounts.............. 75,613 2,917 5.14 79,648 2,993 5.01
------------ ----------- ------------ ----------
Total deposits.................... 195,491 5,527 3.77 200,189 5,608 3.74
Borrowed funds.................... 34,934 1,601 6.11 29,952 1,368 6.09
------------ ----------- ------------ ----------
Total interest-bearing
liabilities........... 230,426 7,128 4.12 230,141 6,976 4.04
----------- ----------
Non-interest bearing liabilities......... 35,227 28,850
------------ ------------
Total liabilities........ 265,852 258,991
Retained earnings........................ 37,963 25,729
------------ ------------
Total liabilities and
retained earnings..... $303,815 $284,630
============ ============
Net interest income/interest rate
spread................................ $9,803 3.65% $8,487 3.63%
=========== ============ ========== ============
Net interest-earning assets/net
interest margin....................... $56,380 4.46% $38,522 4.21%
============ ============ ============ ============
Ratio of interest-earning assets to
interest-bearing liabilities........... 124.47% 116.74%
============ ============
</TABLE>
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 Company'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.
14
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended February 28, 1998 Nine Months Ended February 28, 1998
Compared to Compared to
Three Months Ended February 28, 1997 Nine Months Ended February 28, 1997
---------------------------------------- ----------------------------------------
Increase (Decrease) in Net Increase (Decrease) in Net
Interest Income Due to Interest Income Due to
---------------------------- ---------------------------
Volume Rate Net Volume Rate Net
-------------- ----------- --------- ------------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, net....................... $878 $(25) $853 $2,120 $4 $2,116
Consumer and other loans, net............. 57 12 69 246 (46) 200
Mortgage-backed securities................ (221) 21 (200) (628) 69 (559)
Federal funds sold........................ 0 133 133 140 25 165
Interest earning accounts at banks........ 5 0 5 10 2 12
Investment securities..................... (42) (12) (54) (742) 76 (666)
-------------- ----------- --------- ------------- ----------- ----------
Total........................... 677 129 806 1,146 122 1,268
============== =========== ========= ============= =========== ==========
INTEREST-BEARING LIABILITIES:
Passbook accounts......................... 3 (1) 2 (8) (7) (15)
Escrow accounts........................... 5 1 6 12 23 35
NOW accounts.............................. 7 0 7 9 (3) 6
Money market accounts..................... (8) 0 (8) (34) 3 (31)
Certificates of deposits.................. (29) 26 (3) (152) 76 (76)
Borrowed funds............................ 1 (12) (11) 228 5 233
-------------- ----------- --------- ------------- ----------- ----------
Total........................... (21) 14 (7) 55 97 152
-------------- ----------- --------- ------------- ----------- ----------
Net change in net interest income......... $698 $115 $813 $1,091 $25 $1,116
============== =========== ========= ============= =========== ==========
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998 AND
1997
GENERAL. For the three months ended February 28, 1998 the Company
recognized a net loss of $600 thousand, or $(0.10) per share, as compared to net
income of $691 thousand for the three months ended February 28, 1997. The
decrease of $1.3 million was primarily the result of the Company's contribution
of $1.9 million of common stock of the Company to the Foundation. Excluding that
charge, net income for the three month period ending February 28, 1998 would
have been $554 thousand, or $0.09 per share, which would have translated into a
decrease of $137 thousand, or 19.8%, as compared to the three month period
ending February 28, 1997. The decrease in net income was characterized by a $1.1
million increase in non-interest expenses, net of the contribution to the
Foundation, and a $74 thousand increase in the provision for loan losses which
was partially offset by increases in net interest income and other non-interest
income in the amounts of $813 thousand and $169 thousand, respectively.
INTEREST INCOME. Interest income amounted to $6.2 million for the three
months ended February 28, 1998, as compared to $5.4 million for the three months
ended February 28, 1997. This increase of $806 thousand, or 15.0%, was primarily
the result of increases of $853 thousand in interest earned on mortgage loans,
and $133 thousand in interest earned on federal funds sold, partially offset by
a decrease of $254 thousand in the amount of interest and dividends earned on
securities, as compared to the respective totals earned over the same three
months during the comparable year earlier period.
15
<PAGE>
Although the average yield of the institution's mortgage loan portfolio
over the three months ended February 28, 1998 decreased from 7.76% to 7.68%, as
compared to the average yield realized over the three month period ended
February 28, 1997, mortgage loan interest income increased as mentioned above
because of the $45.3 million growth, or 48.8%, from $92.7 million to $138.0
million, in average mortgage loan balances over the same time periods. The
growth experienced resulted from strong loan demand as home purchasers and
existing homeowners capitalized on the opportunities afforded by lower mortgage
loan interest rates.
The average balance of federal funds sold at the end of the three month
period ended February 28, 1998 was $9.7 million, as compared to $20 thousand at
the end of the three month period ended February 28, 1997, and the increase
resulted largely from the short-term investing of the net proceeds of the
Conversion.
INTEREST EXPENSE. Interest expense over the three month period ended
February 28, 1998 on total interest bearing deposits and borrowed funds dropped
by $7 thousand when compared to the same three month period one year earlier.
Over the same periods, the average balances of the institution's total interest
bearing liabilities decreased by $678 thousand, or 0.3% from $230.9 million to
$230.2 million. Comparatively, the average balances of the institution's
borrowed funds, increased by $61 thousand, or 0.2%, for the three month periods
ended February 28, 1998 and 1997. However, while not readily apparent from the
comparison of interest on borrowings between the three month periods, management
utilized a portion of the Company's conversion proceeds to retire $7.3 million
worth of overnight advances from the Federal Home Loan Bank in December 1997.
Subsequently, management entered into two wholesale leverage transactions in
February 1998 that increased total borrowed funds by $35 million.
NET INTEREST INCOME. Net interest income for the three months ended
February 28, 1998 increased $813 thousand, or 26.7%, to $3.9 million compared to
the three months ended February 28, 1997. The interest rate spread narrowed to
$3.84% from 3.92%, but the net interest margin increased to 4.92% from 4.51%,
respectively, for the three months ended February 28, 1998 compared to the three
month period ended February 28, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three
months ended February 28, 1998 was $104 thousand, as compared to $30 thousand
for the month period ended February 28, 1997. Management bolstered the provision
for loan losses primarily in conjunction with the growth in the institution's
loan portfolios.
OTHER INCOME. Other income, net, for the three months ended February
28, 1998 totaled $751 thousand as compared to $582 thousand for the three months
ended February 28, 1997. This increase was primarily attributable to a $190
thousand increase in income derived from securities sales, mitigated by a $33
thousand decrease in income from loans sales and a $14 thousand decrease in
other income or loss.
OTHER EXPENSES. Total other expenses increased by $3.0 million for the
three month period ended February 28, 1998 as compared to February 28, 1997.
Nearly two-thirds of the increase, or $1.9 million, ensued from the Company's
contribution to the Foundation, while another $708 thousand was attributable to
the establishment of the Company's Employee Stock Ownership Plan in connection
with the Conversion and Offering. In addition, professional fees increased by
$177 thousand for the three months ended February 28, 1998, as compared to the
same period in 1997 as a result of consultation and audit activities in
connection with the Conversion and Offering.
PROVISION FOR INCOME TAXES. The decrease in the provision for income
taxes for the three month period ended February 28, 1998 as compared to the same
period ended February 28, 1997 was primarily attributable to the tax benefit
derived from the Company's contribution to the Foundation.
16
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1998 AND
1997
GENERAL. Net income for the nine months ended February 28, 1998
amounted to $632 thousand compared to $2.2 million for the nine months ended
February 28, 1997. The decrease of $1.6 million was, as in the case of the
Company's three month results, primarily attributable to the Company's
contribution to the Foundation. Excluding the charge for the contribution to the
Foundation, net income for the nine month period ending February 28, 1998 would
have been $1.8 million, or $0.29 per share, which would have represented a
decrease of $400 thousand as compared to the results reported for the nine
months ended February 28, 1997. That decrease resulted primarily from a $388
thousand increase to the provision for loan losses, a decrease of $179 thousand
in non-interest income, and a $1.1 million increase in non-interest expense, net
of the contribution to the Foundation, which was partially offset by an increase
of $1.1 million in net interest income.
INTEREST INCOME. Interest income for the nine month period ended
February 28, 1998 amounted to $16.7 million, which represented an increase of
$1.3 million, or 8.2%, over the $15.5 million earned over the nine months ended
February 28, 1997. The increase was primarily attributable to a $2.1 million
increase, or 41.1%, in the amount of interest earned on mortgage loans, offset,
somewhat, by a $1.2 million decrease, or 15.8%, in interest and dividends earned
on the securities portfolio. The comparative changes in interest income for the
nine month periods ended February 28, 1997 and 1998 were primarily attributable
to the shift of interest earning assets into mortgage and commercial loans, and
the utilization of a number of wholesale leverage transactions.
The increase in the average yield on interest-earning assets to 7.78%
for the nine months ended February 28, 1998, as compared to 7.67% for the nine
month period ended February 28, 1997, resulted in part from the sale of
relatively lower yielding securities, and the purchase of higher yielding
securities with portions of the proceeds, in connection with the Company's
restructuring of its investment securities portfolio over the past nine months.
The overall decrease in the average balance of the investment securities
resulted from the funding of lending activities.
INTEREST EXPENSE. Interest expense over the nine month period ended
February 28, 1998 was $7.1 million compared to $7.0 million for the comparable
nine month period ended February 28, 1997. Comparing the nine month period ended
February 28, 1998, to the nine month period ended February 28, 1997, interest
expense decreased by $76 thousand, $31 thousand and $9 thousand, respectively,
for time deposits, money market accounts, and savings deposits, while it
increased $35 thousand and $233 thousand, respectively, for escrow deposits and
borrowed funds. Those shifts resulted primarily from decreases in the average
balances of deposit accounts coupled with increases in escrow balances generally
required in conjunction with the Company's increased mortgage loan balances, and
from additional wholesale leverage transactions entered into over the past nine
months.
NET INTEREST INCOME. Net interest income for the nine months ended
February 28, 1998 increased $1.1 million or 13.1%, to $9.6 million compared to
the nine months ended February 28, 1997. The interest rate spread and net
interest margin increased to 3.65% from 3.63%, and to 4.46% from 4.21%,
respectively, for the nine months ended February 28, 1998 compared to the nine
month period ended February 28, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine
months ended February 28, 1998 was $468 thousand, as compared to $80 thousand
for the nine month period ended February 28, 1997. As noted above with respect
to the results for the three month period comparisons, management bolstered the
provision for loan losses primarily in conjunction with the growth in the
institution's loan portfolios.
OTHER INCOME. Other income, net, for the nine months ended February 28,
1998 decreased by $179 thousand, or 7.7%, to $2.2 million from $2.3 million for
the nine months ended February 28, 1997.
17
<PAGE>
Comparatively, income from securities transactions decreased by $260 thousand
for the nine months ended February 28, 1998 compared to the nine months ended
February 28, 1997 because the institution realized some larger than usual gains
on security sales in the summer of 1996.
OTHER EXPENSES. Total other expenses increased $3.0 million for the
nine month period ended February 28, 1998 as compared to February 28, 1997. As
noted under the three month period results, nearly two-thirds of the increase,
or $1.9 million, ensued from the Company's contribution to the Foundation, while
another $708 thousand was attributable to the establishment of the Company's
Employee Stock Ownership Plan in connection with the Conversion and Offering. In
addition, professional fees increased by $199 thousand for the nine months ended
February 28, 1998, as compared to the same period in 1997 as a result of
consultation and audit activities in connection with the Conversion and the
Offering.
PROVISION FOR INCOME TAXES. The decrease in the provision for income
taxes for the nine month period ended February 28, 1998 as compared to the same
period ended February 28, 1997 was primarily attributable to the tax benefit
derived from the Company's contribution to the Foundation.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is managed from a composite of customer deposits, from cash
and short-term interest- earning assets, from mortgage loans held for sale, from
the investment securities portfolio held available for sale and from the
Company's ability to borrow from the Federal Home Loan Bank. At February 28,
1998 management had utilized $27.5 million in repurchase agreements and $35.3
million in Federal Home Loan Bank advances to augment the Company's earnings,
and intends to enter into additional transactions in order to leverage the
Company's capital base further.
At February 28, 1998, the Company's total approved loan origination
commitments outstanding totaled $48.4 million. At the same time, the unadvanced
portion of residential construction loans totaled $5.7 million. Certificates of
deposit scheduled to mature in one year or less at February 28, 1998 totaled
$66.8 million. Based on historical experience, management believes that a
significant portion of such deposits will remain.
At February 28, 1998, the Company had cash and due from banks of $11.4
million and securities available for sale of $154.4 million. Management believes
these amounts, together with the Company's borrowing capabilities, to be more
than adequate to meet its short-term cash needs.
REGULATORY CAPITAL POSITION
At February 28, 1998, the Company exceeded all of its regulatory
capital requirements with a Tier 1 capital level of $83.7 million, or 25.23% of
average assets, which is well above the required level of $13.3 million, or 4%,
of average assets. The Company's ratio of Tier 1 capital to risk weighted assets
of 46.05% at February 28, 1998 is also well above the required level of 4%. The
Company's ratio of total capital to risk weighted assets is 46.84%, which is
well above the required level of 8%. In addition, the Company's capital ratios
qualify it to be "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 February 28, 1998.
18
<PAGE>
<TABLE>
<CAPTION>
CAPITAL AT FEBRUARY 28, 1998
Actual Capital Required Capital Excess Capital
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital..................
(to risk weighted assets) $85,181 46.84% $14,548 8.00% $70,633 38.84%
Tier 1 Capital.................
(to risk weighted assets) 83,735 46.05% 7,274 4.00% 76,461 42.05%
Tier 1 Capital.................
(to average assets) 83,735 25.23% 13,275 4.00% 70,460 21.23%
</TABLE>
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.
19
<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: April 14, 1998 By: /s/ Timothy A. Dempsey
----------------------
Timothy A. Dempsey
President and Chief Executive Officer
Date: April 14, 1998 By: [S] Arthur W. Budich
--------------------
Arthur W. Budich
Senior Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
27. Financial Data Schedule (submitted only with filing in electronic
format)
21
<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>
<CIK> 0001046209
<NAME> WARWICK COMMUNITY BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 10,739
<INT-BEARING-DEPOSITS> 670
<FED-FUNDS-SOLD> 465
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 154,403
<INVESTMENTS-CARRYING> 10,379
<INVESTMENTS-MARKET> 10,266
<LOANS> 182,713
<ALLOWANCE> 1,446
<TOTAL-ASSETS> 370,842
<DEPOSITS> 212,392
<SHORT-TERM> 27,500
<LIABILITIES-OTHER> 10,210
<LONG-TERM> 35,250
0
0
<COMMON> 63,429
<OTHER-SE> 22,061
<TOTAL-LIABILITIES-AND-EQUITY> 370,843
<INTEREST-LOAN> 10,005
<INTEREST-INVEST> 6,529
<INTEREST-OTHER> 197
<INTEREST-TOTAL> 16,731
<INTEREST-DEPOSIT> 5,527
<INTEREST-EXPENSE> 7,128
<INTEREST-INCOME-NET> 9,135
<LOAN-LOSSES> 468
<SECURITIES-GAINS> 387
<EXPENSE-OTHER> 10,192
<INCOME-PRETAX> 1,097
<INCOME-PRE-EXTRAORDINARY> 1,097
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632
<EPS-PRIMARY> (0.1)
<EPS-DILUTED> (0.1)
<YIELD-ACTUAL> 4.46
<LOANS-NON> 1,434
<LOANS-PAST> 47
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 261
<ALLOWANCE-OPEN> 1,232
<CHARGE-OFFS> 261
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 1,446
<ALLOWANCE-DOMESTIC> 1,446
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
