As filed with the Securities and Exchange Commission on May 17, 1999
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 March 31, 1999
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 May 10, 1999, there were 6,256,221 shares of the registrant's common
stock outstanding.
<PAGE>
FORM 10-Q
Warwick Community Bancorp, Inc.
INDEX
<TABLE>
<CAPTION>
Page
PART I C FINANCIAL INFORMATION Number
- ------------------------------ ------
<S> <C>
Item 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income for the three months
ended March 31, 1999 and 1998 4
Consolidated Statement of Changes in Equity for
the three months ended March 31, 1999 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II C OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
Exhibit Index 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 include, but are not limited
to, general economic conditions, changes in interest rates, deposit flows, loan
demand, real estate values and competition; changes in accounting principles,
policies or guidelines; changes in legislation or regulation; other economic,
competitive, governmental, regulatory or technological factors affecting the
Company's operations, pricing, products and services; 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
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash on hand and in banks ..................................................... $ 9,723 $ 10,511
Securities:
Available-for-sale, at fair value ...................................... 165,338 149,491
Held-to-maturity, at amortized cost (fair value of
$1,074 at March 31, 1999 and $5,968 at December 31, 1998) .............. 1,075 5,999
--------- ---------
Total securities ..................................................... 166,413 155,490
--------- ---------
Mortgage loans, net ........................................................... 210,552 208,706
Commercial loans .............................................................. 38,998 35,293
Consumer loans ................................................................ 22,356 19,191
--------- ---------
Total loans .......................................................... 271,906 263,190
Allowance for loan losses ..................................................... (1,835) (1,727)
--------- ---------
Total loans, net ..................................................... 270,071 261,463
--------- ---------
Accrued interest receivable ................................................... 2,359 2,506
Federal Home Loan Bank stock .................................................. 5,758 4,633
Bank premises & equipment, net ................................................ 6,279 6,173
Other assets .................................................................. 7,521 4,363
--------- ---------
Total assets ......................................................... $ 468,124 $ 445,139
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
NOW and money market ...................................................... $ 58,628 $ 59,815
Savings ................................................................... 84,863 82,696
Certificates of deposit ................................................... 72,624 70,995
Non-interest bearing checking ............................................. 29,697 33,380
--------- ---------
Total depositor accounts ......................................... 245,812 246,886
Mortgage escrow funds ..................................................... 1,786 1,965
Accrued interest payable .................................................. 831 736
Securities sold under agreements to repurchase ............................ 25,310 25,310
FHLB advances ............................................................. 108,500 79,480
Other liabilities ......................................................... 6,807 6,525
--------- ---------
Total liabilities ................................................ 389,046 360,902
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 authorized; none
issued ................................................................ -- --
Common stock, $.01 par value; 15,000,000 shares authorized;
6,606,548 shares issued; 6,276,221 and 6,606,548 shares
outstanding as of March 31, 1999 and December 31, 1998,
respectively .......................................................... 66 66
Additional paid-in capital ................................................ 63,368 63,374
Retained earnings ......................................................... 31,175 30,458
Accumulated other comprehensive income, net ............................... 409 1,727
Unearned ESOP common stock ................................................ (7,130) (7,208)
Unearned RRP common stock ................................................. (3,951) (4,180)
--------- ---------
83,937 84,237
Treasury stock ............................................................ (4,859) --
--------- ---------
Total stockholders' equity ....................................... 79,078 84,237
--------- ---------
Total liabilities and stockholders' equity ....................... $ 468,124 $ 445,139
========= =========
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
3
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------
1999 1998
------- -------
(In thousands, except per
share amounts)
<S> <C> <C>
Interest Income:
Interest on mortgage loans ......................................... $ 3,845 $ 2,708
Interest on other loans ............................................ 1,164 952
Interest and dividends on securities ............................... 2,570 2,624
Interest on federal funds sold ..................................... -- 70
Interest on short-term money market instruments .................... 5 10
------- -------
Total interest income ......................................... 7,584 6,364
------- -------
Interest Expense:
Time deposits ...................................................... 838 930
Money market deposits .............................................. 327 200
Savings deposits ................................................... 683 613
Mortgagors' escrow deposits ........................................ 30 15
Borrowed funds ..................................................... 1,559 696
------- -------
Total interest expense ........................................ 3,437 2,454
------- -------
Net interest income ........................................... 4,147 3,910
------- -------
Provision for Loan Losses ............................................... (125) (125)
------- -------
Net interest income after provision for loan losses ................ 4,022 3,785
------- -------
Other Income (Loss):
Service and fee income ............................................. 617 558
Securities transactions ............................................ 579 193
Loan transactions .................................................. 31 17
Other income or (loss) ............................................. 130 4
------- -------
Total other income, net ....................................... 1,357 772
------- -------
Other Expenses:
Salaries and employee benefits ..................................... 1,829 1,459
ESOP benefits ...................................................... 72 99
BRP and RRP benefits ............................................... 272 46
FDIC insurance ..................................................... 8 7
Occupancy .......................................................... 342 308
Data processing .................................................... 247 163
Advertising ........................................................ 134 22
Professional fees .................................................. 80 201
Other .............................................................. 669 555
------- -------
Total other expenses .......................................... 3,653 2,860
------- -------
Income before provision for income taxes ........................... 1,726 1,697
Provision for Income Taxes .............................................. 727 705
------- -------
Net income ......................................................... $ 999 $ 992
======= =======
Weighted Average:
Common shares ...................................................... 5,751 6,109
Dilutive stock options ............................................. -- --
------- -------
5,751 6,109
======= =======
Earnings per Share:
Basic .............................................................. $ 0.17 $ 0.16
======= =======
Diluted ............................................................ $ 0.17 $ 0.16
======= =======
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
4
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Unallocated Unearned
Additional Other Common Common
Common Paid In Retained Comprehensive Stock Held Stock Held Treasury Comprehensive
Stock Capital Earnings Income, net by ESOP by RRP Stock Income
----- ------- -------- ----------- ------- ------ ----- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,1997 ........... $ 66 $ 63,366 $ 27,382 $ 1,634 $ (6,259) $ -- $ --
Net Income, January 1, 1998 -
March 31, 1998 ................... -- -- 992 -- -- -- -- $ 992
Unrealized appreciation on
securities available-for-sale,
net -- -- -- 160 -- -- -- 160
--------
Comprehensive income ............. -- -- -- -- -- -- $ 1,152
========
Purchase of common stock by
ESOP ............................. -- -- -- -- (1,563) -- --
Allocation of ESOP stock ......... -- 26 -- -- 206 -- --
-------- -------- -------- -------- -------- -------- --------
BALANCE, March 31, 1998 ............. $ 66 $ 63,392 $ 28,374 $ 1,794 $ (7,616) $ -- $ --
======== ======== ======== ======== ======== ======== ========
BALANCE, December 31, 1998 .......... $ 66 $ 63,374 $ 30,458 $ 1,727 $ (7,208) $ (4,180) $ --
Net Income, January 1, 1999-
March 31, 1999 ................... -- -- 999 -- -- -- -- $ 999
Unrealized appreciation on
securities available-for-sale,
net -- -- -- (1,318) -- -- -- (1,318)
--------
Comprehensive income ............. -- -- -- -- -- -- -- $ (319)
========
Purchase of treasury stock ....... -- -- -- -- -- -- 4,859
Allocation of ESOP stock ......... -- (6) -- -- 78 -- --
Cash dividends paid .............. -- -- (282) -- -- -- --
Earned portion of RRP ............ -- -- -- -- -- 229 --
-------- -------- -------- -------- -------- -------- --------
BALANCE, March 31, 1999 ............. $ 66 $ 63,368 $ 31,175 $ 409 $ (7,130) $ (3,951) $ 4,859
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
5
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 999 $ 992
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation ................................................................ 156 114
Accretion of discount on investment securities .............................. (377) (381)
Net (increase)/decrease in accrued interest receivable ...................... 147 (150)
Increase in mortgage servicing rights and other assets ...................... (3,158) (2,224)
Provision for loan losses ................................................... 125 125
Net gain on sales of loans .................................................. (31) (17)
Net gain on sales of securities ............................................. (579) (193)
Increase in accrued interest payable ........................................ 95 220
Increase/(decrease) in accrued expenses and other liabilities ............... 282 (3,675)
-------- --------
Total reconciliation adjustments ............................................... (3,340) (6,181)
-------- --------
Net cash provided by operating activities ................................... (2,341) (5,189)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities ............................... 6,550 17,954
Purchases of securities ........................................................ (29,496) (69,448)
Proceeds from sale of trading securities and securities available-for-sale ..... 3,698 10,501
Principal repayments from mortgage-backed securities ........................... 6,524 4,801
Purchases of FHLBNY capital stock .............................................. (1,125) (656)
Net increase in loans .......................................................... (7,309) (15,811)
Purchases of fixed assets, net ................................................. (222) (52)
-------- --------
Net cash used in investing activities ....................................... (21,380) (52,711)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ............................................ (1,074) 6,023
Net increase (decrease) in escrow deposits ..................................... (179) 48
Net increase in borrowed funds ................................................. 29,020 39,065
Dividends on common stock ...................................................... (282) --
Purchase of ESOP common stock .................................................. -- (1,563)
Purchase of treasury stock ..................................................... (4,859) --
ESOP allocation ................................................................ 78 206
RRP allocation ................................................................. 229 --
-------- --------
Net cash provided by financing activities ................................... 22,933 43,779
-------- --------
Net decrease in cash ........................................................ $ (788) $(14,121)
======== ========
CASH AT BEGINNING OF PERIOD .................................................... $ 10,511 $ 22,543
CASH AT END OF PERIOD .......................................................... 9,723 8,422
-------- --------
CHANGE IN CASH ................................................................. $ (788) $(14,121)
======== ========
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
6
<PAGE>
WARWICK COMMUNITY BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Warwick Community Bancorp, Inc. ("Company") and its wholly owned
subsidiary The Warwick Savings Bank ("Bank"). In July 1998, the Company changed
its fiscal year end from May 31st to December 31st, and, accordingly, the
accompanying unaudited consolidated financial statements have been prepared
based on the Company's new fiscal year end.
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 months ended March 31, 1999 are not
necessarily indicative of the results of operations that may be expected for the
entire year ending December 31, 1999. 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 Company's audited consolidated financial statements and
notes thereto included in the Company's 1998 Annual Report to Shareholders.
2. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings per Share." Basic earnings per
share excludes dilution and is computed by dividing net income by the weighted
average number of shares outstanding for the period, adjusted for the
unallocated portion of the shares held by the Warwick Community Bancorp, Inc.
Employee Stock Ownership Plan ("ESOP") in accordance with AICPA Statement of
Position 93-6, "Employers Accounting for Employee Stock Ownership Plans," and
unearned shares held by the Recognition and Retention Plan of Warwick Community
Bancorp, Inc. ("RRP"). Diluted earnings per share, which reflects the potential
dilution that could occur if outstanding stock options were exercised and
resulted in the issuance of common stock that then shared in the earnings of the
Company, is computed by dividing net income by the weighted average number of
common shares and dilutive instruments. As of March 31, 1999, the Company has no
securities that could be converted into common stock nor does the Company have
any contracts that could result in the issuance of common stock.
3. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS No. 130") in 1998. All comparative
financial statements provided for earlier periods have been reclassified to
reflect application of the provisions of this statement.
Comprehensive income includes net income and all other changes in equity
during a period except those resulting from investments by owners and
distributions to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income.
Comprehensive income and accumulated other comprehensive income are
reported net of related income taxes. Accumulated other comprehensive income for
the Company consists solely of unrealized holding gains or losses on available
for sale securities.
7
<PAGE>
4. 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 March 31, 1999 At December 31, 1998
------------------------ -----------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Conventional one- to four-family loans ................... $ 174,751 64.27% $ 166,466 63.25%
Mortgage loans held for sale ............................. 9,156 3.37 13,737 5.22
VA and FHA loans ......................................... 126 0.05 641 0.24
Home equity loans ........................................ 18,494 6.80 18,061 6.86
Residential construction loans ........................... 14,148 5.20 16,105 6.12
Undisbursed portion of construction loans ................ (6,123) (2.25) (6,304) (2.39)
--------- ------ --------- ------
Total mortgage loans .................................. 210,552 77.44 208,706 79.30
--------- ------ --------- ------
Consumer and other loans:
Commercial loans by type:
Non-farm and non-residential .......................... 18,480 6.80 17,082 6.49
One- to four-family residential ....................... 2,263 0.83 2,142 0.81
Multi-family .......................................... 3,952 1.45 3,988 1.52
Farm .................................................. 988 0.36 996 0.38
Acquisition, development and
construction ......................................... 4,169 1.53 4,339 1.65
Term loans ............................................ 380 0.14 411 0.16
Installment loans ..................................... 3,091 1.14 2,435 0.94
Demand loans .......................................... 477 0.18 853 0.32
Time loans ............................................ 155 0.06 80 0.03
SBA loans ............................................. 245 0.09 328 0.12
Lines-of-credit ....................................... 3,574 1.31 2,327 0.88
Loans and draws disbursed ............................. 617 0.23 194 0.07
Non-accrual ........................................... 607 0.22 118 0.04
--------- ------ --------- ------
Total commercial loans ................................ 38,998 14.34 35,293 13.41
Automobile ............................................... 16,740 6.16 13,788 5.24
Student .................................................. 492 0.18 332 0.13
Credit card .............................................. 1,224 0.45 1,296 0.49
Other consumer loans ..................................... 3,900 1.43 3,775 1.43
--------- ------ --------- ------
Total consumer loans ..................................... 22,356 8.22 19,191 7.29
--------- ------ --------- ------
Total consumer and other loans ........................ 61,354 22.56 54,484 20.70
--------- ------ --------- ------
Total loans ........................................... 271,906 100.00% 263,190 100.00%
====== ======
Allowance for loan losses ................................ (1,835) (1,727)
--------- ---------
Total loans, net ...................................... $ 270,071 $ 261,463
========= =========
</TABLE>
8
<PAGE>
5. 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>
March 31, December 31,
1999 1998
--------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans delinquent more
than 90 days ................................................................ $1,528 $ 631
Non-accrual other loans delinquent more than 90 days ........................ 553 88
------ ------
Total non-accrual loans ..................................................... 2,081 719
Total 90 days or more delinquent and still accruing ......................... 176 1,362
------ ------
Total non-performing loans .................................................. 2,257 2,081
Total foreclosed real estate, net of related allowance for losses ........... 561 371
------ ------
Total non-performing assets ................................................. $2,818 $2,452
====== ======
Non-performing loans to total loans ......................................... 0.83% 0.79%
Total non-performing assets to total assets ................................. 0.60% 0.55%
</TABLE>
6. 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>
At or For the Seven
Three Months Ended Months Ended
March 31, December 31,
-------------------------- -------------------
1999 1998 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of period .............................. $1,727 $1,372 $1,513
Charge-offs:
Real estate mortgage loans ............................ 2 0 30
Commercial loans ...................................... 25 13 5
Consumer loans ........................................ 15 13 64
------ ------ ------
Total charge-offs ..................................... 42 26 99
Recoveries:
Real estate mortgage loans ............................ 23 0 0
Commercial loans ...................................... 0 0 9
Consumer loans ........................................ 2 4 12
------ ------ ------
Total recoveries ...................................... 25 4 21
Provision for loan losses ................................... 125 125 292
------ ------ ------
Balance at end of Period .................................... $1,835 $1,475 $1,727
====== ====== ======
Ratio of net charge-offs during the period
to average loans outstanding ................................ 0.01% 0.01% 0.04%
Ratio of allowance for loan losses to total
loans at end of period ...................................... 0.67% 0.56% 0.66%
Ratio of allowance for loan losses to
non-performing loans ........................................ 81.30% 119.60% 82.99%
</TABLE>
9
<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 is the bank holding company for The Warwick
Savings Bank ("Bank"), a New York State chartered stock savings bank. While the
following discussion of financial condition and results of operations includes
the collective results of the Company and the Bank, this discussion reflects
primarily the Bank's activities. Unless otherwise disclosed, the information
presented herein reflects the financial condition and results of operations of
the Company and the Bank on a consolidated basis.
Financial Condition
For the three-month period ending March 31, 1999, total assets of the
Company increased $23.0 million, or 5.2%, from $445.1 million at December 31,
1998 to $468.1 million at March 31, 1999. This increase in total assets was
primarily attributable to a $8.7 million, or 3.3%, increase in total loans, net,
which increased from $263.2 million at December 31, 1998 to $271.9 million at
March 31, 1999, and a $10.9 million, or 7.0%, increase in total securities,
which increased from $155.5 million at December 31, 1998 to $166.4 million at
March 31, 1999. These increases resulted from continued growth in the loan
portfolio, particularly mortgage loans, and from the Bank's utilization of
additional wholesale leveraging transactions in order to enhance earnings. The
Federal Home Loan Bank of New York ("FHLBNY") stock portfolio increased by $1.1
million in conjunction with the utilization of such wholesale leveraging
transactions.
Deposits decreased $1.1 million, or 0.4%, from $246.9 million at December
31, 1998, to $245.8 million at March 31, 1999. This decrease was primarily
attributable to a decrease in non-interest bearing checking accounts of $3.7
million and a decrease of $1.2 million in NOW and money market accounts,
partially offset by an increase in savings accounts of $2.2 million and an
increase in certificates of deposit of $1.6 million.
Borrowed funds, comprised primarily of securities sold under repurchase
agreements and FHLBNY advances, increased $29.0 million, from $104.8 million at
December 31, 1998 to $133.8 million at March 31, 1999. These increases were
primarily used in connection with the aforementioned wholesale leveraging
transactions which enabled the Company to bolster net interest income.
Total stockholders' equity decreased by $5.2 million, or 6.1%, from $84.2
million at December 31, 1998 to $79.1 million at March 31, 1999. The decrease
was primarily attributable to $4.9 million in open market purchases of 330,327
shares, or 5.0% of the Company's outstanding common stock in conjunction with
the Company's initial stock repurchase program and the decline in accumulated
other comprehensive income of $1.3 million. The decrease in total stockholders=
equity was partially offset by net income of $999 thousand for the three months
ended March 31, 1999. Also contributing to the decrease in stockholders= equity
was the payment of the Company's third cash dividend to shareholders of $282
thousand, which was paid on March 30, 1999.
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.
Average Balance Sheets. The following tables set forth certain information
regarding the Company's average statements of financial condition and its
statements of income for the three months ended March 31,
10
<PAGE>
1999 and 1998 and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such 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. Average balances
were computed based on month-end balances. Management believes the use of
average monthly balances instead of average daily balances does not have a
material effect on the information presented.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net ................................... $209,054 $ 3,845 7.36% $141,663 $ 2,708 7.65%
Consumer and other loans, net ......................... 55,369 1,164 8.41 41,051 952 9.28
Mortgage-backed securities ............................ 73,694 1,261 6.84 78,293 1,441 7.36
Federal funds sold .................................... -- -- -- 5,146 70 5.44
Interest earning accounts at banks .................... 482 5 4.15 675 10 5.93
Investment securities ................................. 86,340 1,309 6.06 66,858 1,183 7.08
-------- -------- -------- --------
Total interest-earning assets .................. 424,939 7,584 7.14 333,686 6,364 7.63
-------- --------
Non-interest earning assets ........................... 23,626 22,992
-------- --------
Total assets ................................... $448,565 $356,678
======== ========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook accounts ..................................... $ 82,920 $ 597 2.88% $ 75,976 $ 553 2.91%
Escrow deposits ....................................... 1,368 31 9.06 1,131 15 5.31
NOW accounts .......................................... 21,151 85 1.61 15,518 61 1.57
Money market accounts ................................. 36,616 327 3.57 24,748 200 3.23
Certificate accounts .................................. 71,730 838 4.67 73,863 929 5.03
-------- -------- -------- --------
Total deposits ........................................ 213,785 1,878 3.51 191,236 1,758 3.68
Borrowed funds ........................................ 116,365 1,559 5.36 48,179 696 5.78
-------- -------- -------- --------
Total interest-bearing liabilities ............. 330,150 3,437 4.16 239,415 2,454 4.10
-------- --------
Non-interest bearing liabilities ......................... 37,004 33,967
-------- --------
Total liabilities .............................. 367,154 273,382
Retained earnings ........................................ 81,411 83,296
-------- --------
Total liabilities
and retained earnings .......................... $448,565 $356,678
======== ========
Net interest income/interest rate spread ................. $ 4,147 2.98% $ 3,910 3.53%
======== ====== ======== ======
Net interest-earning assets/net
interest margin ....................................... $ 94,789 3.90% $ 94,271 4.69%
======== ====== ======== ======
Ratio of interest-earning assets to
interest-bearing liabilities .......................... 128.71% 139.38%
====== ======
</TABLE>
11
<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 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.
Three Months Ended March 31, 1999
Compared to
Three Months Ended March 31, 1998
-------------------------------------
Increase (Decrease) in Net
Interest Income Due to
--------------------------
Volume Rate Net
------ ---- ---
(In thousands)
Interest-earning assets:
Mortgage loans, net ..................... $ 1,288 (151) $ 1,137
Consumer and other loans, net ........... 332 (120) 212
Mortgage-backed securities .............. (85) (95) (180)
Federal funds sold ...................... (70) -- (70)
Interest earning accounts at banks ...... (3) (2) (5)
Investment securities ................... 345 (219) 126
------- ------- -------
Total ......................... 1,807 (587) 1,220
------- ------- -------
Interest-bearing liabilities:
Passbook accounts ....................... 51 (7) 44
Escrow accounts ......................... 3 13 16
NOW accounts ............................ 22 2 24
Money market accounts ................... 96 31 127
Certificates of deposit ................. (27) (64) (91)
Borrowed funds .......................... 985 (122) 863
------- ------- -------
Total ......................... 1,130 (147) 983
------- ------- -------
Net change in net interest income ....... $ 677 $ (440) $ 237
======= ======= =======
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General. For the three months ended March 31, 1999, the Company recognized
net income of $999 thousand, or $0.17 per share, as compared to net income of
$992 thousand, or $0.16 per share for the three months ended March 31, 1998. The
increase in net income was attributable to the 75.8% increase in other income
and the 6.1% increase in net interest income, which were partially offset by the
27.7% increase in other expenses.
Interest Income. Interest income amounted to $7.6 million for the three
months ended March 31, 1999, as compared to $6.4 million for the three months
ended March 31, 1998. This increase of $1.2 million, or 19.2%, was primarily the
result of the increase of $1.1 million in interest earned on the Company's
mortgage loan portfolio and the increase of $212 thousand in the amount of
interest earned on other loans, as compared to the respective totals earned over
the three-month period ended March 31, 1998.
12
<PAGE>
Although the average yield of the institution's mortgage loan portfolio
over the three months ended March 31, 1999 decreased from 7.65% to 7.36%, as
compared to the average yield realized over the three-month period ended March
31, 1998, mortgage loan interest income increased because of the $67.4 million
growth, or 47.6%, from $141.7 million to $209.1 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 balances of investment securities, including mortgage-backed
securities, at the end of the three-month period ended March 31, 1999 was $160.0
million, as compared to $145.2 million at the end of the three-month period
ended March 31, 1998, and the increase resulted largely from the Bank's
utilization of additional wholesale leverage transactions in order to enhance
earnings.
Interest Expense. Interest expense over the three-month period ended March
31, 1999 on total interest-bearing deposits and borrowed funds increased by $983
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 increased by $90.7 million, or 37.9%, from $239.4 million to $330.1
million, and the average balances of the institution's borrowed funds increased
by $68.2 million, or 141.5%. The increase in interest expense was primarily the
result of additional interest paid on borrowing associated with the wholesale
leveraging transactions that occurred during the year.
Net Interest Income. Net interest income for the three months ended March
31, 1999 increased $237 thousand, or 6.1%, to $4.1 million compared to the three
months ended March 31, 1998. The interest rate spread dropped to 2.98% from
3.53%, and the net interest margin decreased to 3.90% from 4.69%, respectively,
for the three-month period ended March 31, 1999 compared to the three-month
period ended March 31, 1998. This reflects the lower interest rate environment
during the first quarter of 1999 as compared to the equivalent quarter in 1998.
Provision for Loan Losses. The provision for loan losses for the three
months ended March 31, 1999 and 1998 was $125 thousand. This provision is a
result of management's assessment of the loan portfolio, the level of the Bank's
allowance for loan losses and its assessment of the local economy and market
conditions.
Other Income. Other income, net, for the three months ended March 31, 1999
totaled $1.4 million as compared to $772 thousand for the three months ended
March 31, 1998. This increase was primarily attributable to a $386 thousand
increase in income derived from securities sales, a $126 thousand increase in
other income and a $59 thousand increase in service and fee income.
Other Expenses. Total other expenses increased by $793 thousand for the
three-month period ended March 31, 1999 as compared to March 31, 1998.
Accounting for much of the increase in other expenses is salaries and employee
benefits expense which grew $370 thousand for the three months ended March 31,
1999. This is primarily the result of additions to staff necessary to attract
and service a growing number of loan account and deposit account customers. In
addition, BRP and RRP benefits expense increased by $226 thousand, while ESOP
benefits decreased $17 thousand, for the three months ended March 31, 1999, as
compared to the same period in 1998, as the RRP was not approved by the
Company's shareholders until June 1998. Advertising expense and other expenses
increased $112 thousand and $114 thousand, respectively, for the three months
ended March 31, 1999. Data processing expense increased $84 thousand for the
three months ended March 31, 1999, primarily due to the expense associated with
becoming Year 2000 compliant. Partially offsetting these increases was the
decrease in professional fees of $121 thousand.
Provision for Income Taxes. The increase in the provision for income taxes
for the three-month period ended March 31, 1999, as compared to the same period
ended March 31, 1998, was primarily attributable to the increase of 1.7% in
pretax income.
13
<PAGE>
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 FHLBNY. At March 31, 1999 management had utilized
$25.3 million in repurchase agreements and $108.5 million in FHLBNY advances to
augment the Company's earnings, and management intends to enter into additional
transactions in order to leverage the Company's capital base further.
At March 31, 1999, the Company's total approved loan origination
commitments outstanding totaled $28.1 million. At the same time, the unadvanced
portion of residential construction loans totaled $6.1 million. Certificates of
deposit scheduled to mature in one year or less at March 31, 1999 totaled $66.0
million. Based on historical experience, management believes that a significant
portion of such deposits will remain with the Bank.
At March 31, 1999, the Company had cash and due from banks of $9.7 million
and securities available for sale of $165.3 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
The Bank is subject to minimum regulatory capital requirements imposed by
the Federal Deposit Insurance Corporation ("FDIC"), which requirements are, as a
general matter, based on the amount and composition of an institution's assets.
Insured institutions in the strongest financial and managerial condition, with a
rating of 1 (the highest examination rating of the FDIC under the Uniform
Financial Institutions Rating System) are required to maintain Tier 1 capital of
not less than 3.0% of total assets (the "leverage capital ratio"). For all other
banks, the minimum leverage capital ratio is 4.0%, unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile of
the institution.
At March 31, 1999, the Company exceeded the minimum regulatory capital
requirements imposed by the Federal Reserve Board, which are substantially
similar to the requirements of the FDIC, with a Tier 1 capital level of $78.5
million, or 17.51% of average assets, which is well above the required level of
$17.9 million, or 4% of average assets. The Company's ratio of Tier 1 capital to
risk-weighted assets of 33.06% at March 31, 1999 is also well above the required
level of 4%. The Company's ratio of total capital to risk-weighted assets is
34.02%, which is well above the required level of 8%. In addition, the Bank's
capital ratios qualify it to be treated as "well capitalized" for regulatory
purposes. The following table shows the Bank's regulatory capital positions and
ratios at March 31, 1999.
<TABLE>
<CAPTION>
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) ............... $54,706 23.61% $18,538 8.00% $36,168 15.61%
Tier 1 Capital
(to risk-weighted assets) ............... 52,342 22.59 9,269 4.00 43,073 18.59
Tier 1 Capital
(to average assets) ..................... 52,342 11.86 17,661 4.00 34,681 7.86
</TABLE>
14
<PAGE>
Other Matters
Year 2000 Compliance. The Year 2000 issue is the result of the inability of
certain computer systems to recognize the year 2000. Many existing computer
programs and systems were initially programmed with six digit dates that
provided only two digits to identify the calendar year in the date field without
considering the upcoming change in the century. As a result, such programs and
systems may recognize a date using A00" as the year 1900 instead of the year
2000, which could result in system failures or miscalculations. Like most
financial service providers, the Company and its operations may be significantly
affected by the Year 2000 issue due to the nature of financial information.
Software, hardware and equipment both within and outside the Company's direct
control and with whom the Company electronically or operationally interfaces
(i.e., third party vendors providing data processing, information system
management, maintenance of computer systems and credit bureau information) are
likely to be affected. Furthermore, if computer systems are not adequately
changed to identify the year 2000, many computer applications could fail or
create erroneous results. As a result, many calculations which rely upon the
date field information, such as interest, payment or due dates and other
operating functions, may generate results which could be significantly
misstated, and the Company could experience a temporary inability to process
transactions, send invoices or engage in similar normal business activities. In
addition, under certain circumstances, failure to adequately address the Year
2000 issue could adversely affect the viability of the Company's suppliers and
creditors and the creditworthiness of its borrowers. Thus, if not adequately
addressed, the Year 2000 issue could result in a material adverse impact upon
the Company's products, services and competitive condition and, therefore, its
results of operations, and could be deemed to imperil the safety and soundness
of the Bank.
The FDIC, the Bank's primary federal regulator, along with the other
federal bank regulatory agencies, has published substantive guidance on the Year
2000 issue and has included Year 2000 compliance as a substantive area of
examination. These publications, in addition to providing guidance as to
examination criteria, have outlined requirements for the creation and
implementation of a compliance plan and target dates for testing and
implementation of corrective action. As a result of the oversight by and
authority vested in the federal bank regulatory agencies, a financial
institution that does not become Year 2000 compliant could be subject to
administrative remedies similar to those imposed on financial institutions
otherwise found not to be operating in a safe and sound manner, including
remedies available under prompt corrective action regulations.
The Company has developed and is implementing a plan (the "Plan") to
address the Year 2000 issue and its effects on the Company. The Plan includes
five components which address issues involving awareness, assessment,
renovation, validation and implementation. The Company has completed the
awareness, assessment and renovation phases of the Plan. During the awareness
and assessment phases of the Plan, the Company inventoried all material
information systems and those of third-party vendors. As part of the Plan, the
Company has had formal communications with all of its significant suppliers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issue and has been following the progress
of those vendors with their Year 2000 compliance status. The Company is now
actively involved in the validation and implementation phases of the Plan. Under
regulatory guidelines issued by the federal banking regulators, the Bank and the
Company are required to substantially complete testing of core mission critical
internal systems by March 31, 1999, and testing of both internally and
externally supplied systems must be complete, and all renovation must be
substantially complete, by June 30, 1999. In accordance with those guidelines,
the Company has completed testing of its mission critical systems as of March
31, 1999 and is now Year 2000 ready.
Despite its best efforts to ensure Year 2000 compliance, it is possible
that one or more of the Company's internal or external systems may fail to
operate or to operate correctly, which could have a
15
<PAGE>
material adverse impact on the operations of the Company or the Bank. At this
time, while the Company believes it has become Year 2000 compliant, the
probability of such likelihood cannot be determined. In the event that system
failures related to the Year 2000 issue occur, the Company has developed
contingency plans, which involve, among other actions, utilization of an
alternate service provider or alternate products available through the current
vendor.
The Company has reviewed its customer base to determine whether they pose
significant Year 2000 risks. The Company's customer base consists primarily of
individuals who utilize the Company's services for personal, household or
consumer uses. Individually, such customers are not likely to pose significant
Year 2000 risks directly. It is not possible at this time to gauge the indirect
risks which could be faced if the employers of such customers encounter
unresolved Year 2000 issues.
Monitoring and managing the Year 2000 issue will result in additional
direct and indirect costs to the Company. Direct costs include potential charges
by third party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance and any resulting costs for
developing and implementing contingency plans for critical software products
that are not enhanced. Indirect costs will principally consist of time devoted
by existing employees in monitoring software vendor progress, testing enhanced
software products and implementing any necessary contingency plans. The Company
estimates that total costs related to the Year 2000 issue will not exceed
$165,000. Both direct and indirect costs of addressing the Year 2000 issue will
be charged to earnings as incurred. To date, over 80% of the total estimated
costs associated with the Year 2000 have already been expensed.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1998 in the Company's Annual Report on Form 10-K, which was filed
with the Securities and Exchange Commission on March 31, 1999. There have been
no material changes in the Company's market risk at March 31, 1999 as compared
to December 31, 1998.
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.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on April 20, 1999, the
following matters were voted upon, with the results of the voting on such
matters indicated:
1. Election of the following persons to serve a three-year term as directors
of the Company:
FOR WITHHELD
Ronald J. Gentile 5,498,566 138,376
Emil R. Krahulik 5,496,931 140,011
Thomas F. Lawrence, Jr 5,499,858 137,084
2. Ratification of the appointment of the firm of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year ending December
31, 1999:
For: 5,501,898
Against 118,910
Abstain: 16,134
Broker non-votes: none
3. Approval of Amendments to the Stock Option Plan of Warwick Community
Bancorp, Inc.:
For: 3,013,476
Against 334,664
Abstain: 48,727
Broker non-votes: 2,240,075
4. Approval of Amendments to the Recognition and Retention Plan of Warwick
Community Bancorp, Inc.:
For: 3,084,479
Against 364,700
Abstain: 53,525
Broker non-votes: 2,134,238
Item 5. Other Information
Not applicable.
17
<PAGE>
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: May 14, 1999 By: /s/ Ronald J. Gentile
--------------------------------------
Ronald J. Gentile
President and Chief Operating Officer
Date: May 14, 1999 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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,723
<INT-BEARING-DEPOSITS> 497
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,338
<INVESTMENTS-CARRYING> 1,075
<INVESTMENTS-MARKET> 1,074
<LOANS> 271,096
<ALLOWANCE> 1,835
<TOTAL-ASSETS> 468,124
<DEPOSITS> 245,812
<SHORT-TERM> 25,310
<LIABILITIES-OTHER> 9,424
<LONG-TERM> 133,810
0
0
<COMMON> 63,434
<OTHER-SE> 20,503
<TOTAL-LIABILITIES-AND-EQUITY> 468,124
<INTEREST-LOAN> 5,009
<INTEREST-INVEST> 2,570
<INTEREST-OTHER> 5
<INTEREST-TOTAL> 7,584
<INTEREST-DEPOSIT> 1,848
<INTEREST-EXPENSE> 3,437
<INTEREST-INCOME-NET> 4,147
<LOAN-LOSSES> 125
<SECURITIES-GAINS> 579
<EXPENSE-OTHER> 3,699
<INCOME-PRETAX> 1,726
<INCOME-PRE-EXTRAORDINARY> 1,726
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 999
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 3.90
<LOANS-NON> 2,081
<LOANS-PAST> 176
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 526
<ALLOWANCE-OPEN> 1,727
<CHARGE-OFFS> 42
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 1,835
<ALLOWANCE-DOMESTIC> 1,835
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
