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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
0-23293
(COMMISSION FILE NUMBER)
WARWICK COMMUNITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1497903
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
18 OAKLAND AVENUE, 10990-0591
WARWICK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(914) 986-2206
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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 twelve months (or for such shorter period that
the Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES X NO
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
As of March 17, 2000, there were 5,536,790 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's common
stock (based on closing price quoted on March 17, 2000) held by non-affiliates
was approximately $53,679,518.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1999 are incorporated by reference into Items 5, 6,
7, 7A and 8 of Part II hereof and Item 14 of Part IV hereof.
(2) Portions of the definitive Proxy Statement for the Registrant's 2000
Annual Meeting of Shareholders are incorporated by reference into Items
10, 11, 12 and 13 of Part III hereof.
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<PAGE>
PART I
------
ITEM 1. BUSINESS
General
- - -------
Warwick Community Bancorp, Inc. (the "Registrant") 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
("BHCA"). The Registrant was organized for the purpose of acquiring all of the
outstanding capital stock of The Warwick Savings Bank (the "Savings Bank"). On
December 23, 1997, the Savings Bank completed its conversion from a New York
State chartered mutual savings bank to a New York State chartered stock savings
bank, the Registrant completed the sale of 6,414,125 shares of common stock at
$10.00 per share and the Registrant made a charitable contribution of 192,423
shares of its common stock to the Warwick Savings Foundation, a charitable
foundation organized by the Registrant and the Savings Bank The Registrant's
operations commenced on December 23, 1997 and consist principally of the
operations of the Savings Bank, and, as of October 26, 1999, The Towne Center
Bank, a de novo commercial bank formed by the Registrant under the laws of the
State of New Jersey and headquartered in Lodi, New Jersey (the "Commercial
Bank").
The Savings Bank was organized in 1875 as a New York State chartered
mutual savings bank and became a New York State chartered stock savings bank on
December 23, 1997. The Savings Bank's deposits are insured by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") up to the
maximum amounts permitted by law.
The Savings Bank's principal business has been and continues to be
attracting retail deposits from the general public in the area surrounding its
five branches and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans, mortgage-backed securities, commercial business and commercial real
estate loans and various debt and equity securities. The Savings Bank also
originates home equity loans (Good Neighbor Home Loans) and lines of credit,
consumer loans, student loans and its own credit card loans. Additionally, the
Savings Bank sells Savings Bank Life Insurance.
The Savings Bank's revenues are derived principally from the interest
on its mortgage loans, securities, commercial and consumer loans and, to a
lesser degree, from its mortgage banking activities, loan and securities sales,
servicing fee income and income derived from non-traditional investment products
offered through its wholly owned subsidiary, WSB Financial Services, Inc. ("WSB
Financial"). The Savings Bank's primary sources of funds are deposits,
borrowings, principal and interest payments on loans and securities and proceeds
from the sale of loans and securities.
The Commercial Bank opened for business on October 26, 1999. The
Commercial Bank's principal business consists of taking business and consumer
deposits and making consumer and commercial loans. The Commercial Bank also
invests in short duration U.S. Treasury and agency securities, mortgage-backed
securities and other conservative investments deemed prudent by its
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<PAGE>
board of directors. The deposits of the Commercial Bank are insured by the BIF
of the FDIC up to the maximum amounts permitted by law.
While the following discussion of the Registrant's business includes
the Registrant, the Savings Bank and the Commercial Bank collectively, this
discussion reflects primarily the Savings Bank's activities because the
Commercial Bank has not yet contributed significantly to the Registrant's
operations. Unless otherwise disclosed, the information presented herein
reflects information regarding the Registrant, the Savings Bank and the
Commercial Bank on a consolidated basis, and, as used herein, the "Registrant"
refers to the Registrant and its subsidiaries collectively.
Market Area
- - -----------
The Savings Bank has been, and intends to continue to be, a
community-oriented savings institution offering a variety of financial services
to meet the needs of the communities it serves. The Savings Bank maintains its
headquarters in the village of Warwick in Orange County, New York and operates
four additional branch offices located in the village of Monroe, the town of
Woodbury, the town of Wallkill and the town of Newburgh, Orange County, New
York. The Savings Bank's primary deposit gathering areas are currently
concentrated in proximity to its full-service banking offices. The Savings
Bank's current primary lending market includes not only Orange County, New York,
but also Rockland, Dutchess and, to a lesser extent, Westchester, Putnam and
Sullivan Counties, New York, by virtue of the various loan originators servicing
these areas. In addition, with its mortgage banking subsidiary, The Towne Center
Mortgage Company, Inc. ("Towne Center Mortgage"), and its attendant loan
production offices in West Milford, Passaic County, New Jersey, and Mahwah,
Bergen County, New Jersey, the Savings Bank has expanded its mortgage banking
operations into the northeastern New Jersey market.
Although the Savings Bank's market area is predominantly rural with
many small towns, many of the area's residents work in northern New Jersey,
western Connecticut and New York City. Some of the county's major employers are
ShopRite Supermarkets, the Arden Hill Hospital and related life care complex,
Horton Memorial Hospital, Yellow Freight, the Wakefern Corporation and the
United States Military Academy at West Point.
The Savings Bank's market area grew significantly in population during
the 1980's as rising housing prices closer to New York City, coupled with the
abundance of vacant land in Orange County, led to a boom in housing
construction. As the economy throughout the region declined in the late 1980's
and early 1990's, communities surrounding the Savings Bank's offices,
particularly in the Warwick area, continued to experience growth, but more
slowly. The conversion of Stewart International Airport, approximately 20 miles
to the northeast of the Savings Bank's main office in Warwick, into a
full-service commercial airport in 1990 gave the Savings Bank's market area an
additional boost. However, the health of the economy in the New York City
metropolitan area has, and will continue to have, a direct impact on the
economic well-being of residents and businesses in the Savings Bank's market
area.
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<PAGE>
Competition
- - -----------
The Registrant faces substantial competition for both deposits and
loans. The deregulation of the financial services industry has led to increased
competition among savings banks and other financial institutions for a
significant portion of the deposit and lending activity that had traditionally
been the arena of savings banks and savings and loan associations. The
Registrant competes for savings deposits with other savings banks, savings and
loan associations, commercial banks, credit unions, money market mutual funds,
insurance companies, brokerage firms and other financial institutions, many of
which are substantially larger in size than the Registrant.
The Registrant's competition for loans comes principally from savings
banks, savings and loan associations, commercial banks, mortgage bankers,
finance companies and other institutional lenders, many of whom maintain offices
in the Registrant's market area. The Registrant's principal methods of
competition include providing personal customer service, a variety of financial
services and competitive loan and deposit pricing, as well as implementing
advertising and marketing programs.
While the Registrant is subject to competition from other financial
institutions, some of which have much greater financial and marketing resources,
the Registrant believes it benefits by its community bank orientation as well as
its relatively high core deposit base. Management believes that the variety,
depth and stability of the communities in which the Registrant is located
support the service and lending activities conducted by the Registrant. The
relative economic stability of the Registrant's lending area is reflected in the
small number of mortgage delinquencies experienced by the Registrant.
Lending Activities
- - ------------------
LOAN PORTFOLIO COMPOSITION. The Registrant's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At December 31, 1999, the Registrant had total gross loans
outstanding of $351.7 million (before deducting the allowance for loan losses
and net deferred loan fees), of which $239.5 million, or 68.1%, were
conventional one- to four-family, owner-occupied residential first mortgage
loans. The remainder consisted of $45.6 million of commercial business and
commercial real estate loans, or 13.0% of total loans, $22.3 million in home
equity loans, or 6.3% of total loans, $9.8 million in residential construction
mortgage loans (net of undisbursed portion), or 2.8% of total loans, and $30.1
million in consumer loans, or 8.6% of total loans. Additionally, the Savings
Bank originates Veterans Administration ("VA") guaranteed loans and Federal
Housing Authority ("FHA") insured loans. For the year ended December 31, 1999,
the Savings Bank originated $3.7 million of such loans. The Savings Bank is
active in the origination of State of New York Mortgage Association ("SONYMA")
loans, which are subject to certain customer eligibility requirements and are
subsequently sold to the State of New York. For the year ended December 31,
1999, the Savings Bank originated $11.5 million in SONYMA loans. The Savings
Bank continues to service these loans for such agency and, instead of a
servicing fee, the Savings Bank obtains a state (franchise) income tax credit.
The types of loans that the Registrant may originate are subject to
federal and state laws and regulations. Interest rates charged by the Registrant
on loans are affected by the demand for such
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<PAGE>
loans, the supply of money available for lending purposes and the rates offered
by competitors. These factors are in turn affected by, among other things,
economic conditions, monetary policies of the federal government, including the
Board of Governors of the Federal Reserve System ("FRB"), and legislative tax
policies.
The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998 1997
---- ---- ----
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
Conventional one- to-four-family
loans............................................ $239,522 68.10% $167,147 63.43% $114,219 62.91%
Mortgage loans held for sale........................ 4,163 1.18 13,737 5.21 5,348 2.94
VA or FHA loans..................................... 213 0.06 641 0.24 554 0.31
Home equity loans................................... 22,317 6.35 18,061 6.85 15,618 8.60
Residential construction loans...................... 18,222 5.18 16,105 6.11 6,159 3.39
Undisbursed portion of
construction loans............................... (8,399) (2.39) (6,304) (2.39) (2,510) (1.38)
-------- ------ -------- ------ -------- ------
Total mortgage loans........................... 276,037 78.48 209,387 79.45 139,385 76.77
-------- ------ -------- ------ -------- ------
CONSUMER AND OTHER LOANS:
Commercial.......................................... 45,553 12.95 35,381 13.43 28,467 15.68
Automobile.......................................... 26,994 7.67 13,788 5.23 8,125 4.47
Student............................................. 195 0.06 332 0.13 1,195 0.66
Credit card......................................... 1,196 0.34 1,296 0.49 1,402 0.77
Other consumer loans................................ 1,747 0.50 3,345 1.27 2,995 1.65
-------- ------ -------- ------ -------- ------
Total consumer and other loans................... 75,685 21.52 54,142 20.55 42,184 23.23
-------- ------ -------- ------ -------- ------
Total loans...................................... 351,722 100.00% 263,529 100.00% 181,569 100.00%
====== ====== ======
Discounts, premiums and deferred
loan fees, net................................... (460) (339) (243)
Allowance for loan losses........................... (1,941) (1,727) (1,372)
-------- -------- --------
Total loans, net.................................... $349,321 $261,463 $179,954
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------
1996 1995
---- ----
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
Conventional one- to-four-family
loans............................................ $74,503 56.86% $94,179 65.18%
Mortgage loans held for sale........................ 2,496 1.91 1,859 1.29
VA or FHA loans..................................... 1,267 0.97 3,313 2.29
Home equity loans................................... 12,925 9.86 9,842 6.81
Residential construction loans...................... 2,791 2.13 4,056 2.80
Undisbursed portion of
construction loans............................... (1,307) (1.00) (1,001) (0.69
-------- ------ -------- ------
Total mortgage loans........................... 92,675 70.73 112,248 77.68
-------- ------ -------- ------
CONSUMER AND OTHER LOANS:
Commercial.......................................... 21,217 16.19 18,849 13.05
Automobile.......................................... 11,170 8.53 7,397 5.12
Student............................................. 1,205 0.92 1,638 1.13
Credit card......................................... 1,441 1.10 1,232 0.85
Other consumer loans................................ 3,311 2.53 3,128 2.17
-------- ------ -------- ------
Total consumer and other loans................... 38,344 29.27 32,244 22.32
-------- ------ -------- ------
Total loans...................................... 131,019 100.00% 144,492 100.00%
====== ======
Discounts, premiums and deferred
loan fees, net................................... (157) (106)
Allowance for loan losses........................... (1,183) (1,336)
-------- --------
Total loans, net.................................... $129,679 $143,050
======== ========
</TABLE>
LOAN MATURITY. The following table shows the contractual maturity of
the Registrant's loans at December 31, 1999. The table reflects the entire
unpaid principal balance in the maturity period that includes the final loan
payment date and, accordingly, does not give effect to periodic principal
repayments or possible prepayments. Principal repayments and prepayments totaled
$66.6 million, $46.7 million and $41.1 million for the years ended December 31,
1999, 1998 and 1997, respectively. Additionally, since the Savings Bank
regularly sells and securitizes residential mortgage loans as part of its
mortgage banking operations, these activities have resulted in loan sales and
securitizations of $14.1 million and $69.9 million, respectively, for the year
ended December 31, 1999, $14.0 million and $75.4 million, respectively, for the
year ended December 31, 1998, and $7.1 million and $13.8 million, respectively,
for the year ended December 31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
MORTGAGE LOANS
--------------
HOME
ADJUSTABLE EQUITY
FIXED RATE RATE COMMERCIAL LINES OF CONSUMER OTHER TOTAL LOANS
MORTGAGES MORTGAGES LOANS CREDIT LOANS LOANS RECEIVABLE
--------- --------- ----- ------ ----- ----- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year..................... $ 8,222 $ -- $ 10,732 $ -- $ 2,107 $ -- $ 21,061
--------- --------- --------- --------- --------- --------- ---------
After one year:
One to three years............. 314 15 7,849 -- 18,191 283 26,652
Three to five years............ 726 12 14,051 -- 10,764 -- 25,553
Five to 10 years............... 5,117 662 5,860 695 6,880 -- 19,214
Over 10 years.................. 175,078 63,574 7,061 8,941 3,392 1,196 259,242
--------- --------- --------- --------- --------- --------- ---------
Total due after one year... 181,235 64,263 34,821 9,636 39,227 1,479 330,661
--------- --------- --------- --------- --------- --------- ---------
Total amounts due.......... $ 189,457 $ 64,263 $ 45,553 $ 9,636 $ 41,334 $ 1,479 351,722
========= ========= ========= ========= ========= =========
Discounts, premiums and deferred
loan fees, net................. (460)
Allowance for loan losses........... (1,941)
----------
Loans receivable, net............... $ 349,321
=========
</TABLE>
The following table sets forth the dollar amounts in each loan category
at December 31, 1999 that are contractually due after December 31, 2000, and
whether such loans have fixed interest rates or adjustable interest rates.
DUE AFTER DECEMBER 31, 2000
---------------------------
FIXED ADJUSTABLE TOTAL
----- ---------- -----
(IN THOUSANDS)
Mortgage loans............... $181,235 $64,263 $245,498
Commercial loans............. 24,542 10,279 34,821
Home equity lines of credit.. -- 9,636 9,636
Consumer loans............... 39,227 -- 39,227
Other loans.................. 1,479 -- 1,479
-------- ------- --------
Total loans.................. $246,483 $84,178 $330,661
======== ======= ========
ORIGINATION, PURCHASE, SALE AND SERVICING OF LOANS. The Savings Bank's
residential lending activities are conducted through its team of commissioned
loan originators, who regularly call upon realtors, builders and others in the
real estate business in an effort to solicit mortgage loan applications. The
loans are all self-originated, as the Savings Bank does not use mortgage
brokers, with applications taken at the Savings Bank's various branch offices
and loan production offices. Thereafter, the applications are processed,
underwritten and prepared for closing at the Newburgh loan production office,
and the data is electronically linked together during the various stages of the
application process to facilitate tracking and monitoring at the Savings Bank's
Warwick office.
The Savings Bank originates both adjustable-rate and fixed-rate
mortgage loans. Its ability to originate loans is dependent upon the relative
customer demand for fixed-rate or adjustable-rate mortgage loans, which is
affected by the current and expected future levels of interest rates. During the
year ended December 31, 1999, the Savings Bank experienced an increase in
adjustable-rate, and
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<PAGE>
a decrease in fixed-rate, mortgage loan originations. The Savings Bank currently
holds for its portfolio most of its fixed-rate and all adjustable-rate,
bi-weekly mortgage loans and any non- conforming loans it originates.
Periodically, the Savings Bank considers the possible sale of its jumbo loans;
however, management believes it has the ability to build relationships with
jumbo mortgage customers to create cross-selling opportunities.
The residential loan products currently offered by the Savings Bank
include VA guaranteed and FHA insured mortgage loans, a variety of loans that
conform to the underwriting standards specified by the Federal National Mortgage
Association ("FNMA") ("conforming loans"), SONYMA loans and, to a much lesser
extent, non-conforming loans, I.E., jumbo loans. The Savings Bank sells most of
the conforming mortgage loans it originates to FNMA in exchange for FNMA
mortgage-backed securities through purchase and guarantee programs sponsored by
FNMA. The Savings Bank then sells such FNMA mortgage-backed securities to
private investors and retains the servicing rights. In those cases in which
non-conforming loans are sold to private institutional investors, servicing
rights are typically released. SONYMA loans are all originated for sale back to
SONYMA, with servicing retained in exchange for tax credits.
During the time between the processing of a residential mortgage loan
application and the final disposition or sale of such loan after it is closed,
the Savings Bank is exposed to movements in the market price due to changes in
market interest rates. The Savings Bank attempts to manage this risk by
utilizing forward sales of mortgage-backed securities and put options on
mortgage- backed securities to securities brokers and dealers, as well as cash
sales to FNMA. Depending upon market conditions, interest rate expectations,
economic data and other factors, the Savings Bank's Hedging Committee, comprised
of various members of senior operating management, which meets daily, attempts
to cover certain percentages of its pipeline and warehouse. However, there can
be no assurance that the Savings Bank will be successful in its efforts to
mitigate the risk of interest rate fluctuation between the time of origination
and the ultimate disposition or sale of such loans. At December 31, 1999, there
were no forward sale commitments.
Currently, the Savings Bank services all of its one- to four-family
loans, commercial business and commercial real estate, home equity and consumer
loans. All FHA and VA loans are sold on a servicing-released basis, as are other
selected loans sold to private institutional investors. Additionally, the
Savings Bank services a large volume of conforming fixed-rate and
adjustable-rate loans that it has previously securitized and kept in its
securities portfolio or sold to private investors. At December 31, 1999, the
Savings Bank was servicing $248.7 million of residential mortgage loans for
others. For the years ended December 31, 1999, 1998 and 1997, loan servicing
fees totaled $576 thousand, $409 thousand and $356 thousand, respectively. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections as required of mortgaged premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, ensuring the status of
insurance and tax payments on behalf of the borrowers and generally
administering the loans.
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<PAGE>
The following table sets forth the Registrant's loan originations,
repayments and other portfolio activity for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
MORTGAGE LOANS (GROSS):
<S> <C> <C> <C>
At beginning of period............................... $191,326 $123,767 $ 79,750
Mortgage loans originated:
Fixed-rate mortgages................................. 147,714 167,214 62,213
Adjustable-rate mortgages............................ 23,610 9,051 15,195
-------- -------- --------
Total mortgage loans originated.................. 171,324 176,265 77,408
Principal repayments................................. (24,977) (19,327) (12,536)
Sale of loans........................................ (14,100) (13,989) (7,074)
Securitizations...................................... (69,853) (75,390) (13,781)
-------- -------- --------
At end of period..................................... $253,720 $191,326 $123,767
======== ======== ========
OTHER LOANS (GROSS):
At beginning of period............................... $ 72,203 $ 57,802 $ 51,269
Commercial loans originated.......................... 35,957 24,605 22,441
Consumer loans originated............................ 31,467 17,456 13,921
Commercial repayments................................ (25,775) (17,693) (15,191)
Consumer repayments.................................. (15,850) (9,967) (14,638)
Other loans sold..................................... -- -- --
-------- -------- --------
At end of period..................................... $ 98,002 $ 72,203 $ 57,802
======== ======== ========
</TABLE>
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Savings Bank offers both
fixed-rate and adjustable-rate mortgage and construction loans, with maturities
up to 30 years, which are secured by one- to four-family, owner-occupied
residences. The majority of such loans are secured by property located in Orange
County, New York; however, there are a number of loans secured by property
located in Rockland and Dutchess Counties, New York, and, to a lesser extent, in
Westchester, Putnam and Sullivan Counties, New York.
At December 31, 1999, the Registrant's total gross loans outstanding
were $351.7 million, of which $253.7 million, or 72.1%, were mortgage and
construction loans secured by one- to four- family owner-occupied residences. Of
the one- to four-family residential mortgage loans outstanding at that date,
74.7%, or $189.5 million, were fixed-rate loans, and 25.3%, or $64.3 million,
were adjustable-rate loans. The interest rates for the majority of the Savings
Bank's adjustable-rate mortgage loans are indexed to the yield on one-year U.S.
Treasury securities. The Savings Bank currently offers adjustable-rate mortgage
loan programs with interest rates that adjust either every one or three years.
An adjustable-rate mortgage loan may carry an initial interest rate that is less
than the fully-indexed rate for the loan. All adjustable-rate mortgage loans
offered have lifetime interest
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<PAGE>
rate caps or ceilings. Generally, adjustable-rate mortgage loans pose credit
risks somewhat greater than the credit risk inherent in fixed-rate loans
primarily because, as interest rates rise, the underlying payments of the
borrowers rise, increasing the potential for default. The Savings Bank currently
has no mortgage loans that are subject to negative amortization.
COMMERCIAL LENDING. As part of the Registrant's commercial lending
program, the Registrant originates various types of secured and unsecured
commercial business loans and lines of credit and commercial real estate and
construction loans. The Registrant's commercial loan portfolio consisted of the
following types of commercial loans at the dated indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LOANS
BY TYPE:
Non-farm and non-
residential............ $23,820 6.77% $17,170 6.52% $13,278 7.31% $8,098 6.18% $ 6,616 4.58%
One- to four-family...... 1,961 0.56 2,142 0.81 1,128 0.62 1,177 0.90 1,180 0.82
Multi-family............. 2,231 0.63 3,988 1.51 3,664 2.02 1,599 1.22 1,135 0.78
Farm..................... 794 0.23 996 0.38 411 0.23 324 0.25 159 0.11
Acquisition, development
& construction......... 5,074 1.44 4,339 1.65 2,841 1.57 3,099 2.36 3,740 2.59
Term loans............... 338 0.10 411 0.16 444 0.24 155 0.12 44 0.03
Installment loans........ 4,488 1.28 2,435 0.92 2,037 1.12 1,610 1.23 1,714 1.19
Demand loans............. 335 0.10 853 0.32 497 0.27 608 0.46 550 0.38
Time loans............... 729 0.21 80 0.03 87 0.05 138 0.10 168 0.12
S.B.A. loans............. 205 0.06 328 0.13 533 0.29 563 0.43 604 0.42
Lines of credit.......... 4,833 1.37 2,327 0.88 2,906 1.60 3,336 2.55 2,939 2.03
Loans and draws disbursed 327 0.09 194 0.07 430 0.24 484 0.37 -- --
-- --
Non-accrual.............. 418 0.12 118 0.04 211 0.12 26 0.02 0.12
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
TOTAL.................. $45,553 12.95% $35,381 13.42% $28,467 15.68% $21,217 16.19% $18,849 13.05%
======= ====== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Commercial business loans generally carry greater credit risks than
residential mortgage loans because their repayment is more dependent on (i) the
underlying financial condition of the borrower and/or the value of any property
or the cash flow from any property securing the loan or the business being
financed and (ii) general as well as local economic conditions. Mortgage loans
secured by commercial real estate properties, including construction and
development lending, are generally larger and involve a higher degree of risk
than one- to four-family residential mortgage loans. This risk is attributable
to the uncertain realization of projected income-producing cash flows, which are
affected by vacancy rates, the ability to maintain rent levels against
competitively-priced properties and the ability to collect rent from tenants on
a timely basis. Also, in the case of construction and development lending, risk
is largely dependent upon the accuracy of the initial estimate of the
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<PAGE>
property's value at completion of construction or development compared to the
estimated cost (including interest payments) of construction and other
assumptions. In addition, commercial construction loans are subject to many of
the same risks as residential construction loans.
COMMERCIAL BUSINESS LENDING. The Registrant also offers various types
of short-term and medium-term commercial business loans on a secured and
unsecured basis to borrowers located in the Registrant's market area. Borrowers
in the commercial market are generally local companies engaged in retailing and
construction that require traditional working capital financing with cyclical
repayments coming primarily from asset conversion. These loans include time and
demand loans, term loans and lines of credit. The Registrant is also an approved
Small Business Administration ("SBA") lender. At December 31, 1999, the
Registrant's commercial business loan portfolio amounted to $11.7 million, or
3.3% of total gross loans outstanding. The largest commercial business loan
outstanding at December 31, 1999 was a $500 thousand loan to a church in Goshen,
New York, In addition, the Savings Bank has committed a line of credit of $2.5
million to the Warwick Valley Telephone Company. At December 31, 1999, $900
thousand of such line was outstanding.
The Registrant's lines of credit are typically established for one year
and are subject to renewal upon satisfactory review of the borrower's financial
statements and credit history. Secured short-term commercial business loans are
usually collateralized by real estate and are generally guaranteed by a
principal of the borrower. Interest on these loans is usually payable monthly at
fixed rates or rates that fluctuate based on a spread above the prime rate. The
Registrant offers term loans with terms generally not exceeding five years.
Typically, term loans have floating interest rates based on a spread above the
prime rate. The Registrant also offers business loans on a revolving basis,
whereby the borrower pays interest only. Interest on such loans fluctuates based
on the prime rate. Normally these loans require periodic interest payments
during the loan term, with full repayment of principal and interest at maturity.
The Registrant offers business and merchant credit cards to its corporate
customers; however, these services are provided through third party vendors.
The Registrant bears the credit risk in the case of business credit cards, but
credit risk is borne by the third party on merchant credit cards, with the
Registrant receiving a fee in the latter case. In approving a commercial
business loan the Registrant will consider the borrower's sources of cash flow
to repay the loan, a secondary source of repayment and the borrower's credit
standing.
COMMERCIAL REAL ESTATE AND CONSTRUCTION LENDING. The Registrant
originates commercial real estate mortgage loans that are generally secured by a
combination of residential property for development and retail facilities and
properties used for business purposes, such as small office buildings and
apartment buildings located in the Registrant's market area. Loans are also made
to develop land and for land acquisition. The Registrant's loan policy and
underwriting procedures provide that commercial real estate loans may be made in
amounts up to the lesser of (i) 80% of the lesser of the appraised value or
purchase price of the property, in the case of improved, existing commercial,
investment property, (ii) 75% of the lesser of the appraised value or purchase
price of the property, in the case of commercial, multi-family and
non-residential construction property, (iii) 70% of the lesser of the appraised
value or purchase price of the property, in the case of commercial land
development, generally for subdivision or industrial park land development
property and (iv) 60% of the lesser of the appraised value or purchase price of
the property in the case of raw land. In addition to restrictions on loan to
value, the Registrant's underwriting procedures provide that
-10-
<PAGE>
commercial real estate loans may be made in amounts up to the lesser of (i) $2.5
million or (ii) the Registrant's current loans-to-one borrower limit. Regarding
(iii) and (iv), the Registrant usually engages in this type of lending only with
experienced local developers operating in the Registrant's primary market area.
Such loans are typically offered for the construction of properties that are
pre- sold or for which permanent financing has been secured. At December 31,
1999, the Registrant had $5.7 million in a variety of acquisition, development
and construction ("ADC") loans in its commercial lending area. The Registrant's
policy is not to make construction loans for purposes of speculation, so that
the borrower must have secured permanent financing commitments from generally
recognized lenders for an amount greater than the amount of the loan. In most
cases, the Registrant itself provides the permanent financing. While the number
and volume of this type of specialized lending is presently limited, it should
be noted that the Registrant intends to continue to emphasize its commercial
real estate, including ADC, loan activity as it expands its mortgage origination
operations into New Jersey through Towne Center Mortgage. The largest commercial
real estate loan in the Registrant's portfolio as of December 31, 1999 was a
$3.1 million loan secured by a medical office building used primarily as a
radiation, oncology and cancer research center in Goshen, New York.
The Registrant's commercial mortgage loans are generally prime-rate
based and may be made with terms up to ten years, generally with a five-year or
ten-year balloon maturity and a 30-year amortization schedule. In reaching its
decision as to whether to make a commercial real estate loan, the Registrant
considers the qualifications of the borrower as well as the underlying property.
Some of the factors considered are: the net operating income of the mortgaged
premises before debt service and depreciation, the debt service ratio (the ratio
of the property's net cash flow to debt service requirements), which must be a
minimum of 1.25, the ratio of loan amount to appraised value and the credit
worthiness of the borrower.
RESIDENTIAL CONSTRUCTION LENDING. The Savings Bank originates loans for
the acquisition and development of property to individuals in its market area.
The Savings Bank's residential construction loans primarily have been made to
finance the construction of one- to four-family, owner-occupied residential
properties. The Savings Bank offers construction to permanent financing loans
with one or two closings, and will not make residential construction loans
unless the borrower has been approved for permanent financing. The interest rate
charged during the construction phase of the loan is based on the 30-year fixed
mortgage rate. The Savings Bank's policies provide that construction loans may
be made in amounts up to 95% of the appraised value of the completed property.
At December 31, 1999, the Savings Bank had $9.8 million of residential
construction loans (net of undisbursed portion), which amounted to 2.8% of the
Registrant's gross loans outstanding.
Construction lending generally involves additional risks to the lender
as compared with residential mortgage lending. These risks are attributable to
the fact that loan funds are advanced upon the security of the project under
construction, predicated on the present value of the property and the
anticipated future value of the property upon completion of construction or
development. Moreover, because of the uncertainties inherent in delays resulting
from labor problems, materials shortages, weather conditions and other
contingencies, it is relatively difficult to evaluate the total funds required
to complete a project and to establish the loan-to-value ratio. If the Savings
Bank's
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<PAGE>
initial estimate of the property's value at completion is inaccurate, the
Savings Bank may be confronted with a project that, when completed, has an
insufficient value to assure full repayment.
HOME EQUITY LENDING. The Registrant offers fixed-rate, fixed-term home
equity loans, called the Good Neighbor Home Loan, and adjustable-rate home
equity lines of credit in its market area. Both the home equity loans and lines
of credit are offered in amounts up to 80% of the appraised value of the
property (reduced by any existing first mortgage) with a maximum loan amount of
up to $100 thousand. The fixed-rate, fixed-term Good Neighbor Home Loan is
offered with terms of up to 15 years. The home equity line of credit is offered
for terms up to 20 years, with the first five years being offered on a revolving
basis, requiring payments of interest only; thereafter, the line converts to an
amortizing loan. As of December 31, 1999, $22.3 million, or 6.3%, of the
Registrant's gross loans were home equity loans.
CONSUMER LENDING. The Registrant offers various types of secured and
unsecured consumer loans, including automobile loans, home improvement loans,
personal loans, student loans and credit cards (VISA). The Registrant's consumer
loans have original maturities of not more than five years.
Interest rates charged on such loans are set at competitive rates, taking into
consideration the type and term of the loan. Consumer loan applications are
reviewed and approved in conformance with the Registrant's Board-approved
lending policy. At December 31, 1999, the Registrant's consumer loan portfolio
totaled $30.1 million, or 8.6% of the total gross loans outstanding.
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Savings Bank's Board of
Directors establishes the lending policies and loan approval limits of the
Savings Bank. Conforming residential mortgage loans are approved in accordance
with FNMA guidelines by the Savings Bank's underwriting group. Certain
conforming loans and all non-conforming loans are approved by either the Savings
Bank's Executive Director or President. The Savings Bank's Board of Directors
has established the following lending authority for commercial lending,
including commercial real estate lending: (i) various officers have limited
individual authority up to $50 thousand; (ii) certain officers have joint
authority up to $250 thousand; (iii) certain officers have joint authority up to
$500 thousand; and (iv) the Savings Bank's Commercial Loan Committee has
authority to approve loans of up to $1.0 million. Loans in excess of $1 million
must be approved by the full Board of Directors of the Savings Bank, which meets
on a bi-weekly basis. The approval of consumer loans generally requires the dual
authorization of two lending officers for loans over certain amounts ($5
thousand for unsecured loans and $25 thousand for secured loans). The foregoing
lending limits are reviewed and reaffirmed annually by the Savings Bank's Board
of Directors.
The Commercial Bank's Board of Directors has established the following
lending authority for commercial lending, including commercial real estate
lending: (i) certain officers have joint authority up to $250 thousand; and (ii)
certain officers have joint authority up to $500 thousand. Loans in excess of
$500 thousand must be approved by the full Board of Directors of the Commercial
Bank, which meets on a bi-weekly basis. The approval of consumer loans generally
requires the dual authorization of two lending officers for loans over certain
amounts ($10 thousand for unsecured loans and $25 thousand for secured loans).
The foregoing lending limits are reviewed and reaffirmed annually by the
Commercial Bank's Board of Directors.
-12-
<PAGE>
For all loans originated by the Registrant, upon receipt of a completed
loan application from a prospective borrower, a credit report is ordered and
certain other information is verified by an independent credit agency, and, if
necessary, additional financial information is required to be submitted by the
borrower. An appraisal of any real estate intended to secure the proposed loan
is required, which currently is performed by an independent appraiser designated
and approved by the Board of Directors of the Savings Bank or the Commercial
Bank, as applicable. The Board of Directors annually approves the independent
appraisers used by the Registrant and approves the Registrant's appraisal
policy. It is the Registrant's policy to obtain title and hazard insurance on
all real estate loans. In connection with a borrower's request for a renewal of
a multi-family or commercial mortgage loan with a balloon maturity, the
Registrant evaluates both the borrower's ability to service the renewed loan
applying an interest rate that reflects prevailing market conditions, as well as
the value of the underlying collateral property. The reevaluation of the
property typically requires a new appraisal, depending upon the loan amount and
other factors. It is the Registrant's policy to note all exceptions to policy in
the respective credit files and report such exceptions to the original
decision-making body (I.E., the Commercial Loan Committee, Executive Committee
or Board of Directors) prior to closing if a condition of the original approval
is not met.
Asset Quality
- - -------------
NON-PERFORMING LOANS. The Registrant performs a monthly review of
delinquent loans. The actions taken by the Registrant with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. The Savings Bank's policies on residential mortgage loans provide
that delinquent mortgage loans be reviewed and that a late charge notice be
mailed no later than the 15th day of delinquency, with the delinquency charge
assessed on the 16th day. The Savings Bank's collection policies on residential
mortgage loans essentially mirror those shown in the FNMA servicing agreements.
On other loans, telephone contact and various delinquency notices at different
intervals are the methods used to collect past due loans.
It is the Registrant's general policy to discontinue accruing interest
on all loans when management has determined that the borrower will be unable to
meet contractual obligations or when unsecured interest or principal payments
are 90 days past due. Generally, when residential mortgage or secured consumer
loans are delinquent 90 days, they are classified as non-accrual. When a loan is
classified as non-accrual, the recognition of interest income ceases. Interest
previously accrued and remaining unpaid is reversed against income. Cash
payments received are applied to principal, and interest income is not
recognized unless management determines that the financial condition and payment
record of the borrower warrant the recognition of income. If a foreclosure
action is commenced and the loan is not brought current, paid in full or an
acceptable workout arrangement is not agreed upon before the foreclosure sale,
the real property securing the loan is generally sold at foreclosure. Property
acquired by the Savings Bank as a result of foreclosure on a mortgage loan is
classified as "real estate owned" and is recorded at the lower of the unpaid
balance or fair value less costs to sell at the date of acquisition and
thereafter. Upon foreclosure, it is the Savings Bank's policy to generally
require an appraisal of the property and, thereafter, appraise the property on
an as-needed basis.
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<PAGE>
The following table sets forth information regarding non-accrual loans,
other past due loans and other real estate owned ("OREO'). There were no
troubled debt restructurings within the meaning of Statement of Financial
Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," at any of the dates presented below.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans delinquent
more than 90 days...................... $ 693 $ 631 $ 1,165 $ 1,247 $ 531
Non-accrual other loans delinquent
more than 90 days...................... 521 88 246 28 3
-------- -------- -------- -------- --------
Total non-accrual loans.................. 1,214 719 1,411 1,275 534
Total 90 days or more delinquent
and still accruing interest............ 822 1,362 114 383 424
-------- -------- -------- -------- --------
Total non-performing loans............... 2,036 2,081 1,525 1,658 958
Total foreclosed real estate, net of
related allowance for losses............. 415 371 562 433 573
-------- -------- -------- -------- --------
Total non-performing assets.............. $ 2,451 $ 2,453 $ 2,087 $ 2,091 $ 1,531
======== ======== ======== ======== ========
Non-performing loans to total loans...... 0.58% 0.81% 0.84% 1.28% 0.66%
Total non-performing assets to total
assets................................... 0.41% 0.55% 0.61% 0.73% 0.59%
</TABLE>
Interest income that would have been recorded if the non-accrual
mortgage loans had been performing in accordance with their original terms
aggregated approximately $72,000, $90,000 and $129,700 for the year ended
December 31, 1999, 1998 and 1997, respectively.
OTHER REAL ESTATE OWNED. At December 31, 1999, the Savings Bank's OREO,
net, which consisted of seven single-family residential properties, totaled $415
thousand and was held directly by the Savings Bank.
CLASSIFIED ASSETS. Federal regulations and the Registrant's Internal
Loan Review and Grading System, which is a part of the Registrant's loan policy,
require that the Registrant utilize an internal asset classification system as a
means of reporting problem and potential problem assets. The Savings Bank limits
its loan review procedure to the higher-risk commercial business and commercial
real estate loans, commercial loans greater than $25,000 and jumbo residential
mortgage loans. The Commercial Bank reviews all commercial loans in excess of
$250,000 and are subject to review and grading on at least an annual basis, and
more frequently if conditions dictate.
At each regularly scheduled Board of Directors meeting, a watch list is
presented, showing all loans listed as "Special Mention," "Substandard,"
"Doubtful" and "Loss." An asset is considered Substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Assets classified as Doubtful have all the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets
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<PAGE>
classified as Loss are those considered uncollectible and viewed as non-bankable
assets, worthy of charge-off. Assets which do not currently expose the
Registrant to sufficient risk to warrant classification in one of the
aforementioned categories, but possess weaknesses which may or may not be out of
the control of management, are deemed to be "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to specific problem assets. When an insured institution classifies one
or more assets, or portions thereof, as Loss, it is required either to establish
a specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge-off such amount.
The Registrant's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the FDIC, the
Banking Department of the State of New York ("NYSBD") and the New Jersey
Department of Banking and Insurance ("NJBD"), which can order the establishment
of additional general or specific loss allowances. The FDIC, in conjunction with
the other federal banking agencies, has adopted an interagency policy statement
on the allowance for loan and lease losses. The policy statement provides
guidance for financial institutions on both the responsibilities of management
for the assessment and establishment of adequate allowances and guidance for
banking agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that (i) institutions
have effective systems and controls to identify, monitor and address asset
quality problems; (ii) management has analyzed all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and (iii)
management has established acceptable allowance evaluation processes that meet
the objectives set forth in the policy statement. Management believes it has
established an adequate allowance for possible loan and lease losses and
analyzes its process regularly, with modifications made if needed, and reports
those results four times per year at the Board of Directors meetings. However,
there can be no assurance that the regulators, in reviewing the Registrant's
loan portfolio, will not request the Registrant to materially increase its
allowance for loan and lease losses at that time. Although management believes
that adequate specific and general loan loss allowances have been established,
actual losses are dependent upon future events and, as such, further additions
to the level of specific and general loan loss allowances may become necessary.
At December 31, 1999, the Registrant had $359 thousand of assets
classified as Substandard and $1.3 million of assets classified as Special
Mention. There were no assets classified as Doubtful or Loss as of December 31,
1999. The $359 thousand of loans classified as Substandard were also impaired
under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition Disclosures," which was adopted in fiscal 1995. SFAS No. 114
defines an impaired loan as a loan for which it is probable, based on current
information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement.
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<PAGE>
The following table sets forth delinquencies in the Registrant's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
-------------------------------------------- -------------------------------------------
60-89 DAYS 90 DAYS MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- -------------------- ---------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........... 3 $ 373 8 $ 693 11 $1,263 12 $ 631
Multi-family.................. -- -- -- -- -- -- -- --
Commercial loans.............. 4 594 9 1,240 4 279 6 1,405
Home equity lines of credit... -- -- 1 36 -- -- 1 16
Other loans................... 26 78 16 67 16 48 8 30
------- ------ ------- ------ --------- -------- ------- ------
Total loans.......... 33 $1,045 34 $2,036 31 $1,590 27 $2,082
======= ====== ======= ====== ========= ====== ======= ======
</TABLE>
AT DECEMBER 31, 1997
-------------------------------------------
60-89 DAYS 90 DAYS OR MORE
--------------------- --------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
One- to four-family........... 8 $ 624 19 $1,165
Multi-family.................. -- -- -- --
Commercial loans.............. 5 627 4 325
Home equity lines of credit... -- -- -- --
Other loans................... 12 15 7 35
------- ------ -------- ---------
Total loans.......... 25 $1,267 30 $1,525
======= ====== ======== =========
ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan and lease
losses is based upon management's periodic evaluation of the loan portfolio
under current economic conditions, considering factors such as asset
classifications, the Registrant's past loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's ability to
repay and the estimated value of the underlying collateral. The allowance for
loan and lease losses is maintained at an amount management considers adequate
to cover loan and lease losses that are deemed probable and estimable. At
December 31, 1999, the Registrant's allowance for loan and lease losses was $1.9
million, or 0.55% of total loans, as compared to $1.7 million, or 0.67%, at
December 31, 1998 and $1.4 million, or 0.76%, at December 31, 1997. The
Registrant had non- performing loans of $2.0 million, $2.1 million and $1.5
million at December 31, 1999, 1998 and 1997, respectively. The Registrant will
continue to monitor and modify its allowance for loan losses as conditions
dictate. Various regulatory agencies, as an integral part of their examination
process, periodically review the Registrant's allowance for loan losses. These
agencies may require the Registrant to establish additional valuation
allowances, based on their judgments of the information available at the time of
the examination.
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<PAGE>
The following table sets forth activity in the Registrant's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period.... $1,727 $1,372 $ 1,184 $ 1,336 $ 1,095
CHARGE-OFFS:
Real estate mortgage loans........ (157) (30) (160) (128) (14)
Commercial loans.................. (161) (56) (1) -- --
Consumer loans.................... (54) (89) (118) (97) (106)
------ ------ ------ ------ ------
Total charge-offs........ (372) (175) (279) (225) (120)
RECOVERIES:
Real estate mortgage loans........ 23 -- 1 9 27
Commercial loans................. 42 9 -- -- 76
Consumer loans.................... 21 21 12 4 18
------ ------ ------ ------ ------
Total recoveries......... 86 20 13 13 121
Provision for loan losses......... 500 500 454 60 240
------ ------ ------ ------ ------
Balance at end of period.......... $1,941 $1,727 $1,372 $1,184 $1,336
====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average loans
outstanding...................... 0.10% 0.07% 0.17% 0.17% 0.14%
Ratio of allowance for loan
losses to total loans at end of
period........................... 0.55% 0.67% 0.76% 0.90% 0.79%
Ratio of allowance for loan
losses to non-performing loans... 95.33% 82.95% 89.79% 71.35% 118.58%
</TABLE>
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<PAGE>
The following table sets forth the Registrant's allowance for loan
losses allocated by loan category, the percent of the allocated allowances to
the total allowance and the percent of loans in each category to total loans at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ---------------
% OF % OF % OF % OF % OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for
mortgage loan
loss............... $ 379 78.48% $ 373 79.46% $ 288 76.77% $ 203 70.73% $ 497 77.68%
Allowance for
consumer loan
loss............... 461 8.57 375 7.12 373 7.55 399 13.08 237 9.27
Allowance for
commercial loan
loss............... 1,101 12.95 979 13.42 711 15.68 582 16.19 602 13.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowances
for loan loss...... $1,941 100.00% $1,727 100.00% $1,372 100.00% $1,184 100.00% $1,336 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Environmental Issues
- - --------------------
The Registrant encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on properties securing
their loans. In addition, the existence of hazardous materials may make it
unattractive for a lender to foreclose on such properties. Although
environmental risks are usually associated with loans secured by commercial real
estate, risks also may be substantial for residential real estate loans if
environmental contamination makes security property unsuitable for use. As of
December 31, 1999, the Registrant was not aware of any environmental issues that
would subject the Registrant to material liability. No assurance, however, can
be given that the values of properties securing loans in the Registrant's
portfolio will not be adversely affected by unforseen environmental
contamination.
Investment Activities
- - ---------------------
INVESTMENT POLICIES. The investment policy of the Savings Bank, which
is established by its Board of Directors, is contained in the Savings Bank's
Liquidity and Funds Management Policy. It is based upon asset/liability
management goals and emphasizes high credit quality and diversified investments
while seeking to optimize net interest income within acceptable limits of safety
and liquidity. The Savings Bank also considers the investment advice it receives
from some of its outside investment advisers. Recently, the Savings Bank has
engaged in leveraging activities to enhance returns on equity. The policy is
designed to provide and maintain liquidity to meet day-to-day, cyclical and
long-term changes in the Savings Bank's asset/liability structure, and to
provide needed flexibility to meet loan demand. The Commercial Bank's investment
policy is similar to that of the Savings Bank, except that it does not engage in
hedging activities and is not permitted to invest in mutual funds. Approximately
98% of the Registrant's debt security portfolio at December 31, 1999 is
classified as available-for-sale.
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<PAGE>
The investment policy permits investment in U.S. government
obligations, securities of various government-sponsored agencies, including
mortgage-backed securities issued/guaranteed by FNMA, the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Government National Mortgage Association
("GNMA"), certain types of equity securities (such as institutional mutual
funds), certificates of deposit of insured banks, federal funds and investment
grade corporate debt securities and commercial paper.
The investment policy prohibits investment in certain types of mortgage
derivative securities that management considers to be high risk. The Registrant
generally purchases only short- and medium-term classes of CMOs guaranteed by
FNMA or FHLMC. At December 31, 1999, the Registrant held no securities issued by
any one entity with a total carrying value in excess of 10% of the Registrant's
equity at that date, except for obligations of the U.S. government and
government-sponsored agencies and certain mortgage-backed securities, which are
fully collateralized by mortgages held by single purpose entities and guaranteed
by government-sponsored agencies.
MORTGAGE-BACKED SECURITIES. The Registrant invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities. At December 31, 1999, the amortized cost of mortgage-backed
securities totaled $93.5 million, or 15.7% of total assets. The market value of
all mortgage-backed securities totaled $89.6 million at December 31, 1999. All
of the Registrant's mortgage-backed securities are included in its
available-for-sale portfolio. Additionally, the Registrant's securities
portfolio includes CMOs, with an amortized cost of $16.5 million and a market
value of $15.6 million at December 31, 1999. A CMO is a special type of debt
security in which the stream of principal and interest payments on the
underlying mortgages or mortgage-backed securities is used to create classes
with different maturities and, in some cases, amortization schedules as well as
a residual interest, with each class possessing different risk characteristics.
However, management regularly monitors the risks inherent in its CMOs and
believes these securities may represent attractive alternatives relative to
other investments due to the wide variety of maturity, repayment and interest
rate options available.
At December 31, 1999, all securities in the Registrant's
mortgage-backed securities portfolio were directly or indirectly insured or
guaranteed by GNMA, FNMA or FHLMC. The Registrant's mortgage-backed securities
portfolio had a weighted average yield of 7.13% at December 31, 1999.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Registrant. In general, mortgage-backed securities issued or
guaranteed by GNMA, FNMA and FHLMC are weighted at no more than 20% for
risk-based capital purposes, compared to the 50% risk weighting assigned to most
non-securitized residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors, such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed
and value of such
-19-
<PAGE>
securities. In contrast to mortgage-backed pass-through securities in which cash
flow is received (and, hence, prepayment risk is shared) pro rata by all
securities holders, the cash flows from the mortgages or mortgage-backed
securities underlying CMOs are segmented and paid in accordance with a
pre-determined priority to investors holding various tranches of such securities
or obligations. A particular tranche of a CMO may therefore carry prepayment
risk that differs from that of both the underlying collateral and other
tranches. It is the Registrant's strategy to purchase tranches of CMOs that are
categorized as "planned amortization classes," "targeted amortization classes"
or "very accurately defined maturities" and are intended to produce stable cash
flows in different interest rate environments.
The following table sets forth activity in the Registrant's securities
portfolio for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
BEGINNING BALANCE............................................ $155,490 $127,563 $138,410
-------- -------- --------
Debt securities purchased-- held-to-maturity................. 1,393 5,536 560
Debt securities purchased-- available-for-sale............... 48,340 39,179 25,464
Equity securities purchased-- available-for-sale............. 1,078 12,923 5,440
Mortgage-backed securities purchased-- held-to-maturity...... -- -- --
Mortgage-backed securities purchased-- available-for-sale.... 10,192 39,772 15,651
Mortgage-backed securities formed by securitizing
originated mortgage loans........................... 69,131 70,627 13,608
LESS:
Sale of debt securities-- available-for-sale................. -- 6,568 15,020
Sale of equity securities-- available-for-sale............... 10,979 1,782 4,362
Sale of mortgage-backed securities available-for-sale........ 3,732 11,237 13,433
Sale of mortgage-backed securities formed by securitizing
originated mortgage loans-- trading................. 26,969 70,933 20,493
Principal repayments on mortgage-backed securities
and debt securities................................. 20,722 25,479 11,759
Maturities and called debt securities........................ 24,000 24,888 7,800
Accretion of discount/amortization of (premium).............. 1,533 627 19
Change in gross unrealized gains (losses) on
available-for-sale
securities.......................................... (14,265) 150 1,278
-------- -------- --------
ENDING BALANCE............................................... $186,490 $155,490 $127,563
======== ======== ========
</TABLE>
-20-
<PAGE>
The following table sets forth the amortized cost and market value of
the Registrant's securities by accounting classification category and by type of
security, at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997
--------------------- ------------------- -------------------
AMORITZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
---- ----- ---- ----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities held-to-maturity:
U.S. Government obligations......... $ 645 $ 644 $ 895 $ 899 $ 722 $ 722
Agency securities................... 700 693 5,000 4,962 4,000 3,994
Municipal bonds..................... 73 73 104 106 666 668
Other debt obligations.............. -- -- -- -- 17,954 17,876
-------- -------- -------- -------- -------- -------
Total debt securities
held-to-maturity................... 1 ,418 1,410 5,999 5,967 23,342 23,260
-------- -------- -------- -------- -------- -------
Debt securities available-for-sale:
U.S. Government obligations......... 2,016 2,053 3,023 3,165 4,062 4,189
Agency securities................... 57,328 52,224 38,430 38,694 21,503 21,868
Municipal bonds..................... 4,963 4,750 104 106 -- --
Other debt obligations.............. 14,181 12,896 8,045 82,300 1,874 1,955
-------- -------- -------- -------- -------- -------
Total debt securities
available-for-sale................. 78,488 71,923 49,498 50,089 27,439 28,012
-------- -------- -------- -------- -------- -------
Equity securities available-for-sale:
Preferred stock..................... 1,112 951 1,112 1,120 102 105
Common stock........................ 2,851 2,167 2,275 1,941 -- --
Mutual funds........................ 3,973 4,848 14,449 16,232 6,594 7,223
-------- -------- -------- -------- -------- -------
Total equity securities
available-for-sale................. 7,936 7,966 17,836 19,293 6,696 7,328
-------- -------- -------- -------- -------- -------
Total debt and equity
securities......................... 87,842 81,299 73,333 75,349 57,477 58,600
-------- -------- -------- -------- -------- -------
Mortgage-backed securities
available-for-sale:
FHLMC............................... 1,903 1,888 7,018 7,145 13,434 13,637
GNMA................................ 33,611 32,097 33,849 33,824 29,110 29,512
FNMA................................ 58,054 55,590 20,436 21,036 24,819 25,732
CMOs................................ 16,466 15,608 17,976 18,104 -- --
-------- -------- -------- -------- -------- -------
Total mortgage-backed securities
available-for-sale............. 110,034 105,183 79,279 80,109 67,363 68,881
-------- -------- -------- -------- -------- -------
Total mortgage-backed
securities..................... 110,034 105,183 79,279 80,109 67,363 68,881
-------- -------- -------- -------- -------- -------
Net unrealized (losses) gains on trading
securities.............................. -- -- --
Net unrealized (losses) gains on
available-for-sale and trading
securities.............................. (11,386) 2,878 2,723
-------- -------- --------
Total securities............... $186,490 $186,482 $155,490 $155,458 $127,563 $127,481
======== ======== ======== ======== ======== ========
</TABLE>
-21-
<PAGE>
The following table sets forth the composition of the Registrant's
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997
-------------------- --------------------- --------------------
CARRYING PERCENT OF CARRYING PERCENT OF CARRYING PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
----- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government obligations. $ 2,698 1.45% $ 4,060 2.61% $ 4,911 3.85%
Agency securities........... 52,924 28.38 43,694 28.10 25,868 20.28
Municipal bonds............. 4,823 2.59 104 0.07 666 0.52
Other debt obligations...... 12,896 6.91 8,230 5.29 19,909 15.61
-------- ------ -------- ------ -------- ------
Total debt securities... 73,341 39.33 56,088 36.07 51,354 40.26
-------- ------ -------- ------ -------- ------
Equity securities:
Preferred stock............. 951 0.51 1,120 0.72 105 0.08
Common stock................ 2,167 1.16 1,941 1.25 -- --
Mutual funds................ 4,848 2.60 16,232 10.44 7,223 5.66
-------- ------ -------- ------ -------- ------
Total equity securities 7,966 4.27 19,293 12.41 7,328 5.74
-------- ------ -------- ------ -------- ------
Mortgage-backed securities.......
FHLMC....................... 1,888 1.01 7,145 4.60 13,637 10.69
GNMA........................ 32,097 17.21 33,824 21.75 29,512 23.14
FNMA........................ 55,590 29.81 21,036 13.53 25,732 20.17
CMOs........................ 15,608 8.37 18,104 11.64 -- --
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities.............. 105,183 56.40 80,109 51.52 68,881 54.00
-------- ------ -------- ------ -------- ------
Total securities........ $186,490 100.00% $155,490 100.00% $127,563 100.00%
======= ====== ======== ====== ======== ======
Debt and equity securities
available-for-sale.......... $79,889 42.84% $69,382 44.62% $35,340 27.70%
Debt and equity securities
held-to-maturity............ 1,418 0.76 5,999 3.86 23,342 18.30
-------- ------ -------- ------ -------- ------
Total debt and equity
securities.................. 81,307 43.60 75,381 48.48 58,682 46.00
-------- ------ -------- ------ -------- ------
Mortgage-backed securities
available-for-sale.......... 105,183 56.40 80,109 51.52 68,881 54.00
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities.............. 105,183 56.40 80,109 51.52 68,881 54.00
-------- ------ -------- ------ -------- ------
Total securities........ $186,490 100.00% $155,490 100.00% $127,563 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
-22-
<PAGE>
The following table sets forth certain information regarding the
carrying value and weighted average yield of the Registrant's securities at
December 31, 1999, by remaining period to contractual maturity. Actual
maturities may differ from contractual maturities because certain security
issuers may have the right to call or prepay their obligations.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS MORE THAN
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS TEN YEARS TOTAL
---------------- ------------- ------------ --------- -----
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Municipal bonds............ $ -- --% $ -- --% $ -- --% $ 73 5.37% $ 73 5.37%
U.S. Government obligations 645 4.70 -- -- -- -- -- -- 645 4.70
Agency securities.......... -- -- 700 5.82 -- -- -- -- 700 5.82
---- ------ ------ -------- --------
Total held-to-maturity 645 4.70 700 5.82 -- -- 73 5.37 1,418 5.29
---- ------ ------ -------- --------
Available-for-sale:
Mortgage backed securities:
Variable Rate:
FHLMC................. -- -- -- -- -- -- -- -- -- --
GNMA.................. -- -- -- -- -- -- 404 6.57 404 6.57
FNMA.................. -- -- -- -- -- -- 739 7.11 739 7.11
Fixed Rate:
FHLMC................. -- -- 1 9.48 299 7.30 1,588 7.44 1,888 7.42
GNMA.................. -- -- 1 8.00 30 8.00 31,662 7.54 31,693 7.54
FNMA.................. -- -- -- -- 453 8.29 54,399 6.90 54,852 6.91
CMOs.................. -- -- -- -- -- -- 15,608 7.04 15,608 7.04
---- ------ ------ -------- --------
Total mortgage-backed
securities......... -- -- 2 8.74 782 7.90 104,400 7.12 105,184 7.13
---- ------ ------ -------- --------
Debt securities:
Municipal bonds.......... -- -- -- -- -- -- 4,750 8.11 4,750 8.11
U.S. Government
obligations............. -- -- 2,053 7.30 -- -- -- -- 2,053 7.30
Agency securities........ -- -- -- -- 4,950 8.23 47,273 7.58 52,223 7.64
Other debt obligations... -- -- 752 7.04 -- -- 12,143 8.35 12,895 8.27
---- ------ ------ -------- --------
Total debt securities. -- -- 2,805 7.23 4,950 8.23 64,166 7.76 71,921 7.78
---- ------ ------ -------- --------
Equity Securities:
Preferred stock.......... -- -- -- -- -- -- 951 7.18 951 7.18
Common stock ............ -- -- -- -- -- -- 2,167 1.11 2,167 1.11
Mutual funds............. -- -- -- -- -- -- 4,848 10.51 4,848 10.51
---- ------ ------ -------- --------
Total equity
securities........... -- -- -- -- -- -- 7,966 7.56 7,966 7.56
---- ------ ------ -------- --------
Total available-for-
sale................. -- -- 2,807 7.23 5,732 8.19 176,532 7.38 185,071 7.40
---- ------ ------ -------- --------
TOTAL SECURITIES...... $645 4.70 $3,507 6.95 $5,732 8.19 $176,605 7.38 $186,489 7.38
==== ====== ====== ======== ========
</TABLE>
Sources of Funds
- - ----------------
GENERAL. Deposits, borrowings, loan and security repayments and
prepayments, proceeds from sales of securities and cash flows generated from
operations are the primary sources of the
-23-
<PAGE>
Registrant's funds for use in lending, investing and for other general purposes.
Management of the Savings Bank intends to increase its deposit base through
competitive pricing but continually evaluates wholesale funding through Federal
Home Loan Bank of New York ("FHLBNY") advances and other sources, depending upon
market conditions.
DEPOSITS. The Registrant offers a variety of deposit accounts with a
range of interest rates and terms. The Registrant's deposits consist of regular
(passbook) savings accounts, statement savings accounts, checking accounts, NOW
accounts, basic banking accounts, money market accounts and certificates of
deposit. The Registrant also offers certificates of deposit with maturities of
up to 60 months. At December 31, 1999, the Registrant's core deposits, which the
Registrant considers to consist of checking accounts, NOW accounts, money market
accounts, regular savings accounts and statement savings accounts, constituted
69.9% of total deposits. The flow of deposits is influenced significantly by
general economic conditions, changes in money market rates, prevailing interest
rates and competition. The Registrant's deposits are obtained predominantly from
the areas in proximity to its office locations. The Registrant relies primarily
on customer service and long-standing relationships with customers to attract
and retain these deposits; however, market interest rates and rates offered by
competing financial institutions significantly affect the Registrant's ability
to attract and retain deposits. Certificate accounts in excess of $100 thousand
are not actively solicited by the Registrant, nor does the Registrant use
brokers to obtain deposits.
The following table presents the deposit activity of the Registrant for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits ................................... $1,353,829 $1,304,048 $953,077
Withdrawals................................. (1,325,253) (1,277,839) (964,120)
---------- ---------- --------
(Withdrawals) in excess of deposits......... 28,576 26,209 (11,043)
Interest credited on deposits............... 7,611 7,164 7,335
---------- ---------- --------
Net increase (decrease) in deposits......... $ 36,187 $ 33,373 $ 3,708
========== ========== ========
</TABLE>
At December 31, 1999 the Registrant had $11.8 million in certificates
of deposit accounts in amounts of $100 thousand or more, maturing as follows:
WEIGHTED
AMOUNT AVERAGE RATE
------ ------------
(DOLLARS IN THOUSANDS)
Maturity Period:
Three months or less............ $ 2,735 4.47%
Over 3 through 6 months......... 2,140 4.86
Over 6 through 12 months........ 3,785 5.89
Over 12 months.................. 3,186 5.93
-------- ---------
Total.................. $ 11,846 5.39%
======== =========
-24-
<PAGE>
The following table sets forth the distribution of the Registrant's
deposit accounts and the related weighted average interest rates for the periods
indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ------------------------------ -----------------------------
WEIGHTED WEIGHTED WEIGHTED
PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE
AVERAGE TOTAL NOMINAL AVERAGE TOTAL NOMINAL AVERAGE TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking accounts........... $ 24,575 9.78% -- $ 20,277 9.21% -- $ 18,936 8.79% --
-------- ------ ---- -------- ------ ---- -------- ------ ----
Passbook accounts........... 85,379 33.97 2.64% 79,404 36.08 2.93% 78,017 36.22 2.96%
NOW accounts................ 11,767 4.68 2.03 8,500 3.86 2.23 7,091 3.29 2.23
Interest-on-checking
accounts.................... 10,909 4.34 0.99 8,772 3.99 0.99 7,335 3.41 0.98
-------- ------ -------- ------ -------- ------
Total passbook, NOW and
interest-on-
checking accounts........... 108,054 42.99 2.41 96,676 43.93 2.69 92,444 42.92 2.75
-------- ------ -------- ------ -------- ------
Money market accounts....... 43,002 17.11 3.89 29,986 13.63 3.60 26,200 12.16 3.28
-------- ------ -------- ------ -------- ------
Certificate accounts:
Certificates of deposit
-- one year and
less.................. 53.909 21.45 4.60 53,258 24.20 4.93 57,610 26.74 5.09
IRA Certificates of
deposit -- one year
and less.............. 7,771 3.09 4.58 7,702 3.50 4.91 7,925 3.68 5.11
Certificates of deposit
-- more than one
year.................. 8,243 3.28 5.32 6,354 2.89 5.15 6,682 3.10 5.21
IRA Certificates of
deposit -- more
than one year......... 3,831 1.52 5.02 4,030 1.83 5.16 4,419 2.05 5.22
-------- ------ -------- ------ -------- ------
Total certificates.......... 73,755 39.34 4.70 71,344 32.42 4.96 76,636 35.58 5.11
-------- ------ -------- ------ -------- ------
Escrow deposits............. 1,985 0.79 2.00 1,771 0.80 2.00 1,194 0.55 2.00
-------- ------ -------- ------ -------- ------
Total deposits.............. $251,371 100.00% 3.12% $220,054 100.00% 3.32% $215,409 100.00% 3.43
======== ====== ======== ====== ======== ======
</TABLE>
The following table presents, by interest rate ranges, the amount of
certificate accounts outstanding at the dates indicated and the period to
maturity of the certificate accounts outstanding at December 31, 1999.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM DECEMBER 31, 1999 AT DECEMBER 31,
----------------------------------------- ---------------
LESS OVER
THAN ONE TO TWO TO THREE
ONE YEAR TWO YEARS THREE YEARS YEARS 1999 1998 1997
-------- --------- ----------- ----- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less........ $ -- $ -- $ -- $ -- $ -- $ -- $ --
4.00% to 4.99%....... 45,169 2,033 262 -- 47,464 42,424 3
5.00% to 5.99%....... 15,482 6,376 806 2,028 24,692 28,571 21,143
6.00% to 6.99%....... 14,274 2,793 -- -- 17,067 -- 54,374
7.00% to 7.99%....... -- -- -- -- -- -- --
8.00% to 8.99%....... -- -- -- -- -- -- --
-------- ------- --------- ---------- -------- --------- --------
Total.......... $ 74,925 $11,202 $ 1,068 $ 2,028 $ 89,223 $ 70,995 $ 75,520
======== ======= ========= ========== ======== ========= ========
</TABLE>
BORROWINGS. The Savings Bank historically had not used borrowings as a
source of funds. However, the Savings Bank became a member of the FHLBNY in 1995
and has used this source considerably since then. FHLBNY advances may also be
used to acquire certain other assets as may be deemed appropriate for investment
purposes, including leveraging opportunities. This form of leveraging allows for
a reasonable net margin of return, the majority of which is locked in for a
specified period. Since the locked-in period might cover only a part of the
investment's term (up to its call date in the majority of the transactions),
such a practice might result in a limited degree
-25-
<PAGE>
of interest rate risk, since the earlier maturing borrowings are required to be
rolled over to fund the remaining lives of the particular investments. FHLBNY
advances are to be collateralized primarily by certain of the Savings Bank's
mortgage loans and mortgage-backed securities and secondarily by the Savings
Bank's investment in capital stock of the FHLBNY. Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLBNY will
advance to member institutions, including the Savings Bank, fluctuates from time
to time in accordance with the policies of the FHLBNY. At December 31, 1999, the
Savings Bank had $201.7 million in FHLBNY advances and the capability to borrow
additional funds of $50.2 million from the FHLBNY upon complying with the FHLBNY
collateral requirements.
The Savings Bank at times sells securities under agreements to
repurchase, which transactions are treated as financings, and the obligation to
repurchase the securities sold is reflected as a liability in the statements of
financial condition. The dollar amount of securities underlying the agreements
remains in the asset account and are held in safekeeping. There were $37.4,
$25.3 million and $22.8 million of securities sold under repurchase agreements
outstanding at December 31, 1999, 1998 and 1997, respectively.
The following table sets forth certain information regarding borrowed
funds for the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLBNY Advances:
Average balance outstanding......................... $140,378 $56,346 $ 11,740
Maximum amount outstanding at any month-end
during the period.......................... 201,675 84,375 23,300
Balance outstanding at end of period................ 201,675 79,480 5,250
Weighted-average interest rate during the period.... 5.50% 5.36% 5.85%
Weighted-average interest rate at end of period..... 5.40% 5.38% 5.72%
Other Borrowings:
Average balance outstanding......................... $26,779 $25,764 $ 23,086
Maximum amount outstanding at any month-end
during the period.......................... 37,375 27,500 23,300
Balance outstanding at end of period................ 37,375 25,310 22.755
Weighted-average interest rate during the period.... 5.56% 5.87% 6.40%
Weighted-average interest rate at end of period..... 5.66% 6.19% 6.36%
Total Borrowings:
Average balance outstanding......................... $167,157 $82,110 $34,826
Maximum amount outstanding at any month-end
during the period.......................... 239,050 55,000 46,600
Balance outstanding at end of period................ 239,050 104,790 28,005
Weighted-average interest rate during the period.... 5.50% 5.48% 6.29%
Weighted-average interest rate at end of period..... 5.45% 5.64% 6.15%
</TABLE>
-26-
<PAGE>
Subsidiary Activities
- - ---------------------
The Savings Bank has three wholly owned subsidiaries, WSB Financial,
Warsave Development Corp. ("Warsave") and Towne Center Mortgage. The Savings
Bank offers mutual funds and tax deferred annuities through WSB Financial to the
Savings Bank's customers and members of the community. WSB Financial contributed
$88 thousand, $121 thousand and $93 thousand in net income, before taxes, to the
Savings Bank's net income for the years ended December 31, 1999, 1998 and 1997,
respectively.
Warsave was formed to acquire and hold real estate. Its single asset as
of December 31, 1999 is a two-story house situated adjacent to the Savings
Bank's Warwick office. The building, which may ultimately be used for future
expansion, is presently rented for the purpose of generating rental income.
Towne Center Mortgage, formerly known as WSB Mortgage Company of New
Jersey, Inc., was formed in New Jersey in 1997 for the purpose of engaging in
mortgage banking operations in New Jersey. Towne Center Mortgage contributed $76
thousand and $63 thousand, before taxes, to the Savings Bank's net income for
the years ended December 31, 1999 and 1998, respectively.
The Savings Bank also has a real estate investment trust subsidiary,
WSB Funding Corp., which was incorporated in the State of Delaware on July 7,
1999 for the purpose of the investment and reinvestment of its assets in
mortgage loans secured by real property, interest in mortgage loans secured by
real property and possibly mortgage-backed and mortgage-related securities and
U.S. government and agency obligations.
Personnel
- - ---------
As of December 31, 1999, the Savings Bank had 133 full-time and 33
part-time employees. The Savings Bank has experienced a very low turnover rate
among its employees and, as of December 31, 1999, 55 of the Savings Bank's
employees had been with the Savings Bank for more than five years. The employees
are not represented by a collective bargaining unit, and the Savings Bank
considers its relationship with its employees to be good.
FEDERAL AND STATE TAXATION
Federal Taxation
- - ----------------
GENERAL. The following is intended only as a discussion of material
federal income tax matters and does not purport to be a comprehensive
description of the federal income tax rules applicable to the Savings Bank, the
Commercial Bank or the Registrant. For federal income tax purposes, the
Registrant, the Savings Bank and the Commercial Bank file or will file
consolidated income tax returns and report their income on a calendar year basis
using the accrual method of accounting and will be subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Savings Bank's tax reserve for bad debts, discussed
below.
-27-
<PAGE>
BAD DEBT RESERVES. Prior to its taxable year beginning January 1, 1999,
the Savings Bank was a "small bank" (one with assets having an adjusted tax
basis of $500 million or less) and was permitted to maintain a reserve for bad
debts with respect to "qualifying loans," which, in general, are loans secured
by certain interests in real property, and to make, within specified formula
limits, annual additions to the reserve which are deductible for purposes of
computing the Savings Bank's taxable income. Pursuant to the Small Business Job
Protection Act of 1996, the Savings Bank is now recapturing (taking into income)
over a multi-year period a portion of the balance of its bad debt reserve as of
December 31, 1995.
In 1999, the Savings Bank became a "large bank" (one with assets having
an adjusted tax basis of more than $500 million) and therefore may no longer use
the bad debt reserve method described above. Instead, the Savings Bank may now
deduct loan losses only as they are incurred and may also be required to
recapture an additional portion of its bad debt reserve. As a commercial bank,
the Commercial Bank is required to deduct loan losses only as they are incurred.
DISTRIBUTIONS. To the extent that the Savings Bank makes "non-dividend
distributions" to the Registrant, such distributions will be considered to have
been made from the Savings Bank's "base year reserve," I.E., its reserve as of
December 31, 1987, and then from the Savings Bank's supplemental reserve for
losses on loans, to the extent thereof, and an amount based on the amount
distributed (but not in excess of the amount of such reserves) will be included
in the Savings Bank's income. Non-dividend distributions include distributions
in excess of the Savings Bank's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of the Savings Bank's current or accumulated earnings and profits will not be so
included in the Savings Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Savings Bank
makes a non-dividend distribution to the Registrant, approximately one and
one-half times the amount of such distribution (but not in excess of the amount
of such reserves) would be includible in income for federal income tax purposes,
assuming a 34% federal corporate income tax rate. See "Regulation and
Supervision" herein for limits on the payment of dividends by the Savings Bank.
The Savings Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers of which both the Savings Bank
and the Commercial Bank currently have none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, a bank's AMTI is increased by an amount equal to 75% of the amount by
which its adjusted current earnings exceeds its AMTI (determined without regard
to this adjustment and prior to reduction for net operating losses). Neither the
Savings Bank nor the Commercial Bank expects to be subject to the AMT.
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<PAGE>
ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Registrant
may exclude from its income 100% of dividends received from the Savings Bank and
the Commercial Bank as a member of the same affiliated group of corporations.
State Taxation
- - --------------
NEW YORK STATE TAXATION. The Savings Bank is subject to the New York
State Franchise Tax on Banking Corporations in an annual amount equal to the
greater of (i) 9% of the Savings Bank's "entire net income" allocable to New
York State during the taxable year (8.5% effective for tax years beginning after
July 1, 1999, 8.0% effective for tax years beginning after July 1, 2000 and 7.5%
effective for tax years beginning after July 1, 2001), or (ii) the applicable
alternative minimum tax. The alternative minimum tax is generally the greatest
of (a) 0.01% of the value of the taxable assets allocable to New York State with
certain modifications, (b) 3% of the Savings Bank's "alternative entire net
income" allocable to New York State or (c) $250. Entire net income is similar to
federal taxable income, subject to certain modifications and alternative entire
net income is equal to entire net income without certain adjustments. For
purposes of computing its entire net income, the Savings Bank is permitted a
deduction for an addition to the reserve for losses on qualifying real property
loans. For New York State purposes, the applicable percentage to calculate bad
debt deduction under the percentage of taxable income method is 32%.
New York State passed legislation that enabled the Savings Bank to
avoid the recapture of the New York State tax bad debt reserves that otherwise
would have occurred as a result of changes in federal law and to continue to
utilize either the federal method or a method based on a percentage of its
taxable income for computing its additions to bad debt reserve. However, the New
York bad debt reserve is subject to recapture for "non-dividend distributions"
in a manner similar to the recapture of federal bad debt reserves for such
distributions. Also, the New York bad debt reserve is subject to recapture in
the event that the Savings Bank fails to satisfy certain definitional tests
relating to its assets and the nature of its business.
A Metropolitan Business District Surcharge on banking corporations
doing business in the metropolitan district has been applied since 1982. The
Savings Bank does all of its business within this District and is subject to
this surcharge. For the tax year ending December 31, 1999 the surcharge rate is
17%.
NEW JERSEY STATE TAXATION. The Commercial Bank will file New Jersey
income tax returns. Generally, the income of financial institutions in New
Jersey, which is calculated based on federal taxable income, subject to certain
adjustments, is subject to New Jersey tax.
DELAWARE STATE TAXATION. As a Delaware holding company not earning
income in Delaware, the Registrant is exempted from Delaware Corporate income
tax but is required to file annual returns and pay annual fees and a franchise
tax to the State of Delaware.
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<PAGE>
REGULATION AND SUPERVISION
General
- - -------
The Savings Bank is a New York State chartered stock savings bank, and
its deposit accounts are insured up to applicable limits by the FDIC under the
BIF. The Savings Bank is subject to extensive regulation, examination and
supervision by the NYSBD as its chartering agency, and by the FDIC as the
deposit insurer. The Savings Bank must file reports with the NYSBD and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approval prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions and opening or acquiring branch
offices.
The Commercial Bank is a New Jersey State chartered commercial bank,
and its deposit accounts are insured up to applicable limits by the FDIC under
the BIF. The Commercial Bank is subject to extensive regulation, examination and
supervision by the Commissioner of the NJBD as its chartering agency, and by the
FDIC as the deposit insurer. The Commercial Bank must file reports with the NJBD
and the FDIC concerning its activities and financial condition, and it must
obtain regulatory approval prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening or
acquiring branch offices.
The NYSBD and the FDIC conduct periodic examinations to assess the
Savings Bank's compliance with, and the NJBD and the FDIC conduct periodic
examinations to assess the Commercial Bank's compliance with, various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank and a commercial bank can engage
and is intended primarily for the protection of the deposit insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes.
The Registrant, as a bank holding company controlling the Savings Bank
and the Commercial Bank, is subject to the BHCA and the rules and regulations of
the Federal Reserve Board ("FRB") under the BHCA. The Registrant is required to
file reports with, and otherwise comply with the rules and regulations of, the
FRB. The Registrant is also required to file certain reports with, and otherwise
comply with the rules and regulations of, the Securities and Exchange Commission
("SEC") under the federal securities laws. In addition, the Registrant must also
comply with certain federal and state laws and regulations applicable to
corporations generally.
Certain of the laws and regulations applicable to the Registrant, the
Savings Bank and the Commercial Bank are summarized below or elsewhere herein,
and the following discussion focuses primarily on the laws and regulations
applicable to the Savings Bank and the Registrant. These summaries do not
purport to be complete and are qualified in their entirety by reference to such
laws and regulations. Any change in such laws and regulations could have a
material adverse impact on the Registrant, the Savings Bank and the Commercial
Bank and their respective operations and stockholders.
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<PAGE>
New York Banking Regulation
- - ---------------------------
ACTIVITY POWERS. The Savings Bank derives its lending, investment and
other activity powers primarily from the applicable provisions of the New York
Banking Law ("Banking Law") and the regulations adopted thereunder. Under these
laws and regulations, the savings banks, including the Savings Bank, generally
may invest in real estate mortgages, consumer and commercial loans, specific
types of debt securities, including certain corporate debt securities and
obligations of federal, state and local governments and agencies, certain types
of corporate equity securities, and certain other assets. A savings bank may
also invest pursuant to a "leeway" power that permits investments not otherwise
permitted by the Banking Law. "Leeway" investments must comply with a number of
limitations on the individual and aggregate amounts of "leeway" investments. A
savings bank may also exercise trust powers upon approval of the NYSBD. The
exercise of these lending, investment and activity powers are limited by federal
law and the adopted thereunder. See "-- Federal Banking Regulation -- Activity
Restrictions on State-Chartered Banks" below.
LOANS-TO-ONE-BORROWER LIMITATIONS. With certain specified exceptions, a
New York State chartered savings bank may not make loans or extend credit to a
single borrower and to entities related to the borrower in an aggregate amount
that would exceed 15% of the bank's net worth. A savings bank may lend an
additional 10% of its net worth if secured by collateral meeting the
requirements of the Banking Law. The Savings Bank currently complies with all
applicable loans-to-one-borrower limitations.
COMMUNITY REINVESTMENT ACT. The Savings Bank is also subject to
provisions of the Banking Law that, like the provisions of the federal Community
Reinvestment Act ("CRA"), impose continuing and affirmative obligations upon a
banking institution organized in the State of New York to serve the credit needs
of its local community ("NYCRA"). The obligations under the NYCRA are similar to
those imposed by the CRA, and the New York Banking Board adopted new
regulations, effective December 10, 1997, to implement the NYCRA, which
regulations are consistent with the federal regulations implementing the CRA.
The New York Banking Board's regulations require a biennial assessment
of a bank's compliance with the NYCRA, utilizing a four-tiered rating system,
and require the NYSBD to make available to the public such rating and a written
summary of the assessment results. Pursuant to the NYCRA, a bank must file with
the NYSBD an annual NYCRA report and copies of all federal CRA reports. The
Savings Bank's latest NYCRA rating, received by letter dated April 27, 1998 from
the NYSBD, was a rating of "Satisfactory." The NYCRA also requires the
Superintendent of Banks of the State of New York ("Superintendent") to consider
a bank's NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application.
DIVIDENDS. Under the Banking Law, the Savings Bank may declare and pay
a dividend on its capital stock only out of its net profits. The approval of the
Superintendent is required if the total of all dividends declared by the Savings
Bank in any calendar year will exceed the net profits for that year plus the
retained net profits of the preceding two years less any required transfer to
surplus or a fund for the retirement of preferred stock. In addition, the
Savings Bank may not pay declare, credit or pay any dividend if the effect
thereof would cause its capital to be reduced below the amount required by the
Superintendent or the FDIC.
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<PAGE>
ENFORCEMENT. Under the Banking Law, the Superintendent may issue an
order to a New York State-chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Superintendent that
any director, trustee or officer of any banking organization has violated any
law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the
Superintendent to discontinue such practices, the Superintendent may remove such
director, trustee or officer from office after notice and an opportunity to be
heard. The Savings Bank does not know of any past or current practice, condition
or violation that might lead to any proceeding by the Superintendent or the
NYSBD against the Savings Bank or any of its directors or officers.
CHANGE IN BANK CONTROL RESTRICTIONS The Banking Law generally requires
prior approval of the New York Banking Board before any action is taken that
causes any company to acquire direct or indirect control of a banking
institution that is organized in the State of New York. For this purpose, the
term "company" is defined to include corporations, partnerships and other types
of business entities, chartered or doing business in New York, and an individual
or combination of individuals acting in concert and residing or doing business
in New York, and the term "control" is defined generally to mean the power to
direct or cause the direction of the management and policies of the banking
institution and is presumed to exist if the company owns, controls or holds with
power to vote 10% or more of the voting stock of the banking institution.
Federal Banking Regulation
- - --------------------------
CAPITAL REQUIREMENTS. FDIC regulations require BIF-insured banks, such
as the Savings Bank and the Commercial Bank, to maintain minimum levels of
capital. The FDIC regulations define two Tiers, or classes, of capital. Tier 1
capital is comprised of the sum of common stockholders' equity (excluding the
net unrealized appreciation or depreciation, net of tax, from available-for-sale
securities), non-cumulative perpetual preferred stock (including any related
surplus) and minority interests in consolidated subsidiaries, minus all
intangible assets (other than qualifying servicing rights), and any net
unrealized loss on marketable equity securities. The components of Tier 2
capital currently include cumulative perpetual preferred stock, certain
perpetual preferred stock for which the dividend rate may be reset periodically,
mandatory convertible securities, subordinated debt, intermediate preferred
stock and allowance for possible loan losses. Allowance for possible loan losses
includible in Tier 2 capital is limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of Tier 2 capital that may be included in total
capital cannot exceed 100% of Tier 1 capital.
The FDIC regulations establish a minimum leverage capital requirement
for banks in the strongest financial and managerial condition, with a rating of
1 (the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, and that are not experiencing or
anticipating significant growth, of a ratio of Tier 1 capital to total assets of
not less than 3%. For all other banks, the minimum leverage capital requirement
is 4.0%, unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution. The FDIC
regulations also require that banks meet a risk-based capital standard. The
risk-based capital standard requires the maintenance of a ratio of total capital
(which is defined as the sum of Tier 1 capital and Tier 2 capital) to
risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets,
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<PAGE>
all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
The following table shows the Savings Bank's actual capital amounts and
its capital ratios at December 31, 1999, as compared to the minimum amounts and
ratios and the amounts and ratios required to be classified as "well
capitalized" under the FDIC's prompt corrective action regulations:
<TABLE>
<CAPTION>
MINIMUM CAPITAL FOR CLASSIFICATION AS
BANK ACTUAL ADEQUACY WELL CAPITALIZED
----------- -------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage (Tier 1) capital...... $54,629 9.38% $23,291 4.00% $29,114 5.00%
Risk-based capital:
Tier 1..................... 54,629 17.60 12,418 4.00 18,628 6.00
Total...................... 56,933 18.34 24,837 8.00 31,046 10.00
</TABLE>
As the preceding table shows, the Savings Bank exceeded the minimum
capital adequacy requirements, and the requirements to be classified as well
capitalized, at the date indicated.
The following table shows the Commercial Bank's actual capital amounts
and its capital ratios at December 31, 1999, as compared to the minimum amounts
and ratios and the amounts and ratios required to be classified as "well
capitalized" under the FDIC's prompt corrective action regulations:
<TABLE>
<CAPTION>
MINIMUM CAPITAL FOR CLASSIFICATION AS
BANK ACTUAL ADEQUACY WELL CAPITALIZED
----------- -------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage (Tier 1) capital...... $5,728 87.72% $261 4.00% $327 5.00%
Risk-based capital:
Tier 1..................... 5,728 211.83 108 4.00 162 6.00
Total...................... 5,728 211.83 216 8.00 270 10.00
</TABLE>
As the preceding table shows, the Commercial Bank exceeded the minimum
capital adequacy requirements, and the requirements to be classified as well
capitalized, at the date indicated.
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ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the
Federal Deposit Insurance Act, as amended ("FDIA"), which was added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
generally limits the activities and investments of state-chartered FDIC-insured
banks and their subsidiaries to those permissible for national banks and their
subsidiaries, unless such activities and investments are specifically exempted
by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common
and preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from
the FDIC to make or retain such investments. Upon receiving such FDIC approval,
an institution's investment in such equity securities will be subject to an
aggregate limit up to the amount of its Tier 1 capital.
The Savings Bank received approval from the FDIC to retain and acquire such
equity investments subject to a maximum permissible investment equal to the
lesser of 100% of the Savings Bank's Tier 1 capital or the maximum permissible
amount specified by the Banking Law. Section 24 also provides an exception for
majority owned subsidiaries of a bank, but Section 24 limits the activities of
such subsidiaries to those permissible for a national bank under Section 24 and
the FDIC regulations issued pursuant thereto, or as approved by the FDIC.
Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 or the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
The Gramm-Leach-Bliley Act ("GLB Act"), which was enacted on November
12, 1999, permits a state-chartered bank to engage, through financial
subsidiaries, in any activity in which a national bank may engage through a
financial subsidiary and on substantially the same terms and conditions. In
general, the GLB Act permits a national bank that is well-capitalized and well-
managed to conduct, through a financial subsidiary, any activity permitted for a
financial holding company other than insurance underwriting, insurance
investments, real estate investment or development or merchant banking. The
total assets of all such financial subsidiaries may not exceed the lesser of 45%
of the bank's total assets or $50 billion. The bank must have policies and
procedures to assess the financial subsidiary's risk and protect the bank from
such risk and potential liability, must not consolidate the financial
subsidiary's assets with the bank's and must exclude from its own assets and
equity all equity investments, including retained earnings, in the financial
subsidiary. State chartered banks may retain, after March 11, 2000, existing
subsidiaries engaged in activities that are not authorized under the GLB Act;
otherwise, the GLB Act will preempt all state laws regarding the permissibility
of certain activities for state chartered banks if such state law is in conflict
with the provisions of the GLB Act (with the exception of certain insurance
activities), regardless of whether the state law would authorize broader or more
restrictive activities. Although the Savings Bank and the Commercial Bank meet
all conditions necessary to establish and engage in permitted activities through
financial subsidiaries, they have not yet determined whether or the extent to
which they will seek to engage in such activities.
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<PAGE>
ENFORCEMENT. The FDIC has extensive enforcement authority over insured
banks, including the Savings Bank and the Commercial Bank. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to remove directors and
officers, to order divestitures and withhold approval of the acquisition of
business or the exercise of powers, to terminate deposit insurance coverage and
to place a depository institution in receivership. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including : (i) insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others), (ii) substantial dissipation of assets or
earnings through violations of law or unsafe or unsound practices, (iii)
existence of an unsafe or unsound condition to transact business, (iv)
likelihood that the bank will be unable to meet the demands of its depositors or
to pay its obligations in the normal course of business, and (v) insufficient
capital, or the incurring or likely incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment of capital without federal assistance.
SAFETY AND SOUNDNESS STANDARDS. Pursuant to the requirements of FDICIA,
as amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a bank that is
given notice by the FDIC that it is not satisfying any of such safety and
soundness standards to submit a compliance plan to the FDIC. If, after being so
notified, a bank fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the FDIC may issue an
order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. If a bank fails to comply with such an
order, the FDIC may seek to enforce such an order in judicial proceedings and to
impose civil monetary penalties.
PROMPT CORRECTIVE ACTION. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the bank regulators are required to take certain supervisory
actions against undercapitalized institutions, based upon five categories of
capitalization which FDICIA created: "well capitalized," "adequately
capitalized," "undercapitalized," significantly undercapitalized" and
"critically capitalized."
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<PAGE>
The FDIC's regulations defines the five capital categories as follows:
Generally, an institution will be treated as "well capitalized" if its ratio of
total capital to risk-weighted assets is at least 10%, its ratio of Tier 1
capital to risk-weighted assets is at least 6%, its ratio of Tier 1 capital to
total assets is at least 5%, and it is not subject to any order or directive by
the FDIC to meet a specific capital level. An institution will be treated as
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 8%, its ratio of Tier 1 capital to risk-weighted assets is at least
4%, and its ratio of Tier 1 capital to total assets is at least 4% (3% if the
bank receives the highest rating under the Uniform Financial Institutions Rating
System) and it is not a well capitalized institution. An institution that has
total risk-based capital of less than 8%, Tier 1 risk-based capital of less than
4% or a leverage ratio that is less than 4% (or less than 3% if the bank
receives the highest rating under the Uniform Financial Institutions Rating
System) would be considered to be "undercapitalized." An institution that has
total risk-based capital of less than 6%, Tier 1 capital of less than 3% or a
leverage ratio that is less than 3% would be considered to be "significantly
undercapitalized," and an institution that has a tangible capital to assets
ratio equal to or less than 2% would be deemed to be "critically
undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of: (1) an amount equal to five percent of the bank's total assets
at the time it became "undercapitalized"; and (2) the amount that is necessary
(or would have been necessary) to bring the bank into compliance with all
capital standards applicable with respect to such bank as of the time it fails
to comply with the plan. If a bank fails to submit an acceptable plan, it is
treated as if it were "significantly undercapitalized." Banks that are
significantly or critically undercapitalized are subject to a wider range of
regulatory requirements and restrictions.
DEPOSIT INSURANCE. Pursuant to FDICIA, the FDIC established a system
for setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending six months before the assessment period. The three
capital categories are (1) well capitalized, (2) adequately capitalized and (3)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. With respect to the capital
ratios, institutions are classified as well capitalized, adequately capitalized
or undercapitalized, using ratios that are substantially similar to the prompt
corrective action capital ratios discussed above. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information that
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor).
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<PAGE>
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (I.E.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed. Any increase in insurance assessments could have an adverse
effect on the earnings of an insured institution.
Under the Deposit Insurance Funds Act of 1996 ("Funds Act"), the
assessment base for the payments on the bonds ("FICO bonds") issued in the late
1980's by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as the Savings
Bank and the Commercial Bank. The Savings Bank's and the Commercial Bank's total
expense in 1999 for the assessment for deposit insurance and the FICO payments
was $30,678.
Under the FDIA, the FDIC may terminate the insurance of an
institution's deposits upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. Neither the management of the Savings Bank nor
the management of the Commercial Bank knows of any practice, condition or
violation that might lead to termination of deposit insurance.
Under the FDIA, depository institutions are liable to the FDIC for
losses suffered or anticipated by the FDIC in connection with the default of a
commonly controlled depository institution or any assistance provided by the
FDIC to such an institution in danger of default.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, purchase of assets from or issuance of letter of
credit on behalf of the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such bank holding company
or its subsidiaries as collateral for loans. In addition, provisions of the
Federal Reserve Act and FRB regulations limit the amounts of, and establish
required procedures and credit standards with respect to, loans and other
extensions of credit to officers, directors and principal shareholders of the
bank holding company or its subsidiaries and related interests of such persons.
Moreover, banks are prohibited from engaging in certain tie-in arrangements
(with the bank's parent holding company or any of the holding company's
subsidiaries) in connection with any extension of credit, lease or sale of
property or furnishing of services.
TRANSACTIONS WITH AFFILIATES OF THE BANK. Transactions between an
insured bank and any of its affiliates is governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a bank is any company or entity that
controls, is controlled by or is under common control with the bank.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the FRB has proposed treating any subsidiary of a bank that is engaged in
activities not permissible for bank holding companies under the BHCA as an
affiliate for purposes of Sections 23A and 23B. Generally, Sections 23A and 23B
(i) limit the extent to which the bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
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<PAGE>
(ii) require that all such transactions be on terms that are consistent with
safe and sound banking practices. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of guarantees and other similar
types of transactions. Further, most loans by a bank to any of its affiliate
must be secured by collateral in amounts ranging from 100 to 130 percent of the
loan amounts. In addition, any covered transaction by a bank with an affiliate
and any purchase of assets or services by a bank from an affiliate must be on
terms that are substantially the same, or at least as favorable, to the
institution as those that would be provided to a non-affiliate.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
PROHIBITIONS AGAINST TYING ARRANGEMENTS. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements and
extensions of credit by correspondent banks. In general, a depository
institution is prohibited, subject to certain exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution.
PRIVACY STANDARDS. Pursuant to the GLB Act, financial institutions are
required to establish a policy governing the collection, use and protection of
non-public information about their customers and consumers, provide notice of
such policy to consumers and provide a mechanism for consumers to opt out of any
practice of the institution whereby nonpublic personal information would
otherwise be disclosed to unaffiliated third parties. The federal banking
agencies, jointly with the Federal Trade Commission and the SEC, have published
proposed regulations to implement the privacy standards of the GLB Act. Under
the regulations, the Registrant, the Savings Bank and the Commercial Bank will
be required to adopt and implement a privacy policy no later than November 13,
2000. The Registrant has not yet determined the extent to which the privacy
standards will affect its operations.
UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to- value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
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the collateral, (ii) for land development loans (I.E., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%, (iii) for loans for the construction of commercial,
multi-family or other non-residential property, the supervisory limit is 80%,
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%, and (v) for loans secured by other improved property
(E.G., farmland, completed commercial property and other income-producing
property, including non-owner occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one- to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
COMMUNITY REINVESTMENT ACT. Under the CRA, an insured depository
institution has a continuing and affirmative obligation consistent with its safe
and sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community. The CRA
requires the FDIC, in connection with its examination of a savings bank, to
assess the depository institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution, including applications for additional branches
and acquisitions.
Pursuant to current CRA regulations, an institution is evaluated based
on its actual performance in meeting community needs, as compared to the
process-based assessment factors used under prior CRA regulations. This new
evaluation system focuses on three tests: (a) a lending test, to evaluate the
institution's record of making loans in its service areas, (b) an investment
test, to evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefitting low or moderate income
individuals and businesses, and (c) a service test, to evaluate the
institution's delivery of services through its branches, ATMs and other offices.
Small banks are assessed pursuant to a streamlined approach focusing on a lesser
range of information and performance standards.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. The Savings Bank
received a "satisfactory" rating in its most recent CRA examination.
Federal Home Loan Bank System
- - -----------------------------
The Savings Bank is a member of the FHLBNY, which is one of the twelve
regional Federal Home Loan Banks ("FHLBs") that comprise the FHLB System. Each
of the FHLB's is subject to supervision and regulation by the Federal Housing
Finance Board ("FHFB"). The FHLB System provides a central credit facility
primarily for member thrift institutions, as well as other entities involved in
home mortgage lending. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLBs. It makes loans to members (i.e.,
advances) in accordance with policies and procedures, including collateral
requirements, established by the respective boards of directors of the FHLBs.
These policies and procedures are subject to the regulation and oversight of the
FHFB. Long-term advances may only be made for the purpose of providing funds for
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residential home financing. The FHFB has also established standards of community
or investment service that members must meet to maintain access to such
long-term advances.
The Savings Bank, as a member of the FHLBNY, is required to purchase
and hold shares of capital stock in the FHLBNY in an amount at least equal to
the greater of (i) 1% of the aggregate principal amount of its unpaid mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year; (ii) 0.3% of its assets; or (iii) 5% (or such greater fraction as
established by the FHLB) of its advances from the FHLBNY. Pursuant to the GLB
Act, the foregoing minimum share ownership requirement will be replaced by
regulations to be promulgated by the FHFB. The GLB Act specifically provides
that the minimum requirement in existence immediately prior to adoption of the
GLB Act shall remain in effect until such regulations are adopted. The Savings
Bank was in compliance with this requirement with an investment in FHLBNY stock
at December 31, 1999 of $11.8 million.
Federal Reserve System
- - ----------------------
Under FRB regulations, each of the Savings Bank and the Commercial Bank
is required to maintain non-interest-earning reserves against its transaction
accounts (primarily NOW and regular checking accounts). The FRB regulations
generally require that reserves of 3% must be maintained against aggregate
transaction accounts of $46.5 million or less (subject to adjustment by the FRB)
and an initial reserve of $1.4 million plus 10% (subject to adjustment by the
FRB between 8% and 14%) against that portion of total transaction accounts in
excess of $46.5 million. The first $4.9 million of otherwise reservable balances
(subject to adjustments by the FRB) are exempted from the reserve requirements.
The Savings Bank is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a FRB or a pass-through account as defined by
the FRB, the effect of this reserve requirement is to reduce the Savings Bank's
and the Commercial Bank's interest-earning assets.
Federal Bank Holding Company Regulation
- - ---------------------------------------
GENERAL. The Registrant is a bank holding company subject to
examination, regulation and periodic reporting under the BHCA, as administered
by the FRB.
IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT. Among other things,
the GLB Act establishes a comprehensive- framework to permit affiliations among
commercial banks, insurance companies and securities firms. Generally, the new
law (i) repeals the historical restrictions and eliminates many federal and
state law barriers to affiliations among banks and securities firms, insurance
companies and other financial service providers, (ii) provides a uniform
framework for the activities of banks, savings institutions and their holding
companies, (iii) broadens the activities that may be conducted by subsidiaries
of national banks and state banks, (iv) provides an enhanced framework for
protecting the privacy of information gathered by financial institutions
regarding their customers and consumers, (v) adopts a number of provisions
related to the capitalization, membership, corporate governance and other
measures designed to modernize the FHLB System, (vi) requires public disclosure
of certain agreements relating to funds expended in connection with an
institution's compliance with the Community Reinvestment Act, and (vii)
addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions,
including the functional regulation of bank securities and insurance activities.
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<PAGE>
Bank holding companies are now permitted to engage in a wider variety
of financial activities than permitted under the prior law, particularly with
respect to insurance and securities activities. In addition, in a change from
the prior law, bank holding companies are in a position to be owned, controlled
or acquired by any company engaged in financially related activities.
ACTIVITY RESTRICTIONS. The BHCA generally limits the Registrant's
activities to managing or controlling banks, furnishing services to or
performing services for its subsidiaries and engaging in other activities that
the FRB determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining whether a
particular activity is permissible, the FRB must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public that outweigh possible adverse effects. Possible benefits include
greater convenience, increased competition and gains in efficiency. Possible
adverse effects include undue concentration of resources, decreased or unfair
competition, conflicts of interest and unsound banking practices. Some of the
principal activities that the FRB has determined by regulation to be so closely
related to banking as to be a proper incident thereto are: (i) making or
servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor; (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.
The FRB may require that the Registrant terminate an activity or
terminate control of or liquidate or divest certain subsidiaries or affiliates
when the FRB believes the activity or the control of the subsidiary or affiliate
constitutes a significant risk to the financial safety, soundness or stability
of any of its banking subsidiaries. The FRB also has the authority to regulate
provisions of certain bank holding company debt, including authority to impose
interest ceilings and reserve requirements on such debt.
Effective March 11, 2000, the GLB Act expands the range of permitted
activities of certain bank holding companies to include the offering of
virtually any type of service that is financial in nature or incidental thereto,
including banking, securities underwriting, insurance (both underwriting and
agency), merchant banking, acquisitions of and combinations with insurance
companies and securities firms and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. In order to engage in these new
activities, a bank holding company must qualify and register with the FRB as a
financial holding company. To qualify as a financial holding company, a bank
holding company must demonstrate that each of its bank subsidiaries is
well-capitalized and well-managed and has a rating of "satisfactory" or better
under the CRA. Certain of the additional activities authorized under the GLB Act
may also be undertaken by a financial subsidiary of a bank. Under the GLB Act, a
functional system of regulation will apply to financial holding companies under
which banking activities will be regulated by the federal banking regulators,
securities activities will be regulated by the federal securities regulators,
and insurance activities will be subject to regulation by the appropriate state
insurance authorities.
Although the Registrant currently meets all standards required for
qualification as a financial holding company, it has not yet determined whether
it will seek to qualify as, or engage in any of the additional activities
authorized for, a financial holding company. The Registrant is examining its
business plan to determine whether, based on market conditions, the financial
condition of the
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Registrant and its subsidiaries, regulatory capital requirements, general
economic conditions and other requirements, it desires to utilize any of the
expanded powers permitted by the GLB Act.
ACQUISITION AND SALE OF CONTROL. Under the federal Change in Bank
Control Act ("CBCA"), any person (including a company), or group acting in
concert, seeking to acquire 10% or more of the outstanding shares of the
Registrant's common stock will be required to submit prior notice to the FRB,
unless the FRB has found that the acquisition of such shares will not result in
a change in control of the Registrant. Under the CBCA, the FRB has 60 days
within which to act on such notice, taking into consideration certain factors,
including the financial and managerial resources of the acquiror, the
convenience and needs of the communities served by the Registrant and the
Savings Bank, and the antitrust effects of the acquisition. Under the BHCA, any
company would be required to obtain prior approval from the FRB before it may
obtain "control" of the Registrant within the meaning of the BHCA. Control
generally is defined under the BHCA to mean the ownership or power to vote 25%
or more of any class of voting securities of the Registrant or the ability to
control in any manner the election of a majority of the Registrant's directors.
The Registrant is required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval will be required for the Registrant to acquire
direct or indirect ownership or control of any voting securities of any bank or
bank holding company if, after giving effect to such acquisition, it would,
directly or indirectly, own or control more than 5% of any class of voting
shares of such bank or bank holding company.
CAPITAL; DIVIDENDS; SHARE REPURCHASES; SOURCE OF STRENGTH. The FRB
imposes certain capital requirements on the Registrant under the BHCA, including
a minimum leverage ratio and a minimum ratio of "qualifying" capital to
risk-weighted assets. These minimum requirements are substantially the same as
the FDIC's minimum capital requirements described above under "Federal Banking
Regulation -- Capital Requirements." Subject to its capital requirements and
certain other restrictions, the Registrant is able to borrow money to make a
capital contribution to the Savings Bank or the Commercial Bank, and such loans
may be repaid from dividends paid from the Savings Bank or the Commercial Bank
to the Registrant. The Registrant is also able to raise capital for contribution
to the Savings Bank or the Commercial Bank by issuing securities without having
to receive regulatory approval, subject to compliance with federal and state
securities laws.
The following table shows the Registrant's actual capital amounts and
its capital ratios at December 31, 1999, as compared to the minimum amounts and
ratios:
<TABLE>
<CAPTION>
MINIMUM CAPITAL
COMPANY ACTUAL ADEQUACY
-------------- --------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Leverage (Tier 1) capital...... $73,214 12.67% $23,122 4.00%
Risk-based capital:
Tier 1..................... 73,214 23.94 12,231 4.00
Total...................... 75,168 24.58 24,462 8.00
</TABLE>
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As the table shows, the Registrant exceeded the minimum capital
adequacy requirements at the date indicated.
The Registrant is required to give the FRB prior written notice of any
purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of the company's consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the FRB, that has received a composite "1" or "2" rating at its
most recent bank holding company examination by the FRB, and that is not the
subject of any unresolved supervisory issues.
Regulations of the FRB provide that a bank holding company must serve
as a source of strength to any of its subsidiary banks and must not conduct its
activities in an unsafe or unsound manner. A bank holding company should stand
ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. Under the prompt
corrective action provisions of FDICIA, a bank holding company parent of an
undercapitalized subsidiary bank would be directed to guarantee, within
limitations, the capital restoration plan that is required of such an
undercapitalized bank. See "Federal Banking Regulation -- Prompt Corrective
Action" above. If the undercapitalized bank fails to file an acceptable capital
restoration plan or fails to implement an accepted plan, the FRB may prohibit
the bank holding company parent of the undercapitalized bank from paying any
dividend or making any other form of capital distribution without the prior
approval of the FRB.
New York Holding Company Regulation
- - -----------------------------------
Under the Banking Law, certain companies owning or controlling banks
are regulated as a bank holding company. For purposes of the Banking Law, the
term "bank holding company" is defined generally to include any "company" that,
directly or indirectly, either (a) controls the election of a majority of the
directors or (b) owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. The term "company" is defined to
include corporations, partnerships and other types of business entities,
chartered or doing business in New York, and the term "banking institution" is
defined to include commercial banks, stock savings banks and stock savings and
loan associations.
A company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the Banking Law. Under the Banking Law, the prior approval of the New York
Banking Board is required before: (1) any action is taken that causes any
company to become a bank holding company; (2) any action is taken that causes
any banking institution to become or to be merged or consolidated with a
subsidiary of a bank holding company; (3) any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or substantially all of the assets of a banking institution; or (5) any
action is taken that causes any bank holding company to merge or consolidate
with another bank holding company.
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<PAGE>
Additionally, certain restrictions apply to New York State bank holding
companies regarding the acquisition of banking institutions that have been
chartered for five years or less and are located in smaller communities.
Directors, officers and employees of a New York State bank holding
company are subject to limitations regarding their affiliation with securities
underwriting or distribution firms and with other bank holding companies, and
directors and executive officers are subject to limitations regarding loans
obtained from certain of the holding company's banking subsidiaries. Although
the Registrant is not a bank holding company for purposes of the Banking Law,
any future acquisition of ownership, control, or the power to vote 10% or more
of the voting stock of another banking institution or bank holding company
having its principal office in the State of New York would cause it to become
such.
Interstate Banking and Branching
- - --------------------------------
In the past, interstate banking was limited under the BHCA to those
states that permitted interstate banking by statute. New York was one of a
number of states that permitted, subject to the reciprocity conditions of the
Banking Law, out-of-state bank holding companies to acquire New York banks. By
1995, most states had adopted statutes permitting multistate bank holding
companies.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act") was enacted on September 29, 1994. As of September
29, 1995, the Interstate Banking Act permitted approval under the BHCA of the
acquisition by a bank holding company that is well capitalized and managed of a
bank outside of the holding company's home state regardless of whether the
acquisition was permitted under the law of the state of the bank to be acquired.
The FRB may not approve an acquisition under the BHCA that would result in the
acquiring holding company controlling more than 10% of the deposits in the
United States or more than 30% of the deposits in any particular state.
In the past, branching across state lines was not generally available
to a state bank, such as the Savings Bank. While out-of-state branches were
authorized under the Banking Law, similar authority was not generally available
under the laws of most other states. Beginning June 1, 1997, the Interstate
Banking Act, permitted the responsible federal banking agencies to approve
merger transactions between banks located in different states, regardless of
whether the merger would be prohibited under state law. Accordingly, the
Interstate Banking Act permits a bank to have branches in more than one state.
Before any bank acquisition can be completed, prior approval thereof
may also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired, including the NYSBD. The Interstate
Banking Act will facilitate the consolidation of the banking industry that has
taken place over recent years and will allow the creation of larger, presumably
more efficient, banking networks.
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Federal Securities Law
- - ----------------------
The Registrant's securities are registered with the SEC under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Registrant
is subject to the information, proxy solicitation, insider trading and other
requirements and restrictions of the Exchange Act.
ITEM 2. PROPERTIES
The Savings Bank conducts its business through its main office in
Warwick, New York and its four branch offices located in Monroe, Woodbury,
Wallkill and Newburgh, New York. The Commercial Bank conducts its business
through its office in Lodi, New Jersey. Management believes that the Savings
Bank's and the Commercial Bank's current facilities are adequate to meet the
present and immediately foreseeable needs of the Savings Bank, the Commercial
Bank and the Registrant.
The following sets forth information regarding the Savings Bank's
branches and loan production offices and the Commercial Bank's office at
December 31, 1999.
<TABLE>
<CAPTION>
LEASED DATE LEASE
OR LEASED OR EXPIRATION
OWNED ACQUIRED DATE
----- -------- ----
<S> <C> <C> <C>
SAVINGS BANK
- - ------------
Main Office:
18 Oakland Avenue
Warwick, New York 10990 Owned 1972 N/A
Branches:
591 Route 17M
Monroe, New York 10950 Owned 1976 N/A
556 Route 32
Highland Mills, New York 10930 Owned 1979 N/A
1 Industrial Avenue
Wallkill, New York 10940 Owned 1998 N/A
1425 Route 300
Newburgh, New York 12550 Land Leased 1999 12/06/29
Loan Production Offices:
263 NYS Route 17K
Newburgh, New York Leased 1998 09/20/01
Taconic Plaza Shopping Center, Store #10
Route 52
East Fishkill, New York Leased 1997 01/31/01
151 South Main Street, Suite 104
New City, New York Leased 1997 04/30/00
</TABLE>
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<TABLE>
<CAPTION>
LEASED DATE LEASE
OR LEASED OR EXPIRATION
OWNED ACQUIRED DATE
----- -------- ----
<S> <C> <C> <C>
799 Franklin Avenue
Franklin Lakes, New Jersey Leased 1999 09/20/01
COMMERCIAL BANK
- - ---------------
Leased 1999 03/31/02
The Towne Center Bank
15 Washington Street
Lodi, New Jersey 07644
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business,
which in the aggregate involve amounts which management believes to be
immaterial to the financial condition and results of operations of the
Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS
The information required by this item appears under the caption "Market
for Common Stock" on page F15 of the Registrant's Annual Report to Shareholders
for the year ended December 31, 1999 and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on pages F2 through F3,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 and is incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item appears on pages F4 through F15,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item appears on pages F5 through F7,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages F16 through F39,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
December 31,1999 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this item appears under the caption
"Election of Directors" on pages 5 through 10, inclusive, and under the caption
"Compliance with Section 16(a) of the Exchange Act" on pages 21 and 22 of the
Registrant's Proxy Statement ("Proxy Statement") for its 2000 Annual Meeting of
Shareholders to be held on April 18, 2000 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears on pages 13 through 21,
inclusive, of the Registrant's Proxy Statement and is incorporated herein by
reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the captions "Stock
Ownership of Certain Beneficial Owners" on pages 2 and 3, inclusive, and "Stock
Ownership of Management" on pages 4 and 5, inclusive, of the Registrant's Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption
"Transactions with Certain Related Persons" on page 21 of the Registrant's Proxy
Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. The following consolidated financial statements of the
Registrant and its subsidiaries, and the independent auditors'
report thereon, included on pages F16 through F40 of the
Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated herein by reference:
Consolidated Statements of Financial Condition as of
December 31, 1999 and December 31, 1998;
Consolidated Statements of Income for Each of the
Years in the Three-Year Period Ended December 31,
1999;
Consolidated Statements of Changes in Stockholders'
Equity for Each of the Years in the Three-Year Period
Ended December 31, 1999;
Consolidated Statements of Cash Flows for Each of the
Years in the Three-Year Period Ended December 31,
1999;
Notes to Consolidated Financial Statements
2. All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
3. The following exhibits are filed as part of this report,
except as otherwise indicated.
3.1 Certificate of Incorporation of Warwick Community
Bancorp, Inc. (1)
3.2 Bylaws of Warwick Community Bancorp, Inc. (1)
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4.1 Certificate of Incorporation of Warwick Community
Bancorp, Inc. (See Exhibit 3.1 hereto)
4.2 Bylaws of Warwick Community Bancorp, Inc. (See
Exhibit 3.2 hereto)
4.3 Restated Organization Certificate of The Warwick
Savings Bank (1)
4.4 Bylaws of The Warwick Savings Bank, as amended (1)
4.5 Stock Certificate of Warwick Community Bancorp, Inc.
(1)
10.1 Employment Agreement by and between Warwick Community
Bancorp, Inc. and Timothy A. Dempsey (2)
10.2 Employment Agreement by and between Warwick Community
Bancorp, Inc. and Ronald J. Gentile (2)
10.3 Employment Agreement by and between Warwick Community
Bancorp, Inc. and Arthur W. Budich (2)
10.4 Employment Agreement by and between Warwick Community
Bancorp, Inc. and Nancy L. Sobotor-Littell (2)
10.5 Employee Retention Agreement by and between The
Warwick Savings Bank and Donna M. Lyons (2)
10.6 Employee Retention Agreement by and between The
Warwick Savings Bank and Barbara A. Rudy (2)
10.7 Employee Retention Agreement by and between The
Warwick Savings Bank and Arthur S. Anderson (2)
10.8 Recognition and Retention Plan of Warwick Community
Bancorp, Inc. (3)
10.9 Trust Agreement between Warwick Community Bancorp,
Inc. and Orange County Trust Company for the
Recognition and Retention Plan of Warwick Community
Bancorp, Inc. (2)
10.10 Stock Option Plan of Warwick Community Bancorp, Inc.
(3)
10.11 Warwick Community Bancorp, Inc. Employee Stock
Ownership Plan (1)
10.12 Trust Agreement between Warwick Community Bancorp,
Inc. and Marine Midland Bank for the Warwick
Community Bancorp, Inc. Employee Stock Ownership Plan
(2)
-49-
<PAGE>
10.13 Loan Agreement by and between the Warwick Community
Bancorp, Inc. Employee Stock Ownership Trust and
Warwick Community Bancorp, Inc. (2)
10.14 Benefit Restoration Plan of The Warwick Savings Bank
(1)
10.15 Grantor Trust Agreement by and between The Warwick
Savings Bank and Marine Midland Bank for the Benefit
Restoration Plan of The Warwick Savings Bank (2)
10.16 The Warwick Savings Bank 401(k) Savings Plan (1)
10.17 Trust Agreement between The Warwick Savings Bank and
Marine Midland Bank for The Warwick Savings Bank
401(k) Savings Plan Employer Stock Fund (2)
10.18 First Amendment to Employment Agreement by and
between Warwick Community Bancorp, Inc. and Timothy
A. Dempsey (4)
10.19 First Amendment to Employment Agreement by and
between Warwick Community Bancorp, Inc. and Ronald J.
Gentile (4)
10.20 First Amendment to Employment Agreement by and
between Warwick Community Bancorp, Inc. and Arthur W.
Budich (4)
10.21 First Amendment to Employment Agreement by and
between Warwick Community Bancorp, Inc. and Nancy L.
Sobotor-Littell (4)
10.22 First Amendment to the Stock Option Plan of Warwick
Community Bancorp, Inc. (5)
10.23 First Amendment to the Recognition and Retention Plan
of Warwick Community Bancorp, Inc. (5)
10.24 Employment Agreement by and among Warwick Community
Bancorp, Inc., The Towne Center Bank and Fred G.
Kowal
10.25 Employment Agreement by and among Warwick Community
Bancorp, Inc., The Towne Center Bank and Lawrence D.
Haggerty
11.1 Statement re: Computation of per share earnings
13.1 1999 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
-50-
<PAGE>
27.1 Financial Data Schedule (EDGAR filing only)
99.1 Proxy Statement for the 2000 Annual Meeting of
Shareholders
- - ---------------------------
(1) Incorporated herein by reference to the Exhibits to the
Registrant's Registration Statement on Form S-1, filed on
September 19, 1997, Registration No. 333-36021.
(2) Incorporated herein by reference to the Exhibits to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.
(3) Incorporated herein by reference to the Registrant's
definitive Proxy Statement for the Special Meeting of
Shareholders held on June 24, 1998.
(4) Incorporated herein by reference to the Exhibits to the
Registrant's Annual Report on Form 10-K for the transition
period from June 1, 1998 to December 31, 1998.
(5) Incorporated herein by reference to the Registrant's
definitive Proxy Statement for the Annual Meeting of
Shareholders held on April 20, 1999.
(b) No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
-51-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARWICK COMMUNITY BANCORP, INC.
Dated: March 30, 2000 BY:/s/ Timothy A. Dempsey
------------------------------------
Timothy A. Dempsey
Chairman of the Board and
Chief Executive Officer
BY:/s/ Arthur W. Budich
------------------------------------
Arthur W. Budich
Senior Vice President, Treasurer
and Chief Financial Officer
-52-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Chairman of the Board and Chief March 30, 2000
/s/ Timothy A. Dempsey Executive Officer and Director
- - -----------------------------------------------
Timothy A. Dempsey
President and Chief Operating March 30, 2000
/s/ Ronald J. Gentile Officer and Director
- - -----------------------------------------------
Ronald J. Gentile
Director March 30, 2000
/s/ Frances M. Gorish
- - -----------------------------------------------
Frances M. Gorish
Director
- - -----------------------------------------------
R. Michael Kennedy
Director
- - -----------------------------------------------
Fred M. Knipp
Director
- - -----------------------------------------------
Emil R. Krahulik
Director March 30, 2000
/s/ Thomas F. Lawrence, Jr.
- - -----------------------------------------------
Thomas F. Lawrence, Jr.
Director
- - -----------------------------------------------
John J. McDermott III
Director March 30, 2000
/s/ Henry L. Nielsen, Jr.
- - -----------------------------------------------
Henry L. Nielsen, Jr.
Director March 30, 2000
/s/ John W. Sanford III
- - -----------------------------------------------
John W. Sanford III
Director March 30, 2000
/s/ Robert N. Smith
- - -----------------------------------------------
Robert N. Smith
</TABLE>
-53-
Employment Agreement
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of October 26, 1999 by and among WARWICK COMMUNITY BANCORP, INC., a
business corporation organized and existing under the laws of the State of
Delaware and having an office at 18 Oakland Avenue, Warwick, New York 10990-0591
("Company"), THE TOWNE CENTER BANK, a commercial bank organized and existing
under the laws of the State of New Jersey and a subsidiary of the Company
("Commercial Bank"), and FRED G. KOWAL, an individual residing at 15 Rutland
Road, Glen Rock, New Jersey 07452 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive has accepted the Company's offer to
become the President and Chief Executive Officer of the Commercial Bank; and
WHEREAS, the Company and the Commercial Bank desire to assure
for themselves and their respective subsidiaries and affiliates the continued
availability of the Executive's services as provided in this Agreement and the
ability of the Executive to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change of Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Company, the Commercial Bank and their respective subsidiaries and affiliates on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company, the
Commercial Bank and the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company and the Commercial Bank agree to continue to
employ the Executive, and the Executive hereby agrees to such continued
employment, during the period and upon the terms and conditions set forth in
this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for a term of two years
beginning on the date of this Agreement and ending on the second anniversary
date of this Agreement, plus such extensions, if any, as are provided pursuant
to section 2(b).
(b) Except as provided in section 2(c) and subject to section
11(b), in the event a Change of Control as defined in section 11 has occurred,
beginning on the date of such Change of Control, the Employment Period shall
automatically be extended to the second anniversary of the date of the Change of
Control, and the Employment Period shall automatically be extended for one
additional day each day, unless the Company or the Commercial Bank or the
Executive elects not to extend the Agreement further by giving written notice
thereof to the other two parties, in which case the Employment
<PAGE>
Period shall end on the second anniversary of the date on which such written
notice is given. For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the last day of the Employment Period taking into
account any extensions under this section 2(b). Upon termination of the
Executive's employment with the Company or the Commercial Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Company or the Commercial Bank at any time from terminating the Executive's
employment during the Employment Period with or without notice for any reason;
PROVIDED, HOWEVER, that the relative rights and obligations of the Company, the
Commercial Bank and the Executive in the event of any such termination shall be
determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as President and Chief Executive
Officer of the Commercial Bank, having such power, authority and responsibility
and performing such duties as are prescribed by or under the By-Laws of the
Commercial Bank and as are customarily associated with such position. The
Executive shall devote his full business time and attention (other than during
weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Commercial Bank
and shall use his best efforts to advance the interests of the Company and the
Commercial Bank. In the event that the business and affairs of the Commercial
Bank do not require the Executive's full business time and attention, as
reasonably determined by the Board of Directors of the Company ("Company
Board"), the Executive shall, in addition to performing the duties as President
and Chief Executive Officer of the Commercial Bank described above, have such
power, authority and responsibility and perform such duties for the Company, or
any subsidiary or affiliate of the Company, as may be reasonably assigned to him
by the Company Board in its discretion, or the board of directors of such
subsidiary or affiliate in its discretion, as the case may be.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Commercial Bank shall pay to him a salary at an initial
annual rate of one hundred and twenty-five thousand dollars ($125,000), payable
in approximately equal installments in accordance with the Company's customary
payroll practices for senior officers. The Board of Directors of the Commercial
Bank ("Commercial Bank Board") shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company or the Commercial Bank for services
hereunder at such times, in such amounts and on such terms and conditions as the
Company Board or the Commercial Bank Board, as applicable, may determine from
time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Company and the Commercial Bank and shall be entitled to
participate in and receive benefits under
-2-
<PAGE>
any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company
and the Commercial Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Company's and the Commercial Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Company or the Commercial Bank shall cause the Executive to be
covered by and named as an insured under any policy or contract of insurance
obtained by it to insure its directors and officers against personal liability
for acts or omissions in connection with service as an officer or director of
the Company or the Commercial Bank or service in other capacities at the request
of the Company or the Commercial Bank. The coverage provided to the Executive
pursuant to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company and the Commercial Bank.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six years thereafter, the
Company and the Commercial Bank shall indemnify the Executive against and hold
him harmless from any costs, liabilities, losses and exposures to the fullest
extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of the Company and the
Commercial Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Company Board or the Commercial Bank Board (which
approval shall not be unreasonably withheld); PROVIDED, HOWEVER, that such
service shall not materially interfere with the performance of his duties under
this Agreement. The Executive may also engage in personal business and
investment activities which do not materially interfere with the performance of
his duties hereunder; PROVIDED, HOWEVER, that such activities are not prohibited
under any code of conduct or investment or securities trading policy established
by the Company or the Commercial Bank and generally applicable to all similarly
situated Executives. The Executive may also serve as an officer or director of
the Company or any subsidiary or affiliate of the Company on such terms and
conditions as the Company and the Commercial Bank may mutually agree upon, and
such service shall not be deemed to materially interfere with the Executive's
performance of his duties hereunder or otherwise result in a material breach of
this Agreement. If the Executive is discharged or suspended, or is subject to
any regulatory prohibition or restriction with respect to participation in the
affairs of the Commercial Bank, he shall continue to perform services for the
Company in accordance with this Agreement but shall not directly or indirectly
provide services to or participate in the affairs of the Commercial Bank in a
manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.
-3-
<PAGE>
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal places of employment shall be at
either the Company's or the Commercial Bank's principal executive offices, or at
such other location within 50 miles of the addresses at which the Company and
the Commercial Bank shall maintain their respective principal executive offices,
or at such other location as the Company, the Commercial Bank and the Executive
may mutually agree upon. The Commercial Bank shall provide the Executive at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the
Commercial Bank and necessary or appropriate in connection with the performance
of his assigned duties under this Agreement. The Commercial Bank shall reimburse
the Executive for his ordinary and necessary business expenses, including,
without limitation, the Executive's travel and entertainment expenses incurred
in connection with the performance of his duties under this Agreement, in each
case upon presentation to the Commercial Bank of an itemized account of such
expenses in such form as the Commercial Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance
benefits described in section 9(b) in the event that:
(i) his employment with the Company or the Commercial Bank
terminates during the Employment Period as a result of the Executive's
voluntary resignation within 90 days following:
(A) the failure of the Commercial Bank Board to
appoint or re- appoint or elect or re-elect the Executive to
the position with the Commercial Bank stated in section 3 of
this Agreement (or a more senior office);
(B) the failure of the shareholders of the
Commercial Bank to elect or re-elect the Executive to the
Commercial Bank Board;
(C) the expiration of a 30-day period following the
date on which the Executive gives written notice to the
Company of its or the Commercial Bank's material failure,
whether by amendment of the Company's Certificate of
Incorporation, the Commercial Bank's Certificate of
Incorporation, the Company's By-Laws or the Commercial Bank's
By-Laws, action of the Company Board or the Commercial Bank
Board or the Company's shareholders or the Commercial Bank's
shareholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement, unless, during such 30-day period, the
Company or the Commercial Bank cures such failure; or
(D) the expiration of a 30-day period following the
date on which the Executive gives written notice to the
Company of its or the Commercial Bank's material breach of any
term, condition or covenant contained in this Agreement
(including, without limitation, any reduction of the
Executive's rate of base salary in effect from time to time
and any change in the terms and
-4-
<PAGE>
conditions of any compensation or benefit program in which the
Executive participates which, either individually or together
with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless,
during such 30-day period, the Company or the Commercial Bank
cures such failure; or
(ii) the Executive's employment with the Commercial Bank is
terminated by the Company or the Commercial Bank for any reason other
than for "cause" as provided in section 10(a); or
(iii) a Change of Control as defined in section 11 has
occurred.
(b) Upon the occurrence of any of the events described in
section 9(a) of this Agreement, the Company or the Commercial Bank shall pay and
provide to the Executive (or, in the event of his death, to his estate):
(i) his earned but unpaid salary (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for in this section
9(b)) as of the date of the termination of his employment with the
Commercial Bank, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's and the
Commercial Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Commercial Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during the Employment Period;
(iv) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment, in an amount
equal to the present value of the salary (excluding any additional
payments made to the Executive in lieu of the use of an automobile)
that the Executive would have earned if he had continued working for
the Commercial Bank during the Remaining Unexpired Employment Period at
the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d)
-5-
<PAGE>
of the Internal Revenue Code of 1986, as amended ("Code"), compounded
using the compounding periods corresponding to the Company's regular
payroll periods for its officers, such lump sum to be paid in lieu of
all other payments of salary provided for under this Agreement in
respect of the period following any such termination;
(v) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled, if any, under The Warwick Savings
Bank Defined Benefit Pension Plan (together with the defined
benefit portion of the Benefit Restoration Plan of The Warwick
Savings Bank and any other supplemental defined benefit plan)
and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of,
the Company, the Commercial Bank or The Warwick Savings Bank,
if he were 100% vested thereunder and had continued working
for the Commercial Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary
achieved during the Employment Period; over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment in an amount
equal to the present value of the estimated employer contributions
which would have been made to his account, if any, under The Warwick
Savings Bank 401(k) Savings Plan, and the estimated value of the annual
allocations that would have been made to his account in the Employee
Stock Ownership Plan of Warwick Community Bancorp, Inc. (together with
the defined contribution portion of the Benefit Restoration Plan of The
Warwick Savings Bank or any other supplemental defined contribution
plan) and any and all other qualified and non-qualified defined
contribution plans maintained by, or covering employees of, the
Commercial Bank, as if he were 100% vested thereunder and had continued
working for the Commercial Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the Employment Period, making the maximum amount of employee
contributions, if any, required under any such plan or plans and taking
into account his estimated compensation as determined under any such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the
-6-
<PAGE>
compounding period that corresponds to the frequency with which
employer contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(vii) the payments that would have been made, if any, to the
Executive under any cash or stock bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of,
the Commercial Bank if he had continued working for the Commercial Bank
during the Remaining Unexpired Employment Period and had earned the
maximum bonus or incentive award in each calendar year that ends during
the Remaining Unexpired Employment Period, such payments to be equal to
the product of:
(A) the maximum percentage rate at which an award was
ever available to the Executive under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to the
Executive during each such calendar year at the highest annual
rate of salary achieved during the Employment Period;
such payments to be made (without discounting for early payment) within
30 days following the Executive's termination of employment;
(viii) at the election of the Company made within 30 days
following the occurrence of the event described in section 9(a), upon
the surrender of options or appreciation rights issued to the
Executive, if any, under any stock option and appreciation rights plan
or program maintained by, or covering employees of, the Company or the
Commercial Bank, a lump sum payment in an amount equal to the product
of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock
option or appreciation rights plan or program maintained by, or
covering employees of, the Company or the Commercial Bank, even if he
is not vested under such plan or program; and
(ix) at the election of the Company made within 30 days
following the occurrence of the event described in section 9(a), upon
the surrender of any shares awarded to the Executive, if any, under any
restricted stock plan maintained by, or covering employees of, the
Company or the Commercial Bank, a lump sum payment in an amount equal
to the product of:
-7-
<PAGE>
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Executive's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed
fully vested in all shares awarded under any restricted stock plan
maintained by, or covering employees of, the Company or the Commercial
Bank, even if he is not vested under such plan.
The Company, the Commercial Bank and the Executive hereby stipulate that the
damages which may be incurred by the Executive following any such termination of
employment are not capable of accurate measurement as of the date first above
written and that the payments and benefits contemplated by this section 9(b)
constitute reasonable damages under the circumstances and shall be payable
without any requirement of proof of actual damage and without regard to the
Executive's efforts, if any, to mitigate damages. The Company, the Commercial
Bank and the Executive further agree that the Company or the Commercial Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vi) on the receipt of the Executive's resignation from any and
all positions which he holds as an officer, director or committee member with
respect to the Company, the Commercial Bank or any subsidiary or affiliate of
either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY
LIABILITY. In the event that the Executive's employment with the Company or the
Commercial Bank shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement, shall mean a discharge because the Company
Board or the Commercial Bank Board, as the case may be, determines that
the Executive: (i) has willfully and intentionally failed to perform
his assigned duties under this Agreement (including for these purposes,
the Executive's inability to perform such duties as a result of drug or
alcohol dependency); (ii) has willfully and intentionally engaged in
dishonest or illegal conduct in connection with his performance of
services for the Company or the Commercial Bank or has been convicted
of a felony; (iii) has willfully violated, in any material respect, any
law, rule, regulation, written agreement or final cease-and-desist
order with respect to his performance of services for the Company or
the Commercial Bank, as determined by the Company Board or the
Commercial Bank Board, as the case may be; or (iv) has willfully and
intentionally breached the material terms of this Agreement; PROVIDED,
HOWEVER, that, if the Executive engages in any of the acts described in
section 10(a)(i) or (a)(iv) above, the Company or the Commercial Bank,
as the case may be, shall provide the Executive with written notice of
its intent to discharge the Executive for cause, and the Executive
shall have 30 days from the date on which the Executive receives such
notice to cure any such acts; AND PROVIDED, FURTHER, that on and after
the date that a Change of Control occurs, a determination under this
section 10 shall require the affirmative vote of at least three-fourths
of the members of the Company Board or the Commercial Bank Board, as
the case may be, acting in good faith and such vote shall not be made
prior to the expiration of a 60-day period following the date on which
the Company Board or the Commercial Bank Board, as the case may be,
shall, by written notice to the Executive, furnish to him a statement
of its grounds for proposing to make such
-8-
<PAGE>
determination, during which period the Executive shall be afforded a
reasonable opportunity to make oral and written presentations to the
members of the Company Board or the Commercial Bank Board, as the case
may be, and to be represented by his legal counsel at such
presentations, to refute the grounds for the proposed determination;
(b) the Executive's voluntary resignation from employment with
the Company or the Commercial Bank, as the case may be, for reasons
other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company
or the Commercial Bank or the termination of the Executive's employment
because of "total and permanent disability" within the meaning of the
long-term disability plan covering employees of the Commercial Bank;
then the Company and the Commercial Bank shall have no further obligations under
this Agreement, other than the payment to the Executive of his earned but unpaid
salary as of the date of the termination of his employment and the provision of
such other benefits, if any, to which he is entitled as a former employee under
the Company's and the Commercial Bank's employee benefit plans and programs and
compensation plans and programs. For purposes of this section 10, no act or
failure to act, on the part of the Executive, shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was in the
best interests of the Company and the Commercial Bank. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Company Board or the Commercial Bank Board or based upon the written advice of
counsel for the Company or the Commercial Bank shall be conclusively presumed to
be done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company and the Commercial Bank. The cessation of employment of
the Executive shall not be deemed to be for "cause" within the meaning of
section 10(a) unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of three-fourths of
the members of the Company Board or the Commercial Bank Board, as the case may
be, at a meeting of the Company Board or the Commercial Bank Board called and
held for such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be heard before
the Company Board or the Commercial Bank Board), finding that, in the good faith
opinion of the Company Board or the Commercial Bank Board, the Executive is
guilty of the conduct described in section 10(a) above, and specifying the
particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Company ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) the reorganization, merger or consolidation of the Company
with one or more other persons, other than a transaction following
which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"))
in substantially the same relative proportions by
-9-
<PAGE>
persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Company; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of the
outstanding securities of the Company entitled to vote generally in the
election of directors by any person or by any persons acting in
concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the Company Board do not
belong to any of the following groups:
(A) individuals who were members of the Company
Board on the date of this Agreement; or
(B) individuals who first became members of the
Company Board after the date of this Agreement either:
(1) upon election to serve as a member of
the Company Board by affirmative vote of
three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first election; or
(2) upon election by the shareholders of the
Company to serve as a member of the Company Board,
but only if nominated for election by affirmative
vote of three-quarters of the members of such board,
or of a nominating committee thereof, in office at
the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Company Board; or
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<PAGE>
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Commercial Bank" were substituted for
the term "Company" therein and the term "Commercial Bank Board" were
substituted for the term "Company Board" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Commercial
Bank, or a subsidiary of either of them, by the Company, the Commercial Bank, or
any subsidiary of either of them, or by any employee benefit plan or trust
maintained by any of them. For purposes of this section 11(a), the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits described in section 9(b), regardless
of whether his employment terminates; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean the period beginning on the
effective date of the Change of Control and ending on the second anniversary of
such date.
(c) Notwithstanding any contrary provision in this Agreement,
if, prior to the occurrence of a Change of Control, the Executive's employment
with the Company or the Commercial Bank is terminated (other than for "cause" as
defined in section 10(a)) and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of any person, party
or entity who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then, for all purposes of this Agreement, the "Change of Control"
shall be deemed to have occurred on the date immediately prior to the date of
the Executive's termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Company or the Commercial Bank or "in the ownership of a substantial
portion of the assets" of the Company or the Commercial Bank within the meaning
of section 280G of the Code. If this section 12 applies, then, if for any
taxable year, the Executive shall be liable for the payment of an excise tax
under section 4999 of the Code with respect to any payment in the nature of
compensation made by the Company, the Commercial Bank or any direct or indirect
subsidiary or affiliate of the Company or the Commercial Bank to (or for the
benefit of) the Executive, the Company shall pay to the Executive an amount
equal to X determined under the following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
-11-
<PAGE>
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable
to the Executive under the Code for the taxable year
in question (taking into account any phase-out or
loss of deductions, personal exemptions and other
similar adjustments);
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable
state and local laws for the taxable year in question
(taking into account any phase-out or loss of
deductions, personal exemptions and other similar
adjustments); and
M = the highest marginal rate of Medicare tax
applicable to the Executive under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this 12(a) shall be made to the Executive
on the earlier of (i) the date the Company, the Commercial Bank or any direct or
indirect subsidiary or affiliate of the Company or the Commercial Bank is
required to withhold such tax, or (ii) the date the tax is required to be paid
by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Company, as
the case may be, shall pay to the other party at the time that the amount of
such excise tax is finally determined, an appropriate amount, plus interest,
such that the payment made under section 12(a), when increased by the amount of
the payment made to the Executive under this section 12(b) by the Company or the
Commercial Bank, or when reduced by the amount of the payment made to the
Company or the Commercial Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Company and the Commercial Bank a copy of each
tax return which reflects a liability for an excise tax payment made by the
Company or the Commercial Bank, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.
SECTION 13. [Reserved]
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<PAGE>
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company and
the Commercial Bank, the Executive shall keep confidential and shall refrain
from using for the benefit of himself, or any person or entity other than the
Company, the Commercial Bank or any entity which is a subsidiary or affiliate of
the Company, the Commercial Bank or of which the Company or the Commercial Bank
is a subsidiary or affiliate, any material document or information obtained from
the Company, the Commercial Bank or from any of their respective parents,
subsidiaries or affiliates, in the course of his employment with any of them
concerning their properties, operations or business (unless such document or
information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 14
shall prevent the Executive, with or without the Company's or the Commercial
Bank's consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period
of one year following his termination of employment with the Commercial Bank, he
shall not, without the written consent of the Commercial Bank, directly solicit,
offer employment to, or take any other action intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of causing
any executive officer of the Company, the Commercial Bank or any of their
respective subsidiaries or affiliates to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings and loan
association, commercial bank, bank holding company, savings and loan holding
company, credit union, any other institution engaged in the business of
accepting deposits, making loans or doing a banking business within the counties
in which the Company or the Commercial Bank maintains an office or any direct or
indirect subsidiary or affiliate of any of the foregoing;
-13-
<PAGE>
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Company, by the Commercial Bank
or by the Executive, shall have no effect on the rights and obligations of the
parties hereto under the Company's or the Commercial Bank's qualified or
non-qualified retirement, pension, savings, thrift, profit-sharing or stock
bonus plans, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or such
other employee benefit plans or programs, or compensation plans or programs, as
may be maintained by, or cover employees of, the Company or the Commercial Bank
from time to time; PROVIDED, HOWEVER, that nothing in this Agreement shall be
deemed to duplicate any compensation or benefits provided under any agreement,
plan or program covering the Executive to which the Company is a party and any
duplicative amount payable under any such agreement, plan or program shall be
applied as an offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Company and the Commercial Bank and their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of the Company or the Commercial
Bank may be sold or otherwise transferred. Failure of the Company or the
Commercial Bank to obtain from any successor its express written assumption of
the Company's or the Commercial Bank's obligations hereunder at least 60 days in
advance of the scheduled effective date of any such succession shall be deemed a
material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested,
-14-
<PAGE>
addressed to such party at the address listed below or at such other address as
one such party may by written notice specify to the other party:
If to the Executive:
Fred G. Kowal
15 Rutland Road
Glen Rock, New Jersey 07452
If to the Company or the Commercial Bank:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: President
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Douglas J. McClintock, Esq.
--------------------------
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company and the Commercial Bank shall indemnify, hold
harmless and defend the Executive against reasonable costs, including legal fees
and expenses, incurred by him in connection with or arising out of any action,
suit or proceeding in which he may be involved, as a result of his efforts, in
good faith, to defend or enforce the terms of this Agreement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Company's or the Commercial Bank's obligations
hereunder shall be conclusive evidence of the Executive's entitlement to
indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
(b) The Company's and the Commercial Bank's obligations to
make the payments provided for in this Agreement and otherwise to perform their
respective obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company or the Commercial Bank may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company and the Commercial Bank agree to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of or in connection with his consultation with legal counsel
or arising out of any action, suit, proceeding or contest
-15-
<PAGE>
(regardless of the outcome thereof) by the Company or the Commercial Bank, the
Executive or others regarding the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in section 7872(f)(2)(A) of
the Code. This section 19(b) shall apply whether such consultation, action,
suit, proceeding or contest arises before, on, after or as a result of a Change
of Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same Agreement.
SECTION 23. GOVERNING LAW.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York applicable to contracts entered into and to be performed
entirely within the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
-16-
<PAGE>
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for any
direct or indirect subsidiary or affiliate of the Company or the Commercial
Bank, any compensation or benefits provided to the Executive by such other
employer shall be applied to offset the obligations of the Company and the
Commercial Bank hereunder, it being intended that this Agreement set forth the
aggregate compensation and benefits payable to the Executive for all services to
the Company, the Commercial Bank and all of their respective direct or indirect
subsidiaries and affiliates.
SECTION 27. IF THE COMMERCIAL BANK SHALL CEASE TO EXIST.
Notwithstanding any other provision in this Agreement to the
contrary, in the event that the Commercial Bank shall, for whatever reason,
cease to exist, whether by merger into The Warwick Savings Bank ("Savings Bank")
or another entity, dissolution, liquidation, sale or other transfer of assets
and liabilities or otherwise, then the Company Board may, in its sole
discretion, cause the election or appointment of the Executive to what it
reasonably believes to be an equivalent officer's position with equivalent
compensation at the Savings Bank, as compared to his position and compensation
at the Commercial Bank, and such action shall not be considered to be a
violation or a breach of this Agreement and shall not permit the Executive to
resign under section 9(a)(i). In such case, this Agreement shall continue in
full force and effect, but (i) the words "The Warwick Savings Bank" and "Savings
Bank," respectively, shall be substituted for "The Towne Center Bank" and
"Commercial Bank," respectively, where applicable, (ii) references to the
Executive's position and compensation at the Commercial Bank shall become
references to the Executive's position and compensation at the Savings Bank
(except that the Company Board shall not be required to elect the Executive to
the Board of Directors of the Savings Bank) and (iii) such other adjustments to
this Agreement as are necessary shall be made so as to continue this Agreement
in effect, the intent being that, if the Commercial Bank shall cease to exist,
the rights and obligations under this Agreement shall be shifted from the
Commercial Bank to the Savings Bank and otherwise continue to protect the
Executive, the Company and the Savings Bank.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1828(k), and any
regulations promulgated thereunder.
-17-
<PAGE>
IN WITNESS WHEREOF, the Company and the Commercial Bank have
caused this Agreement to be executed and the Executive has hereunto set his
hand, all as of the day and year first above written.
/s/ Fred G. Kowal
-----------------
Fred G. Kowal
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Timothy A. Dempsey
------------------------------------- -----------------------
Nancy L. Sobotor-Littell Timothy A. Dempsey
Corporate Secretary Chairman of the Board and
Chief Executive Officer
[Seal]
THE TOWNE CENTER BANK
Attest:
By /s/ Lois E. Ulatowski By /s/ Timothy A. Dempsey
------------------------------------- ------------------------
Lois E. Ulatowski Timothy A. Dempsey
Corporate Secretary Chairman of the Board
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 26th day of October, 1999, before me personally came
FRED G. KOWAL, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Lisette Cuba
-----------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 26th day of October, 1999, before me personally came
Timothy A. Dempsey, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990, that he is
Chairman of the Board and Chief Executive Officer of WARWICK COMMUNITY BANCORP,
INC., the Delaware corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
/s/ Lisette Cuba
-----------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 26th day of October, 1999, before me personally came
Timothy A. Dempsey, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990, that he is
Chairman of the Board of THE TOWNE CENTER BANK, the New Jersey commercial bank
described in and which executed the foregoing instrument; that he knows the seal
of said commercial bank; that the seal affixed to said instrument is such seal;
that it was so affixed by order of the Board of Directors of said commercial
bank; and that he signed his name thereto by like order.
/s/ Lisette Cuba
-----------------
Notary Public
-19-
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of October 26, 1999 by and among WARWICK COMMUNITY BANCORP, INC., a
business corporation organized and existing under the laws of the State of
Delaware and having an office at 18 Oakland Avenue, Warwick, New York 10990-0591
("Company"), THE TOWNE CENTER BANK, a commercial bank organized and existing
under the laws of the State of New Jersey and a subsidiary of the Company
("Commercial Bank"), and LAURENCE D. HAGGERTY, an individual residing at 198
West Shore Trail, Sparta, New Jersey 07871 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive has accepted the Company's offer to
become Executive Vice President and Chief Lending Officer of the Commercial
Bank; and
WHEREAS, the Company and the Commercial Bank desire to assure
for themselves and their respective subsidiaries and affiliates the continued
availability of the Executive's services as provided in this Agreement and the
ability of the Executive to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change of Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Company, the Commercial Bank and their respective subsidiaries and affiliates on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company, the
Commercial Bank and the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company and the Commercial Bank agree to continue to
employ the Executive, and the Executive hereby agrees to such continued
employment, during the period and upon the terms and conditions set forth in
this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for a term of two years
beginning on the date of this Agreement and ending on the second anniversary
date of this Agreement, plus such extensions, if any, as are provided pursuant
to section 2(b).
(b) Except as provided in section 2(c) and subject to section
11(b), in the event a Change of Control as defined in section 11 has occurred,
beginning on the date of such Change of Control, the Employment Period shall
automatically be extended to the second anniversary of the date of the Change of
Control, and the Employment Period shall automatically be extended for one
additional day each day, unless the Company or the Commercial Bank or the
Executive elects not to extend the Agreement further by giving written notice
thereof to the other two parties, in which case the Employment
<PAGE>
Period shall end on the second anniversary of the date on which such written
notice is given. For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the last day of the Employment Period taking into
account any extensions under this section 2(b). Upon termination of the
Executive's employment with the Company or the Commercial Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Company or the Commercial Bank at any time from terminating the Executive's
employment during the Employment Period with or without notice for any reason;
PROVIDED, HOWEVER, that the relative rights and obligations of the Company, the
Commercial Bank and the Executive in the event of any such termination shall be
determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Executive Vice President and
Chief Lending Officer of the Commercial Bank, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Commercial Bank and as are customarily associated with such
position. The Executive shall devote his full business time and attention (other
than during weekends, holidays, approved vacation periods, and periods of
illness or approved leaves of absence) to the business and affairs of the
Commercial Bank and shall use his best efforts to advance the interests of the
Company and the Commercial Bank. In the event that the business and affairs of
the Commercial Bank do not require the Executive's full business time and
attention, as reasonably determined by the Board of Directors of the Company
("Company Board"), the Executive shall, in addition to performing the duties as
Executive Vice President and Chief Lending Officer of the Commercial Bank
described above, have such power, authority and responsibility and perform such
duties for the Company, or any subsidiary or affiliate of the Company, as may be
reasonably assigned to him by the Company Board in its discretion, or the board
of directors of such subsidiary or affiliate in its discretion, as the case may
be.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Commercial Bank shall pay to him a salary at an initial
annual rate of one hundred and fifteen thousand dollars ($115,000), payable in
approximately equal installments in accordance with the Company's customary
payroll practices for senior officers. The Board of Directors of the Commercial
Bank ("Commercial Bank Board") shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company or the Commercial Bank for services
hereunder at such times, in such amounts and on such terms and conditions as the
Company Board or the Commercial Bank Board, as applicable, may determine from
time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Company and the Commercial Bank and shall be entitled to
participate in and receive benefits under
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<PAGE>
any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company
and the Commercial Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Company's and the Commercial Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Company or the Commercial Bank shall cause the Executive to be
covered by and named as an insured under any policy or contract of insurance
obtained by it to insure its directors and officers against personal liability
for acts or omissions in connection with service as an officer or director of
the Company or the Commercial Bank or service in other capacities at the request
of the Company or the Commercial Bank. The coverage provided to the Executive
pursuant to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company and the Commercial Bank.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six years thereafter, the
Company and the Commercial Bank shall indemnify the Executive against and hold
him harmless from any costs, liabilities, losses and exposures to the fullest
extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of the Company and the
Commercial Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Company Board or the Commercial Bank Board (which
approval shall not be unreasonably withheld); PROVIDED, HOWEVER, that such
service shall not materially interfere with the performance of his duties under
this Agreement. The Executive may also engage in personal business and
investment activities which do not materially interfere with the performance of
his duties hereunder; PROVIDED, HOWEVER, that such activities are not prohibited
under any code of conduct or investment or securities trading policy established
by the Company or the Commercial Bank and generally applicable to all similarly
situated Executives. The Executive may also serve as an officer or director of
the Company or any subsidiary or affiliate of the Company on such terms and
conditions as the Company and the Commercial Bank may mutually agree upon, and
such service shall not be deemed to materially interfere with the Executive's
performance of his duties hereunder or otherwise result in a material breach of
this Agreement. If the Executive is discharged or suspended, or is subject to
any regulatory prohibition or restriction with respect to participation in the
affairs of the Commercial Bank, he shall continue to perform services for the
Company in accordance with this Agreement but shall not directly or indirectly
provide services to or participate in the affairs of the Commercial Bank in a
manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.
-3-
<PAGE>
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal places of employment shall be at
either the Company's or the Commercial Bank's principal executive offices, or at
such other location within 50 miles of the addresses at which the Company and
the Commercial Bank shall maintain their respective principal executive offices,
or at such other location as the Company, the Commercial Bank and the Executive
may mutually agree upon. The Commercial Bank shall provide the Executive at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the
Commercial Bank and necessary or appropriate in connection with the performance
of his assigned duties under this Agreement. The Commercial Bank shall reimburse
the Executive for his ordinary and necessary business expenses, including,
without limitation, the Executive's travel and entertainment expenses incurred
in connection with the performance of his duties under this Agreement, in each
case upon presentation to the Commercial Bank of an itemized account of such
expenses in such form as the Commercial Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance
benefits described in section 9(b) in the event that:
(i) his employment with the Company or the Commercial Bank
terminates during the Employment Period as a result of the Executive's
voluntary resignation within 90 days following:
(A) the failure of the Commercial Bank Board to
appoint or re- appoint or elect or re-elect the Executive to
the position with the Commercial Bank stated in section 3 of
this Agreement (or a more senior office);
(B) the expiration of a 30-day period following the
date on which the Executive gives written notice to the
Company of its or the Commercial Bank's material failure,
whether by amendment of the Company's Certificate of
Incorporation, the Commercial Bank's Certificate of
Incorporation, the Company's By-Laws or the Commercial Bank's
By-Laws, action of the Company Board or the Commercial Bank
Board or the Company's shareholders or the Commercial Bank's
shareholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement, unless, during such 30-day period, the
Company or the Commercial Bank cures such failure; or
(C) the expiration of a 30-day period following the
date on which the Executive gives written notice to the
Company of its or the Commercial Bank's material breach of any
term, condition or covenant contained in this Agreement
(including, without limitation, any reduction of the
Executive's rate of base salary in effect from time to time
and any change in the terms and conditions of any compensation
or benefit program in which the Executive participates which,
either individually or together with other changes, has a
material adverse effect on the aggregate value of his total
compensation
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package), unless, during such 30-day period, the Company or
the Commercial Bank cures such failure; or
(ii) the Executive's employment with the Commercial Bank is
terminated by the Company or the Commercial Bank for any reason other
than for "cause" as provided in section 10(a); or
(iii) a Change of Control as defined in section 11 has
occurred.
(b) Upon the occurrence of any of the events described in
section 9(a) of this Agreement, the Company or the Commercial Bank shall pay and
provide to the Executive (or, in the event of his death, to his estate):
(i) his earned but unpaid salary (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for in this section
9(b)) as of the date of the termination of his employment with the
Commercial Bank, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's and the
Commercial Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Commercial Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during the Employment Period;
(iv) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment, in an amount
equal to the present value of the salary (excluding any additional
payments made to the Executive in lieu of the use of an automobile)
that the Executive would have earned if he had continued working for
the Commercial Bank during the Remaining Unexpired Employment Period at
the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986, as amended
("Code"), compounded using the compounding periods corresponding to the
Company's regular payroll periods for its
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officers, such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination;
(v) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled, if any, under The Warwick Savings
Bank Defined Benefit Pension Plan (together with the defined
benefit portion of the Benefit Restoration Plan of The Warwick
Savings Bank and any other supplemental defined benefit plan)
and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of,
the Company, the Commercial Bank or The Warwick Savings Bank,
if he were 100% vested thereunder and had continued working
for the Commercial Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary
achieved during the Employment Period; over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Commercial Bank, a lump sum payment in an amount
equal to the present value of the estimated employer contributions
which would have been made to his account, if any, under The Warwick
Savings Bank 401(k) Savings Plan, and the estimated value of the annual
allocations that would have been made to his account in the Employee
Stock Ownership Plan of Warwick Community Bancorp, Inc. (together with
the defined contribution portion of the Benefit Restoration Plan of The
Warwick Savings Bank or any other supplemental defined contribution
plan) and any and all other qualified and non-qualified defined
contribution plans maintained by, or covering employees of, the
Commercial Bank, as if he were 100% vested thereunder and had continued
working for the Commercial Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the Employment Period, making the maximum amount of employee
contributions, if any, required under any such plan or plans and taking
into account his estimated compensation as determined under any such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds
to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
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(vii) the payments that would have been made, if any, to the
Executive under any cash or stock bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of,
the Commercial Bank if he had continued working for the Commercial Bank
during the Remaining Unexpired Employment Period and had earned the
maximum bonus or incentive award in each calendar year that ends during
the Remaining Unexpired Employment Period, such payments to be equal to
the product of:
(A) the maximum percentage rate at which an award was
ever available to the Executive under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to the
Executive during each such calendar year at the highest annual
rate of salary achieved during the Employment Period;
such payments to be made (without discounting for early payment) within
30 days following the Executive's termination of employment;
(viii) at the election of the Company made within 30 days
following the occurrence of the event described in section 9(a), upon
the surrender of options or appreciation rights issued to the
Executive, if any, under any stock option and appreciation rights plan
or program maintained by, or covering employees of, the Company or the
Commercial Bank, a lump sum payment in an amount equal to the product
of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock
option or appreciation rights plan or program maintained by, or
covering employees of, the Company or the Commercial Bank, even if he
is not vested under such plan or program; and
(ix) at the election of the Company made within 30 days
following the occurrence of the event described in section 9(a), upon
the surrender of any shares awarded to the Executive, if any, under any
restricted stock plan maintained by, or covering employees of, the
Company or the Commercial Bank, a lump sum payment in an amount equal
to the product of:
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(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Executive's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed
fully vested in all shares awarded under any restricted stock plan
maintained by, or covering employees of, the Company or the Commercial
Bank, even if he is not vested under such plan.
The Company, the Commercial Bank and the Executive hereby stipulate that the
damages which may be incurred by the Executive following any such termination of
employment are not capable of accurate measurement as of the date first above
written and that the payments and benefits contemplated by this section 9(b)
constitute reasonable damages under the circumstances and shall be payable
without any requirement of proof of actual damage and without regard to the
Executive's efforts, if any, to mitigate damages. The Company, the Commercial
Bank and the Executive further agree that the Company or the Commercial Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vi) on the receipt of the Executive's resignation from any and
all positions which he holds as an officer, director or committee member with
respect to the Company, the Commercial Bank or any subsidiary or affiliate of
either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company or the Commercial
Bank shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement, shall mean a discharge because the Company
Board or the Commercial Bank Board, as the case may be, determines that
the Executive: (i) has willfully and intentionally failed to perform
his assigned duties under this Agreement (including for these purposes,
the Executive's inability to perform such duties as a result of drug or
alcohol dependency); (ii) has willfully and intentionally engaged in
dishonest or illegal conduct in connection with his performance of
services for the Company or the Commercial Bank or has been convicted
of a felony; (iii) has willfully violated, in any material respect, any
law, rule, regulation, written agreement or final cease-and-desist
order with respect to his performance of services for the Company or
the Commercial Bank, as determined by the Company Board or the
Commercial Bank Board, as the case may be; or (iv) has willfully and
intentionally breached the material terms of this Agreement; PROVIDED,
HOWEVER, that, if the Executive engages in any of the acts described in
section 10(a)(i) or (a)(iv) above, the Company or the Commercial Bank,
as the case may be, shall provide the Executive with written notice of
its intent to discharge the Executive for cause, and the Executive
shall have 30 days from the date on which the Executive receives such
notice to cure any such acts; AND PROVIDED, FURTHER, that on and after
the date that a Change of Control occurs, a determination under this
section 10 shall require the affirmative vote of at least three-fourths
of the members of the Company Board or the Commercial Bank Board, as
the case may be, acting in good faith and such vote shall not be made
prior to the expiration of a 60-day period following the date on which
the Company Board or the Commercial Bank Board, as the case may be,
shall, by written notice to the Executive, furnish to him a statement
of its grounds for proposing to make such
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<PAGE>
determination, during which period the Executive shall be afforded a
reasonable opportunity to make oral and written presentations to the
members of the Company Board or the Commercial Bank Board, as the case
may be, and to be represented by his legal counsel at such
presentations, to refute the grounds for the proposed determination;
(b) the Executive's voluntary resignation from employment with
the Company or the Commercial Bank, as the case may be, for reasons
other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company
or the Commercial Bank or the termination of the Executive's employment
because of "total and permanent disability" within the meaning of the
long-term disability plan covering employees of the Commercial Bank;
then the Company and the Commercial Bank shall have no further obligations under
this Agreement, other than the payment to the Executive of his earned but unpaid
salary as of the date of the termination of his employment and the provision of
such other benefits, if any, to which he is entitled as a former employee under
the Company's and the Commercial Bank's employee benefit plans and programs and
compensation plans and programs. For purposes of this section 10, no act or
failure to act, on the part of the Executive, shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was in the
best interests of the Company and the Commercial Bank. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Company Board or the Commercial Bank Board or based upon the written advice of
counsel for the Company or the Commercial Bank shall be conclusively presumed to
be done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company and the Commercial Bank. The cessation of employment of
the Executive shall not be deemed to be for "cause" within the meaning of
section 10(a) unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of three-fourths of
the members of the Company Board or the Commercial Bank Board, as the case may
be, at a meeting of the Company Board or the Commercial Bank Board called and
held for such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be heard before
the Company Board or the Commercial Bank Board), finding that, in the good faith
opinion of the Company Board or the Commercial Bank Board, the Executive is
guilty of the conduct described in section 10(a) above, and specifying the
particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Company ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) the reorganization, merger or consolidation of the Company
with one or more other persons, other than a transaction following
which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"))
in substantially the same relative proportions by
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persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Company; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of the
outstanding securities of the Company entitled to vote generally in the
election of directors by any person or by any persons acting in
concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the Company Board do not
belong to any of the following groups:
(A) individuals who were members of the Company
Board on the date of this Agreement; or
(B) individuals who first became members of the
Company Board after the date of this Agreement either:
(1) upon election to serve as a member of
the Company Board by affirmative vote of
three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first election; or
(2) upon election by the shareholders of the
Company to serve as a member of the Company Board,
but only if nominated for election by affirmative
vote of three-quarters of the members of such board,
or of a nominating committee thereof, in office at
the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Company Board; or
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(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Commercial Bank" were substituted for
the term "Company" therein and the term "Commercial Bank Board" were
substituted for the term "Company Board" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Commercial
Bank, or a subsidiary of either of them, by the Company, the Commercial Bank, or
any subsidiary of either of them, or by any employee benefit plan or trust
maintained by any of them. For purposes of this section 11(a), the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits described in section 9(b), regardless
of whether his employment terminates; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean the period beginning on the
effective date of the Change of Control and ending on the second anniversary of
such date.
(c) Notwithstanding any contrary provision in this Agreement,
if, prior to the occurrence of a Change of Control, the Executive's employment
with the Company or the Commercial Bank is terminated (other than for "cause" as
defined in section 10(a)) and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of any person, party
or entity who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then, for all purposes of this Agreement, the "Change of Control"
shall be deemed to have occurred on the date immediately prior to the date of
the Executive's termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Company or the Commercial Bank or "in the ownership of a substantial
portion of the assets" of the Company or the Commercial Bank within the meaning
of section 280G of the Code. If this section 12 applies, then, if for any
taxable year, the Executive shall be liable for the payment of an excise tax
under section 4999 of the Code with respect to any payment in the nature of
compensation made by the Company, the Commercial Bank or any direct or indirect
subsidiary or affiliate of the Company or the Commercial Bank to (or for the
benefit of) the Executive, the Company shall pay to the Executive an amount
equal to X determined under the following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
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P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable
to the Executive under the Code for the taxable year
in question (taking into account any phase-out or
loss of deductions, personal exemptions and other
similar adjustments);
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable
state and local laws for the taxable year in question
(taking into account any phase-out or loss of
deductions, personal exemptions and other similar
adjustments); and
M = the highest marginal rate of Medicare tax
applicable to the Executive under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this 12(a) shall be made to the Executive
on the earlier of (i) the date the Company, the Commercial Bank or any direct or
indirect subsidiary or affiliate of the Company or the Commercial Bank is
required to withhold such tax, or (ii) the date the tax is required to be paid
by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Company, as
the case may be, shall pay to the other party at the time that the amount of
such excise tax is finally determined, an appropriate amount, plus interest,
such that the payment made under section 12(a), when increased by the amount of
the payment made to the Executive under this section 12(b) by the Company or the
Commercial Bank, or when reduced by the amount of the payment made to the
Company or the Commercial Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Company and the Commercial Bank a copy of each
tax return which reflects a liability for an excise tax payment made by the
Company or the Commercial Bank, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event
of his termination of employment with the Company or the Commercial Bank prior
to the expiration of the Employment Period, for a period of one year following
the date of such termination of employment (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Company and the Commercial Bank, become an officer, employee, consultant,
director or trustee of any savings bank, savings and loan association, savings
and loan holding company, commercial
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bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within Bergen, Passaic, Sussex, Morris,
Essex, Union, Warren, Hudson, Hunterdon, Somerset and Middlesex counties in New
Jersey, Orange, Dutchess, Rockland or Putnam counties in New York or any other
county in which the Company or the Commercial Bank maintains an office;
PROVIDED, HOWEVER, that this section 13 shall not apply if the Executive's
employment is terminated for the reasons set forth in section 9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company and
the Commercial Bank, the Executive shall keep confidential and shall refrain
from using for the benefit of himself, or any person or entity other than the
Company, the Commercial Bank or any entity which is a subsidiary or affiliate of
the Company, the Commercial Bank or of which the Company or the Commercial Bank
is a subsidiary or affiliate, any material document or information obtained from
the Company, the Commercial Bank or from any of their respective parents,
subsidiaries or affiliates, in the course of his employment with any of them
concerning their properties, operations or business (unless such document or
information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 14
shall prevent the Executive, with or without the Company's or the Commercial
Bank's consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period
of one year following his termination of employment with the Commercial Bank, he
shall not, without the written consent of the Commercial Bank, either directly
or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Company, the Commercial Bank or any of their respective
subsidiaries or affiliates to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, commercial bank, bank holding company, savings
and loan holding company, credit union, any other institution engaged
in the business of accepting deposits, making loans or doing a banking
business within the counties specified in section 13, or any direct or
indirect subsidiary or affiliate of any of the foregoing;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, commercial bank, bank holding company, savings
and loan holding company, or either institution engaged in the business
of accepting deposits, making loans or doing a banking business within
the counties specified in section 13 that is intended, or that a
reasonable person acting in like circumstances would expect, to have
the effect of causing any officer or employee of the Company, the
Commercial Bank, or any of
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their respective subsidiaries or affiliates to terminate his employment
and accept employment or become affiliated with, or provide services
for compensation in any capacity whatsoever to, any savings bank,
savings and loan association, commercial bank, bank holding company,
savings and loan holding company, credit union, any other institution
engaged in the business of accepting deposits, making loans or doing a
banking business within the counties specified in section 13, or any
direct or indirect subsidiary or affiliate of any of the foregoing; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Company or the Commercial Bank to terminate an existing
business or commercial relationship with the Company or the Commercial
Bank.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Company, by the Commercial Bank
or by the Executive, shall have no effect on the rights and obligations of the
parties hereto under the Company's or the Commercial Bank's qualified or
non-qualified retirement, pension, savings, thrift, profit-sharing or stock
bonus plans, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or such
other employee benefit plans or programs, or compensation plans or programs, as
may be maintained by, or cover employees of, the Company or the Commercial Bank
from time to time; PROVIDED, HOWEVER, that nothing in this Agreement shall be
deemed to duplicate any compensation or benefits provided under any agreement,
plan or program covering the Executive to which the Company is a party and any
duplicative amount payable under any such agreement, plan or program shall be
applied as an offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Company and the Commercial Bank and their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of the Company or the Commercial
Bank may be sold or otherwise transferred. Failure of the Company or the
Commercial Bank to obtain from any successor its express written assumption of
the Company's or the Commercial Bank's obligations hereunder at least 60 days in
advance of the scheduled effective date of any such succession shall be deemed a
material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested,
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addressed to such party at the address listed below or at such other address as
one such party may by written notice specify to the other party:
If to the Executive:
Laurence D. Haggerty
198 West Shore Trail
Sparta, New Jersey 07871
If to the Company or the Commercial Bank:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: President
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Douglas J. McClintock, Esq.
--------------------------
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company and the Commercial Bank shall indemnify, hold
harmless and defend the Executive against reasonable costs, including legal fees
and expenses, incurred by him in connection with or arising out of any action,
suit or proceeding in which he may be involved, as a result of his efforts, in
good faith, to defend or enforce the terms of this Agreement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Company's or the Commercial Bank's obligations
hereunder shall be conclusive evidence of the Executive's entitlement to
indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
(b) The Company's and the Commercial Bank's obligations to
make the payments provided for in this Agreement and otherwise to perform their
respective obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company or the Commercial Bank may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company and the Commercial Bank agree to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of or in connection with his consultation with legal counsel
or arising out of any action, suit, proceeding or contest
-15-
<PAGE>
(regardless of the outcome thereof) by the Company or the Commercial Bank, the
Executive or others regarding the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in section 7872(f)(2)(A) of
the Code. This section 19(b) shall apply whether such consultation, action,
suit, proceeding or contest arises before, on, after or as a result of a Change
of Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same Agreement.
SECTION 23. GOVERNING LAW.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York applicable to contracts entered into and to be performed
entirely within the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof and supersedes in its entirety the Employee Retention Agreement by
and among the Executive, the Company and The Warwick Savings Bank dated as of
December 23, 1997. No modifications of this Agreement shall be valid unless made
in writing and signed by the parties hereto.
-16-
<PAGE>
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for any
direct or indirect subsidiary or affiliate of the Company or the Commercial
Bank, any compensation or benefits provided to the Executive by such other
employer shall be applied to offset the obligations of the Company and the
Commercial Bank hereunder, it being intended that this Agreement set forth the
aggregate compensation and benefits payable to the Executive for all services to
the Company, the Commercial Bank and all of their respective direct or indirect
subsidiaries and affiliates.
SECTION 27. IF THE COMMERCIAL BANK SHALL CEASE TO EXIST.
Notwithstanding any other provision in this Agreement to the
contrary, in the event that the Commercial Bank shall, for whatever reason,
cease to exist, whether by merger into The Warwick Savings Bank ("Savings Bank")
or another entity, dissolution, liquidation, sale or other transfer of assets
and liabilities or otherwise, then the Company Board may, in its sole
discretion, cause the election or appointment of the Executive to what it
reasonably believes to be an equivalent officer's position with equivalent
compensation at the Savings Bank, as compared to his position and compensation
at the Commercial Bank, and such action shall not be considered to be a
violation or a breach of this Agreement and shall not permit the Executive to
resign under section 9(a)(i). In such case, this Agreement shall continue in
full force and effect, but (i) the words "The Warwick Savings Bank" and "Savings
Bank," respectively, shall be substituted for "The Towne Center Bank" and
"Commercial Bank," respectively, where applicable, (ii) references to the
Executive's position and compensation at the Commercial Bank shall become
references to the Executive's position and compensation at the Savings Bank and
(iii) such other adjustments to this Agreement as are necessary shall be made so
as to continue this Agreement in effect, the intent being that, if the
Commercial Bank shall cease to exist, the rights and obligations under this
Agreement shall be shifted from the Commercial Bank to the Savings Bank and
otherwise continue to protect the Executive, the Company and the Savings Bank.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1828(k), and any
regulations promulgated thereunder.
-17-
<PAGE>
IN WITNESS WHEREOF, the Company and the Commercial Bank have
caused this Agreement to be executed and the Executive has hereunto set his
hand, all as of the day and year first above written.
/s/ Laurence D. Haggerty
------------------------
Laurence D. Haggerty
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Timothy A. Dempsey
------------------------------------ -----------------------
Nancy L. Sobotor-Littell Timothy A. Dempsey
Corporate Secretary Chairman of the Board and
Chief Executive Officer
[Seal]
THE TOWNE CENTER BANK
Attest:
By /s/ Lois E. Ulatowski By /s/ Timothy A. Dempsey
------------------------------------ -----------------------
Lois E. Ulatowski Timothy A. Dempsey
Corporate Secretary Chairman of the Board
[Seal]
-18-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 29th day of November, 1999, before me personally came
LAURENCE D. HAGGERTY, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
/s/ Lisette Cuba
-----------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 29th day of November, 1999, before me personally came
Timothy A. Dempsey, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990, that he is
Chairman of the Board and Chief Executive Officer of WARWICK COMMUNITY BANCORP,
INC., the Delaware corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
/s/ Lisette Cuba
-----------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 29th day of November, 1999, before me personally came
Timothy A. Dempsey, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990, that he is
Chairman of the Board of THE TOWNE CENTER BANK, the New Jersey commercial bank
described in and which executed the foregoing instrument; that he knows the seal
of said commercial bank; that the seal affixed to said instrument is such seal;
that it was so affixed by order of the Board of Directors of said commercial
bank; and that he signed his name thereto by like order.
/s/ Lisette Cuba
-----------------
Notary Public
-19-
Exhibit 11.1
------------
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the year ended December 31, 1999
1. Net income $ 3,142,686
2. Total weighted average common shares outstanding $ 5,476,926
3. Basic earnings per share $ 0.57
4. Diluted earnings per share $ 0.57
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
INDEX
F2-F3 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
F4-F15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
F16 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
F17 CONSOLIDATED STATEMENTS OF INCOME
F18 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
F19 CONSOLIDATED STATEMENTS OF CASH FLOWS
F20-F39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F40 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F1
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
At December 31,
----------------------------------------------------------------------
1999 1998 1997(7) 1996(7) 1995(7)
---------- ------------ ------------- ----------- -------------
(In thousands)
Selected Financial Data:
<S> <C> <C> <C> <C> <C>
Total assets $597,714 $445,139 $340,809 $287,363 $258,322
Loan receivable, net (1) 349,321 261,463 179,954 129,681 143,049
Investment securities 186,490 155,490 127,563 138,526 91,097
Real estate owned, net 415 371 322 106 419
Deposits 283,072 246,886 213,513 217,221 227,422
FHLBNY advances 201,675 79,480 5,250 13,400 -
Securities sold under
repurchase agreements 37,375 25,310 22,755 23,300 -
Stockholders' equity 66,572 84,238 86,190 27,304 24,459
For the Years Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996(7) 1995(7)
---------- ------------ ------------- ----------- -------------
(In thousands)
Selected Operating Data:
Interest income $ 35,562 $ 28,408 $ 21,386 $ 19,596 $ 17,885
Interest expense 16,951 11,939 9,539 8,811 8,698
-------- -------- -------- -------- --------
Net interest income 18,611 16,469 11,847 10,785 9,187
Provision for loan losses 500 500 454 60 240
-------- -------- -------- -------- --------
Net interest income
after provision for
loan losses 18,111 15,969 11,393 10,725 8,947
Non-interest income
Service and fee income 2,914 2,336 2,034 2,001 1,603
Securities transactions 524 1,109 326 828 27
Loan transactions 109 168 128 190 5
Other income (loss) 258 74 199 (82) (107)
-------- -------- -------- -------- --------
Total other income, net 3,805 3,687 2,687 2,937 1,528
-------- -------- -------- -------- --------
Non-interest expense
Salaries and employee
benefits 9,536 7,795 6,359 5,159 4,927
FDIC insurance 31 28 28 2 245
Occupancy and
equipment 1,452 1,160 1,213 1,120 1,077
Data processing 974 796 636 600 455
Advertising 500 336 175 124 147
Professional fees 1,006 920 339 264 338
Contribution to
The Warwick Savings
Foundation - - 1,924 - -
Other operating expenses 3,208 2,470 1,849 1,915 2,045
-------- -------- -------- -------- --------
Total other expenses 16,707 13,505 12,523 9,184 9,234
Income before income tax
expense 5,209 6,151 1,557 4,478 1,241
Income tax expense 2,066 2,530 658 2,031 552
-------- -------- -------- -------- --------
Net income $ 3,143 $ 3,621 $ 899 $ 2,447 $ 689
======== ======== ======== ======== ========
</TABLE>
F2
<PAGE>
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
At or For the Years Ended December 31,
-----------------------------------------------------------
1999 1998 1997(7) 1996(7) 1995(7)
---------- ---------- ---------- ---------- ---------
Selected Financial Ratios and Other Data (2):
Performance Ratios:
<S> <C> <C> <C> <C> <C>
Return on average assets 0.62% 0.90% 0.31% 0.89% 0.27%
Return on average equity 4.15 4.21 3.08 9.75 2.99
Average equity to average assets 14.83 21.37 9.96 9.18 9.02
Equity to total assets 11.14 18.92 25.29 9.50 9.47
Core deposits to total deposits (3) 68.48 71.24 64.44 64.07 63.04
Net interest spread (4) 3.10 3.27 3.67 3.95 3.68
Net interest margin (5) 3.87 4.36 4.32 4.21 3.87
Operating expense to average assets 3.27 3.36 4.28 3.36 3.62
Average interest-earning assets to
average interest-bearing liabilities 121.98 134.14 118.70 107.63 105.02
Efficiency ratio (6) 76.70 71.53 88.94 72.29 86.43
Book Value (8) 13.18 12.75 - - -
Regulatory Capital Ratios:
Bank:
Tangible capital 9.38 11.99 16.15 9.29 9.24
Core capital 17.60 22.82 29.86 19.87 16.82
Risk-based capital 18.34 23.90 30.63 20.76 17.75
Company:
Tangible capital 12.67 18.87 - - -
Core capital 23.94 35.88 - - -
Risk-based capital 24.58 36.94 - - -
Asset Quality Ratios:
Non-performing loans to total loans 0.58 0.81 0.84 1.28 0.66
Non-performing loans to total assets 0.34 0.47 0.45 0.58 0.37
Non-performing assets to total assets 0.41 0.55 0.61 0.73 0.59
Allowance for loan losses to total
loans 0.55 0.67 0.76 0.90 0.79
Allowance for loan losses to non-
performing loans 95.33 82.95 89.79 71.35 118.58
Other Data:
Branch Offices 6 4 4 4 4
</TABLE>
(1) Loans receivable, net, represents total loans less net deferred loan fees
and the allowance for loan losses.
(2) Regulatory Capital Ratios and Asset Quality Ratios are end of period
ratios. With the exception of period-end ratios, all ratios are based on
average monthly balances during the periods indicated.
(3) The Bank considers the following to be core deposits: checking accounts,
passbook accounts, NOW accounts and money market accounts.
(4) The interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(6) The efficiency ratio represents non-interest expense as a percentage of the
sum of net interest income and non-interest income excluding any gains or
losses on sales of assets.
(7) The selected financial data of the Company at or for the years ended
December 31, 1997, 1996 and 1995 are not derived from audited financial
statements.
(8) Book value represents total stockholders' equity divided by the shares
outstanding for the period, net of unearned shares held by the ESOP and
RRP.
F3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Warwick Community Bancorp, Inc. ("Company") 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 remaining net proceeds were retained by the Company and
invested primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities and equity securities. Prior
to the Offering, the Company had no significant assets, liabilities or
operations. The primary business of the Company is the operation of its wholly
owned subsidiary, the Bank, and The Towne Center Bank, a de novo commercial bank
formed by the Company under the laws of the State of New Jersey ("Commercial
Bank"), which opened for business on October 26, 1999. Presently, the only
significant assets of the Company are the capital stock of the Bank and the
Commercial Bank, the note evidencing the loan the Company made to the Warwick
Community Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") to allow the ESOP
to purchase 8% of the Company's common stock issued in the Offering and the
investment of the net proceeds of the Offering retained by the Company.
The Bank's principal business has been and continues to be attracting retail
deposits from the general public in the areas surrounding its five branches and
investing those deposits, together with funds generated from operations and
borrowings, primarily in one- to four-family residential mortgage loans,
mortgage-backed securities, commercial business and real estate loans and
various debt and equity securities. The Commercial Bank's principal business
consists of taking business and consumer deposits and making consumer and
commercial loans. The Commercial Bank also invests in short duration U.S.
Treasury and agency securities, mortgage-backed securities and other
conservative investments deemed prudent by its Board of Directors.
While the following discussion of financial condition and results of operations
includes the collective results of the Company, the Bank and the Commercial
Bank, this discussion reflects primarily the Bank's activities. Unless otherwise
disclosed, the information presented in this Annual Report reflects the
financial condition and results of operations of the Company, the Bank and the
Commercial Bank on a consolidated basis.
The Bank's results of operations are dependent primarily on net interest income,
which is the difference between the interest income earned on its
interest-earning assets, such as loans and securities, and the interest expense
on its interest-bearing liabilities, such as deposits and borrowed funds. The
Bank also generates other income, such as service charges and other fees, which
are primarily servicing fees received from residential mortgage loans that are
sold with servicing retained. Other expenses primarily consist of employee
compensation and benefits, occupancy expenses, federal deposit insurance
premiums, net costs of real estate owned, data processing fees and other
operating expenses. The Bank's results of operations are also significantly
affected by general economic and competitive conditions (particularly changes in
market interest rates), government policies, changes in accounting standards and
actions of regulatory agencies.
MANAGEMENT STRATEGY
The Bank has historically employed an operating strategy that emphasizes the
origination of one- to four-family residential mortgage loans in its market area
with both fixed and variable rates and, to an increasing degree over the past 10
years, its commercial lending business, with mostly prime rate based loans
secured by real estate located mainly in Orange County, New York. Due in part to
this strategy, the Bank historically has had profitable operations, resulting in
a strong regulatory capital position. The Bank's goal of maintaining this
position has led to an overall strategy of managed growth in both deposits and
assets. The major elements of the Bank's operating strategy are to: (i) grow and
diversify the Bank's loan portfolio by continuing to originate owner-occupied
residential mortgage loans, commercial business and commercial real estate
loans, construction loans and consumer loans in its market area; (ii) complement
the Bank's mortgage lending activities by investing in mortgage-backed and other
securities; (iii) maintain the Bank's relatively low cost of funds and (iv)
manage the Bank's level of interest rate risk. From time to time, the Bank
employs a leveraging strategy, whereby borrowings are used to fund specific
investments in order to provide for a reasonable net margin of return. The Bank
also seeks to attract and retain
F4
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
customers through extended office hours, low turnover of employees and prompt,
flexible and personalized production of a variety of loan products. In addition,
it is a goal of the Bank to increase its market share in the communities it
serves through the acquisition or establishment of branch offices, and, if
appropriate, the acquisition of smaller financial institutions. Additionally, it
is a goal of the Bank to expand into new markets. For this reason, the Bank
expanded its mortgage banking operations and lending into New Jersey, which is
one of the reasons why the Company formed the Commercial Bank, which is
headquartered in Bergen County, New Jersey.
MANAGEMENT OF INTEREST RATE RISK
The principal objectives of the Bank's interest rate risk management activities
are to: (i) evaluate the interest rate risk included in certain balance sheet
accounts, (ii) determine the level of risk appropriate given the Bank's business
focus, operating environment, capital and liquidity requirements and performance
objectives, (iii) establish prudent asset concentration guidelines and (iv)
manage the risk consistent with Board approved policies and guidelines. Through
such management, the Bank seeks to reduce the vulnerability of its operating
results to changes in interest rates and to manage the ratio of interest rate
sensitive assets to interest rate sensitive liabilities within specified
maturities or repricing dates. The Bank closely monitors its interest rate risk
as such risk relates to its operating strategies. The extent of the movement of
interest rates, higher or lower, is an uncertainty that could have a negative
impact on the earnings of the Bank.
Historically, the Bank has been a traditional thrift lender, but differentiated
itself from other thrifts by also focusing on commercial lending since the late
1980's and commission-based mortgage banking operations since 1995. The Bank
also adopted a more competitive pricing policy, more efficient lock-in policies
to close loans faster and more streamlined Federal National Mortgage Association
("FNMA") approved processing and underwriting procedures. Additionally, the
Bank's array of products has expanded to include Federal Housing Authority
("FHA"), Veterans Administration ("VA") and State of New York Mortgage
Association ("SONYMA") loans. As a result, the Bank has invested a relatively
large amount of its earning assets in fixed-rate loans and fixed-rate
mortgage-backed securities with contractual maturities of up to 30 years. At
December 31, 1999, an aggregate of $272.8 million, or 50.15% of total earning
assets, were invested in such assets. Based upon the assumptions used in the
following table, at December 31, 1999, the Company's total interest-bearing
liabilities maturing or repricing within one year exceeded its total
interest-earning assets maturing or repricing within the same time period by
$152.2 million, representing a one-year cumulative "gap," as defined below, as a
percentage of total assets of negative 25.46%. Accordingly, management views the
Company as having a manageable gap position, but still slightly vulnerable to a
rising interest rate environment.
The Bank has taken several actions, under various market conditions, designed to
manage its level of interest rate risk. These actions have included: (i)
increasing the percentage of the loan portfolio consisting of adjustable-rate
mortgage loans and prime rate based commercial loans through originations, as
market conditions permit, (ii) selling fixed-rate loans, but retaining the
servicing rights, (iii) purchasing shorter-term investment securities and (iv)
seeking to increase the percentage of checking accounts in its deposit base.
Additionally, in the normal course of business, the Bank uses off-balance sheet
financial instruments primarily as part of mortgage banking hedging strategies.
Such instruments generally include put options purchased and forward commitments
to sell mortgage loans. As a result of interest rate fluctuations, these
financial instruments will develop unrealized gains or losses that mitigate
changes in the underlying hedged portion of the balance sheet. When effectively
used, these instruments are designed to moderate the impact on earnings as
interest rates move up or down.
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets or liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap."
An asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, therefore, a negative gap would tend to
adversely affect net interest income. Conversely, during a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown. Except as stated below, the amount of
assets and liabilities shown which reprice or mature during a particular period
were determined based on the earlier of term to repricing or the term to
repayment of the asset or liability. The table is intended to provide an
approximation of the projected repricing of assets and liabilities at December
31, 1999 on the basis of contractual maturities, anticipated prepayments and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be reinvested and/or repriced as a result of contractual
amortization and anticipated early payoffs of adjustable-rate loans and
fixed-rate loans, and as a result of contractual rate adjustments on
adjustable-rate loans. For loans on one- to four- family residential properties
and mortgage-backed securities, assumed average annual prepayment rates of
12.30% and 15.49%, respectively, were utilized.
F5
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------------------------------------------
More Than
Three
Months to More Than More Than More Than
Three Months Twelve One Year to Three Years Five Years to More Than Ten
or Less Months Three Years to Five Years Ten Years Years Total
------------ ----------- ----------- ------------- ------------- -------------- ---------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans (1) (5) $ 33,308 $ 19,042 $ 20,400 $ 18,401 $ 4,544 $158,025 $253,720
Other loans (1) (2) 31,513 606 22,535 23,706 17,996 1,645 98,001
Mortgage-backed
securities, fixed (5) 4,907 12,136 2 - 12,433 63,569 93,047
Mortgage-backed
securities, variable (5) - 2,565 - - - - 2,565
Federal funds sold 7,665 - - - - - 7,665
Mutual funds, common
and preferred stock - 4,848 - - - 3,118 7,966
Investment securities:
held-to-maturity 645 - 700 - - 73 1,418
Investment securities:
available-for-sale 3,925 - 2,053 752 4,950 69,814 81,494
-------- --------- --------- --------- --------- -------- --------
Total interest-
earning assets 81,963 39,197 45,690 42,859 39,923 296,244 545,876
Net deferred loan
fees and costs (3) (44) (29) (60) (59) (30) (239) (461)
-------- --------- --------- --------- --------- -------- --------
Net interest-
earning assets 81,919 39,168 45,630 42,800 39,893 296,005 545,415
-------- --------- --------- --------- --------- -------- --------
Interest-bearing liabilities:
Passbook accounts (4) - 16,844 - - - 67,378 84,222
Escrow accounts - - - - - 1,487 1,487
NOW accounts - - - - - 24,976 24,976
Money market accounts 44,479 - - - - - 44,479
Certificates of deposit 20,807 54,120 12,733 1,563 - - 89,223
Borrowed funds 81,390 55,615 24,045 13,000 65,000 - 239,050
-------- --------- --------- ---------- --------- -------- --------
Total interest-
bearing liabilities 146,676 126,579 36,778 14,563 65,000 93,841 483,437
-------- --------- --------- ---------- --------- -------- --------
Interest rate
sensitivity gap $(64,757) $ (87,411) $ 8,852 $ 28,237 $ (25,107) $202,164 $ 61,978
======== ========= ========= ========= ========= ======== ========
Cumulative interest
rate sensitivity gap $(64,757) $(152,168) $(143,316) $(115,079) $(140,186) $ 61,978
======== ========= ========= ========= ========= ========
Cumulative interest
rate sensitivity gap
as a percentage of total
assets (10.83)% (25.46)% (23.98)% (19.25)% (23.45)% 10.37%
Cumulative net
interest-earning assets
as a percentage
of cumulative interest-
bearing liabilities 55.85% 44.31% 53.77% 64.55% 64.02% 112.82%
</TABLE>
(1) For purposes of the gap analysis, mortgage and other loans are not reduced
for the allowance for loan losses and non-performing loans.
(2) For purposes of the gap analysis, second mortgage loans are included in the
"Other Loans" category.
(3) For purposes of the gap analysis, unearned fees and deferred loan
origination costs are prorated.
(4) For purposes of the gap analysis, based upon the Bank's historical
experience, management traditionally slots 20% of the Bank's total savings
account balances into the twelve-month time horizon. The remaining 80% are
viewed as long-term deposits.
(5) For loans on residential properties an average annual prepayment rate of
12.30% is utilized. Mortgage-backed securities are assumed to prepay at an
average annual rate of 15.49%.
F6
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types of assets may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to make scheduled payments on their adjustable-rate loans may decrease in the
event of an interest rate increase.
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in net
portfolio value ("NPV") over a range of interest rate change scenarios. NPV is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. For purposes of the NPV table, prepayment speeds similar to those
used in the "gap" table were used, reinvestment rates were those in effect for
similar products being offered and rates on core deposits were modified to
reflect recent trends. The following table sets forth the Company's NPV as of
December 31, 1999, as calculated by the Company.
Net Portfolio Value Portfolio Value of Assets
------------------------------------ --------------------------
(Dollars in thousands)
Rate in Basis
Points
(Rate Shock) $ Amount $ Change % Change NPV Ratio % Change(1)
- - -------------- ---------- ------------ ---------- ------------ ------------
200 $30,925 $(31,061) (50)% 5.68 (4.80)%
100 47,178 (14,808) (24) 8.30 (2.18)
Static 61,986 -- -- 10.48 --
(100) 74,596 12,610 20 12.20 1.72
(200) 75,435 13,449 22 12.09 1.61
(1) Based upon the portfolio value of the Company's assets assuming no change in
interest rates.
As is the case with the "gap" table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV requires the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in actual market
interest rates. In this regard, the NPV model presented assumes that the
composition of the Company's interest rate sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV measurements and net interest income models provide an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results.
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 relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on them.
AVERAGE BALANCE SHEETS. The table on the following page sets forth certain
information relating to the Company for the years ended December 1999, 1998 and
1997. The yields and costs were derived by dividing interest income or expense
by the average balance of assets or liabilities, respectively, for the periods
shown. Average balances were computed based on average daily balances. The
yields include deferred fees and discounts which are considered yield
adjustments.
F7
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------
1999 1998
----------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage
loans, net (1) $231,444 $17,077 7.38% $169,035 $12,693 7.51%
Consumer and
other loans, net(l) 63,508 5,431 8.55 46,649 4,264 9.14
Mortgage-backed
securities 87,804 6,145 7.00 83,271 5,953 7.15
Federal funds sold 379 14 3.69 1,286 70 5.44
Interest earning
accounts at banks 462 23 4.98 597 35 5.86
Investment securities 96,932 6,872 7.09 77,292 5,393 6.98
-------- ------- -------- -------
Total interest-
earning assets 480,529 35,562 7.40 378,130 28,408 7.51
------- -------
Non-interest earning
assets 30,065 24,027
-------- --------
Total assets $510,594 $402,157
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Passbook accounts $ 85,379 $2,251 2.64% $ 79,404 $ 2,323 2.93%
Escrow deposits 1,985 112 5.64 1,771 94 5.31
NOW accounts 22,676 346 1.53 17,272 277 1.60
Money market accounts 43,002 1,673 3.89 29,986 1,078 3.60
Certificate accounts 73,755 3,467 4.70 71,344 3,540 4.96
-------- ------- -------- -------
Total deposits 226,797 7,849 3.46 199,777 7,312 3.66
Borrowed funds 167,157 9,102 5.45 82,110 4,627 5.64
-------- ------- -------- -------
Total interest-bearing
liabilities 393,954 16,951 4.30 281,887 11,939 4.24
------- -------
Non-interest bearing
liabilities 40,901 34,342
-------- --------
Total liabilities 434,855 316,229
STOCKHOLDERS' EQUITY 75,739 85,928
-------- --------
Total liabilities and
stockholders' equity $510,594 $402,157
======== ========
Net interest income/
interest rate spread(2) $18,611 3.10% $16,469 3.27%
======= ====== ======= =======
Net interest-earning
assets/net interest
margin(3) $ 86,575 3.87% $ 96,243 4.36%
======== ======= ======== =======
Ratio of interest-earning
assets to interest-
bearing liabilities 121.98% 134.14%
======= =======
</TABLE>
For the Years Ended December 31,
----------------------------------------
1997
----------------------------------------
Average Average
Balance Interest Yield/Cost
----------- ----------- -------------
ASSETS:
Interest-earning assets:
Mortgage
loans, net (1) $110,458 $ 8,756 7.93%
Consumer and
other loans, net(l) 38,444 3,620 9.42
Mortgage-backed
securities 73,346 5,454 7.44
Federal funds sold 1,980 110 5.56
Interest earning
accounts at banks 537 26 4.84
Investment securities 49,782 3,420 6.87
-------- -------
Total interest-
earning assets 274,547 21,386 7.79
-------
Non-interest earning
assets 18,356
--------
Total assets $292,903
========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Passbook accounts $78,017 $ 2,312 2.96%
Escrow deposits 1,194 78 6.53
NOW accounts 14,426 230 1.59
Money market accounts 26,200 860 3.28
Certificate accounts 76,636 3,918 5.11
-------- -------
Total deposits 196,473 7,398 3.77
Borrowed funds 34,826 2,141 6.15
-------- -------
Total interest-bearing
liabilities 231,299 9,539 4.12
-------
Non-interest bearing
liabilities 32,419
--------
Total liabilities 263,718
STOCKHOLDERS' EQUITY 29,185
--------
Total liabilities and
stockholders' equity $292,903
========
Net interest income/
interest rate spread(2) $11,847 3.67%
======= =======
Net interest-earning
assets/net interest
margin(3) $ 43,248 4.32%
======== =======
Ratio of interest-earning
assets to interest-
bearing liabilities 118.70%
=======
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin on interest-bearing assets represents net interest
income as a percentage of average-earning assets.
F8
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
Compared to Compared to
Year Ended December 31, 1998 Year Ended December 31, 1997
--------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due to Due to
------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
----------- -------- -------- --------- -------- ---------
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans, net $ 4,686 $ (302) $ 4,384 $ 4,643 $ (706) $ 3,937
Consumer and other loans, net 1,541 (374) 1,167 773 (129) 644
Mortgage-backed securities 324 (132) 192 738 (239) 499
Federal funds sold (49) (7) (56) (39) (1) (40)
Interest earning accounts at banks (8) (4) (12) 3 6 9
Investment securities 1,370 109 1,479 1,890 83 1,973
------- ------- ------- ------- ------ -------
Total 7,864 (710) 7,154 8,008 (986) 7,022
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Passbook accounts 175 (247) (72) 41 (30) 11
Escrow accounts 11 7 18 38 (22) 16
NOW accounts 87 (18) 69 45 2 47
Money market accounts 468 127 595 124 94 218
Certificates of deposits 120 (193) (73) (271) (107) (378)
Borrowed funds 4,793 (318) 4,475 2,907 (421) 2,486
------- ------- ------- ------- ------ -------
Total 5,654 (642) 5,012 2,884 (484) 2,400
------- ------- ------- ------- ------- -------
Net change in net interest income $ 2,210 $ (68) $ 2,142 $ 5,124 $ (502) $ 4,622
======= ======= ======= ======= ====== =======
</TABLE>
ASSET QUALITY
NON-PERFORMING LOANS. The Bank's management and Board of Directors perform a
monthly review of delinquent loans. The actions taken by the Bank with respect
to the delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank's policies on residential mortgage loans provide that
delinquent mortgage loans be reviewed and that a late charge notice be mailed no
later than the 15th day of delinquency, with the delinquency charge assessed on
the 16th day. The Bank's collection policies on residential mortgage loans
essentially mirror those shown in the FNMA servicing agreements. On other loans,
telephone contact and various delinquency notices at different intervals are the
methods used to collect past due loans.
It is the Bank's general policy to discontinue accruing interest on all loans
when management has determined that the borrower will be unable to meet
contractual obligations or when interest or principal payments are 90 days past
due. When a loan is classified as non-accrual, the recognition of interest
income ceases. Interest previously accrued and remaining unpaid is reversed
against income. Cash payments received are applied to principal, and interest
income is not recognized unless management determines that the financial
condition and payment record of the borrower warrant the recognition of income.
If a foreclosure action is commenced and the loan is not brought current, paid
in full or an acceptable workout arrangement is not agreed upon before the
foreclosure sale, the real property securing the loan is generally sold at
foreclosure. Property acquired by the Bank as a result of foreclosure on a
mortgage loan is classified as "other real estate owned" ("OREO") and is
recorded at the lower of the unpaid balance or fair value less costs to sell at
the date of acquisition and thereafter. Upon foreclosure, it is the Bank's
policy to generally require an appraisal of the property and, thereafter,
appraise the property on an as-needed basis.
OTHER REAL ESTATE OWNED. At December 31, 1999, the Bank's OREO, net, which
consisted of seven single-family residential properties, totaled $415 thousand
and was held directly by the Bank.
The following table sets forth information regarding non-accrual loans, other
past due loans and OREO. There were no troubled debt restructurings within the
meaning of Statement of Financial Accounting Standards ("SFAS") No. 15 at any of
the dates presented below.
F9
<PAGE>
At December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
(Dollars in thousands)
Non-accrual mortgage
loans delinquent more
than 90 days $ 693 $ 631 $1,165 $1,247 $ 531
Non-accrual other loans
delinquent more than
90 days 521 88 246 28 3
------ ------ ------ ------ ------
719
Total non-accrual loans 1,214 1,411 1,275 534
Total 90 days or more
delinquent and still
accruing 822 1,363 114 383 424
------ ------ ------ ------ ------
Total non-performing
loans 2,036 2,082 1,525 1,658 958
Total foreclosed real
estate, net 415 371 562 433 573
------ ------ ------ ------ ------
Total non-performing
assets $2,451 $2,453 $2,087 $2,091 $1,531
====== ====== ====== ====== ======
Non-performing loans to
total loans 0.58% 0.81% 0.84% 1.28% 0.66%
Non-performing assets to
total assets 0.41% 0.55% 0.61% 0.73% 0.59%
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998
Total assets increased $152.6 million to $597.7 million at December 31, 1999
from $445.1 million at December 31, 1998, reflecting the Bank's ongoing strategy
of managed growth. The increase in total assets was primarily the result of
increases in the Bank's interest-earning assets, as the Bank grew both its loan
and investment securities portfolios. The asset growth was also funded through
borrowings, which increased $134.3 million to $239.1 million at December 31,
1999. At December 31,1999, the Bank had $37.4 million in securities sold under
repurchase agreements and $201.7 million in term loans from the Federal Home
Loan Bank of New York ("FHLBNY"). Deposit liabilities increased by $36.2 million
to $283.1 million at December 31, 1999 from $246.9 million at December 31, 1998,
primarily due to increases in time certificates, demand checking accounts, money
market accounts and NOW accounts.
Asset growth was concentrated in mortgage loans, net, which increased $76.1
million to $270.7 million at December 31, 1999 from $194.6 million at December
31, 1998. Other loans, net, showed an increase of $21.4 million to $74.5 million
at December 31, 1999 from $53.1 million at December 31, 1998. Total securities
were $186.5 million at December 31, 1999 compared to $155.5 million at December
31, 1998. Securities held-to-maturity at December 31, 1999 totaled $1.4 million
as compared to $6.0 million at December 31, 1998. Securities available-for-sale
at December 31, 1999 totaled $185.1 million as compared to $149.5 million at
December 31, 1998. This increase is primarily the result of the Bank's
utilization of additional wholesale leveraging transactions.
Bank premises and equipment, net, increased $1.6 million, or 26.2%, from $6.2
million at December 31, 1998 to $7.8 million at December 31, 1999. This increase
was primarily the result of costs associated with the opening of the Bank's
newly constructed full-service branch located in the town of Newburgh, and the
formation of the Commercial Bank. The FHLBNY stock portfolio increased by $7.1
million in conjunction with the increased FHLBNY advances obtained to effect the
utilization of wholesale leveraging transactions.
Total stockholders' equity decreased $17.7 million to $66.6 million at December
31, 1999 from $84.2 million at December 31, 1998. This decrease was primarily
attributable to the $12.3 million in open market purchases of 967,258 shares, or
14.64%, of the Company's outstanding common stock in conjunction with the
Company's stock repurchase programs and the decline in accumulated other
comprehensive income of $8.6 million. Also contributing to the decrease in
stockholders' equity was the payment of quarterly cash dividends to shareholders
amounting to $1.2 million. The decrease in stockholders' equity was partially
offset by net income of $3.1 million.
F10
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
GENERAL. Net income for the year ended December 31, 1999 totaled $3.1 million,
or $0.57 per share, as compared to net income of $3.6 million, or $0.60 per
share, for the comparable period in 1998. This decrease was primarily
attributable to the increase of 23.7% in non-interest expenses, which was
partially offset by the 13.0% increase in net interest income.
NET INTEREST INCOME. Net interest income for the year ended December 31, 1999
increased $2.1 million, or 13.0%, to $18.6 million, from $16.5 million for the
year ended December 31, 1998.
Net interest margin is net interest income expressed as a percentage of total
average earning assets. For the year ended December 31, 1999, the net interest
margin was 3.87%, as compared to 4.36% for the year ended December 31, 1998.
This decrease was primarily attributable to an 11 basis point decrease in the
average yield earned on interest-earning assets coupled with a 6 basis point
increase in the average rate paid on interest-bearing liabilities. The increase
in the rate paid on interest-bearing liabilities was primarily attributable to a
29 basis point increase in the average rate paid on money market accounts and a
33 basis point increase in the average rate paid on escrow accounts, as compared
to the year ended December 31, 1998. Excluding money market accounts, the rates
paid on other interest-bearing liabilities decreased. Average interest-earning
assets increased $102.4 million from $378.1 million for the year ended December
31, 1998 to $480.5 million for the year ended December 31, 1999, while average
interest-bearing liabilities increased $112.1 million from $281.9 million to
$394.0 million for the same period. In addition to the increase in average
interest-bearing liabilities, average non-interest bearing liabilities increased
$6.6 million from $34.3 million for the year ended December 31, 1998 to $40.9
million for the year ended December 31, 1999.
INTEREST INCOME. For the year ended December 31, 1999, interest income totaled
$35.6 million as compared to $28.4 million for the year ended December 31, 1998.
The $7.2 million, or 25.2%, increase was primarily attributable to a $4.4
million, or 34.5%, increase in the amount of interest earned on the Bank's
mortgage loan portfolio, which resulted primarily from an increase in the
average balance of the Bank's mortgage loans from $169.0 million for the year
ended December 31, 1998 to $231.4 million for the year ended December 31, 1999
as home purchasers capitalized on the opportunities afforded by relatively low
mortgage loan interest rates throughout much of the year. The increase in
interest income was also attributable, to a lesser extent, to growth in the
Bank's commercial and consumer loan portfolios. Interest earned on other loans
during the year ended December 31, 1999 increased by $1.2 million, compared to
the year ended December 31, 1998. The growth experienced resulted from strong
loan demand as discussed above. Interest earned on mortgage-backed securities
and investment securities increased by $1.7 million over the same period and
resulted largely from the Bank's utilization of additional wholesale leveraging
transactions in order to enhance earnings. Total interest income was further
bolstered by increases in interest and dividends earned on securities, which
were derived mainly from such wholesale leveraging transactions.
The average yield on interest-earning assets decreased to 7.40% for the year
ended December 31, 1999, as compared to 7.51% for the year ended December 31,
1998. This was primarily due to lower yields earned on the Bank's loan and
mortgage-backed securities portfolios due to lower long-term interest rates
during the year ended December 31, 1999.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1999 was
$17.0 million, compared to $11.9 million for the year ended December 31, 1998.
This increase was due primarily to an increase of $85.0 million in the average
balance of borrowed funds, a 33 basis point increase in the average rate paid on
escrow deposits, a $6.0 million increase in the average balance of passbook
accounts, a 29 basis point increase in the average rate paid on money market
accounts, and a $13.0 million increase in the average balance of money market
accounts. These increases were partially offset by a 29 basis point decrease in
the average rate paid on passbook accounts, a 26 basis point decrease in the
average rate paid on certificate accounts and a 19 basis point decrease in the
average rate paid on borrowed funds. The increase in interest expense is also
attributable to an increase of $4.5 million in the interest paid on borrowings
associated with the aforementioned wholesale leveraging transactions.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the years ended
December 31, 1999 and 1998 was $500 thousand. This provision is a result of
management's assessment of the growth in the loan portfolio, the level of the
Bank's allowance for possible loan losses and its assessment of the local
economy and market conditions. At December 31, 1999, the allowance for possible
loan losses totaled $1.9 million, and the ratio of such allowance to
non-performing loans was 95.33%.
NON-INTEREST INCOME. Non-interest income, consisting primarily of service and
fee income and gains and losses on securities and loan transactions, increased
by $118 thousand, or 3.2%, to $3.8 million for the year ended December 31, 1999,
as compared to $3.7 million for the year ended December 31, 1998. This increase
was primarily attributable to an increase of $578 thousand in service and fee
income due to deposit and loan growth, growth in the amount of mortgage loans
serviced and the new fee income associated with the Bank's debit card and a $184
thousand increase in other income due to the absence of non-recurring expenses
attributable to the Bank's town of Wallkill branch relocation incurred one year
earlier. These increases were offset by a $585 thousand decrease in gains on
securities transactions and a $59 thousand decrease in net gains on loan sales
as the Bank elected to restructure approximately $10.0 million of the Bank's
lower yielding investments into higher yielding assets and entered into fewer
mortgage banking transactions.
F11
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense increased by $3.2 million, or 23.7%,
to $16.7 million for the year ended December 31, 1999, as compared to $13.5
million for the year ended December 31, 1998. This increase resulted primarily
from an increase in salaries and employee benefits of $1.7 minion attributable
to additions to staff necessary to attract and service a growing number of loan
account and deposit account customers, and to hiring new staff members for the
Company's expansion into Bergen County, New Jersey, through the formation of the
Commercial Bank, and the addition of the Bank's fifth full-service branch in the
town of Newburgh. Occupancy expense and data processing expense increased $292
thousand and $179 thousand, respectively, due primarily to the formation of the
Commercial Bank and the Bank's expansion into the town of Newburgh. Other
expenses for the year ended December 31, 1999 increased by $739 thousand
primarily due to start-up expenses associated with the formation of the
Commercial Bank and the town of Newburgh branch. Professional fees increased $86
thousand due to legal expenses and consulting fees associated with the Bank's
implementation of a tax planning strategy to reduce its effective marginal tax
rate. Advertising expense increased $164 thousand for the year ended December
31, 1999 in order to support the Bank's new full-service branch and the
Company's expansion into New Jersey with the opening of the Commercial Bank, as
well as to promote the Bank's name in the highly competitive mortgage loan and
commercial loan arenas.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased from $2.5
million for the year ended December 31, 1998 to $2.1 million for the year ended
December 31, 1999. This decrease was attributable to the decrease in pre-tax
income and the Bank's implementation of a tax planning strategy.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
Total assets increased $104.3 million to $445.1 million at December 31, 1998
from $340.8 million at December 31, 1997, reflecting the Bank's ongoing strategy
of managed growth. This increase in total assets was primarily the result of
increases in the Bank's interest-earning assets, as the Bank grew both its loan
and investment securities portfolios. The asset growth was also funded through
borrowings, which increased $76.8 million to $104.8 million at December 31,
1998. At December 31, 1998, the Bank had $25.3 million in securities sold under
repurchase agreements and $79.5 million in term loans from the FHLBNY. Deposit
liabilities increased by $33.4 million to $246.9 million at December 31, 1998
from $213.5 million at December 31, 1997, primarily due to increases in demand
checking accounts, money market accounts and NOW accounts.
Asset growth was concentrated in mortgage loans, net, which increased $61.3
million to $194.6 million at December 31, 1998 from $133.3 million at December
31, 1997. Other loans, net, showed an increase of $11.8 million to $53.1 million
at December 31, 1998 from $41.3 million at December 31, 1997. Total securities
were $155.5 million at December 31, 1998 compared to $127.6 million at December
31, 1997. Securities held-to-maturity at December 31, 1998 totaled $6.0 million
as compared to $5.4 million at December 31, 1997. Securities available-for-sale
at December 31, 1998 totaled $149.5 million as compared to $122.2 million at
December 31, 1997. This increase is primarily the result of the Bank's
utilization of additional wholesale leveraging transactions in order to enhance
earnings.
Bank premises and equipment, net, increased $3.0 million, or 93.8%, from $3.2
million at December 31, 1997 to $6.2 million at December 31, 1998. This increase
was primarily the result of the costs associated with the opening of the Bank's
newly constructed full-service branch in the town of Wallkill, and from the
upgrading and replacement of much of the Bank's electronic data processing
hardware and software in connection with the Bank's Year 2000 compliance plan.
The FHLBNY stock portfolio increased by $2.9 million in conjunction with both
the Bank's larger asset size and the utilization of wholesale leveraging
transactions.
Total stockholders' equity decreased $2.0 million to $84.2 million at December
31,1998 from $86.2 million at December 31, 1997. This decrease was primarily
attributable to the $4.6 million in open market purchases of the Company's
common stock in conjunction with the establishment of the Recognition and
Retention Plan of the Company ("RRP"). Also contributing to this decrease was
the payment of the Company's cash dividend to shareholders of $545 thousand. The
decrease in total stockholders' equity was partially offset by net income of
$3.6 million for the year ended December 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
GENERAL. Net income for the year ended December 31, 1998 totaled $3.6 million,
or $0.60 per share, as compared to net income of $899 thousand for the
comparable period in 1997. The year ended December 31, 1997 included a one-time
after tax charge of $1.2 million for the establishment of the Foundation in
connection with the Bank's Conversion from mutual to stock form in December
1997. Excluding the one-time charge for the Foundation, net income for the year
ended December 31, 1997 would have been $2.1 million. Earnings per share results
are not available for the year ended December 31, 1997 since the Company did not
complete its Offering until December 23, 1997.
F12
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NET INTEREST INCOME. Net interest income for the year ended December 31, 1998
increased $4.6 million, or 39.0% to $16.5 million, from $11.8 million for the
year ended December 31, 1997. Net interest margin is net interest income
expressed as a percentage of total average earning assets. For the year ended
December 31, 1998 the net interest margin was 4.36%, as compared to 4.32% for
the year ended December 31, 1997. This increase was primarily attributable to
the $103.6 million increase in average interest-earning assets from $274.5
million at the year ended December 31, 1997 to $378.1 million at December 31,
1998, while average interest-bearing liabilities increased only $50.6 million
from $231.3 million to $281.9 million over the same period. In addition, funding
for the increase in average interest-earning assets was primarily provided by a
$56.7 million increase in average stockholders' equity, which included the
infusion of capital derived from the Offering, from $29.2 million for the year
ended December 31, 1997, to $85.9 million for the comparable period ended
December 31, 1998.
The increase in interest income resulted primarily from the significant growth
of the mortgage loan portfolio, as home purchasers and existing homeowners
capitalized on the opportunities afforded by lower mortgage loan interest rates.
Concurrently, the more modest increase in interest expense resulted primarily
from an increase in interest on borrowed funds, coupled with a decrease in time
deposit interest expense.
INTEREST INCOME. For the year ended December 31, 1998 interest income was $28.4
million, as compared to $21.4 million for the year ended December 31, 1997. The
$7.0 million, or 32.8%, increase was attributable to a $3.9 million, or 45.0%,
increase in the amount of interest earned on the Bank's mortgage loan portfolio,
which resulted primarily from an increase in the average balance of the Bank's
mortgage loans from $110.5 million for the year ended December 31, 1997 to
$169.0 million for the year ended December 31, 1998. The increase in interest
income was also attributable, to a lesser extent, to growth in the Bank's
commercial and consumer loan portfolios. Interest earned on other loans during
the year ended December 31, 1998 increased by $644 thousand, compared to the
year ended December 31, 1997. Interest earned on investment and mortgage-backed
securities during the year ended December 31, 1998 increased by $2.5 million
over the same period, largely as a result of the Bank's utilization of
additional wholesale leveraging transactions in order to enhance earnings. Total
interest income was further bolstered by increases in interest and dividends
earned on securities, which were derived mainly from such wholesale leveraging
transactions.
The average yield on interest-earning assets decreased to 7.51% for the year
ended December 31, 1998, as compared to 7.79% for the year ended December 31,
1997. This was primarily due to the lower yields earned on the Bank's loan
portfolio and mortgage-backed securities portfolio due to lower long-term
interest rates during the year ended December 31, 1998.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1998 was
$11.9 million, compared to $9.5 million for the year ended December 31, 1997.
This increase was due primarily to an increase of $47.3 million in the average
balance of borrowed funds, a 32 basis point increase in the average rate paid on
money market accounts and a $3.8 million increase in the average balance of
money market accounts. These increases were partially offset by a $5.3 million
decrease in the average balance of certificate accounts and by a 51 basis point
decrease in the average rate paid on borrowed funds. The increase in interest
expense is also attributable to an increase of $2.5 million in the interest paid
on borrowings associated with the aforementioned wholesale leveraging
transactions.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended
December 31, 1998 increased to $500 thousand, as compared to $454 thousand for
the year ended December 31, 1997. This increase resulted from management's
assessment of the growth in the loan portfolio, the level of the Bank's
allowance for possible loan losses and its assessment of the local economy and
market conditions. At December 31, 1998, the allowance for possible loan losses
totaled $1.7 million, and the ratio of such allowance to non-performing loans
was 82.95%.
NON-INTEREST INCOME. Non-interest income, consisting of service and fee income
and gains and losses on securities and loan transactions, increased by $1.0
million, or 37.2%, to $3.7 million for the year ended December 31, 1998, as
compared to $2.7 million for the year ended December 31, 1997. This increase was
primarily attributable to an increase of $782 thousand in gains on securities
transactions, an increase of $301 thousand in service and fee income due to
growth in checking account deposits during 1998 and an increase of $40 thousand
in net gains on loan sales, and was partially offset by a $125 thousand
reduction in other income associated with write-offs of leasehold improvements
and equipment that resulted from the closing of the Bank's full-service leased
branch and the simultaneous opening of the Bank's new full-service branch in the
town of Wallkill.
NON-INTEREST EXPENSE. Non-interest expense increased by $981 thousand to $13.5
million for the year ended December 31, 1998, as compared to $12.5 million for
the year ended December 31, 1997. This increase resulted primarily from an
increase in salaries and employee benefits of $1.4 million attributable to
additions to staff necessary to attract and service a growing number of loan
account and deposit account customers. Professional fees increased $581 thousand
primarily as a result of ongoing consultation and audit activities in connection
with the Company's new legal structure following the Offering and the Bank's
Conversion. Advertising expense increased $161 thousand in order to support the
Bank's branch relocation and grand opening, and to promote the Bank's name in
the highly competitive mortgage loan and commercial loan arenas. Data processing
expense increased $159 thousand due to expense associated with becoming Year
2000 compliant. Other expenses increased $621 thousand due to increased costs
associated with the increase in the loan portfolio. Partially offsetting these
increases was the decrease of $1.9 million in contribution to the Foundation for
the year ended December 31, 1998 due to the one-time charge for the contribution
to the Foundation during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from $658
thousand for the year ended December 31, 1997 to $2.5 million for the year ended
December 31, 1998. This increase was attributable to the increase in pre-tax
income.
F13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Following the completion of the Bank's Conversion and the Company's Offering in
December 1997, the Company's principal business was that of its subsidiary, the
Bank. The Company invested 50% of the net proceeds from the Offering in the Bank
and retained the remaining net proceeds. The remaining net proceeds were
initially invested primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities, equity securities and a loan
to the trustee of the ESOP. The Bank can pay dividends to the Company, to the
extent such dividends are permitted by law, which serves as an additional source
of liquidity for the Company.
The Company's liquidity is available to, among other things, support future
expansion of operations or diversification into other banking related
businesses, pay dividends or repurchase its common stock. On April 6, 1999, the
Company's Board of Directors authorized its second stock repurchase program
covering the repurchase of up to 313,811 shares (5%) of the Company's
outstanding common stock. On September 27, 1999, the Company's Board of
Directors authorized its third stock repurchase program covering the repurchase
of up to 298,120 shares (5%) of the Company's outstanding common stock. On
December 14, 1999, the Company's Board of Directors authorized its fourth stock
repurchase program covering the repurchase of up to 283,214 shares (5%) of the
Company's outstanding common stock. During 1999, the Company utilized its
liquidity to repurchase a total of 967,258 shares of the Company's outstanding
common stock at a total cost of $12.3 million. During 1999, the Company's Board
of Directors declared and the Company paid four quarterly cash dividends
aggregating $0.195 per share, or a total of $1.2 million.
Restrictions on the amount of dividends the Company and the Bank may declare can
affect the Company's liquidity and cash flow needs. Dividend payments by the
Company must be within certain guidelines of the Federal Reserve Board. In
addition, under Delaware law, the Company may generally only pay dividends from
its capital surplus, or if no such surplus exists, from its net profits for the
current and preceding year.
The Bank's primary sources of funds are retail deposits, wholesale funding from
FHLBNY or other bank borrowings, securities sold under repurchase agreements,
principal and interest payments on loans and securities and, to a lesser extent,
proceeds from the sale of securities. While maturities and scheduled
amortization of loans and securities provide an indication of the timing of the
receipt of funds, changes in interest rates, economic conditions and competition
strongly influence mortgage prepayment rates and deposit flows, reducing the
predictability of the timing of sources of funds.
The Bank adheres to a Liquidity and Funds Management Policy approved by its
Board of Directors, which sets minimum internal guidelines for liquidity
purposes. As a member of the FHLBNY, the Bank has the availability of two lines
of credit for borrowings in the amounts of $39.0 million and $22.0 million, one
on an overnight basis and the other on a 30-day term basis. In accordance with
the FHLBNY's credit policy, the Bank now has total credit facilities available
of nearly $296.0 million, inclusive of the aforementioned amounts, before the
delivery of qualifying collateral is required. Additionally, the Bank has other
sources of liquidity if the need arises. One source is to borrow up to $5
million from a commercial bank on an unsecured basis and the other is the
ability to sell securities under repurchase agreements in an amount up to $10
million from a securities investment company.
The primary investing activities of the Bank are the origination of one- to
four-family residential mortgage loans, commercial real estate and commercial
business loans, a variety of consumer loans, and the purchase of mortgage-backed
securities and debt and equity securities. During the years ended December 31,
1999, 1998 and 1997, the Bank's disbursements for loan originations totaled
$214.4 million, $218.3 million and $113.8 million, respectively. Purchases of
mortgage-backed securities totaled $79.6 million, $110.4 million and $29.3
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Other debt and equity securities purchased during the years ended December 31,
1999, 1998 and 1997, were $50.5 million, $57.6 million and $31.5 million,
respectively. The Bank's investing activities are funded primarily by
borrowings, net deposit inflows, sales of loans and securities and principal
repayments on loans and securities. The Bank increased borrowings at December
31, 1999 and 1998 by $134.3 million and $76.8 million, respectively, to fund its
investments.
At December 31, 1999, the Bank's total approved loan origination commitments
outstanding totaled $70.9 million and the unadvanced/unused portion of
commercial lines of credit totaled $9.2 million. The Bank believes it will have
sufficient funds available to meet its current originations and other lending
commitments. Certificates of deposit scheduled to mature in one year or less
from December 31, 1999 totaled $74.9 million. Based on historical experience and
pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.
At December 31, 1999, the Bank had cash and due from banks of $22.2 million,
Federal funds sold of $7.7 million and securities available-for-sale of $185.1
million. Management believes these amounts, together with the Bank borrowing
capabilities, to be more than adequate to meet its short-term cash needs.
The Bank's ability to pay dividends to the Company is also subject to certain
restrictions. Under the New York State Banking Law, dividends may generally be
paid only from the net profits of the Bank. The approval of the Superintendent
of Banks of the State of New York (the "Superintendent") is required if the
total of all dividends declared in any calendar year will exceed the net profits
for that year plus the retained net profits of the preceding two years, less any
required transfers. In addition, no dividends may be declared, credited or paid
if the effect thereof would cause the Bank's capital to be reduced below the
amount required by the Superintendent or the FDIC. During 1999, the Board of
Directors of the Bank declared and paid a dividend to the Company on December
10, 1999 totaling $1.0 million.
F14
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
REGULATORY CAPITAL POSITION
The Bank is subject to minimum regulatory capital requirements imposed by the
Federal Deposit Insurance Corporation which vary according to an institution's
capital level and the composition of its assets. An insured institution is
required to maintain Tier I capital of not less than 3.00% of total assets plus
an additional amount of at least 100 to 200 basis points ("leverage capital
ratio"). An insured institution must also maintain a ratio of total capital to
risk-based assets of at least 8.00%. Although the minimum leverage capital ratio
is 3.00%, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") stipulates that an institution with less than a 4.00% leverage
capital ratio is deemed to be an "undercapitalized" institution, which results
in the imposition of regulatory restrictions. The Bank's capital ratios qualify
it to be deemed "well capitalized" under FDICIA. In addition, the Company's
capital ratios exceed the minimum regulatory capital requirements imposed by the
Federal Reserve Board, which are substantially similar to the requirements of
the FDIC. See Note 13 to the Notes to Consolidated Financial Statements for the
Bank's, the Commercial Bank's and the Company's regulatory capital position as
of December 31, 1999 and 1998.
READINESS FOR THE YEAR 2000 AND ACTUAL EXPERIENCE
Well in advance of December 31, 1999, the Company established a formal program
to identify and assess the effect of the Year 2000 on its software, hardware and
business. Much of the Company's data processing is done by outside vendors, and
the Company was dependent on them to evaluate and address problems that may
arise when computers cannot distinguish between the years with the same final
two digits in the current century and in the next. Based on its experience since
January 1, 2000, management believes that these vendors modified both software
and hardware successfully as no operating problems related to the date have
occurred. The expense of modifying systems to identify the Year 2000 correctly
will not have a significant effect on the Company's results of operation,
financial condition or liquidity, either now or in the future.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
See Note 1 to Notes to the Consolidated Financial Statements.
MARKET FOR COMMON STOCK
The Company's common stock commenced trading on December 23, 1997. The table
below shows the high and low prices of the common stock for the periods
indicated, as reported on the National Market System of The Nasdaq Stock
Market,sm as well as the dividends paid during such periods.
Year Quarter Ending High Low Dividends Paid
- - -------------------------------------------------------------------------
1998 March 31 $17.50 $15.38 N/A
June 30 $18.00 $16.25 N/A
September 30 $17.63 $11.50 $0.0400
December 31 $17.13 $10.50 $0.0425
1999 March 31 $16.13 $13.25 $0.0450
June 30 $13.75 $12.13 $0.0475
September 30 $12.75 $ 9.75 $0.0500
December 31 $11.06 $10.00 $0.0525
As of February 29, 2000, there were 5,536,790 shares of the Company's common
stock outstanding and approximately 1,457 holders of record. The holders of
record include banks and brokers who act as nominees, each of whom may represent
more than one stockholder.
The Board of Directors of the Company declared four quarterly cash dividends
during the year ended December 31, 1999, as shown in the table above. The Board
will review the dividend regularly and hopes to maintain a regular quarterly
dividend in the future, based on the Company's earnings, financial condition and
other factors.
F15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, DECEMBER 31,
1999 1998
ASSETS ----------------- ----------------
<S> <C> <C>
Cash on hand and in banks $ 22,209,297 $ 10,511,429
Federal funds sold 7,665,000 --
Securities-
Available-for-sale, at fair value 185,072,068 149,490,983
Held-to-maturity, at amortized cost
(fair value of $1,410,220 in 1999
and $5,967,296 in 1998) 1,417,621 5,998,931
-------------- ------------
Total securities 186,489,689 155,489,914
-------------- ------------
Mortgage loans, net 270,688,069 194,596,355
Mortgage loans held-for-sale 4,162,583 13,736,722
Other loans, net 74,470,059 53,130,139
Mortgage servicing rights 2,018,990 1,463,503
Accrued interest receivable 3,216,362 2,505,976
Federal Home Loan Bank stock 11,752,000 4,632,800
Bank premises and equipment, net 7,789,021 6,173,210
Other real estate owned, net 414,840 370,772
Other assets 6,837,797 2,527,833
-------------- ------------
Total assets $ 597,713,707 $445,138,653
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 283,072,381 $246,886,382
Mortgage escrow funds 1,487,761 1,965,266
Securities sold under agreements to repurchase 37,375,000 25,310,000
Federal Home Loan Bank advances 201,675,000 79,480,000
Accrued expenses and other liabilities 7,531,500 7,259,224
-------------- ------------
Total liabilities 531,141,642 360,900,872
-------------- ------------
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued
Common stock, $.01 par value; 15,000,000
shares authorized; 6,606,548 shares issued;
5,054,281 and 5,924,056 shares outstanding
in 1999 and 1998, respectively 66,065 66,065
Additional paid-in capital 62,977,982 63,374,087
Retained earnings - subject to restrictions 32,429,671 30,458,523
Accumulated other comprehensive income
(loss), net (6,831,889) 1,726,918
Less-Unallocated common stock held by
ESOP (6,515,035) (7,207,901)
Less- Unearned common stock held by RRP (3,262,607) (4,179,911)
Treasury stock (967,258 shares) (12,292,122) --
-------------- ------------
Total stockholders' equity 66,572,065 84,237,781
-------------- ------------
Total liabilities and stockholders' equity $ 597,713,707 $445,138,653
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F16
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C>
Interest on mortgage loans $ 17,077,323 $ 12,693,436 $ 8,756,253
Interest on other loans 5,430,705 4,264,370 3,620,033
Interest on securities 13,016,925 11,345,519 8,874,052
Interest on federal funds sold 14,253 69,621 110,103
Interest on short-term money market instruments 22,878 35,258 25,974
------------ ------------ ------------
Total interest income 35,562,084 28,408,204 21,386,415
------------ ------------ ------------
INTEREST EXPENSE:
Time deposits 3,467,065 3,540,030 3,917,890
Money market deposits 1,672,908 1,078,337 859,537
Savings deposits 2,596,974 2,600,034 2,542,659
Mortgagors' escrow funds 111,953 93,907 78,047
Borrowed funds 9,101,753 4,627,338 2,140,712
------------ ------------ ------------
Total interest expense 16,950,653 11,939,646 9,538,845
------------ ------------ ------------
Net interest income before provision for loan losses 18,611,431 16,468,558 11,847,570
PROVISION FOR LOAN LOSSES: 499,800 500,000 454,000
------------ ------------ ------------
Net interest income after provision for loan losses 18,111,631 15,968,558 11,393,570
------------ ------------ ------------
NON-INTEREST INCOME:
Service and fee income 2,914,268 2,335,893 2,034,529
Securities transactions 523,563 1,108,931 326,538
Net gain on sale of loans 109,426 168,090 127,750
Other income 257,686 74,087 198,645
------------ ------------ ------------
Total non-interest income, net 3,804,943 3,687,001 2,687,462
------------ ------------ ------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 9,536,265 7,795,269 6,358,603
FDIC insurance 30,678 28,457 27,835
Occupancy 1,451,646 1,159,551 1,212,883
Data processing 974,551 795,554 636,539
Advertising 499,791 335,954 175,273
Professional fees 1,005,801 919,673 338,761
Contribution to The Warwick Savings Foundation - - 1,924,230
Other 3,209,147 2,469,796 1,849,280
------------ ------------ ------------
Total non-interest expense 16,707,879 13,504,254 12,523,404
------------ ------------ ------------
Income before provision for income taxes 5,208,695 6,151,305 1,557,628
PROVISION FOR INCOME TAXES: 2,066,009 2,529,870 658,294
------------ ------------ ------------
Net Income $ 3,142,686 $ 3,621,435 $ 899,334
============ ============ ============
WEIGHTED AVERAGE:
Common shares 5,476,926 6,013,978 N/A
Dilutive stock options - - N/A
------------ ------------
5,476,926 6,013,978 N/A
============ ============
EARNINGS PER SHARE:
Basic $ 0.57 $ 0.60 N/A
============ ============
Diluted $ 0.57 $ 0.60 N/A
============ ============
</TABLE>
F17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Additional Comprehensive Unallocated
Common Paid-in Retained Income ESOP
Stock Capital Earnings (Loss), Net Common Stock
------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996
Net income $ - $ - $26,482,795 $ 821,149 $ -
Unrealized appreciation on
securities available-for-sale, net - - 899,334 - -
Comprehensive income - - - 812,954 -
Issuance of 6,414,125 shares of
$.01 par value common stock in
initial public offering, net
of conversion related expenses 64,141 61,421,084 - - -
Issuance of 192,423 shares of
$.01 par value common
stock to The Warwick
Savings Foundation 1,924 1,922,306 - - -
Purchase of common
stock by ESOP - - - - (7,079,156)
Allocation of ESOP stock - 23,102 - - 820,421
------- ----------- ----------- ---------- -----------
BALANCE, December 31, 1997 66,065 63,366,492 27,382,129 1,634,103 (6,258,735)
Net income - - 3,621,435 - -
Unrealized appreciation on
securities available-for-sale, net - - - 92,815 -
Comprehensive income
Purchase of common - - - - (1,430,618)
stock by ESOP
Allocation of ESOP stock - 7,595 - - 481,452
Cash dividends paid - - (545,041) - -
Purchase of common stock
by RRP - - - - -
Earned portion of RRP - - - - -
------- ----------- ----------- ---------- -----------
BALANCE, December 31, 1998 66,065 63,374,087 30,458,523 1,726,918 (7,207,901)
Net income - - 3,142,686 - -
Unrealized depreciation on
securities available-for-sale, net - - - (8,558,807) -
Comprehensive income
Allocation of ESOP stock - (155,746) - - 692,866
Cash dividends paid - - (1,171,538) - -
Earned portion of RRP - (240,359) - - -
Purchase of treasury stock - - - - -
------- ----------- ----------- ---------- -----------
BALANCE, December 31, 1999 66,065 $62,977,982 $32,429,671 $(6,831,889) $(6,515,035)
======= =========== =========== =========== ===========
</TABLE>
Unearned RRP Treasury Comprehensive
Common Stock Stock Income (Loss)
------------ --------- -------------
BALANCE, December 31, 1996
Net income $ - $ -
Unrealized appreciation on
securities available-for-sale, net - - $ 899,334
Comprehensive income - - 812,954
-----------
Issuance of 6,414,125 shares of $ 1,712,288
$.01 par value common stock in ===========
initial public offering, net
of conversion related expenses - -
Issuance of 192,423 shares of
$.01 par value common
stock to The Warwick
Savings Foundation - -
Purchase of common
stock by ESOP - -
Allocation of ESOP stock - -
------------ ----------
BALANCE, December 31, 1997 - -
Net income - - $ 3,621,435
Unrealized appreciation on
securities available-for-sale, net - - 92,815
Comprehensive income $ 3,714,250
===========
Purchase of common - -
stock by ESOP
Allocation of ESOP stock - -
Cash dividends paid - -
Purchase of common stock
by RRP (4,635,038) -
Earned portion of RRP 455,127 -
------------ ----------
BALANCE, December 31, 1998 (4,179,911) -
Net income - - $ 3,142,686
Unrealized depreciation on
securities available-for-sale, net - - (8,558,807)
-----------
Comprehensive income $(5,416,121)
============
Allocation of ESOP stock - -
Cash dividends paid - -
Earned portion of RRP 917,304 -
Purchase of treasury stock - (12.292,122)
------------ ---------
BALANCE, December 31, 1999 $ (3,262,607) $(12,292,122)
============ ============
F18
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
------------------------------------------------------
1999 1998 1997
------------------ ----------------- ---------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net income $ 3,142,686 $ 3,621,435 $ 899,334
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 668,012 491,756 466,220
Charitable contribution of common stock to - - 1,924,230
The Warwick Savings Foundation
Amortization of premium /(accretion) of discount (1,533,934) (627,131) (18,861)
on investment securities, net
Net increase in accrued interest receivable (710,386) (345,061) (116,250)
Net increase in mortgage servicing rights and other assets (4,865,451) (657,081) (1,773,831)
Provision for loan losses 499,800 500,000 454,000
Net gain on sales of loans (109,426) (168,090) (127,750)
Net gain on sales of securities (523,563) (1,108,931) (326,538)
Net increase (decrease) in accrued interest payable 838,685 1,366,126 (27,564)
Net increase (decrease) in accrued expenses and
other liabilities (566,409) (5,677,688) 6,307,043
----------- ------------- -----------
Net cash used in operating activities (3,159,986) (2,604,665) 7,660,033
----------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities 23,999,619 24,888,132 7,800,000
Purchases of securities (130,133,268) (168,037,295) (60,713,044)
Proceeds from sales of trading securities and securities 41,680,350 90,520,153 53,309,648
available-for-sale
Principal repayments from mortgage-backed securities 20,722,448 25,468,015 11,758,660
Purchases of Federal Home Loan Bank stock (7,119,200) (2,901,500) (553,200)
Net increase in loans (83,665,284) (82,586,456) (50,398,616)
Purchases of bank premises and equipment, net (1,076,815) (1,697,921) (1,498,082)
----------- ------------- -----------
Net cash used in investing activities (135,592,150) (114,346,872) (40,294,634)
----------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 36,185,999 33,372,925 (3,707,748)
Net increase (decrease) in mortgage escrow funds (477,505) 436,444 584,205
Increase (decrease) in borrowed funds 134,260,000 76,785,000 (8,695,000)
Cash dividends paid on common stock (1,171,538) (545,041) -
Purchase of treasury stock (12,292,122) - -
Purchase of common stock by ESOP - (1,430,618) (7,079,156)
ESOP allocation 692,866 481,452 820,421
Proceeds from issuance of common stock - - 64,141,250
Payments for conversion costs - - (2,656,025)
Purchase of common stock by RRP - (4,635,038) -
Earned portion of RRP 917,304 455,127 -
----------- ------------- -----------
Net cash provided by financing activities 158,115,004 104,920,251 43,407,947
----------- ------------- -----------
Increase (decrease) in cash and cash equivalents 19,362,868 (12,031,286) 10,773,346
CASH AND CASH EQUIVALENTS, beginning of year 10,511,429 22,542,715 11,769,369
----------- ------------- -----------
CASH AND CASH EQUIVALENTS, end of year $29,874,297 $ 10,511,429 $22,542,715
=========== ============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest on deposits and borrowed funds $17,788,653 $ 10,573,520 $ 9,566,409
Income taxes 1,826,375 2,803,896 1,610,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies
followed by Warwick Community Bancorp, Inc. and subsidiaries (the
"Company") in the preparation of its consolidated financial statements:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Warwick Community Bancorp, Inc., its savings bank subsidiary, The Warwick
Savings Bank (the "Bank"), and its commercial bank subsidiary, The Towne
Center Bank (the "Commercial Bank"). All significant intercompany balances
and transactions are eliminated in consolidation.
As more fully discussed in Note 2, Warwick Community Bancorp, Inc., a
Delaware corporation, was organized by the Bank for the purpose of
acquiring all of the capital stock of the Bank pursuant to the conversion
of the Bank from a New York chartered mutual savings bank to a New York
chartered stock savings bank. The Company is subject to the financial
reporting requirements of the Securities Exchange Act of 1934, as amended.
CHANGE OF FISCAL YEAR
During 1998 the Company changed its fiscal year end from May 31 to December
31. All prior periods have been restated to reflect this change.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported assets and
liabilities as of the date of the consolidated statements of financial
condition. The same is true of revenues and expenses reported for the
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company generally considers short-term instruments, with original
maturities of three months or less, measured from their acquisition date,
and highly liquid instruments readily convertible to known amounts of cash
to be cash equivalents.
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally,
federal funds sold are sold for one-day periods.
SECURITIES
The Company classifies its securities as trading securities,
available-for-sale securities, or held-to-maturity securities in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Trading
securities are debt and equity securities that are bought principally for
the purpose of selling them in the near term, and securities classified as
held-to-maturity consist of debt securities which the Company has the
positive intent and ability to hold to maturity and are carried at
amortized cost. Securities considered neither trading nor held-to-maturity
are classified as available-for-sale securities and are carried at fair
value with unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity (net of related deferred
taxes). Trading securities are carried at fair value with unrealized gains
and losses included in earnings.
Federal Home Loan Bank stock is considered a restricted stock under SFAS
No. 115 and, accordingly, is carried at cost.
LOANS
Loans are stated at the principal amount outstanding, net of unearned
income. Loans are placed on non-accrual status when management has
determined that the borrower will be unable to meet contractual principal
or interest obligations or when unsecured interest or principal payments
are 90 days past due. When a loan is classified as non-accrual, the
recognition of interest income ceases. Interest previously accrued and
remaining unpaid is reversed against income. Cash payments received are
applied to principal and interest income is not recognized unless
management determines that the financial condition and payment record of
the borrower warrant the recognition of income.
F20
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a significant estimate based upon
management's periodic evaluation of the loan portfolio under current
economic conditions, considering factors such as the Company's past loss
experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, and the estimated value of
the underlying collateral. Establishing the allowance for loan losses
involves significant management judgment, utilizing the best available
information at the time of review. Those judgments are subject to further
review by various sources, including the Bank's and the Commercial Bank's
regulators. While management estimates loan losses using the best available
information, future adjustments to the allowance may be necessary based on
changes in economic and real estate market conditions, further information
obtained regarding known problem loans, the identification of additional
problem loans, and other factors.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," defines
an impaired loan as a loan for which it is probable, based on current
information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement. The Company applies the impairment
criteria to all loans, except for large groups of smaller balance
homogenous loans that are collectively evaluated for impairment, such as
residential mortgage and consumer installment loans. At December 31, 1999
and 1998, in addition to the non-accrual loans discussed in Notes 4 and 5,
there were $359,109 and $544,953, respectively, of loans identified by the
Company as impaired, as defined under SFAS No. 114, with no specific
reserves for losses.
MORTGAGE LOANS HELD-FOR-SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate, with
net unrealized losses (if any) reported in earnings. Realized gains and
losses on sales of loans are based on the cost of the specific loans sold.
LOAN ORIGINATION FEES AND RELATED COSTS
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized in income using the level-yield method over
the contractual life of the loans. Unamortized fees and costs on loans sold
or prepaid prior to contractual maturity are recognized as an adjustment to
income in the year such loans are sold or prepaid.
MORTGAGE SERVICING RIGHTS
The cost of mortgage servicing rights (purchased or originated rights with
related loans sold) is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights
is assessed based on the fair value of those rights. For purposes of
measuring impairment, the servicing rights are stratified based on the
following predominant risk characteristics of the underlying loans: (a)
loan type, and (b) origination or securitization date.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is computed on the
straight-line method over the estimated useful lives of the related assets.
Equipment under capital leases is amortized on the straight-line method
over the shorter of the lease term or the estimated useful life of the
asset. Repairs and maintenance, as well as renewals and replacements of a
routine nature, are expensed while costs incurred to improve or extend the
life of existing assets are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") represents properties acquired through
legal foreclosure. Prior to transferring a real estate loan to OREO, the
loan is written down to the lower of the recorded investment in the loan or
the fair value of the property. Any resulting write-downs are charged to
the allowance for loan losses. Thereafter, the property is carried at the
lower of cost or fair value less costs to sell, with any adjustments
recorded as an increase or decrease to the allowance for losses on OREO.
F21
<PAGE>
INTEREST INCOME
Interest income includes interest income on loans and investment securities
and dividend income received on investment securities.
The operations of the Company are substantially dependent on its net
interest income, which is the difference between the interest income earned
on its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. Like most savings institutions, the Company's
earnings are affected by changes in market interest rates and the economic
factors beyond its control. Decreases in the Company's average interest
rate spread could adversely affect the Company's net interest income.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
effects attributable to "temporary differences" (differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases) and tax loss and tax credit carryforwards.
Deferred tax assets are reduced by a valuation allowance if, based on an
analysis of available evidence, management determines that it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
the temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax laws or
rates is recognized in income in the period that includes the enactment
date of the change.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company follows the American Institute for Certified Public Accountants
("AICPA") Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" ("SOP 93-6"), to account for the Warwick Community
Bancorp, Inc. Employee Stock Ownership Plan ("ESOP"). SOP 93-6 requires
that compensation expense be recognized for shares committed to be released
to directly compensate employees equal to the fair value of the shares
committed. In addition, SOP 93-6 requires that leveraged ESOP debt and
related interest expense be reflected in the employer's financial
statements. The application of SOP 93-6 will result in fluctuations in
compensation expense as a result of changes in the fair value of the
Company's common stock; however, any such compensation expense fluctuations
will result in an offsetting adjustment to paid-in capital. Therefore,
total capital will not be affected.
STOCK OPTIONS
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 applies to all transactions in which an entity
acquires goods or services by issuing equity instruments or by incurring
liabilities where the payment amounts are based on the entity's common
stock price, except for employee stock ownership plans. SFAS No. 123
established a fair value-based method of accounting for stock-based
compensation arrangements with employees, rather than the intrinsic
value-based method that is contained in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). SFAS No.
123 does not require an entity to adopt the new fair value-based method for
purposes of preparing its basic financial statements; an entity is allowed
to continue to use the APB No. 25 method for preparing its basic financial
statements. The Company has chosen to continue to use the APB No. 25
method; however, SFAS No. 123 requires presentation of pro forma net income
and earnings per share information, in the notes to the financial
statements, as if the fair value-based method had been adopted.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period, adjusted for the unallocated portion of the shares held by the ESOP
in accordance with SOP 93-6 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 December 31, 1999 and 1998, the Company had 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,
except for those options granted under the Stock Option Plan of Warwick
Community Bancorp, Inc. ("Stock Option Plan").
F22
<PAGE>
COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in equity
during a period except those resulting from investment 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as later amended by SFAS No. 137, is effective prospectively
for the Company on January 1, 2001. The Company is still assessing the
impact, if any, of SFAS No. 133 on its accounting or disclosures.
RECLASSIFICATIONS
Certain reclassifications were made to the accompanying December 31, 1998
and 1997 financial statements to conform to December 31, 1999 presentation.
2. CONVERSION TO STOCK FORM OF OWNERSHIP
On July 10, 1997, the Board of Trustees of the Bank adopted a proposed Plan
of Conversion ("Plan") to convert the Bank from a New York mutual savings
bank to a New York stock savings bank and to become a wholly owned
subsidiary of the Company (the "Conversion"). The Company completed its
initial public offering on December 23, 1997 and sold 6,414,125 shares of
common stock, resulting in proceeds of $61,485,225 net of expenses totaling
$2,656,025. The Company used $30,742,613, or 50%, of the net proceeds to
purchase all of the outstanding stock of the Bank. The Company also loaned
$8,509,774 to the ESOP, which purchased 528,523 shares of the Company's
stock.
As part of the Plan, the Bank and the Company formed The Warwick Savings
Foundation and donated 192,423 shares of the Company's common stock valued
at $1,924,230. The Company recorded a contribution expense charge and a
corresponding deferred tax benefit of $769,692 for this donation. The
formation of this private charitable foundation is to further the Bank's
commitment to the communities that it serves.
The Company may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below applicable regulatory capital maintenance
requirements, the amount required for the liquidation account established
in connection with the Bank's Conversion, or if such declaration and
payment would otherwise violate regulatory requirements.
F23
<PAGE>
3. SECURITIES
A summary of securities at December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
------------------ ------------- ------------- ------------
Securities available-for-sale:
Debt securities--
<S> <C> <C> <C> <C>
U.S. Government and agency obligations $ 59,344,411 $ 37,025 $ (5,104,545) $ 54,276,891
Obligations of state and political 4,963,279 - (213,279) 4,750,000
subdivisions
Industrial and financial 14,180,416 2,348 (1,286,986) 12,895,778
Collateralized mortgage obligations 16,466,112 - (857,734) 15,608,378
Mortgage-backed securities 93,568,297 72,215 (4,065,250) 89,575,262
------------- ---------- ------------ ------------
Total debt securities 188,522,515 111,588 (11,527,794) 177,106,309
Common stock 2,851,447 - (684,011) 2,167,436
Preferred stock 1,111,654 - (160,904) 950,750
Mutual fund shares 3,972,934 874,639 - 4,847,573
------------- ---------- ------------ ------------
Total securities available-for-sale 196,458,550 986,227 (12,372,709) 185,072,068
------------- ---------- ------------ ------------
Securities held-to-maturity:
U.S. Government and agency obligations 1,344,652 - (7,096) 1,337,556
Obligations of state and political
subdivisions 72,969 - (305) 72,664
------------- ---------- ------------ ------------
Total securities held-to-maturity 1,417,621 - (7,401) 1,410,220
------------- ---------- ------------ ------------
Total securities $ 197,876,171 $ 986,227 $(12,380,110) 186,482,288
============= ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
------------------ ------------- ------------- ------------
Securities available-for-sale:
Debt securities--
<S> <C> <C> <C> <C>
U.S. Government and agency obligations $ 41,452,955 $ 405,865 $ - $ 41,858,820
Industrial and financial 8,044,770 185,230 - 8,230,000
Collateralized mortgage obligations 17,976,540 127,369 - 18,103,909
Mortgage-backed securities 61,302,215 846,005 (142,688) 62,005,532
------------- ---------- ------------ ------------
Total debt securities 128,776,480 1,564,469 (142,688) 130,198,261
Common stock 2,275,592 19,213 (353,955) 1,940,850
Preferred stock 1,111,654 8,596 - 1,120,250
Mutual fund shares 14,449,062 1,828,467 (45,907) 16,231,622
------------- ---------- ------------ ------------
Total securities available-for-sale 146,612,788 3,420,745 (542,550) 149,490,983
------------- ---------- ------------ ------------
Securities held-to-maturity:
U.S. Government and agency obligations 5,895,145 3,943 (37,500) 5,861,588
Obligations of state and political
subdivisions 103,786 1,922 - 105,708
------------- ---------- ------------ ------------
Total securities held-to-maturity 5,998,931 5,865 (37,500) 5,967,296
------------- ---------- ------------ ------------
Total securities $ 152,611,719 $3,426,610 $ (580,050) $155,458,279
============= ========== ============= ============
</TABLE>
F24
<PAGE>
A summary of the carrying value of debt securities at December 31, 1999 by
contractual maturity is shown below. Actual maturities may differ from
contractual maturities because certain security issuers may have the right to
call or prepay their obligations.
<TABLE>
<CAPTION>
One Year or After One Through After Five Through After Ten
Less Five Years Ten Years Years Total
---------------- ----------------- ------------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Securities available-for-sale-
U.S. Government and
agency obligations $ -- $ 2,053,440 $4,950,40 $ 47,273,052 $ 54,276,892
Obligations of state and
political subdivisions -- -- 4,750,000 4,750,000
Industrial and financial -- 752,348 -- 12,143,430 12,895,778
Collateralized mortgage
obligations -- -- -- 15,608,378 15,608,378
Mortgage-backed securities -- 1,978 781,768 88,791,515 89,575,261
--------- ------------ ----------- ------------ ------------
Total securities available-
for-sale $ -- $ 2,807,766 $ 5,732,168 $168,566,375 $177,106,309
========= ============ =========== ============ ============
Securities held-to-maturity-
U.S. Government and
agency obligations $ 644,537 $ 700,115 $ -- $ -- $ 1,344,652
Obligations of state
and political subdivisions -- -- -- 72,969 72,969
--------- ------------ ----------- ------------ ------------
Total securities
held-to-maturity $ 644,537 $ 700,115 $ -- $ 72,969 $ 1,417,621
========= ============ =========== ============ ============
Total debt securities $ 644,537 $ 3,507,881 $ 5,732,168 $168,639,344 $178,523,930
========= ============ =========== ============ ============
</TABLE>
Proceeds from sales of securities (trading and available-for-sale) are
summarized as follows:
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
----------- ----------- -----------
Proceeds from sales $41,680,350 $90,520,153 $53,309,648
=========== =========== ===========
Gross gains on sales $ 1,044,267 $ 1,338,245 $ 598,500
=========== =========== ===========
Gross losses on sales $ 520,704 $ 229,314 $ 271,962
=========== =========== ===========
No securities held-to-maturity were sold during the three years ended December
31, 1999.
4. MORTGAGE LOANS
A summary of mortgage loans at December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Conventional 1-4 family residential loans originated $ 237,993,164 $ 165,329,367
Conventional 1-4 family residential loans purchased 1,528,995 1,817,407
Loans partially guaranteed by VA or insured by FHA 213,060 641,317
Home equity loans 22,316,567 18,060,877
Construction loans 18,221,793 16,104,749
------------- -------------
280,273,579 201,953,717
Undisbursed portion of construction loans (8,399,122) (6,303,688)
Net deferred loan fees (807,658) (680,668)
Allowance for loan losses (378,730) (373,006)
------------- -------------
$ 270,688,069 $ 194,596,355
============= =============
</TABLE>
The Bank has sold certain conventional mortgage loans without recourse and has
retained the related servicing rights. The remaining principal balances of
mortgage loans serviced for others, which are not included in the accompanying
consolidated financial statements, were approximately $248,712,000 and
$189,378,000 at December 31, 1999 and 1998, respectively.
Mortgage loans on non-accrual status at December 31, 1999 and 1998 were
approximately $693,000 and $631,000, respectively. Interest income that would
have been recorded if the loans had been performing in accordance with their
original terms aggregated approximately $72,000 and $90,000 during the years
ended December 31, 1999 and 1998, respectively.
F25
<PAGE>
5. OTHER LOANS
A summary of other loans at December 31, 1999 and 1998 follows:
December 31,
------------------------------
1999 1998
------------ ------------
Commercial $ 45,553,015 $ 35,380,711
Automobile 26,993,795 13,787,879
Student 195,014 332,407
Credit card 1,195,944 1,295,868
Other consumer loans 1,747,027 3,345,476
------------ ------------
75,684,795 54,142,341
Net deferred loan costs 347,691 341,844
Allowance for loan losses (1,562,427) (1,354,046)
------------ ------------
$ 74,470,59 $ 53,130,139
============ ============
Commercial loans on non-accrual status at December 31, 1999 and 1998 were
approximately $418,000 and $55,000, respectively. Consumer loans in arrears
three months or more were approximately $103,000 and $33,000 at December 31,
1999 and 1998, respectively. Interest income that would have been recorded if
the loans had been performing in accordance with their original terms was
$65,000 and $5,000 during the years ended December 31, 1999 and 1998,
respectively.
6. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
Years Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
Balance at beginning of period $ 1,727,052 $ 1,371,963 $ 1,184,261
Provision for loan losses 499,800 500,000 454,000
Charge-offs (372,151) (175,372) (278,890)
Recoveries 86,456 30,461 12,592
----------- ----------- -----------
Balance at end of period $ 1,941,157 $ 1,727,052 $ 1,371,963
=========== =========== ===========
7.MORTGAGE SERVICING RIGHTS
Mortgage servicing rights as of December 31, 1999 and 1998 consist of the
following:
December 31,
----------------------------
1999 1998
----------- -----------
Mortgage servicing rights $ 2,189,955 $ 1,675,594
Less - Accumulated amortization (170,965) (212,091)
----------- -----------
$ 2,018,990 $ 1,463,503
=========== ===========
The Bank capitalized originated mortgage servicing rights of $726,452 and
$771,868 for the years ended December 31, 1999 and 1998, respectively.
8.BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31, 1999 and 1998 follows:
December 31,
------------------------------
1999 1998
------------ ------------
Land $ 2,017,296 $ 1,995,899
Buildings and improvements 5,194,862 4,151,428
Equipment 4,270,043 3,385,022
Furniture and fixtures 998,578 779,095
------------ ------------
12,480,779 10,311,444
Less - Accumulated depreciation (4,691,758) (4,138,234)
------------ ------------
$ 7,789,021 $ 6,173,210
============ ============
F26
<PAGE>
9.DEPOSITOR ACCOUNTS
Deposit account balances and stated interest rates at December 31, 1999
and 1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------- ---------------------------------
Stated Rates Account Balances Stated Rates Account Balances
------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Demand checking accounts --% $ 39,722,555 --% $ 33,380,334
Negotiable order of withdrawal
accounts (NOW) 1.00--2.00 24,975,864 1.00--2.25 22,761,492
Savings accounts 2.00--3.25 84,671,559 2.00--3.25 82,696,147
Money market accounts 1.75--5.22 44,478,964 2.35--4.23 37,052,916
Time certificates 4.18--6.25 89,223,439 4.50--5.15 70,995,493
------------ ------------
Total deposits $283,072,381 $246,886,382
============ ============
</TABLE>
Time certificate balances at December 31, 1999 and 1998 are summarized by
remaining period to contractual maturity as follows.
December 31,
---------------------------
1999 1998
----------- -----------
Under one year $74,926,774 $64,390,436
One year to under three years 12,734,402 4,857,712
Three years and over 1,562,263 1,747,345
----------- -----------
$89,223,439 $70,995,493
=========== ===========
The aggregate amount of time certificates in denominations of $100,000 or more
was approximately $11,546,000 and $5,933,000 at December 31, 1999 and 1998,
respectively.
10. INCOME TAXES
Provision for income taxes is comprised of the following:
Years Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
Current:
Federal $ 1,643,306 $ 1,942,208 $ 1,205,989
State 429,423 781,612 403,150
----------- ----------- -----------
2,072,729 2,723,820 1,609,139
----------- ----------- -----------
Deferred:
Federal (9,721) 87,431 (699,741)
State 3,001 (281,381) (251,104)
----------- ----------- -----------
(6,720) (193,950) (950,845)
----------- ----------- -----------
$ 2,066,009 $ 2,529,870 $ 658,294
=========== =========== ===========
F27
<PAGE>
The tax effects of temporary differences that give rise to the Bank's deferred
tax assets and deferred tax liabilities, on a combined basis, for federal and
state tax purposes at December 31, 1999 and 1998, are as follows:
December 31,
------------------
1999 1998
-------- --------
(000's omitted)
Deferred tax assets:
Charitable contribution benefit $ 228 $ 437
Allowance for loan losses 796 650
State net operating loss 36 --
Accrued post-retirement benefits 727 676
Net unrealized loss on securities available-for-
sale 4,671 --
Other deductible temporary differences 290 235
------ ------
Total gross deferred tax assets 6,748 1,998
------ ------
Deferred tax liabilities:
Bad debt reserves for income tax purposes in
excess of the base-year reserves 82 269
Net unrealized gain on securities available-for-
sale -- 1,179
Other taxable temporary differences 89 91
------ ------
Total gross deferred tax liabilities 171 1,539
------ ------
Deferred tax asset valuation reserve 36 --
------ ------
Net deferred tax asset (included in other
assets) after valuation reserve $6,541 $ 459
====== ======
The provision for income taxes differs from that computed at the federal
statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Tax at federal statutory rate $1,770,956 $2,091,444 $ 529,594
State taxes, net of federal income tax benefit 285,400 330,152 100,350
Other 9,653 108,274 28,350
---------- ---------- ----------
Total income tax expense $2,066,009 $2,529,870 $ 658,294
========== ========== ==========
Effective rate 39.66% 41.13% 42.26%
</TABLE>
As a thrift institution, the Bank is subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves are maintained for qualifying real
property loans and for non-qualifying loans in amounts equal to the excess of
allowable deductions over actual bad debt losses and other reserve reductions. A
supplemental reserve is also maintained. The qualifying and non-qualifying loan
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109, "Accounting for Income
Taxes," requires recognition of deferred tax liabilities with respect to such
excess reserves, as well as any portion of the base-year amount or the
supplemental reserve which is expected to become taxable (or "recaptured") in
the foreseeable future.
Certain amendments to the federal tax bad debt provisions were enacted in July
1996. The federal amendments include elimination of the
percentage-of-taxable-income method for tax years beginning after December 31,
1995 and imposition of a requirement to recapture into taxable income (over a
six-year period) the qualifying and non-qualifying loan reserves in excess of
the base-year amounts. However, such recapture requirements were suspended for
each of the two successive taxable years beginning January 1, 1996 in which the
Bank originates a minimum amount of certain residential loans during such years
that is not less than the average of the principal amounts of such loans made by
the Bank during its six taxable years preceding January 1, 1996. The Bank
previously established, and will continue to maintain, a deferred tax liability
with respect to such excess federal reserves.
F28
<PAGE>
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the base-year and supplemental reserves, since the
Bank does not expect that these amounts will become taxable in the foreseeable
future. Under the tax laws as amended, events that would result in taxation of
these reserves include: (i) reductions in the reserves for purposes other than
tax bad debt losses, (ii) failure of the Bank to maintain a specified
qualifying-assets ratio or meet other thrift definition tests for New York State
tax purposes and (iii) certain stock redemptions, partial or complete
liquidation or distribution in excess of post-1951 earnings and profits. The
reserve balance of $4,713,000 at December 31, 1987 has not been subject to
deferred taxes.
11. BENEFIT PLANS
PENSION PLAN
All eligible employees of the Company are included in a noncontributory defined
benefit pension plan ("Pension Plan") administered by Actuarial Pension
Analysts, Inc. Under the terms of the Pension Plan, participants vest 100% upon
completion of five years of service as defined in the plan document. The Bank's
policy is to fund the consulting actuary's recommended contribution. Assets of
the Pension Plan are invested in various debt and equity securities.
The following table sets forth the Pension Plan's change in benefit obligation:
December 31,
----------------------------
1999 1998
----------- -----------
Benefit obligation at beginning of period $ 5,487,147 $ 4,988,251
Service cost 387,796 356,616
Interest cost 360,132 319,892
Benefits paid (147,494) (44,372)
----------- -----------
Benefit obligation at end of period $ 6,220,821 $ 5,620,387
=========== ===========
The following table sets forth the Pension Plan's change in plan assets:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Fair value of plan assets at beginning of period $ 5,487,147 $ 5,820,424
Actual return on plan assets 1,640,672 (288,905)
Benefits paid (147,494) (44,372)
Actual contributions 102,656 --
----------- -----------
Fair value of plan assets at end of period $ 7,082,981 $ 5,487,147
=========== ===========
Funded status $ 862,160 $ (133,240)
Change in census data -- 83,480
Unrecognized prior service cost (30,225) (36,759)
Unrecognized actuarial (gain) loss (935,582) 180,730
----------- -----------
Prepaid/(accrued) cost $ (103,647) $ 94,211
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net pension cost includes the following components:
Service costs-- benefits earned during the period $ 387,796 $ 356,616 $ 228,068
Interest cost on projected benefit obligation 360,132 319,892 275,763
Actual return on assets (432,580) (430,886) (357,442)
Amortization of transition assets -- (12,743) (33,311)
Amortization of prior service cost (6,534) (6,534) (6,534)
--------- --------- ---------
Net pension cost $ 308,814 $ 226,345 $ 106,544
========= ========= =========
Major assumptions utilized as follows:
Discount rate 6.50% 6.50% 7.50%
Rate of increase in compensation levels 5.50 5.50 5.50
Expected long-term rate of return on plan assets 8.00 8.00 8.00
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Bank also provides postretirement health care (medical and dental) benefits
and life insurance benefits to certain retirees if they meet certain age and
length of service requirements prior to retirement. For retirees who retired
after April 24, 1996, the continuation of such benefits is conditioned upon the
retiree contributing a portion of the cost of such benefits. For retirees who
have retired before April 25, 1996, such benefits are not conditioned upon
retiree contributions.
F29
<PAGE>
At December 31, 1999 and 1998, the actuarial and accrued liabilities for
postretirement health care and life insurance benefits were as follows:
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation (APBO): 1999 1998
----------- -----------
<S> <C> <C>
APBO at beginning of period $ 1,486,197 $ 1,273,995
Service cost 88,845 63,209
Interest cost 104,546 91,391
Actuarial loss -- 58,158
Benefits paid (47,790) (556)
----------- -----------
APBO at end of period $ 1,631,798 $ 1,486,197
=========== ===========
Funded status:
Funded status $ 1,631,798 $ 1,486,197
Unrecognized net actuarial gain 151,752 (97,076)
Unrecognized prior service cost -- 260,780
----------- -----------
Accrued postretirement benefit cost $ 1,783,550 $ 1,649,901
=========== ===========
Effect of 1% increase in health care cost trend rate
- accumulated postretirement benefit obligation $ 223,546 $ 207,000
=========== ===========
Effect of 1% decrease in health care cost trend rate
- accumulated postretirement benefit obligation $ 170,223 $ (165,500)
=========== ===========
</TABLE>
Net periodic postretirement benefit cost is included in the following
components:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits attributed to service during period $ 88,845 $ 63,209 $ 59,341
Interest cost on APBO 104,546 91,391 101,806
Amortization of prior service cost -- (35,240) --
Amortization of (gains) losses (11,952) 4,904 (17,141)
--------- --------- ---------
Net periodic postretirement benefit cost $ 181,439 $ 124,264 $ 144,006
========= ========= =========
</TABLE>
The accumulated postretirement benefit obligation was determined using the
projected unit cost method, as required by SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," and a discount rate of 7.71%
in 1999 and 6.74% in 1998. The assumed rate of increase in future health care
costs was 8.50% in 1999 and 9.00% in 1998, gradually decreasing to 5.0% in the
year 2006 and remaining at that level thereafter.
401(K) PLAN
The Company has a 401(k) plan (the "401(k) Plan") covering full-time employees
who satisfy the eligibility requirements and elect to participate in the 401(k)
Plan. The 401(k) Plan provides for employer matching contributions subject to a
specified maximum. Amounts charged to operations for the years ended December
31, 1999, 1998, and 1997 were $105,411, $80,648, and $90,602, respectively.
BENEFIT RESTORATION PLAN
The Bank adopted the Benefit Restoration Plan of The Warwick Savings Bank
("BRP") to provide certain designated employees with the benefits that would be
due to such employees under the Pension Plan, the 401(k) Plan and the ESOP if
such benefits were not limited under the Internal Revenue Code. Expense related
to the BRP included in the consolidated statements of income is $168,255 and
$168,601 for the years ended December 31, 1999 and 1998, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an ESOP for eligible employees. Generally, full-time
employees of the Company or the Bank who have been credited with at least 1,000
hours during a twelve-month period are eligible to participate.
The ESOP borrowed $8,509,774 at an interest rate of 8.00% from the Company and
used the funds to purchase 528,523 shares of the Company's common stock in
connection with the Conversion. Generally, the loan is repaid principally from
the Bank's discretionary contributions to the ESOP over a 10-year period. At
December 31, 1999 and 1998, the loan had an outstanding balance of $6,445,135
and $7,163,741, respectively. Shares purchased with the loan proceeds are held
in a suspense account for allocation among participants as the loan is paid.
Contributions to the
F30
<PAGE>
ESOP and shares released from the loan collateral in an amount proportional to
the repayment of the ESOP loan are allocated among participants on the basis of
compensation, as described in the plan, in the year of allocation. Benefits
generally become 100% vested after seven years of vesting service and are
immediately vested on death, retirement or disability. In addition, in the event
of a change in control, as defined in the plan, any unvested portion of benefits
shall vest immediately. Forfeitures are used to reduce employer contributions.
Benefits are payable upon death, retirement, disability, or separation from
service based on vesting status and share allocations made.
As of December 31, 1999 and 1998, 52,852 and 44,635 shares, respectively, were
allocated to participants and none were committed to be released. As shares are
released from collateral, the shares become outstanding for earnings per share
computations. As of December 31, 1999, the fair market value of the 400,020
unallocated shares in the ESOP was $4,350,218.
RECOGNITION AND RETENTION PLAN
The Company maintains the RRP. The RRP acquired an aggregate of 264,261 shares
of the Company's common stock in open market purchases, which have been awarded
to eligible directors, directors emeritus, officers and employees of the
Company. Such awards represent deferred compensation and have been accounted for
as a reduction of stockholders' equity. Awards generally vest at a rate of 20%
per year, commencing one year from the date of award. Awards become 100% vested
upon termination of service due to death, disability or retirement or upon a
change of control of the Company.
The Company recorded expense for the ESOP and RRP of $1,179,232, $807,636 and
$843,523 respectively, for the years ended December 31, 1999, 1998 and 1997,
which is included in salary and employee benefits in the consolidated statements
of income.
STOCK OPTION PLAN
The Company maintains the Stock Option Plan and under the Stock Option Plan,
stock options (which generally expire ten years from the date of grant) have
been granted to eligible employees, directors and officers of the Company and
the Bank. Each option entitles the holder to purchase one share of the Company's
common stock at an exercise price equal to the fair market value of the stock at
the date of grant. Options generally become exercisable at a rate of 20% per
year, commencing one year from the date of grant. However, all options become
100% exercisable upon termination of service due to death, disability or
retirement or upon a change of control of the Company.
The following table presents options granted, exercised or expired:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1999 1998
----------------------- ----------------------
Option Price Per Option Price
Shares Share Shares Per Share
------- --------------- --------- ------------
Balance, beginning of year 561,552 $ 17.00 -- $ --
Options granted -- -- 561,552 17.00
Options exercised -- -- -- --
Options expired or terminated -- -- -- --
- - --------------------------------------------------------------------------------
Balance, at end of year 561,522 $ 17.00 561,552 $ 17.00
- - --------------------------------------------------------------------------------
112,310 options are currently exercisable. The fair value of each option was
estimated on the date granted using the Black-Scholes option pricing model. The
fair value of the options granted in 1998 was estimated to be $6.96. The
following weighted-average assumptions were used for grants in 1998: risk free
interest rate of 5.59%; expected dividend yield of $.08; expected life of seven
years; and expected volatility of 25.68%.
The Company accounts for the Stock Option Plan under APB No. 25, under which no
compensation cost has been recognized. Had compensation cost for the Stock
Option Plan been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
Years Ended December 31,
----------------------------------------------
1999 1998
----------------------- ----------------------
Net Income: As Reported $3,142,686 $3,621,435
Pro Forma $2,361,006 $2,839,755
Basic EPS: As Reported 0.57 0.60
Pro Forma 0.43 0.47
F31
<PAGE>
12. BORROWED FUNDS AND REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase at December 31, 1999 and 1998
which were transacted with a major securities firm and the FHLBNY are as
follows:
December 31, 1999 December 31, 1998
- - -------------------------------------- ----------------------------------------
Amount Rate Maturity Amount Rate Maturity
- - ------------- -------- ------------- --------------- --------- ------------
$ 10,117,000 5.77% 02/15/00 $ 4,700,000 6.32% 05/24/99
5,360,000 5.68 02/29/00 1,000,000 6.65 06/19/99
788,000 5.85 03/01/00 4,700,000 6.65 06/30/99
2,500,000 5.85 03/01/00 4,700,000 6.53 08/02/99
5,000,000 5.80 03/08/00 365,000 5.10 09/15/00
900.000 5.87 03/16/00 3,000,000 5.10 09/15/00
2,500,000 6.07 09/01/00 1,945,000 5.22 09/17/01
365,000 5.10 09/15/00 4,900,000 4.70 10/05/01
-----------
3,000,000 5.10 09/15/00 $25,310,000
===========
1,945,000 5.22 09/17/01
4,900,000 4.70 10/05/01
- - ------------
$ 37,375,000
============
Information relating to borrowings under repurchase agreements is summarized as
follows:
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
-------------- ---------------- ---------------
<S> <C> <C> <C>
Average balance during the year $26,779,427 $25,764,219 $23,085,664
Average interest rates during the year 5.56% 5.87% 6.40%
Maximum month-end balance during the year $37,375,000 $27,500,000 $23,300,000
Securities underlying agreements at year-end:
Amortized cost 34,234,968 35,638,720 24,286,442
Estimated market value 33,238,935 35,925,935 24,766,977
</TABLE>
FHLBNY advances are as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999: Available Outstanding Rate Maturity
----------------- ---------------- --------- -------------
<S> <C> <C> <C>
Revolving line of credit $38,978,000 $ 30,725,000 5.10% Daily
Repricing line of credit 21,978,000 14,000,000 5.10 02/07/00
Repricing line of credit 7,000,000 5.10 02/14/00
Term loans 5,000,000 5.70 02/07/00
10,000,000 5.93 04/21/00
11,000,000 5.98 05/19/00
1,000,000 5.98 05/19/00
250,000 6.96 06/19/00
20,000,000 6.06 08/04/00
7,500,000 6.08 11/08/00
4,700,000 5.58 03/19/01
5,000,000 5.70 05/21/01
7,500,000 6.19 11/08/01
4,000,000 5.26 11/18/03
5,000,000 4.76 01/29/04
4,000,000 6.11 05/10/04
10,000,000 5.47 05/29/08
5,000,000 5.63 04/30/08
5,000,000 5.26 04/30/08
10,000,000 5.48 02/26/08
20,000,000 5.06 01/30/08
5,000,000 5.15 11/12/08
5,000,000 4.69 01/29/09
5,000,000 6.29 08/06/09
------------
$201,675,000
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998: Available Outstanding Rate Maturity
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Revolving line of credit $16,982,150 $ 5,230,000 5.13% Daily
Repricing line of credit 16,982,150 10,000,000 5.63 Monthly
Term loans 250,000 6.96 06/19/00
5,000,000 5.79 12/18/01
4,000,000 5.26 11/18/03
10,000,000 5.47 05/29/08
5,000,000 5.63 04/30/08
5,000,000 5.26 04/30/08
10,000,000 5.48 02/26/08
20,000,000 5.06 01/30/08
5,000,000 5.15 11/12/08
-----------
$79,480,000
===========
</TABLE>
FHLBNY advances are made at fixed rates and are collateralized by all FHLBNY
stock owned by the Bank in addition to a blanket pledge of eligible assets in an
amount required to be maintained so that the estimated fair value of such
eligible assets exceeds, at all times, 110% of the outstanding advances.
As a member of the FHLBNY, the Bank has the availability of two lines of credit
for borrowings in the amounts of $39.0 million and $22.0 million, one on an
overnight basis and the other on a 30-day term basis. In accordance with the
FHLBNY's credit policy, the Bank now has total credit facilities available of
nearly $296.0 million, inclusive of the aforementioned amounts, before the
delivery of qualifying collateral is required. Additionally, the Bank has other
sources of liquidity if the need arises. One source is to borrow up to $5
million from a commercial bank on an unsecured basis and the other is the
ability to sell securities under repurchase agreements in an amount up to $10
million from a securities investment company.
13.REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can result in the initiation of certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance sheet items
calculated under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999, that the Company, the Bank and the Commercial Bank meet all capital
adequacy requirements to which it is subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are presented in the following
table (000's omitted):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Adequacy Corrective
Actual Purposes Action Provisions
------------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to risk weighted assets) $56,933 18.34% $24,837 >8.0% $31,046 >10.0%
Tier 1 Capital
(to risk weighted assets) 54,629 17.60 12,418 >4.0 18,628 >6.0
Tier 1 Capital
(to average assets) 54,629 9.38 23,291 >4.0 29,114 >5.0
</TABLE>
F33
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Adequacy Corrective
Actual Purposes Action Provisions
------------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to risk weighted assets) $55,538 23.90% $ 17,918 >8.0% $22,937 >10.0%
Tier 1 Capital
(to risk weighted assets) 51,106 22.82 8,959 >4.0 13,438 >6.0
Tier 1 Capital
(to average assets) 51,106 11.99 17,055 >4.0 21,319 >5.0
</TABLE>
The Commercial Bank's actual capital amounts and ratios are presented in the
following table (000's omitted):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Adequacy Corrective
Actual Purposes Action Provisions
------------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to risk weighted assets) $5,728 211.83% $216 >8.0% $ 270 >10.0%
Tier 1 Capital
(to risk weighted assets) 5,728 211.83 108 >4.0 162 >6.0
Tier 1 Capital
(to average assets) 5,728 87.72 261 >4.0 327 >5.0
</TABLE>
The Company's actual capital amounts and ratios are presented in the following
table (000's omitted):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Adequacy Corrective
Actual Purposes Action Provisions
------------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to risk weighted assets) $75,168 24.58% $24,462 >8.0% $30,578 >10.0%
Tier 1 Capital
(to risk weighted assets) 73,214 23.94 12,231 >4.0 18,347 >6.0
Tier 1 Capital
(to average assets) 73,214 12.67 23,122 >4.0 28,902 >5.0
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Adequacy Corrective
Actual Purposes Action Provisions
------------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to risk weighted assets) $ 84,796 36.94% $ 18,362 >8.0% $22,953 >10.0%
Tier 1 Capital
(to risk weighted assets) 82,364 35.88 9,181 >4.0 13,772 >6.0
Tier 1 Capital
(to average assets) 82,364 18.87 17,462 >4.0 21,828 >5.0
</TABLE>
F34
<PAGE>
14.COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Rental expense included in the statements of income was approximately $54,000,
$219,000 and $278,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In 1993, the Bank entered into an agreement with a company to provide data
processing services. Such agreement expires in July 2000. The commitment for
future payments fluctuates with the level of service provided. The costs
incurred in connection with this agreement are included in data processing
expenses in the accompanying statements of income.
In 1999, the Commercial Bank entered into an agreement with a company to provide
data processing services. Such agreement expires in December 2004. The
commitment for future payments fluctuates with the level of services provided.
The costs incurred in connection with this agreement are included in data
processing expenses in the accompanying statement of income.
The Company leases certain branches and equipment under various noncancelable
operating leases. The future minimum payments by years and the aggregate under
all significant noncancelable operating leases with initial or remaining terms
of one year or more are as follows:
Year ending December 31:
2000 $670,248
2001 173,291
2002 123,669
2003 108,200
2004 and thereafter 1,733,201
-----------
Total $2,808,609
==========
LOAN COMMITMENTS
Loan commitments and unused lines of credit as of December 31, 1999 are as
follows (with comparative totals as of December 31, 1998):
Commitments Unused
to Originate Lines of
Loans Credit Total
------------ ------------ ------------
Mortgage loans $ 36,563,735 $ -- $ 36,563,735
Construction loans 18,518,790 -- 18,518,790
Commercial loans 6,005,776 9,182,202 15,187,978
Other loans 9,774,448 -- 9,774,448
------------ ------------ ------------
Total as of December 31, 1999 $ 70,862,749 $ 9,182,202 $ 80,044,951
============ ============ ============
Total as of December 31, 1998 $ 67,611,485 $ 5,358,847 $ 72,970,332
============ ============ ============
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments may expire, the total commitment
amounts do not necessarily represent future cash requirements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the loan commitments is represented by their contractual amount. The
Bank controls the credit risk of loan commitments through credit approvals,
limits and monitoring procedures. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the borrower.
CONCENTRATION OF CREDIT RISK
The Bank grants residential mortgage loans, construction loans, commercial loans
and consumer loans to customers located primarily in Orange County, New York and
the surrounding counties of Rockland and Dutchess in New York. The borrowers'
ability to repay loan principal and accrued interest is dependent upon, among
other things, the economic conditions prevailing in the Bank's lending area.
HEDGING
In the normal course of business, the Bank uses off-balance sheet financial
instruments primarily as part of mortgage banking hedging strategies. Such
instruments generally include put options purchased and forward commitments to
sell mortgage loans. As a result of interest rate fluctuations, these
off-balance sheet financial instruments will develop unrealized gains or losses
that mitigate changes in the underlying hedged portion of the balance sheet.
When effectively used, these off-balance sheet financial instruments are
designed to moderate the impact on earnings as interest rates move up or down.
LITIGATION
The Bank is involved in legal proceedings incurred in the normal course of
business. In the opinion of management, none of these proceedings are expected
to have a material effect on the consolidated financial position or results of
operations of the Bank.
F35
<PAGE>
15.DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
ACCRUED INTEREST AND FHLBNY STOCK
The carrying amount is a reasonable estimate of fair value.
SECURITIES
Fair values for securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS, NET
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the
quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics.
For other loan types, fair value is based on the credit and interest rate
characteristics of individual loans. These loans are stratified by type,
maturity, interest rate, underlying collateral where applicable, and credit
quality ratings. Fair value is estimated by discounting scheduled cash
flows through estimated maturities using discount rates which in
management's opinion best reflect current market interest rates that would
be charged on loans with similar characteristics and credit quality. Credit
risk concerns are reflected by adjusting cash flow forecasts, by adjusting
the discount rate or by adjusting both.
DEPOSITOR ACCOUNTS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
BORROWED FUNDS
The estimated fair value of FHLBNY advances and borrowings under repurchase
agreements is based on the discounted value of their contractual cash
flows. The discount rate used in the present value computation is estimated
by comparison to the current interest rates charged by the FHLBNY and other
major securities firms for borrowings of similar remaining maturities.
MORTGAGE ESCROW FUNDS
The carrying amount is a reasonable estimate of fair value.
The following is a summary of the carrying values and estimated fair values
of the Bank's financial assets and liabilities at December 31, 1999 and
1998 (000's omitted):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------- ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash on hand and in banks $ 22,209 $ 22,209 $ 10,511 $ 10,511
Federal funds sold 7,665 7,665 -- --
Securities 186,490 186,482 155,490 155,458
Loans, net 349,321 329,849 261,463 262,666
Accrued interest receivable 3,216 3,216 2,506 2,506
Federal Home Loan Bank stock 11,752 11,752 4,633 4,633
Financial liabilities:
Demand, NOW, statement savings and $193,849 $193,849 $175,891 $175,891
passbook, and money market accounts
Time certificate accounts 89,223 89,325 70,995 71,090
Mortgage escrow funds 1,488 1,488 1,965 1,965
Borrowed funds 239,050 235,531 104,790 107,142
Accrued interest payable 1,574 1,574 736 736
</TABLE>
<PAGE>
16. WARWICK COMMUNITY BANCORP, INC.- PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following statements of financial condition as of December 31, 1999 and
1998, the statements of income for the years ended December 31, 1999 and 1998,
and the related statements, of cash flows for the years ended December 31, 1999
and 1998, reflect the Company's investment in the Bank and the Commercial Bank,
using the equity method of accounting.
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
(000's omitted except share amounts)
ASSETS December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,514 $ 18,941
Investment securities available-for-sale 3,622 4,503
Accrued interest receivable 13 13
Other assets 894 819
ESOP loan to the trustee of the ESOP 6,445 7,164
Investment in subsidiaries 54,182 53,044
-------- --------
Total assets $ 66,670 $ 84,484
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Other liabilities $ 42 $ --
Income taxes payable 56 247
-------- --------
Total liabilities 98 247
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 6,606,548 shares issued; 5,054,281 and
5,924,056 shares outstanding in 1999 and 1998,
respectively 66 66
Additional paid-in capital 62,978 63,374
Retained earnings - subject to restrictions 32,430 30,458
Accumulated other comprehensive income (loss), net (6,832) 1,727
Less - Unallocated common stock held by ESOP (6,515) (7,208)
Less - Unearned common stock held by RRP (3,263) (4,180)
Treasury stock (967,258) shares) (12,292) --
-------- --------
Total stockholders' equity 66,572 84,237
-------- --------
Total liabilities and stockholders' equity $ 66,670 $ 84,484
======== ========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME (000's OMITTED)
For the Years Ended December 31,
--------------------------------
1999 1998
----------------- --------------
<S> <C> <C>
Interest income:
ESOP loan to the trustee of the ESOP $ 584 $ 641
Investment securities 152 187
------ ------
Total interest income 736 828
------ ------
Interest expense:
Net interest income before provision for loan losses 736 828
Provision for loan losses -- --
------ ------
Net interest income after provision for
loan losses 736 828
Non-interest income:
Gain on sale of investment securities 137 28
Other income 8 --
------ ------
145 28
------ ------
695 255
------ ------
Non-interest expense
Income before provision for income taxes and
undistributed earnings of subsidiary banks 186 601
Equity in undistributed earnings of subsidiary banks 3,093 3,339
Income tax expense 136 319
------ ------
Net income $3,143 $3,621
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (000's omitted)
For the Years Ended December 31,
---------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,143 $ 3,621
Adjustments to reconcile net income to net cash
provided by operating activities-
Undistributed earnings of subsidiary banks (3,093) (3,339)
Gain on sale of securities (137) (28)
Increase in assets-
Accrued interest receivable -- (13)
Other assets (50) (51)
Increase (decrease) in liabilities-
Other liabilities 42 --
Income taxes payable (191) 247
-------- --------
Net cash provided by (used in) operating
activities (286) 437
-------- --------
Cash flows from investing activities:
Investment in 99.8% of the outstanding stock of the
Commercial Bank, net (5,747) --
Dividend from the Bank 1,000 --
Purchases of securities available-for-sale (641) (6,321)
Proceeds from sale of securities available-for-sale 992 1,782
-------- --------
Net cash used in investing activities (4,396) (4,539)
-------- --------
Cash flows from financing activities:
(Increase) decrease in ESOP loan receivable 719 (793)
Purchase of treasury stock (12,292) --
Dividends paid on common stock ( 1,172) (545)
-------- --------
Net cash used in financing activities (12,745) (1,338)
-------- --------
Net decrease in cash and cash equivalents (17,427) (5,440)
Cash and cash equivalents, beginning of year 18,941 24,381
-------- --------
Cash and cash equivalents, end of year $ 1,514 $ 18,941
======== ========
</TABLE>
F38
<PAGE>
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998 (000's omitted):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
1999 1999 1999 1999
-------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Total interest income $10,605 $ 9,212 $ 8,161 $ 7,584
Total interest expense 5,307 4,435 3,772 3,437
Net interest income 5,298 4,777 4,389 4,147
Provision for loan losses 125 125 125 125
Non-interest income 439 1,210 799 1,357
Non-interest expense and provision for
income taxes 4,924 4,926 4,543 4,380
Net income 688 936 520 999
Basic earnings per common share 0.13 0.17 0.10 0.17
Diluted earnings per common share 0.13 0.17 0.10 0.17
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
1998 1998 1998 1998
-------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Total interest income $7,581 $7,201 $7,262 $6,364
Total interest expense 3,369 3,184 2,933 2,454
Net interest income 4,212 4,017 4,329 3,910
Provision for loan losses 125 125 125 125
Non-interest income 813 1,044 1,058 772
Non-interest expense and provision for
income taxes 4,303 4,202 3,964 3,565
Net income 597 734 1,298 992
Basic earnings per common share .10 .12 .22 .16
Diluted earnings per common share .10 .12 .22 .16
</TABLE>
F39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors & Stockholders of
Warwick Community Bancorp, Inc:
We have audited the accompanying consolidated statements of financial condition
of Warwick Community Bancorp, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Warwick Community Bancorp, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
New York, New York
January 25, 2000
SHAREHOLDER INFORMATION
STOCK INFORMATION
Warwick Community Bancorp, Inc. common stock trades on The Nasdaq Stock
Marker(sm) under the symbol WSBI. When trades occur, the stock is listed as
either Warwick or WSBI in The Nasdaq Stock Market(sm) section of the TIMES
HERALD RECORD, WALL STREET JOURNAL and other leading newspapers.
SHAREHOLDER RELATIONS CONTACT:
Barbara A. Rudy
SENIOR VICE PRESIDENT
The Warwick Savings Bank
18 Oakland Avenue,
P.O. Box 591
Warwick, NY 10990
914-986-2206, ext. 2238
Shareholders wishing to change the name, address or ownership of stock, to
report lost certificates or to consolidate accounts are asked to contact the
Company's stock registrar and transfer agent directly:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
MARKET MAKERS
Sandler O'Neill & Partners, L.P.
Tucker Anthony, Inc.
Advest, Inc.
Friedman, Billings, Ramsey & Co., Inc.
Knight Securities
Ryan Beck & Co.
Sherwood Securities
Spear-Leeds & Kellogg Capital
Exhibit 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
WARWICK COMMUNITY BANCORP, INC. - owns 100% of the capital stock of The Warwick
Savings Bank and 99.75% of the capital stock of The Towne Center Bank.
THE WARWICK SAVINGS BANK - owns 100% of the following subsidiary corporations:
1. WSB Financial Services, Inc. (New York)
2. Warsave Development Corp. (New York)
3. The Towne Center Mortgage Company, Inc. (New Jersey)
and 100% of the outstanding common stock, and 86.96% of the outstanding
preferred stock, of WSB Funding Corp. (Delaware).
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
March 17, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
("Annual Meeting") of Warwick Community Bancorp, Inc. ("Company"), the holding
company for The Warwick Savings Bank and The Towne Center Bank, which will be
held at The Inn at Central Valley, Smith Clove Road, Central Valley, New York
10917, on April 18, 2000 at 9:30 a.m., New York time.
The attached Notice of the 2000 Annual Meeting of Shareholders and Proxy
Statement describe the formal business to be transacted at the Annual Meeting.
Directors and officers of the Company, as well as a representative of Arthur
Andersen LLP, the accounting firm appointed by the Board of Directors to be the
Company's independent auditors for the fiscal year ending December 31, 2000,
will be present at the Annual Meeting to respond to appropriate questions from
our shareholders.
The Board of Directors of the Company has determined that an affirmative
vote on each matter to be considered at the Annual Meeting is in the best
interests of the Company and its shareholders and unanimously recommends a vote
"FOR" election of each of the four nominees for director and "FOR" each of the
other proposals identified in the Notice of the 2000 Annual Meeting of
Shareholders.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS URGES YOU
TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON AT THE ANNUAL MEETING, BUT WILL ASSURE THAT YOUR VOTE IS COUNTED IF YOU
ARE UNABLE TO ATTEND. IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED
IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER
TO ATTEND AND TO VOTE PERSONALLY AT THE ANNUAL MEETING. EXAMPLES OF SUCH
DOCUMENTATION INCLUDE A BROKER'S STATEMENT, LETTER OR OTHER DOCUMENT CONFIRMING
YOUR OWNERSHIP OF SHARES OF THE COMPANY.
On behalf of the Board of Directors and the employees of the Company, thank
you for your continued support.
Sincerely yours,
[Facsimile signature]
Timothy A. Dempsey
Chairman of the Board
and Chief Executive Officer
<PAGE>
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
NOTICE OF THE 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 18, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Warwick
Community Bancorp, Inc. ("Company") will be held at The Inn at Central Valley,
Smith Clove Road, Central Valley, New York 10917, on April 18, 2000 at 9:30
a.m., New York time, for the following purposes:
1. To elect four directors, each to serve for a three-year term;
2. To ratify the appointment of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year
ending December 31, 2000; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement
thereof. As of the date hereof, the Board of Directors of
the Company is not aware of any such other business.
The Board of Directors has fixed the close of business on March 1, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting and any adjournment or postponement thereof. A
list of shareholders entitled to vote at the Annual Meeting will be available
for inspection at 18 Oakland Avenue, Warwick, New York, for a period of ten days
prior to the Annual Meeting and will also be available at the Annual Meeting.
A copy of the 1999 Annual Report to Shareholders of the Company, which for
purposes of the regulations of the Federal Deposit Insurance Corporation serves
as the Annual Disclosure Statement of The Warwick Savings Bank and The Towne
Center Bank, subsidiaries of the Company, accompanies this Notice of the 2000
Annual Meeting of Shareholders. Shareholders may obtain, free of charge, an
additional copy of the Annual Report by writing to Barbara A. Rudy, Senior Vice
President, Shareholder Relations, The Warwick Savings Bank, P.O. Box 591,
Warwick, New York 10990-0591.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS URGES YOU
TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. RETURNING THE PROXY CARD WILL NOT PREVENT
YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors,
[Facsimile signature]
Nancy L. Sobotor-Littell
Corporate Secretary
Warwick, New York
March 17, 2000
<PAGE>
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
--------------------------------
PROXY STATEMENT FOR THE
2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 18, 2000
GENERAL INFORMATION
GENERAL
This Proxy Statement and accompanying Proxy Card are being mailed to
shareholders of Warwick Community Bancorp, Inc. ("Company") on or about March
17, 2000 in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Shareholders of the
Company to be held at The Inn at Central Valley, Smith Clove Road, Central
Valley, New York 10917, on April 18, 2000 at 9:30 a.m., New York time, and at
any adjournment or postponement thereof ("Annual Meeting").
On July 21, 1998, the Company changed its fiscal year from the twelve-month
period ending May 31st to the twelve-month period ending December 31st. Due to
this change in the Company's fiscal year, certain information presented in this
Proxy Statement is measured through the seven-month transition period ended
December 31, 1998.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business on
March 1, 2000 as the record date ("Record Date") for the determination of the
holders of the Company's issued and outstanding common stock, par value $.01 per
share ("Common Stock"), entitled to notice of and to vote at the Annual Meeting.
Only holders of record of Common Stock at the close of business on the Record
Date will be entitled to vote at the Annual Meeting. At the close of business on
the Record Date, there were 5,536,790 shares of Common Stock outstanding. The
presence, in person or by proxy, of the holders of at least a majority of the
total number of outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum thereat.
Each holder of shares of Common Stock outstanding on the Record Date will
be entitled to one vote for each share held of record (except for Excess Shares,
if any, as defined below) upon each matter to be voted upon at the Annual
Meeting. As provided in the Company's Certificate of Incorporation, if any
person beneficially owns, directly or indirectly, shares of Common Stock in
excess of 10% of the then issued and outstanding shares of Common Stock, all
such shares beneficially owned by such person in excess of the 10% threshold
shall be deemed to be "Excess Shares," and the holder thereof shall be entitled
to cast only one one-hundredth (1/100) of a vote per share for each Excess
Share. A person or entity is deemed to beneficially own shares owned by an
affiliate or associate as well as persons acting in concert with such person or
entity. The Company's Certificate of Incorporation authorizes the Board of
Directors (i) to interpret and apply the provisions of the Certificate of
Incorporation governing Excess Shares and to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
ascertain compliance with such provisions and (ii) to demand that any
<PAGE>
person who is reasonably believed to beneficially own Excess Shares supply
information to the Company to enable the Board of Directors to implement and
apply such provisions.
If the enclosed Proxy Card is properly executed and received by the Company
in time to be voted at the Annual Meeting, the shares represented thereby will
be voted in accordance with the instructions indicated thereon. IF NO
INSTRUCTIONS ARE GIVEN, EXECUTED PROXIES WILL BE VOTED FOR ELECTION OF EACH OF
THE FOUR NOMINEES FOR DIRECTOR AND FOR EACH OF THE OTHER PROPOSALS IDENTIFIED IN
THE NOTICE OF THE 2000 ANNUAL MEETING.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. The holders of Common Stock may not vote their
shares cumulatively for the election of directors. Ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote thereon. ACCORDINGLY, SHARES AS TO WHICH THE "ABSTAIN" BOX HAS
BEEN SELECTED ON THE PROXY CARD WITH RESPECT TO THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY WILL BE COUNTED AS PRESENT
AND ENTITLED TO VOTE AND WILL HAVE THE EFFECT OF A VOTE AGAINST THAT PROPOSAL.
IN CONTRAST, SHARES UNDERLYING BROKER NON-VOTES WILL NOT BE COUNTED AS PRESENT
AND ENTITLED TO VOTE AND WILL HAVE NO EFFECT ON THE VOTE FOR SUCH PROPOSAL.
REVOCABILITY OF PROXIES
The presence of a shareholder at the Annual Meeting will not automatically
revoke such shareholder's proxy. However, a shareholder may revoke a proxy at
any time before it is voted by (i) filing a written notice of revocation with
the Corporate Secretary of the Company prior to the Annual Meeting, (ii)
delivering to the Corporate Secretary prior to the Annual Meeting a duly
executed proxy bearing a later date or (iii) attending the Annual Meeting,
filing a written notice of revocation with the secretary of the Annual Meeting
and voting in person.
IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME,
YOU WILL NEED APPROPRIATE DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO BE
ADMITTED TO THE ANNUAL MEETING AND TO VOTE AT THE ANNUAL MEETING. Examples of
such documentation include a broker's statement, letter or other document that
will confirm your ownership of shares of the Company.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its
shareholders. In addition to the solicitation of proxies by mail, Georgeson
Shareholder Communications Inc., a proxy solicitation firm, will assist the
Company in soliciting proxies for the Annual Meeting and will be paid a fee
estimated to be $3,000, plus out-of-pocket expenses. Proxies may also be
solicited personally, by telephone, facsimile or other means by directors,
officers and employees of the Company or its subsidiaries, without additional
compensation. The Company will also request persons, firms and corporations
holding shares in their names or in the name of their nominees, which are
beneficially owned by others, to forward proxy materials to and obtain proxies
from such beneficial owners, and will reimburse such holders for reasonable
expenses incurred in connection therewith.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the Company's
outstanding shares of Common Stock as of February 29,
2
<PAGE>
2000. Other than those persons listed below, the Company is not aware of any
person who is the beneficial owner of more than 5% of the Company's outstanding
shares of Common Stock as of February 29, 2000. Except as otherwise indicated,
the information provided in the following table was obtained from filings with
the Securities and Exchange Commission ("SEC") and with the Company pursuant to
the Securities Exchange Act of 1934, as amended ("Exchange Act"). For purposes
of the following table and the table set forth under "Stock Ownership of
Management," in accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to "beneficially own" any shares of Common Stock (a) over which such
person has, directly or indirectly, sole or shared voting or investment power or
(b) of which such person has the right to acquire beneficial ownership,
including the right to acquire beneficial ownership by the exercise of stock
options, at any time within 60 days after February 29, 2000. As used herein,
"voting power" includes the power to vote, or direct the voting of, such shares,
and "investment power" includes the power to dispose, or direct the disposition
of, such shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF OF BENEFICIAL COMMON STOCK
OF SECURITY BENEFICIAL OWNER OWNERSHIP OUTSTANDING(4)
- - ---------------- ------------------------------- ------------------ --------------------
<S> <C> <C> <C>
Common Stock Warwick Community Bancorp, Inc. 527,714(1) 9.5%
Employee Stock Ownership Plan
and Trust ("ESOP")
18 Oakland Avenue
Warwick, New York 10990-0591
Common Stock Salomon Smith Barney Inc. 469,920(2) 8.5%
388 Greenwich Street
New York, New York 10013
Common Stock Kahn Brothers & Co., Inc. 392,328(3) 7.1%
555 Madison Avenue, 22nd Floor
New York, New York 10022
</TABLE>
_______________________
(1) The ESOP is administered by The Warwick Savings Bank ("Warwick Savings") as
Plan Administrator and by a committee established pursuant to the ESOP
("ESOP Committee"). The assets of the ESOP are held in a trust ("ESOP
Trust") for which HSBC Bank USA serves as trustee ("ESOP Trustee"). The
ESOP Trust purchased such shares following Warwick Savings' conversion from
mutual to stock form ("Conversion") with funds borrowed from the Company.
The Common Stock acquired by the ESOP is released from a suspense account
and allocated annually to the accounts of participants based upon the
contributions made to the ESOP by the Company. The ESOP Committee may
instruct the ESOP Trustee regarding investment of assets held in the ESOP
Trust. The ESOP Trustee generally votes all allocated shares held in the
ESOP Trust in accordance with the instructions of participants. As of
December 31, 1999, 126,037 of the 527,714 shares held in the ESOP Trust
were allocated to participants. Pursuant to the terms of the ESOP,
unallocated shares are generally voted by the ESOP Trustee in a manner
calculated to most accurately reflect the voting instructions received from
participants regarding the allocated shares so long as such vote is in
accordance with the requirements of the Employee Retirement Income Security
Act of 1974, as amended.
(2) Based on information in a Schedule 13G/A, dated February 14, 2000, filed on
behalf of Salomon Smith Barney Inc. ("SSB"), a New York corporation,
Salomon Brothers Holding Company Inc. ("SBHC"), a Delaware corporation
which is the sole stockholder of SSB, Salomon Smith Barney Holdings Inc.
("SSBH"), a New York corporation which is the sole stockholder of SBHC, and
Citigroup Inc. ("Citigroup"), a Delaware corporation which is the sole
stockholder of SSBH. SSB, SSHC, SSBH and Citigroup have shared voting and
shared dispositive power over all of the shares shown.
(3) Based on information in a Schedule 13G/A, dated February 4, 2000, filed on
behalf of Kahn Brothers & Co., Inc. ("Kahn"). Kahn has shared dispositive
power over all of the shares shown.
(4) Percentages have been calculated on the basis of 5,536,790 shares of Common
Stock, the number of shares of Common Stock outstanding as of February 29,
2000.
3
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of
Common Stock beneficially owned by each director of the Company, by each
executive officer of the Company identified in the Summary Compensation Table
included on page 14 of this Proxy Statement and by all directors and executive
officers of the Company or Warwick Savings as a group as of February 29, 2000.
Except as otherwise indicated, each person and each group shown in the table has
sole voting and investment power with respect to the shares of Common Stock
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP COMMON STOCK
NAME TITLE(1) (2)(3)(4)(5)(6)(7) OUTSTANDING(8)
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy A. Dempsey Chairman of the Board, 105,152 1.9%
Chief Executive Officer
and Director
Ronald J. Gentile President, Chief Operating 91,359 1.6%
Officer and Director
Arthur W. Budich Senior Vice President, 51,647 *
Treasurer and Chief
Financial Officer
Laurence D. Haggerty Senior Vice President 39,619 *
Frances M. Gorish Director 17,963 *
R. Michael Kennedy Director 51,769 *
Fred M. Knipp Director 28,883 *
Emil R. Krahulik Director 18,965 *
Thomas F. Lawrence, Jr. Director 14,883 *
John J. McDermott III Director 5,000 *
Henry L. Nielsen, Jr. Director 14,883 *
John W. Sanford III Director 16,457 *
Robert N. Smith Director 28,883 *
All directors and executive
officers as a group
(16 persons) 584,304 10.4%
</TABLE>
_______________________
* Less than 1.0% of outstanding Common Stock.
(1) Titles are for the Company.
(2) The figures shown include shares which individuals have the right to
acquire beneficial ownership of by the exercise of stock options pursuant
to the Stock Option Plan of Warwick Community Bancorp, Inc. ("Option Plan")
as follows: Mr. Dempsey, 20,000 shares; Mr. Gentile, 13,000 shares; Mr.
Budich, 7,000 shares; Mr. Haggerty, 7,000 shares; each of Mrs. Gorish and
Messrs. Kennedy, Knipp, Krahulik, Lawrence, Nielsen, Sanford and Smith,
3,963 shares; and all directors and executive officers as a group, 99,704
shares. See "Election of Directors -- Directors' Compensation -- Option
Plan and RRP" and "Election of Directors -- Executive Compensation -- Stock
Option Plan."
(footnotes continued on next page)
4
<PAGE>
(3) The figures shown include shares held in trust pursuant to the ESOP that
have been allocated as of December 31, 1999 to individual accounts of ESOP
participants as follows: Mr. Dempsey, 3,331 shares; Mr. Gentile, 3,472
shares; Mr. Budich, 3,053 shares; Mr. Haggerty, 3,871 shares; and all
executive officers as a group, 20,859 shares. Such persons have voting
power (subject to the duties of the ESOP Trustee) but no investment power,
except in limited circumstances, as to such shares. The figures shown do
not include 401,677 shares held in trust pursuant to the ESOP that have not
been allocated to any individual's account and as to which the members of
the Company's ESOP Committee (consisting of Messrs. Dempsey, Gentile and
Budich, Mrs. Sobotor-Littell and Ms. Rudy) and each of the participants
identified in the table may be deemed to share investment power, except in
limited circumstances, thereby causing each such person to be deemed a
beneficial owner of such shares. Each of the members of the ESOP Committee
and the participants identified in the table disclaims beneficial ownership
of such shares and, accordingly, such shares are not attributed to the
members of the ESOP Committee or the participants identified in the table
individually. See "Election of Directors -- Executive Compensation --
Employee Stock Ownership Plan and Trust."
(4) The figures shown include shares held pursuant to The Warwick Savings Bank
401(k) Savings Plan ("401(k) Plan") that have been allocated as of February
29, 2000 to individual accounts as follows: Mr. Dempsey, 813 shares; Mr.
Gentile, 7,024 shares; Mr. Budich, 4,502 shares; Mr. Haggerty, 3,264
shares; and all executive officers as a group, 19,585 shares. Such persons
have shared voting and investment power as to such shares. See "Election of
Directors -- Executive Compensation -- 401(k) Plan."
(5) The figures shown include shares held under the Recognition and Retention
Plan of Warwick Community Bancorp, Inc. ("RRP"), over which each individual
has sole voting but no investment power, as follows: Mr. Dempsey, 42,284
shares; Mr. Gentile, 29,598 shares; Mr. Budich, 12,684 shares; Mr.
Haggerty, 12,684 shares; each of Mrs. Gorish and Messrs. Kennedy, Knipp,
Krahulik, Lawrence, Nielsen, Sanford and Smith, 7,135 shares; and all
directors and executive officers as a group, 192,382 shares. See "Election
of Directors -- Executive Compensation-- Recognition and Retention Plan."
(6) The figures shown include shares held pursuant to the Benefit Restoration
Plan of The Warwick Savings Bank ("BRP") as to which each person identified
has no voting power, but may be deemed to share investment power, as
follows: Mr. Dempsey, 2,571 shares; Mr. Gentile, 864 shares; and all
executive officers as a group, 3,435 shares. See "Election of Directors--
Executive Compensation-- Benefit Restoration Plan."
(7) The figures shown include shares over which individuals may be deemed to
share voting and investment power (other than as disclosed in notes 2, 3, 4
and 5) as follows: Mr. Dempsey, 15,000 shares; Mr. Gentile, 15,000 shares;
Mr. Budich, 11,500 shares; Mr. Kennedy, 18,266 shares; Mr. Knipp, 15,000
shares; Mr. Lawrence, 1,000 shares; Mr. Sanford, 2,500 shares; Mr. Smith,
5,500 shares; and all directors and executive officers as a group, 84,766
shares.
(8) Percentages with respect to each person or group of persons have been
calculated on the basis of 5,536,790 shares of Common Stock, the number of
shares of Common Stock outstanding as of February 29, 2000, plus the number
of shares of Common Stock which such person or group of persons has the
right to acquire within 60 days after February 29, 2000.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The Certificate of Incorporation and By-Laws of the Company provide that
the Board of Directors shall be divided into three classes. The directors of
each class serve for a term of three years, with one class elected each year. In
all cases, directors serve until their successors are duly elected and
qualified. In November 1999, by resolution of the Board of Directors, the size
of the Board was increased from 10 to 11 members, and the Board of Directors
elected a new director, John J. McDermott III, to fill the vacancy resulting
from the increase in the size of the Board.
The terms of four directors expire at the Annual Meeting. Each of the four
incumbent directors, Frances M. Gorish, R. Michael Kennedy, John W. Sanford III
and Robert N. Smith, has been nominated by the Board of Directors to be
re-elected at the Annual Meeting, each to serve for a three-year term expiring
at the 2003 Annual Meeting and until their successors are otherwise duly elected
and qualified. Each nominee has consented
5
<PAGE>
to being named in this Proxy Statement and to serve if elected. However, if any
nominee should become unable to serve, the proxies received in response to this
solicitation that were voted in favor of such nominee will be voted for the
election of such other person as shall be designated by the Board of Directors
of the Company, unless the Board of Directors shall determine to reduce the
number of directors pursuant to the By-Laws of the Company.
In any event, proxies cannot be voted for a greater number of persons than the
four nominees named.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each continuing director whose term does
not expire at the Annual Meeting. There are no arrangements or understandings
between the Company and any director or nominee pursuant to which such person
was elected or nominated to be a director of the Company. For information with
respect to security ownership of directors, see "General Information -- Stock
Ownership of Management."
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE(1) END OF TERM POSITION HELD WITH THE COMPANY SINCE(2)
- - ------------------------------------------------------------------------------------------------
NOMINEES FOR A THREE-YEAR
TERM EXPIRING IN 2003
<S> <C> <C> <C> <C>
Frances M. Gorish 72 2000 Director 1979
R. Michael Kennedy 48 2000 Director 1997
John W. Sanford III 63 2000 Director 1986
Robert N. Smith 50 2000 Director 1994
CONTINUING DIRECTORS
Timothy A. Dempsey 66 2001 Chairman of the Board, Chief 1974
Executive Officer and Director
Ronald J. Gentile 50 2002 President, Chief Operating Officer 1990
and Director
Fred M. Knipp 69 2001 Director 1992
Emil R. Krahulik 66 2002 Director 1984
Thomas F. Lawrence, Jr. 72 2002 Director 1965
John J. Mcdermott III 65 2003 Director 1999
Henry L. Nielsen, Jr. 73 2001 Director 1962
</TABLE>
______________________
(1) At February 29, 2000.
(2) Includes terms as trustee of Warwick Savings and of predecessor affiliated
institutions prior to the incorporation of the Company on September 10,
1997.
6
<PAGE>
The principal occupation and business experience of each nominee for election as
director and each continuing director are set forth below.
NOMINEES FOR ELECTION AS DIRECTORS
FRANCES M. GORISH joined Warwick Savings in 1944 and has served as a
director since 1979. Now retired, she served in various capacities for Warwick
Savings, most recently as Vice President and Corporate Secretary. In addition,
she serves as treasurer of the Salvation Army, Lorena Abbott Service Unit, and
as treasurer of the Florida Historical Society. Mrs. Gorish also serves as a
director of Warwick Savings' subsidiaries, Warsave Development, Inc.
("Warsave"), WSB Financial Services, Inc. ("WSB Financial") and Towne Center
Mortgage Co., Inc. ("Towne Center Mortgage"), and as a director of The Warwick
Savings Foundation ("Foundation").
R. MICHAEL KENNEDY has served as a director of Warwick Savings since 1997.
Mr. Kennedy is a general partner and manager of various real estate companies,
all managed through Kennedy Companies, Inc. He is also the general managing
partner of the Fireplace Restaurant. Mr. Kennedy is also a director of the
Company's commercial bank subsidiary, The Towne Center Bank ("Towne Center
Bank").
JOHN W. SANFORD III has served as a director of Warwick Savings since 1986.
Mr. Sanford also serves as President of John W. Sanford & Son, Inc., an
insurance agency, and is a partner in Maple Terrace Farms, a dairy beef
business.
ROBERT N. SMITH has served as a director of Warwick Savings since 1994. Mr.
Smith also serves as a director of the Foundation. He is currently the President
of Lazear-Smith Funeral Homes, Inc. Mr. Smith is also sole proprietor of Smith
and Gesell Associates, a bookkeeping and tax preparation service.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE NOMINEES FOR ELECTION AS DIRECTORS.
CONTINUING DIRECTORS
TIMOTHY A. DEMPSEY serves as the Chairman of the Board and Chief Executive
Officer and a director of the Company and as the Chairman of the Board and a
director of Warwick Savings. Mr. Dempsey has been involved in the financial
institutions industry for more than 45 years and has served as a director of
Warwick Savings since 1974. Mr. Dempsey also served as the Chief Executive
Officer of Warwick Savings from 1985 through December 1999. He also serves as a
director of Warsave, WSB Financial and Towne Center Mortgage, as Chairman of the
Board and a director of Towne Center Bank, and as President and a director of
the Foundation. In addition, he serves as a director of the Institutional
Investors Capital Appreciation Fund, Inc., a director of the M.S.B. Fund Inc.
and as trustee of the Mount Saint Mary College and Chairman of the Foundation
Board of St. Anthony Community Hospital.
RONALD J. GENTILE serves as the President and Chief Operating Officer and a
director of the Company and as the President and Chief Executive Officer and a
director of Warwick Savings. Mr. Gentile joined Warwick Savings and has been a
director since 1990. Prior to January 1, 2000, Mr. Gentile served as President
and Chief Operating Officer of Warwick Savings. In addition, he serves as
President of Warsave, WSB Financial and Towne Center Mortgage. He also serves as
Executive Vice President of the Foundation. Prior to joining Warwick Savings,
Mr. Gentile served as a senior bank examiner for the Federal Deposit Insurance
Corporation. He is also a member of the board of directors of the Orange County
Chamber of Commerce, Bon Secours Charity Health System (St. Anthony Community
Hospital) and Winslow Therapeutic Riding Unlimited, and a former President and
current member of the Warwick Valley Rotary Club.
7
<PAGE>
FRED M. KNIPP has served as a director of Warwick Savings since 1984. He is
the former President and Chief Executive Officer of, and is currently a director
of, Warwick Valley Telephone Company, and he is also a director of Centrex
Communications Corporation and a director of Towne Center Bank.
EMIL R. KRAHULIK has served as a director of Warwick Savings since 1984. He
is a partner in the law firm of Bonacic, Blustein & Krahulik, LLP, and he served
as Warwick Savings' general counsel until January 2000, when he was succeeded as
general counsel by his son, Robert E. Krahulik.
THOMAS F. LAWRENCE, JR. has served as a director of Warwick Savings since
1965. Mr. Lawrence, now retired, formerly served as President of Warwick Auto
Co. He is also President of the Warwick Cemetery Association. Mr. Lawrence also
serves as a director of Warsave, WSB Financial, Towne Center Mortgage and the
Foundation. Mr. Lawrence is Nancy L. Sobotor-Littell's father.
JOHN J. MCDERMOTT III was elected as a director of the Company and Warwick
Savings in December 1999. He is a managing partner in J.D. Blake Company and in
Land Investment Group of Newburgh, and he is the President of Hudson West Realty
Corp. Mr. McDermott is also a member of the board of directors of The Chamber of
Commerce of Orange County, Inc.
HENRY L. NIELSEN, JR. has served as a director of Warwick Savings since
1962. He is the President of Nielsen Construction Co., Inc. and is a director of
Warwick Valley Telephone Company. He is also the President of the Warwick
Historical Society and a trustee of the Warwick Cemetery Association. Mr.
Nielsen also serves as a director of Warsave, WSB Financial and Towne Center
Mortgage.
BOARD AND COMMITTEE MEETINGS
The Board of Directors generally meets twice a month and may have
additional special meetings from time to time. During the fiscal year ended
December 31, 1999, the Board of Directors met 25 times. No current director
attended fewer than 75% of the aggregate of (i) the total number of Board
meetings held during the period for which he or she was a director and (ii) the
total number of meetings held by all committees of the Board on which he or she
served during the periods that he or she served.
The Board of Directors of the Company maintains the following standing
committees:
The EXECUTIVE COMMITTEE currently consists of Mr. Gentile, Mr. Nielsen, Mr.
Lawrence, Mrs. Gorish, Mr. Krahulik and Mr. Sanford. The Executive Committee
generally oversees the affairs of the Company, considers proposals from
management in relation to the election of officers and makes recommendations to
the Board regarding those individuals nominated to officer positions. The
Executive Committee met 5 times during the fiscal year ended December 31, 1999.
The AUDIT COMMITTEE currently consists of Mr. Sanford, Mr. Kennedy, Mr.
Lawrence, Mrs. Gorish and Mr. Smith. The Audit Committee meets periodically with
its independent certified public accountants to arrange the Company's annual
financial statement audit and to review and evaluate recommendations made during
the annual audit. The Audit Committee also reviews and evaluates the procedures
and performances of the Company's internal auditing staff. The Audit Committee
met 2 times during the fiscal year ended December 31, 1999.
The COMPENSATION COMMITTEE currently consists of Mrs. Gorish, Mr. Kennedy,
Mr. Smith and Mr. Sanford. The Compensation Committee is responsible for
overseeing the development, implementation and conduct of the Company's
employment and personnel policies, notices and procedures, including the
administration of the Company's and Warwick Savings' compensation and benefit
programs. The Compensation Committee met 4 times during the fiscal year ended
December 31, 1999.
8
<PAGE>
The NOMINATING COMMITTEE consists of Messrs. Nielsen, Lawrence and Dempsey.
The Nominating Committee recommends candidates for election to the Board of
Directors. The Nominating Committee met 1 time during the fiscal year ended
December 31, 1999.
DIRECTORS' COMPENSATION
FEE ARRANGEMENTS. Currently, each director of Warwick Savings who is not an
employee of Warwick Savings or the Company receives a fee of $500 for each
Warwick Savings Board meeting attended and $250 for each committee meeting
attended, and the members of the Re-Inspection Committee of Warwick Savings each
receive an annual fee of $250. In addition, Messrs. Kennedy and Knipp each
receive a fee of $500 for each Towne Center Bank Board meeting attended and $250
for each committee meeting attended. Directors of the Company are not separately
compensated for their services as such. In 2000, each non-employee director of
the Company will also receive a retainer of $10,000, which will be paid in
quarterly installments of $2,500.
OPTION PLAN AND RRP. The Stock Option Plan of Warwick Community Bancorp,
Inc. ("Option Plan") and the Recognition and Retention Plan of Warwick Community
Bancorp, Inc. ("RRP") were adopted by the Board of Directors of the Company and
subsequently approved by the Company's shareholders at a special meeting held on
June 24, 1998. On such date, each non-officer director of the Company was
granted a non- qualified stock option to purchase 19,819 shares of Common Stock
under the Option Plan. These options are scheduled to vest, that is, become
exercisable, at a rate of 20% per year over a five-year period beginning on June
24, 1999 and will become immediately exercisable upon the director's death,
disability or retirement or upon a change in control of the Company, as such
terms are defined in the Option Plan.
Similarly, on June 24, 1998, each non-officer director was awarded 8,919
shares of Common Stock under the RRP. These awards are also scheduled to vest at
a rate of 20% per year over a five-year period beginning on June 24, 1999 and
will also become 100% vested upon the director's death, disability or retirement
or upon a change in control of the Company, as such terms are defined in the
RRP.
EXECUTIVE OFFICERS
The following individuals are the executive officers of the Company and
have the titles set forth across from their names.
NAME POSITIONS HELD WITH THE COMPANY
- - ---- -------------------------------
Timothy A. Dempsey Chairman of the Board and Chief Executive Officer
Ronald J. Gentile President and Chief Operating Officer
Arthur W. Budich Senior Vice President, Treasurer and Chief Financial
Officer
Laurence D. Haggerty Senior Vice President
Donna M. Lyons Senior Vice President/Auditor
Barbara A. Rudy Senior Vice President, Shareholder Relations
Nancy L. Sobotor-Littell Corporate Secretary and Director of Human Resources
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors. The Company has entered
into employment agreements with certain of its executive officers which set
forth the terms of their employment. See "-- Executive Compensation --
Employment Agreements."
9
<PAGE>
Biographical information of the executive officers of the Company who are
not directors is set forth below.
ARTHUR W. BUDICH, age 49, has served as the Senior Vice President,
Treasurer and Chief Financial Officer of Warwick Savings since 1992. He has been
employed by Warwick Savings in various capacities since 1986. He also serves as
Treasurer of Warsave, WSB Financial and Towne Center Mortgage and as Vice
President and Treasurer of the Foundation. Mr. Budich also serves as Senior Vice
President, Treasurer and Chief Financial Officer of Towne Center Bank.
LAURENCE D. HAGGERTY, age 56, served as Senior Vice President in the
Commercial Lending department of Warwick Savings since joining Warwick Savings
in 1991. Mr. Haggerty now serves as Executive Vice President and Chief Lending
Officer of Towne Center Bank.
DONNA M. LYONS, age 44, has served as Senior Vice President of Warwick
Savings since 1992 and has served as Auditor of Warwick Savings since joining
Warwick Savings in 1989. Mrs. Lyons now also serves as Auditor of Towne Center
Bank.
BARBARA A. RUDY, age 47, has served as a Senior Vice President of Warwick
Savings since 1991 and also serves as Vice President of Towne Center Mortgage.
Ms. Rudy has been employed by Warwick Savings in various capacities since 1972.
NANCY L. SOBOTOR-LITTELL, age 42, has served as the Corporate Secretary and
Director of Human Resources of Warwick Savings since 1988. She has been employed
by Warwick Savings in various capacities since 1975. In addition, she serves as
Corporate Secretary of Warsave, WSB Financial and Towne Center Mortgage and as
Secretary of the Foundation. She also serves as Director of Human Resources for
Towne Center Bank. Mrs. Sobotor-Littell is Mr. Lawrence's daughter.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPANY'S COMPENSATION COMMITTEE IS PROVIDED IN
ACCORDANCE WITH THE RULES AND REGULATIONS OF THE SEC. PURSUANT TO SUCH RULES AND
REGULATIONS, THIS REPORT SHALL NOT BE DEEMED "SOLICITING MATERIAL" FILED WITH
THE SEC SUBJECT TO REGULATION 14A OR 14C OF THE SEC OR SUBJECT TO SECTION 18 OF
THE EXCHANGE ACT.
Under the rules and regulations of the Securities and Exchange Commission,
the Company is required to provide certain information with respect to the
compensation and benefits provided to the Company's chief executive officer
("CEO") and other executive officers of the Company for the Company's last
completed fiscal year. Because the Company had no significant assets,
liabilities or operations until December 23, 1997, the discussion below reflects
the policies of the Compensation Committee (previously, the Budget Committee) of
Warwick Savings prior to such date and the Compensation Committee of the Company
subsequent to such date.
The Compensation Committee annually reviews and makes recommendations to
the Board of Directors of the Company regarding the policies that govern
executive compensation and stock ownership programs, including the compensation
of Mr. Dempsey, the Chairman of the Board and CEO of the Company. The
Compensation Committee of the Company is comprised of four members of the Board
of Directors of the Company who are not officers of Warwick Savings or the
Company and for calendar year 1999 consisted of Mrs. Gorish, Mr. Kennedy, Mr.
Smith and Mr. Sanford.
The overall compensation structure of the Company is aimed at establishing
a compensation package that rewards both individual performance and the
Company's performance and is competitive with compensation levels
10
<PAGE>
at comparable banking institutions. In connection with the conversion of Warwick
Savings from mutual to stock form ("Conversion") and the initial public offering
of the Company in 1997, Warwick Savings retained a nationally recognized
compensation consulting firm as an independent compensation expert with respect
to the Company's plans and programs. Based upon published professional survey
data of similarly situated publicly-traded financial institutions operating in
relevant markets, such firm rendered an opinion to Warwick Savings that, with
respect to the total cash compensation for executive officers, such
compensation, viewed as a whole and on an individual basis, was reasonable and
proper in comparison to the compensation provided to the executive officers at
similarly situated publicly-traded financial institutions, and that the shares
of stock to be reserved under the ESOP, the RRP and the Option Plan, as a whole,
were reasonable in comparison to similar publicly-traded financial institutions.
BASE SALARY. In determining base salary levels for 1999, the Compensation
Committee compared the salaries of the Company's officers with those of 19 peer
banks in New York, 11 peer banks in New Jersey and four peer banks in
Connecticut, taking into account asset size and relative performance during the
prior year. The peer group used in the Committee's analysis differs from the
companies included in the Nasdaq Composite Index and Nasdaq Bank Composite Index
used in the Performance Graph on page 13 of this Proxy Statement since these two
indices reflect the stock performance of a significantly broader group of
companies and financial institutions.
Based upon such comparison, the Compensation Committee concluded that, in
order to give the Company's executive officers incentives to keep performing at
their current and higher levels, the salary levels for the Company's CEO and
other executive officers should reflect the level of performance achieved by
Warwick Savings and should be aligned with the interests of the Company's
shareholders. In addition, the Compensation Committee concluded that salary
level should take into account the officer's individual responsibility and
performance as well.
STOCK OWNERSHIP PROGRAMS. The Compensation Committee believes that
providing executive officers with significant stock ownership and stock options
aligns the interests of executive officers with the interests of the Company's
shareholders. In this regard, the Company adopted the ESOP at the time of the
Company's initial public offering in 1997. In addition, as contemplated during
Warwick Savings' Conversion and the Company's initial public offering, in April
1998 the Board of Directors of the Company adopted, and in June 1998 the
Company's shareholders approved, the Option Plan and the RRP.
In June 1998, stock options were granted under the Option Plan to certain
officers, including Messrs. Dempsey and Gentile, at an exercise price equal to
the fair market value of the Company's shares on the date of grant. These grants
were awarded to provide an incentive for future performance by giving the
grantees, including the executive officers, equity interests in the Company. The
size of the grants to executive officers were based in part on the practices of
other similar institutions and in part on the performance and position of the
executive officer of the Company. Such stock options are generally granted for a
term of 10 years and generally vest (that is, become exercisable) 20% upon the
first anniversary of the date of grant, and 20% more on each subsequent
anniversary thereof, with 100% vesting in the event of death or disability.
There have been no further grants of options under the Option Plan.
In June 1998, shares of the Company's stock were awarded under the RRP to
certain officers, including Messrs. Dempsey and Gentile. The number of shares
awarded to each executive officer was based in part on the practices of other
similar institutions and in part on the performance and position of the
executive officer of the Company. Such stock awards generally vest (that is,
become distributable to the officer) 20% upon the first anniversary of the date
of the award, and 20% more on each subsequent anniversary thereof, with 100%
vesting in the event of death or disability. There have been no further awards
of shares under the RRP.
INCENTIVE COMPENSATION. In March 1999, the Compensation Committee
recommended, and the Board of Directors adopted, a Performance Compensation Plan
to provide certain key officers of the Company and its affiliates, including
Messrs. Dempsey and Gentile, with an incentive to achieve business objectives,
to attract and
11
<PAGE>
retain individuals of outstanding competence and to provide a means of
compensating such individuals for their contributions to the Company. The
Performance Compensation Plan provides for cash payments to eligible officers
based upon the annual performance of the Company during 1999 in comparison to
pre-established target goals based upon the Company's pre-tax net income as
compared to the prior year. The Performance Compensation Plan was adopted for
1999, with the expectation that subsequent plans would be developed for plan
years 2000 and beyond. In January 2000, the Board of Directors established
target goals for 2000.
CHIEF EXECUTIVE OFFICER. The Compensation Committee reviewed the
performance of Mr. Dempsey as the CEO of Warwick Savings and the Company over
the prior year and concluded that his performance was excellent, in terms of the
continued development and achievement of Warwick Savings' and the Company's
overall strategic goals and objectives as set forth in Warwick Savings' business
plan, the successful Conversion of Warwick Savings and the initial public
offering of the Company, and Warwick Savings' and the Company's successful
financial results since the Conversion, including the growth in Warwick Savings'
asset base and leveraging of the new capital raised in the Company's initial
public offering. Mr. Dempsey also actively participated in a variety of outside
organizations and causes, including various community and industry
organizations, which served to benefit the Company. Based upon the foregoing, in
December 1999, the Compensation Committee recommended, and the Board of
Directors agreed, that Mr. Dempsey's annual rate of salary remain at $250,000
for calendar year 2000. This is based on Mr. Dempsey's continued excellent
performance as CEO of Warwick Savings and the Company during 1999 and is in
light of the adoption of the Performance Compensation Plan which will provide
incentive compensation if pre-established target goals are met.
The 1999 Compensation Committee:
Frances M. Gorish, Chairman
R. Michael Kennedy
Robert N. Smith
John W. Sanford III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee consisted of Mrs. Gorish, Mr.
Kennedy, Mr. Smith and Mr. Sanford. There are no interlocks, as defined under
the rules and regulations of the SEC, between members of the Compensation
Committee or executive officers of the Company and corporations with respect to
which such persons are affiliated, or otherwise.
PERFORMANCE GRAPH
Pursuant to the rules and regulations of the SEC, the graph below, prepared
by SNL Securities, L.C., compares the performance of the Company's Common Stock
with that of the Nasdaq Composite Index (U.S. Companies) and the Nasdaq Bank
Composite Index (banks and bank holding companies, over 99% of which are based
in the United States) from December 23, 1997, the date of the Company's initial
public offering, through December 31, 1999. The graph is based on an investment
of $100 in the Company's Common Stock at its closing price of $15.625 on
December 23, 1997 and assumes the reinvestment of all dividends in additional
shares of the same class of equity securities as those below.
12
<PAGE>
WARWICK COMMUNITY BANCORP, INC.
Total Return Performance
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
PERIOD ENDING
------------------------------------------------------------
INDEX 12/23/97 12/31/97 6/30/98 12/31/98 6/30/99 12/31/99
- - ------------------------------- -------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Warwick Community Bancorp, Inc. 100.00 111.20 107.20 94.97 82.66 71.17
NASDAQ-- Total US 100.00 104.01 125.07 146.57 179.38 264.79
NASDAQ Bank Index 100.00 103.00 106.65 102.28 105.35 98.37
</TABLE>
______________________-
Note: There can be no assurance that the stock performance of Warwick Community
Bancorp, Inc. will continue into the future with the same or similar
trends depicted in the graph above.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Chief
Executive Officer and all executive officers of the Company who received
aggregate salary and bonus in excess of $100,000 in 1999 (the "Named Executive
Officers") for services rendered in all capacities to the Company and Warwick
Savings during the fiscal year ending December 31, 1999, the seven-month period
beginning June 1, 1998 and ending December 31, 1998 and the fiscal year ending
May 31, 1998.
13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS(1)
------------------------------- --------------------------------------------
OTHER ALL
ANNUAL RESTRICTED OTHER
COMPEN- STOCK LTIP COMPEN-
NAME AND YEAR SALARY BONUS SATION AWARDS OPTIONS PAY- SATION
PRINCIPAL POSITION * ($)(2) ($) ($)(3) ($)(4) (#)(5) OUTS ($)(6)
- - -------------------------- ------ -------- ------ ------- ---------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy A. Dempsey 1999 257,624 -- -- -- -- -- 38,177
Chairman of the Board and 1998 133,656 -- -- 918,356 100,000 -- 32,525
Chief Executive Officer 1998 208,067 -- -- -- -- -- 37,430
Ronald J. Gentile 1999 171,669 -- -- -- -- -- 25,679
President and Chief 1998 87,514 -- -- 642,840 65,000 -- 24,395
Operating Officer 1998 135,282 -- -- -- -- -- 23,717
Arthur W. Budich
Senior Vice President, 1999 117,954 5,000 -- -- -- -- 16,746
Treasurer and Chief 1998 57,122 -- -- 275,481 35,000 -- 16,047
Financial Officer 1998 88,183 -- -- -- -- -- 16,537
Laurence D. Haggerty 1999 110,592 25,280 -- -- -- -- 22,727
Senior Vice President 1998 57,249 -- -- 275,481 35,000 -- 18,646
1998 85,104 -- -- -- -- -- 21,488
</TABLE>
________________________
* The figures on the first line for 1999 are for the fiscal year ended
December 31, 1999. The figures on the second line are for the seven-month
period ended December 31, 1998. The figures on the third line are for the
fiscal year ending May 31, 1998.
(1) For the periods shown, neither the Company nor Warwick Savings had any
long-term incentive plan ("LTIP") in existence.
(2) Salary includes the amount of each individual's salary deferrals under the
401(k) Plan.
(3) For the periods shown, there were no: (a) perquisites with an aggregate
value for any named individual in excess of the lesser of $50,000 or 10% of
the total of the individual's salary and bonus for the year; (b) payments
of above-market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long-term incentive plans prior to
settlement or maturation; or (d) preferential discounts on stock.
(4) Pursuant to the RRP, Messrs. Dempsey, Gentile, Budich and Haggerty were
awarded 52,855, 36,998, 15,855 and 15,855 shares of stock, respectively, as
of June 24, 1998, which vest at a rate of 20% per year over a five-year
period beginning on June 24, 1999, with 100% vesting in cases of officer's
death, disability or retirement or a change in control of the Company. The
dollar amounts shown in the table for the seven-month period ended December
31, 1998 are based on the closing price of the Common Stock on June 24,
1998, which was $17.375, as reported on the National Market System of the
Nasdaq Stock Market ("Nasdaq National Market"). As of December 31, 1999,
the number of shares held under the RRP by Messrs. Dempsey, Gentile, Budich
and Haggerty was 42,284, 29,598, 12,684 and 12,684, respectively. The
aggregate fair market value of these shares at December 31, 1999 for
Messrs. Dempsey, Gentile, Budich and Haggerty was $459,839, $321,878,
$137,939 and $137,939, respectively, based on the closing price of $10.875
per share as reported on the Nasdaq National Market on that date. Dividends
which are declared and paid are distributed at the same time as the related
shares. During the fiscal year ended May 31, 1998, neither the Company nor
Warwick Savings maintained any restricted stock plans.
(footnotes continued on next page)
14
<PAGE>
(5) Pursuant to the Option Plan, Messrs. Dempsey, Gentile, Budich and Haggerty
were awarded 100,000, 65,000, 35,000 and 35,000 options, respectively, as
of June 24, 1998, which are exercisable at a rate of 20% per year over a
five-year period beginning on June 24, 1999, with 100% vesting in cases of
death, disability or retirement or a change in control of the Company. As
of December 31, 1999, 20,000 of Mr. Dempsey's options were exercisable,
13,000 of Mr. Gentile's options were exercisable, 7,000 of Mr. Budich's
options were exercisable and 7,000 of Mr. Haggerty's options were
exercisable. There were no options granted in 1999.
(6) Includes the matching contributions made by Warwick Savings under the
401(k) Plan, which for the fiscal year ended December 31, 1999 totaled
$4,760 for Mr. Dempsey, $4,800 for Mr. Gentile, $1,737 for Mr. Budich and
$4,256 for Mr. Haggerty. Also includes the value of allocations under the
ESOP, which for the fiscal year ended December 31, 1999 totaled $15,240 for
Mr. Dempsey, $15,200 for Mr. Gentile, $14,375 for Mr. Budich and $17,837
for Mr. Haggerty. Also includes Warwick Savings' contributions to the trust
established for the BRP (excluding amounts contributed with respect to
supplemental retirement benefits thereunder) with respect to supplemental
401(k) Plan benefits and supplemental ESOP benefits, which for the fiscal
year ended December 31, 1999 totaled $17,457 for Mr. Dempsey and $4,959 for
Mr. Gentile. The dollar amounts with respect to allocations under the ESOP
and contributions under the BRP with respect to supplemental ESOP benefits
are based on $10.875 per share, the closing price of the Common Stock as
reported on the Nasdaq National Market on December 31, 1999. See " --
401(k) Plan," " -- Employee Stock Ownership Plan and Trust" and " --
Benefit Restoration Plan." Also includes the dollar value of the premiums
paid by Warwick Savings for the benefit of the executive officer, which for
the fiscal year ended December 31, 1999 totaled $720 for each of Mr.
Dempsey and Mr. Gentile and $634 for each of Mr. Budich and Mr. Haggerty.
EMPLOYMENT AGREEMENTS. The Company has entered into Employment Agreements
with each of Mr. Dempsey, Mr. Gentile, Mr. Budich and Mrs. Sobotor-Littell
("Senior Executives"). The Employment Agreements provide for three-year terms,
with automatic daily extensions such that the remaining terms of the Employment
Agreements shall be three years unless written notice of non-renewal is given by
the Company or the Senior Executive, and, in any event, will terminate on the
last day of the month following the Senior Executive's 68th birthday. The
Employment Agreements provide that the Senior Executive's base salary will be
reviewed annually. It is anticipated that this review will be performed by the
Company's Compensation Committee and approved by the non-employee members of the
Board of Directors, and the Senior Executive's base salary may be increased on
the basis of such officer's job performance and the overall performance of the
Company. The Employment Agreements also provide for, among other things,
entitlement to participation in stock, retirement and welfare benefit plans and
reimbursement for ordinary and necessary business expenses. Senior Executives
would also be entitled to reimbursement of certain costs incurred in
interpreting or enforcing the Employment Agreements. The Employment Agreements
provide for termination by the Company at any time for "cause" as defined in the
Employment Agreements.
In the event that (i) the Company terminates a Senior Executive's
employment for reasons other than for cause, (ii) a Senior Executive resigns
from the Company for certain reasons specified in the Employment Agreements or
(iii) a "change of control" as defined in the Employment Agreements occurs, the
Senior Executive (or, in the event of the Senior Executive's death, such Senior
Executive's estate) would be entitled to a lump sum cash payment in an amount
generally equal to (a) the Senior Executive's earned but unpaid salary, (b) the
present value of the amount the Senior Executive would have earned in salary had
he or she continued working through the unexpired term of the Employment
Agreement and (c) the present value of the additional contributions or benefits
that such Senior Executive would have earned under the specified employee
benefit plans or programs of Warwick Savings or the Company during the remaining
term of the Employment Agreement and payments that would have been made under
any incentive compensation plan during the remaining term of the Employment
Agreement. The Employment Agreements also provide for the cashout of any stock
options, appreciation rights or restricted stock as if the Senior Executive was
fully vested. Warwick Savings and the Company would also continue the Senior
Executive's life, health and any disability insurance or other benefit plan
coverage for the remaining term of the Employment Agreement. Reasons specified
as grounds for resignation for purposes of the Employment Agreements include:
failure to elect or re-elect the Senior Executive to such officer's position;
failure to vest in the Senior Executive the functions, duties or authority
associated with such position; if the Senior Executive is a member of the Board
of Directors of Warwick Savings or Company, failure to re-nominate or re- elect
such Senior Executive to such Board; any material breach of contract by Warwick
Savings or the Company that is not cured within 30 days after written notice
thereof; or a change in the Senior Executive's principal place
15
<PAGE>
of employment to a location in excess of 50 miles from Warwick Savings'
principal office in Warwick, New York. In general, for purposes of the
Employment Agreements and the plans maintained by the Company or Warwick
Savings, a "change of control" will generally be deemed to occur when a person
or group of persons acting in concert acquires beneficial ownership of 25% or
more of any class of equity security of the Company or Warwick Savings, upon
shareholder approval of certain mergers or consolidations of the Company or
Warwick Savings, upon liquidation or sale of substantially all the assets of the
Company or Warwick Savings or upon a contested election of directors which
results in a change in the majority of the Board of Directors.
Cash and benefits paid to a Senior Executive under the Employment
Agreement, together with payments under other benefit plans, following a change
of control of Warwick Savings or the Company may constitute an "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986, as amended
("Code"), resulting in the imposition of a 20% excise tax on the recipient and
the denial of the deduction for such excess amounts to the Company and Warwick
Savings. In the event that any amounts paid to a Senior Executive following a
change of control would constitute excess parachute payments, the Employment
Agreements provide that such Senior Executives will be indemnified for any
excise taxes imposed due to such excess parachute payments, and any additional
excise, income and employment taxes imposed as a result of such tax
indemnification.
The Company and Towne Center Bank also entered into an Employment Agreement
with Mr. Haggerty in October 1999, the terms of which are substantially the same
as the Employment Agreements described above, except that Mr. Haggerty's
Employment Agreement is for a term of two years, with automatic daily extensions
only in the event a "change of control" as defined in the Employment Agreement
occurs. Upon a change of control, the term of the Employment Agreement shall be
automatically extended to have a two-year term, which term is extended one
additional day each day unless written notice of non-renewal is given by any
party, in which case the term of the Employment Agreement shall expire two years
from the date such notice is given.
EMPLOYEE RETENTION AGREEMENTS. Warwick Savings has entered into Retention
Agreements with each of Ms. Lyons, Ms. Rudy and Mr. Arthur S. Anderson
("Contract Employees"). The purpose of the Retention Agreements is to secure the
Contract Employees' continued availability and attention to Warwick Savings'
affairs, relieved of distractions arising from the possibility of a corporate
change of control. The Retention Agreements do not impose an immediate
obligation on Warwick Savings to continue the Contract Employees' employment,
but provide for a period of assured employment ("Assurance Period") in the event
of a "change of control" as defined in the Retention Agreements, which
definition is similar to the definition of change of control contained in the
Employment Agreements. The Retention Agreements provide for one-year terms, with
automatic daily extensions such that the remaining term shall be one year unless
written notice of non-renewal is given by Warwick Savings or the Contract
Employee, and, in any event, will end on the last day of the month following the
Contract Employee's 68th birthday. The Retention Agreements provide for an
initial Assurance Period of one year commencing on the date of a change of
control during the term of the Retention Agreement. In general, the applicable
Assurance Periods will be automatically extended on a daily basis under the
Retention Agreements until written notice of non-extension is given by Warwick
Savings or the Contract Employee, in which case the Assurance Period would end
on the first anniversary of the date such notice is given.
If a Contract Employee is discharged without "cause," as defined in the
Retention Agreements, during the Assurance Period, or prior to the commencement
of the Assurance Period but within 3 months of, and in connection with, a change
of control, or the Contract Employee voluntarily resigns during the Assurance
Period for certain specified reasons, the Contract Employee (or, in the event of
the Contract Employee's death, such Contract Employee's estate) would be
entitled to a lump sum cash payment in an amount generally equal to (a) the
Contract Employee's earned but unpaid salary, (b) the present value of the
amount the Contract Employee would have earned in salary had he or she continued
working during the remaining term of the Assurance Period and (c) the present
value of the additional contributions or benefits that such that Contract
Employee would have earned under the specified employee benefit plans or
programs of Warwick Savings or Company during the remaining term of the
Assurance Period. Reasons specified as grounds for resignation for purposes of
the Retention Agreements include: failure to elect or re-elect the Contract
Employee to such officer's position; failure to vest
16
<PAGE>
in the Contract Employee the functions, duties or authority associated with such
position; if the Contract Employee is a member of the Board of Directors of
Warwick Savings or Company, failure to re-nominate or re-elect such Contract
Employee to such Board; certain reduction in salary or material reduction in
benefits; any material breach of contract by Warwick Savings or the Company that
is not cured within 30 days after written notice thereof; or a change in the
Contract Employee's principal place of employment to a location in excess of 50
miles from Warwick Savings' principal office in Warwick, New York.
The Retention Agreements also provide for the cashout of stock options,
appreciation rights or restricted stock as if the Contract Employee was fully
vested. Each Contract Employee's life, health and any disability coverage would
also be continued during the Assurance Period. The total amount of termination
benefits payable to each Contract Employee under the Retention Agreements is
limited to three times the Contract Employee's average total compensation for
the prior five calendar years. Payments to the Contract Employees under their
respective Retention Agreements will be guaranteed by the Company to the extent
that the required payments are not made by Warwick Savings.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Company established, and
Warwick Savings adopted, for the benefit of eligible employees, an ESOP and
related trust, which became effective upon completion of the Conversion of
Warwick Savings. Substantially all employees of Warwick Savings or the Company
who have completed 1,000 hours of service during a consecutive twelve-month
period will be eligible to become participants in the ESOP.
Generally, shares held in the ESOP trust are allocated among the accounts
of participants who are employees of Warwick Savings or the Company on the last
day of the plan year on the basis of the participants' total taxable
compensation (excluding amounts attributable to the vesting of RRP awards and
the exercise of stock options) for the year of allocation. Benefits generally
become vested at the rate of 20% per year beginning on a participant's third
year of service, with 100% vesting after seven years of service (including past
service). Participants also become immediately vested upon termination of
employment due to death, retirement at age 65 or older, permanent disability or
upon the occurrence of a change of control. The ESOP generally provides that,
upon certain changes of control as described in the ESOP, unallocated shares in
the ESOP will be sold to repay any outstanding loan and all remaining
unallocated shares or proceeds thereof will be allocated among participants who
were employed immediately preceding the change of control in proportion to
compensation for that part of the year prior to the change of control.
A participant who terminates employment prior to the end of a plan year for
reasons other than death, retirement or disability will not receive an
allocation under the ESOP for that plan year. Forfeitures will be used to reduce
the Company's contributions to the ESOP. Vested benefits may be paid in a single
sum or installment payments and are payable upon death, retirement at age 65 or
older, disability or separation from service.
The ESOP is administered by Warwick Savings as the Plan Administrator and
by a committee established pursuant to the ESOP ("ESOP Committee"). HSBC Bank
USA has been appointed as the trustee for the ESOP. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee, subject to its fiduciary duty, must vote all allocated shares held
in the ESOP in accordance with the instructions of the participating employees.
Under the ESOP, unallocated shares generally will be voted in a manner
calculated to most accurately reflect the instructions received from
participants regarding the allocated stock as long as such vote is in accordance
with the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
STOCK OPTION PLAN. The Option Plan was adopted by the Board of Directors of
the Company and subsequently approved by the Company's shareholders on June 24,
1998. In February 1999, the Board of Directors adopted amendments to the Option
Plan, which were subsequently approved by the Company's shareholders on April
20, 1999. Subject to the terms of the Option Plan, employees, directors and
officers of the Company, Warwick Savings and its affiliates are eligible to
participate in the Option Plan. The Option Plan is not
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<PAGE>
subject to ERISA and is not a tax-qualified plan under the Code. The Company
reserved 660,654 shares of Common Stock for issuance upon the exercise of stock
options ("Options") granted under the Option Plan.
The Board of Directors and the members of the Compensation Committee who
are Disinterested Directors ("Option Committee") administer the Option Plan. The
Option Committee determines, subject to the terms of the Option Plan and Rule
16b-3 promulgated under the Exchange Act, the officers and employees to whom
Options will be granted, the number of shares subject to each Option and the
terms of such Options (including provisions regarding exercisability and
acceleration of exercisability) and the procedures by which the Options may be
exercised.
Options granted under the Option Plan may be either "incentive stock
options," which qualify for favorable federal income tax treatment, or
non-qualified stock options, which do not so qualify. Options granted under the
Option Plan will generally vest at a rate of 20% per year beginning on the first
anniversary of the grant date and generally remain exercisable until the tenth
anniversary of the grant date, subject to earlier expiration upon termination of
employment, as defined in the Option Plan. In the case of termination due to
death, disability or retirement of the Option holder, or upon a change in
control of the Company, all options granted become immediately exercisable.
Subject to certain specific limitations and restrictions set forth in the
Option Plan and such limitations as may be imposed from time to time by the
Board of Directors, the Option Committee has the authority to interpret the
Option Plan, to prescribe, amend and rescind rules and regulations, if any,
relating to the Option Plan and to make all determinations necessary or
advisable for the administration of the Option Plan.
The following table provides certain information with respect to the number
of shares of Common Stock represented by unexercised options held by the CEO and
the Named Executive Officers as of December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES DURING 1999
AND 1999 YEAR-END OPTION/SAR VALUES
-------------------------------------------
NUMBER OF
SHARES VALUE SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED REALIZED UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ON ON AT YEAR-END 1999 AT YEAR-END 1999
EXERCISE EXERCISE (#) ($)(1)
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------- ---------- ---------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. Dempsey -- -- 20,000 80,000 0 0
Ronald J. Gentile -- -- 13,000 52,000 0 0
Arthur W. Budich -- -- 7,000 28,000 0 0
Laurence D. Haggerty -- -- 7,000 28,000 0 0
</TABLE>
______________________
(1) As of December 31, 1999, none of the outstanding options held by the Named
Executive Officers were in-the-money based upon the difference between
$10.875, the closing price of the Common Stock as reported on the Nasdaq
National Market on December 31, 1999, and the $17.00 exercise price of the
options.
RECOGNITION AND RETENTION PLAN. The RRP was adopted by the Board of
Directors of the Company and subsequently approved by the Company's shareholders
on June 24, 1998. In February 1999, the Board of Directors adopted amendments to
the RRP, which were subsequently approved by the Company's shareholders on April
20, 1999. The RRP provides for stock awards ("Awards") to eligible officers,
employees, outside
18
<PAGE>
directors and directors emeritus of the Company, Warwick Savings and its
affiliates. The RRP is not subject to ERISA and is not a tax-qualified plan
under the Code.
The Board of Directors and the members of the Compensation Committee who
are Disinterested Directors ("RRP Committee") administer the RRP. The Board of
Directors or the RRP Committee will determine at the time of grant the number of
shares of Common Stock subject to an Award and the vesting schedule applicable
to the Award and may, in its discretion, establish other terms and conditions
applicable to the Award.
Stock subject to an Award is held in trust pursuant to the RRP until the
Award vests, at which time the shares of Common Stock attributable to the
portion of the Award that have vested are distributed to the Award holder. An
individual to whom an Award is granted is entitled to exercise voting rights and
receive dividends with respect to stock subject to Awards granted to him whether
or not vested. Dividends will be distributed at the same time as the related
shares.
Generally, shares granted to outside directors or directors emeriti will
vest and become distributable at a rate of 20% per year, over a five-year
period, subject to 100% vesting in the case of death, disability or retirement
of the director or a change in control of the Company. The shares granted to
eligible officers and employees will vest according to a schedule established by
the RRP committee, but in no event at a rate of more than 20% per year, subject
to 100% vesting in the case of death, disability or retirement of the officer or
employee or a change in control of the Company.
Subject to certain specific limitations and restrictions set forth in the
RRP, and such limitations as may be imposed from time to time by the Board of
Directors, the RRP Committee has authority to interpret the RRP, to prescribe,
amend and rescind rules and regulations, if any, relating to the RRP and to make
all determinations necessary or advisable for the administration of the RRP.
PERFORMANCE COMPENSATION PLAN. In March 1999, the Board of Directors of the
Company adopted a Performance Compensation Plan to provide certain key officers
of the Company and its affiliates with an incentive to achieve business
objectives, to attract and retain individuals of outstanding competence and to
provide a means of compensating such individuals for their contributions to the
Company. The Performance Compensation Plan provides for cash payments to
eligible employees based upon the annual performance of the Company during 1999
in comparison to pre-established target goals. The Performance Compensation Plan
was adopted for 1999 only, with the expectation that subsequent plans would be
developed for plan years 2000 and beyond. In January 2000, the Board of
Directors established target goals for 2000.
401(K) PLAN. Warwick Savings maintains The Warwick Savings Bank 401(k)
Savings Plan ("401(k) Plan"), a tax-qualified profit-sharing plan under Sections
401(a) and 401(k) of the Code. Employees who satisfy prescribed eligibility
requirements may make pre-tax salary deferrals under section 401(k) of the Code.
Salary deferrals are made by election, subject to the limits prescribed by the
401(k) Plan and a limit imposed under the Code (which is $10,500 for 2000).
Warwick Savings makes matching contributions equal to a percentage of salary
contributions determined annually by Warwick Savings, up to 3% of salary.
Employees are fully vested in their salary deferrals and become incrementally
vested in Warwick Savings' contribution after one year and fully vested in
Warwick Savings' contributions after five years.
Warwick Savings amended the 401(k) Plan in connection with the Conversion
of Warwick Savings to provide that Warwick Savings' matching contributions will
be invested in an investment fund consisting primarily of Common Stock of the
Company. In addition, participating employees may elect to invest all or a
portion of their remaining account balances in such investment fund or the other
investment funds provided under the 401(k) Plan. Common Stock held by the 401(k)
Plan may be newly issued or treasury shares acquired from the Company or
outstanding shares purchased in the open market or in privately negotiated
transactions. All Common Stock held by the 401(k) Plan is held by an independent
trustee and allocated to the accounts of individual participants. Participants
control the exercise of voting and tender rights relating to the Common Stock
held in their accounts.
19
<PAGE>
PENSION PLAN. Warwick Savings maintains The Warwick Savings Bank Defined
Benefit Pension Plan ("Pension Plan"), a non-contributory, tax-qualified defined
benefit pension plan, for eligible employees. All employees, except (i) those
paid on an hourly basis or contract basis, (ii) leased employees or (iii)
employees regularly employed by outside employers for maintenance of properties,
are eligible to participate in the Pension Plan upon the later of (i) the end of
the twelve-month period in which he or she completes 1,000 hours of service or
(ii) the date he or she attains age 21. The Pension Plan provides an annual
benefit for each participant, including the executive officers named in the
Summary Compensation Table above, equal to 2% of the participant's average
annual compensation, multiplied by the participant's years of credited service,
up to a maximum of 30 years.
Average annual compensation is the average of a participant's compensation
(excluding amounts attributable to the vesting of RRP awards and the exercise of
stock options) over the three years of employment out of the participant's last
10-year period of employment during which the participant's compensation is the
highest. A participant is fully vested in his or her pension benefit after five
years of service. The Pension Plan is funded by Warwick Savings on an actuarial
basis, and all assets are held in trust by the Pension Plan trustee.
BENEFIT RESTORATION PLAN. In connection with the Conversion, Warwick
Savings adopted the Benefit Restoration Plan of The Warwick Savings Bank ("BRP")
to provide eligible employees with the benefits that would be due to such
employees under the Pension Plan, the 401(k) Plan and the ESOP if such benefits
were not limited under the Code. The BRP is also intended to make up allocations
lost by participants of the ESOP who retire prior to the complete repayment of
the ESOP loan. BRP benefits to be provided with respect to the Pension Plan are
reflected in the pension table and BRP benefits to be provided with respect to
the ESOP and the 401(k) Plan are reflected in the Summary Compensation Table.
PENSION PLAN TABLE. The following table sets forth the estimated annual
benefits payable under the Pension Plan upon a participant's normal retirement
at age 65, expressed in the form of a single life annuity, and any related
amounts payable under the BRP, for the average annual compensation and years of
credited service specified.
PENSION PLAN TABLE(1)
YEARS OF CREDITED SERVICE AT RETIREMENT
AVERAGE ANNUAL ---------------------------------------------------------------
COMPENSATION 15 20 25 30 35(2)
- - --------------------------------------------------------------------------------
$125,000 $37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000(3) 52,500 70,000 87,500 105,000 105,000
200,000(3) 60,000 80,000 100,000 120,000 120,000
225,000(3) 67,500 90,000 112,500 135,000(4) 135,000(4)
250,000(3) 75,000 100,000 125,000 150,000(4) 150,000(4)
300,000(3) 90,000 120,000 150,000(4) 180,000(4) 180,000(4)
________________
(1) The annual benefits shown in the table above assume the participant would
receive his or her retirement benefits under the Pension Plan and the BRP
in the form of a straight life annuity at normal retirement age.
(2) Normal retirement benefits are limited to 60% of average annual
compensation.
(3) For the Pension Plan year ending September 30, 1999, the annual
compensation for calculating benefits under the Pension Plan may not exceed
$160,000 (as adjusted for subsequent years pursuant to Code provisions).
The limitation is $160,000 for the plan year beginning October 1, 1999 and
will be adjusted to reflect cost of living increases after 1999 in
accordance with Section 401(a)(17) of the Code. The table reflects amounts
payable in conjunction with the BRP.
(footnotes continued on next page)
20
<PAGE>
(4) These are hypothetical benefits based upon the Pension Plan's normal
retirement benefit formula. The maximum annual benefit permitted under
Section 415 of the Code in 1999 is $130,000 or, if higher, a member's
current accrued benefit as of December 31, 1982 (but not more than
$136,425). The $130,000 ceiling will be adjusted to reflect cost of living
increases after 1999 in accordance with Section 415 of the Code. The BRP
will provide the difference between the amounts appearing in this table and
the maximum amount allowed by the Code.
The following table sets forth the years of credited service and the
average annual compensation (as defined above), determined as of December 31,
1999, for each of the individuals named in the Summary Compensation Table.
YEARS OF CREDITED SERVICE
------------------------- AVERAGE ANNUAL
YEARS MONTHS COMPENSATION
----- ------ --------------
Mr. Dempsey.............. 26 6 $ 228,394
Mr. Gentile.............. 9 7 $ 149,810
Mr. Budich............... 13 11 $ 98,866
Mr. Haggerty............. 8 7 $ 108,236
TRANSACTIONS WITH CERTAIN RELATED PERSONS
From time to time Warwick Savings makes loans or extends credit to its
executive officers and to certain persons related to its executive officers and
directors, to the extent consistent with applicable laws and regulations. All
such loans are made by Warwick Savings in the ordinary course of business and on
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not and will not
involve more than the normal risk of collectibility or present other unfavorable
features. The outstanding principal balance of such loans to executive officers
and to persons related to executive officers and directors totaled approximately
$306,005 as of December 31, 1999. In addition, Warwick Savings has committed a
line of credit of $2.5 million to Warwick Valley Telephone Company, of which
$900,000 was outstanding at December 31, 1999. Mr. Nielsen and Mr. Knipp are
directors, and Mr. Knipp is the former Chief Executive Officer, of Warwick
Valley Telephone Company.
Mr. Krahulik is a partner in the law firm of Bonacic, Blustein & Krahulik,
LLP, which Warwick Savings retains to provide certain legal services. During the
fiscal year ended December 31, 1999, Warwick Savings paid $161,052 for legal
services provided during such period (which includes fees paid to the firm
Beattie & Krahulik during 1999 prior to its merger into the law firm of Bonacic,
Blustein & Krahulik, LLP in August 1999). In addition, the firm received fees in
the amount of approximately $491,290 from third parties pursuant to its
representation of Warwick Savings in loan closings and other legal matters for
the fiscal year ended December 31, 1999. Towne Center Mortgage and Bonacic,
Blustein & Krahulik, LLP, are co-tenants on the lease for Towne Center
Mortgage's office in West Milford, New Jersey. Mr. McDermott is a managing
partner in J.D. Blake Company, which leases office space to the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors and
executive officers, and any person holding more than ten percent of the
Company's Common Stock, are required to file initial reports of ownership of the
Company's Common Stock and reports of changes in that ownership with the SEC.
Specific due dates for these reports have been established, and the Company is
required to disclose in this Proxy Statement any failure to file by these dates
during the fiscal year ended December 31, 1999. All of such filing requirements
of the Company's directors and executive officers (other than R. Michael Kennedy
and Robert N. Smith, who each filed one late report of changes in his ownership
of the Company's Common Stock, and John J. McDermott III, who filed a late
initial report of ownership of the Company's Common Stock) were satisfied during
the fiscal year
21
<PAGE>
ended December 31, 1999, based upon their written representations and copies of
the reports that they have filed with the SEC.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen LLP to act
as independent auditors for the Company for the fiscal year ending December 31,
2000, subject to ratification of such appointment by the Company's shareholders.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting. The representatives will have an opportunity to make a statement if
they desire to do so and will be available to respond to questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
ADDITIONAL INFORMATION
NOTICE OF BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
The By-Laws of the Company provide an advance notice procedure for a
shareholder to properly bring business before an Annual Meeting or to nominate
any person for election to the Board of Directors. The shareholder must be a
shareholder of record and have given timely notice thereof in writing to the
Corporate Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or received by the Corporate Secretary not later than the following
dates: (i) with respect to an annual meeting of shareholders, 60 days in advance
of the anniversary of the previous year's annual meeting if the current year's
meeting is to be held within 30 days prior to, on the anniversary date of, or
after the anniversary of the previous year's annual meeting; and (ii) with
respect to an annual meeting of shareholders held at a time other than within
the time periods set forth in the immediately preceding clause (i), or with
respect to a special meeting of shareholders for the election of directors, the
close of business on the 10th day following the date on which notice of such
meeting is first given to shareholders. Notice shall be deemed to first be given
to shareholders when disclosure of such date of the meeting of shareholders is
first made in a press release reported to the Dow Jones News Services,
Associated Press or comparable national news service, or in a document publicly
filed by the Company with the SEC pursuant to Section 13, 14 or 15(d) of the
Exchange Act. A shareholder's notice to the Corporate Secretary shall set forth
such information as required by the By-Laws of the Company. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement and proxy card relating to an annual meeting any shareholder proposal
or nomination which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal or nomination is
received. See "-- Date For Submission of Shareholder Proposals."
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Pursuant to the proxy soliciting regulations of the SEC, any shareholder
proposal intended for inclusion in the Company's proxy statement and proxy card
relating to the Company's 2001 Annual Meeting of Shareholders must be received
by the Company on or before November 18, 2000. Nothing in this paragraph shall
be deemed to require the Company to include in its proxy statement and proxy
card for such meeting any shareholder proposal
22
<PAGE>
which does not meet the requirements of the SEC in effect at the time. Any such
proposal will be subject to 17 C.F.R.ss.240.14a-8 of the rules and regulations
promulgated by the SEC under the Exchange Act.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matters to be brought before the shareholders
at the Annual Meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying Proxy Card
will vote the shares represented by all properly executed proxies on such
matters in such manner as shall be determined by a majority of the Board of
Directors.
FINANCIAL STATEMENTS
A copy of the Company's Annual Report for the fiscal year ended December
31, 1999, containing consolidated statements of financial condition as of
December 31, 1999 and December 31, 1998 and related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal years
ended December 31, 1999, 1998 and 1997, prepared in conformity with generally
accepted accounting principles, accompanies this Proxy Statement. The
consolidated financial statements have been audited by Arthur Andersen LLP whose
report thereon appears in the Annual Report. The Annual Report serves as Warwick
Savings' and Towne Center Bank's Annual Disclosure Statement for purposes of the
regulations of the Federal Deposit Insurance Corporation. Upon request,
shareholders will be furnished, free of charge, an additional copy of the Annual
Report.
The Company is required to file a transition report on Form 10-K for the
fiscal year ended December 31, 1999 with the SEC. Shareholders may obtain, free
of charge, a copy of such transition report (excluding exhibits) by writing to
Karen J. Hall, Assistant Vice President, The Warwick Savings Bank, 591 Route
17M, Monroe, New York 19050. A copy of the Form 10-K is also available on the
SEC's Electronic Data Gathering Analysis and Retrieval ("EDGAR") System at the
SEC's website, www.sec.gov.
By Order of the Board of Directors,
[Facsimile signature]
Nancy L. Sobotor-Littell
Corporate Secretary
Warwick, New York
March 17, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,600
<INT-BEARING-DEPOSITS> 609
<FED-FUNDS-SOLD> 7,665
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 185,072
<INVESTMENTS-CARRYING> 1,418
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<LOANS> 351,262
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<INTEREST-DEPOSIT> 7,849
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<INTEREST-INCOME-NET> 18,611
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 523
<EXPENSE-OTHER> 16,708
<INCOME-PRETAX> 5,209
<INCOME-PRE-EXTRAORDINARY> 5,209
<EXTRAORDINARY> 0
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<EPS-BASIC> 0.57
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