SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- --------------
Commission File Number: 0-23293
WARWICK COMMUNITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1497903
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
18 OAKLAND AVENUE, WARWICK, NEW YORK 10990-0591
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(914) 986-2206
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days.
Yes X No
----- ----
As of November 1, 2000, there were 5,381,076 shares of the registrant's
common stock outstanding.
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FORM 10-Q
WARWICK COMMUNITY BANCORP, INC.
INDEX
Page
PART I-- FINANCIAL INFORMATION Number
------------------------------ ------
<S> <C>
Item 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the three and nine months
ended September 30, 2000 and 1999 4
Consolidated Statement of Changes in Equity for
the nine months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
Exhibit Index 23
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================================================================================
Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include, but are not limited
to, general economic conditions; changes in interest rates, deposit flows, loan
demand, real estate values and competition; changes in accounting principles,
policies or guidelines; changes in legislation or regulation; other economic,
competitive, governmental, regulatory or technological factors affecting the
Company's operations, pricing, products and services; and other risks detailed
in documents filed by the Company with the Securities and Exchange Commission
from time to time.
================================================================================
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED
---------------------------------
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, 2000 December 31, 1999
--------------------- -----------------------
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash on hand and in banks................................... $ 22,403 $ 22,209
Federal funds sold -- 7,665
Securities:
Available-for-sale, at fair value.................... 158,743 185,072
Held-to-maturity, at amortized cost (fair value of
$1,729 at September 30, 2000 and $1,410 at
December 31, 1999)................................... 1,726 1,418
--------- ---------
Total securities................................... 160,469 186,490
--------- ---------
Mortgage loans.............................................. 326,814 275,229
Commercial loans............................................ 62,237 45,392
Consumer loans.............................................. 29,047 30,641
--------- ---------
Total loans........................................ 418,098 351,262
Allowance for loan losses................................... (2,426) (1,941)
--------- ---------
Total loans, net................................... 415,672 349,321
--------- ---------
Accrued interest receivable................................. 3,539 3,217
FHLBNY stock................................................ 13,252 11,752
Bank premises & equipment, net.............................. 7,583 7,789
Other assets................................................ 21,934 9,270
--------- ---------
Total assets....................................... $ 644,852 $ 597,713
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
NOW and money market........................................ $ 85,204 $ 69,455
Savings..................................................... 91,235 84,671
Certificates of deposit..................................... 125,740 89,223
Non-interest-bearing checking............................... 40,530 39,723
--------- ---------
Total depositor accounts........................... 342,709 283,072
Mortgage escrow funds....................................... 1,248 1,488
Accrued interest payable.................................... 1,505 1,574
Securities sold under agreements to repurchase.............. 16,845 37,375
FHLBNY advances............................................. 196,410 201,675
Other liabilities........................................... 15,991 5,957
--------- ---------
Total liabilities.................................. 574,708 531,141
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 authorized; none
issued............................................... -- --
Common stock, $.01 par value; 15,000,000 shares authorized;
6,606,548 shares issued; 5,381,076 and 5,639,290
shares outstanding as of September 30, 2000 and
December 31, 1999, respectively...................... 66 66
Additional paid-in capital.................................. 62,844 62,978
Retained earnings........................................... 35,170 32,430
Accumulated other comprehensive income(loss), net........... (4,374) (6,832)
Unallocated ESOP common stock.............................. (5,925) (6,515)
Unearned RRP common stock................................... (2,568) (3,263)
--------- ---------
85,213 78,864
Treasury stock (1,225,472 and 967,258 shares at September
30, 2000 and December 31, 1999, respectively) (15,069) (12,292)
--------- ---------
Total stockholders' equity......................... 70,144 66,572
--------- ---------
Total liabilities and stockholders' equity......... $ 644,852 $ 597,713
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
(In thousands, except per (In thousands, except per
share amounts) share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Interest on mortgage loans...................... $ 6,214 $ 4,379 $ 17,256 $ 12,151
Interest on other loans......................... 2,023 1,426 5,730 3,900
Interest and dividends on securities............ 3,516 3,402 10,684 8,889
Interest on federal funds sold.................. -- -- 13 --
Interest on short-term money market instruments...... 18 5 34 17
-------- -------- --------- ---------
Total interest income............................... 11,771 9,212 33,717 24,957
-------- -------- --------- ---------
Interest Expense:
Time deposits................................... 1,784 828 4,163 2,510
Money market deposits........................... 644 510 1,706 1,213
Savings deposits................................ 777 651 2,201 1,969
Mortgagors' escrow deposits..................... 49 42 110 93
Borrowed funds.................................. 3,787 2,404 11,261 5,859
-------- -------- --------- ---------
Total interest expense..................... 7,041 4,435 19,441 11,644
-------- -------- --------- ---------
Net interest income........................ 4,730 4,777 14,276 13,313
-------- -------- --------- ---------
Provision for Loan Losses............................ (225) (125) (615) (375)
-------- -------- --------- ---------
Net interest income after provision for
loan losses................................... 4,505 4,652 13,661 12,938
-------- -------- --------- ---------
Non-Interest Income:
Service and fee income.......................... 976 808 2,697 2,194
Securities transactions......................... (1,113) -- (1,093) 829
Loan transactions............................... 344 28 379 74
Other income.................................... 1,634 374 2,068 269
-------- -------- --------- ---------
Total non-interest income, net............. 1,841 1,210 4,051 3,366
-------- -------- --------- ---------
Non-Interest Expense:
Salaries and employee benefits.................. 2,586 2,583 7,400 6,922
FDIC insurance.................................. 16 7 45 23
Occupancy....................................... 467 345 1,410 1,028
Data processing................................. 228 233 826 720
Advertising..................................... 38 150 149 389
Professional fees............................... 285 257 661 667
Other........................................... 629 805 2,105 2,414
-------- -------- --------- ---------
Total non-interest expense................. 4,249 4,380 12,596 12,163
-------- -------- --------- ---------
Income before provision for income taxes........ 2,097 1,482 5,116 4,141
Provision for Income Taxes........................... 724 546 1,697 1,686
-------- -------- --------- ---------
Net income...................................... $ 1,373 $ 936 $ 3,419 $ 2,455
======== ======== ========= =========
Weighted Average:
Common shares................................... 4,848 5,412 4,879 5,580
Dilutive stock options.......................... -- -- -- --
-------- -------- --------- ---------
4,848 5,412 4,879 5,580
======== ======== ========= =========
Earnings per Share:
Basic........................................... $ 0.28 $ 0.17 $ 0.70 $ 0.44
======== ======== ========= =========
Diluted......................................... $ 0.28 $ 0.17 $ 0.70 $ 0.44
======== ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
Accumulated
Other
Additional Comprehensive Unallocated Unearned
Common Paid In Retained Income (Loss), Common Stock Common Stock Treasury
Stock Capital Earnings net Held by ESOP Held by RRP Stock
----------- ------------ ------------- ---------------- -------------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,1998.......... $ 66 $ 63,374 $ 30,458 $ 1727 $ (7,208) $ (4,180) $ --
Net Income, January 1, 1999 -
September 30, 1999.............. -- -- 2,455 -- -- -- --
Unrealized depreciation on
securities available-for-sale,
net............................. -- -- -- (6,280) -- -- --
Comprehensive income(loss)...... -- -- -- -- -- --
Purchase of treasury stock...... -- -- -- -- -- -- (8,864)
Allocation of ESOP stock........ -- (89) -- -- 488 -- --
Cash dividends paid............. -- -- (874) -- -- -- --
Earned portion of RRP........... -- (240) -- -- -- 688 --
----- -------- -------- -------- --------- -------- --------
BALANCE, September 30, 1999......... $ 66 $ 63,045 $ 32,039 $ (4,553) $ (6,720) $ (3,492) $ (8,864)
===== ======== ======== ======== ========= ======== ========
BALANCE, December 31, 1999.......... $ 66 $ 62,978 $ 32,430 $ (6,832) $ (6,515) $ (3,263) $(12,292)
Net Income, January 1, 2000 -
September 30, 2000............... -- -- $ 3,419 -- -- -- --
Unrealized appreciation on
securities available-for-sale,
net.............................. -- -- -- 2 2,458 -- -- --
Comprehensive income............. -- -- -- -- -- -- --
Purchase of treasury stock....... -- -- -- -- -- -- (2,777)
Valuation adjustment............. -- -- 415 -- -- -- --
Allocation of ESOP stock......... -- (161) -- -- 590 -- --
Cash dividends paid.............. -- -- (1,094) -- -- -- --
Earned portion of RRP............ -- 27 -- -- -- 695 --
----- -------- -------- -------- --------- -------- --------
BALANCE, September 30, 2000......... $ 66 $ 62,884 $ 35,170 $ (4,374) $ (5,925) $ (2,568) $(15,069)
===== ======== ======== ======== ========= ======== ========
</TABLE>
Comprehensive
Income (Loss)
--------------
BALANCE, December 31,1998..........
Net Income, January 1, 1999 -
September 30, 1999.............. $ 2,455
Unrealized depreciation on
securities available-for-sale,
net............................. (6,280)
--------
Comprehensive income(loss)...... $ (3,825)
========
Purchase of treasury stock......
Allocation of ESOP stock........
Cash dividends paid.............
Earned portion of RRP...........
BALANCE, September 30, 1999.........
BALANCE, December 31, 1999..........
Net Income, January 1, 2000 -
September 30, 2000............... $ 3,419
Unrealized appreciation on
securities available-for-sale,
net.............................. $ 2,458
--------
Comprehensive income............. $ 5,877
========
Purchase of treasury stock.......
Valuation adjustment.............
Allocation of ESOP stock.........
Cash dividends paid..............
Earned portion of RRP............
BALANCE, September 30, 2000.........
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
5
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<TABLE>
<CAPTION>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
----------------------------------
2000 1999
--------------- ---------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 3,419 $ 2,455
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation...................................................... 638 488
Net gain on sale of mortgage servicing rights..................... (1,438) --
Accretion of discount on investment securities.................... (1,745) (1,031)
Net increase in accrued interest receivable....................... (322) (372)
Increase in mortgage servicing rights and other assets............ (12,664) (9,298)
Provision for loan losses......................................... 615 375
Net gain on sales of loans........................................ (379) (74)
Net (gain) loss on sales of securities............................ 1,093 (829)
Increase/(decrease) in accrued interest payable................... (69) 478
Increase in accrued expenses and other liabilities................ 10,034 4,636
------- --------
Total reconciliation adjustments............................................ (4,237) (5,627)
------- --------
Net cash used in operating activities............................. (818) (3,172)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities............................ 12,650 23,900
Purchases of securities..................................................... (10,985) (120,630)
Proceeds from sale of trading securities and securities
available-for-sale.......................................................... 20,978 23,495
Principal repayments from mortgage-backed securities........................ 9,220 17,381
Purchases of FHLBNY capital stock........................................... (1,500) (5,907)
Net increase in loans....................................................... (67,464) (52,468)
Purchases of fixed assets, net.............................................. (434) (456)
------- --------
Net cash used in investing activities............................. (37,535) (114,685)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits.................................................... 59,637 14,550
Net decrease in escrow deposits............................................. (240) (1,350)
Net increase(decrease) in borrowed funds.................................... (25,795) 116,529
Dividends on common stock................................................... (1,094) (874)
Purchase of treasury stock.................................................. (2,777) (8,864)
ESOP allocation............................................................. 429 399
RRP allocation.............................................................. 722 448
------- --------
Net cash provided by financing activities......................... 30,882 120,838
------- --------
Net increase (decrease) in cash .................................. $(7,471) $ 2,981
====== ========
CASH AT BEGINNING OF PERIOD................................................. $29,874 $ 10,511
CASH AT END OF PERIOD....................................................... 22,403 13,492
------ --------
CHANGE IN CASH.............................................................. $(7,471) $ 2,981
====== ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
6
<PAGE>
WARWICK COMMUNITY BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Warwick Community Bancorp, Inc. ("Company"), its savings bank
subsidiary, The Warwick Savings Bank ("Savings Bank"), and its commercial bank
subsidiary, The Towne Center Bank ("Commercial Bank").
The unaudited consolidated financial statements included herein reflect
all normal recurring adjustments which are, in the opinion of management,
necessary to present a fair statement of the results for the interim periods
presented. The results of operations for the nine months ended September 30,
2000 are not necessarily indicative of the results of operations that may be
expected for the entire year ending December 31, 2000. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's 1999 Annual Report to Shareholders.
2. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
net income by the weighted average number of shares outstanding for the period,
adjusted for the unallocated portion of the shares held by the Warwick Community
Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") in accordance with AICPA
Statement of Position 93-6, "Employers Accounting for Employee Stock Ownership
Plans," and unearned shares held by the Recognition and Retention Plan of
Warwick Community Bancorp, Inc. ("RRP"). Diluted earnings per share, which
reflects the potential dilution that could occur if outstanding stock options
were exercised and resulted in the issuance of common stock that then shared in
the earnings of the Company, is computed by dividing net income by the weighted
average number of common shares and dilutive instruments. As of September 30,
2000 and 1999, the Company did not have any securities that could be converted
into common stock or any contracts that could result in the issuance of common
stock, except for options granted under the Stock Option Plan of Warwick
Community Bancorp, Inc. ("Stock Option Plan").
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income and all other changes
in equity during a period except those resulting from investments by owners and
distributions to owners. Other comprehensive income includes revenues, expenses,
gains and losses that, under generally accepted accounting principles, are
included in comprehensive income but excluded from net income. Comprehensive
income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income for the Company consists
solely of unrealized holding gains or losses on available for sale securities.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial
7
<PAGE>
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative (that is, unrealized gains and losses)
depends on the intended use of the derivative and the resulting designation.
SFAS No. 133, as later amended by SFAS No. 137, is effective for the Company on
January 1, 2001. The Company does not believe the implementation of SFAS No. 133
will have a material impact on its financial condition or results of operations.
In June 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment to FASB Statement No. 133." SFAS No. 138 amends
certain aspects of SFAS No. 133 to simplify the accounting for derivatives and
hedges under SFAS No. 133. SFAS No. 138 is effective upon the Company's adoption
of SFAS No. 133 (January 1, 2001). The initial adoption of SFAS No.138 is not
expected to have a material impact on the Company's financial statements.
In September 2000, the FASB approved Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions. SFAS No. 140
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000.
8
<PAGE>
5. LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
--------------------- --------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars in thousands)
Mortgage loans:
--------------
<S> <C> <C> <C> <C>
Conventional one- to four-family loans.......... $ 289,049 69.08% $239,522 68.10%
Mortgage loans held for sale.................... 2,057 0.48 4,163 1.18
VA and FHA loans................................ 446 0.11 213 0.06
Home equity loans............................... 24,700 5.90 22,317 6.35
Residential construction loans.................. 19,361 4.62 18,222 5.18
Undisbursed portion of construction loans....... (7,988) (1.91) (8,399) (2.39)
--------- ------ -------- ------
Total mortgage loans......................... 327,625 78.29 276,037 78.48
--------- ------ -------- ------
Consumer and other loans:
------------------------
Commercial loans by type:
Non-farm and non-residential................. 29,752 7.11 23,820 6.77
One- to four-family residential.............. 1,831 0.44 1,961 0.56
Multi-family................................. 6,993 1.67 2,231 0.63
Farm......................................... 1,035 0.25 794 0.23
Acquisition, development and
construction................................ 2,238 0.53 5,074 1.44
Term loans................................... 1,894 0.45 338 0.10
Installment loans............................ 8,397 2.01 4,488 1.28
Demand loans................................. 318 0.08 335 0.10
Time loans................................... 1,155 0.28 729 0.21
SBA loans.................................... 287 0.07 205 0.06
Lines-of-credit.............................. 7,928 1.89 4,833 1.37
Loans and draws disbursed................ 62 0.01 327 0.09
Non-accrual.................................. 420 0.10 418 0.12
--------- ------ -------- ------
Total commercial loans....................... 62,310 14.89 45,553 12.95
Automobile...................................... 24,362 5.82 26,994 7.67
Student......................................... 137 0.03 195 0.06
Credit card..................................... 929 0.22 1,196 0.34
Other consumer loans............................ 3,092 0.75 1,747 0.50
--------- ------ -------- ------
Total consumer loans 28,520 6.82 30,132 8.57
--------- ------ -------- ------
Total consumer and other loans............... 90,830 21.71 75,685 21.52
--------- ------ -------- ------
Total loans.................................. 418,455 100.00% 351,722 100.00%
====== ======
Discount, premiums and deferred loan fees, net. ( 357) ( 460)
Allowance for loan losses...................... (2,426) (1,941)
--------- --------
Total loans, net............................. $ 415,672 $349,321
========= ========
</TABLE>
9
<PAGE>
6. NON-PERFORMING ASSETS
The following table sets forth information regarding non-accrual loans,
other past due loans and other real estate owned at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------ --------------------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans delinquent more
than 90 days................................................... $ 504 $ 693
Non-accrual other loans delinquent more than 90 days........... 534 521
------- -------
Total non-accrual loans........................................ 1,038 1,214
Total 90 days or more delinquent and still accruing............ 402 822
------- -------
Total non-performing loans..................................... 1,440 2,036
Total foreclosed real estate, net of related allowance for
losses....................................................... 533 415
------- -------
Total non-performing assets.................................... $ 1,973 $ 2,451
========= =======
Non-performing loans to total loans............................ 0.35% 0.58%
Total non-performing assets to total assets.................... 0.31% 0.41%
</TABLE>
7. ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the Company's allowance
for loan losses at and for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
----------------------------------------------- ---------------------------
2000 1999 1999
---------------------- ------------------------ ---------------------------
(Dollars in thousands)
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period............... $ 1,941 $ 1,727 $ 1,727
CHARGE-OFFS:
Real estate mortgage loans............. 29 157 157
Commercial loans....................... 51 160 161
Consumer loans......................... 59 42 54
------- ------- -------
Total charge-offs...................... 139 359 372
RECOVERIES:
Real estate mortgage loans............. 0 23 23
Commercial loans....................... 0 42 42
Consumer loans......................... 9 19 21
------- ------- -------
Total recoveries....................... 9 84 86
Provision for loan losses.................... 615 375 500
------- ------- -------
Balance at end of Period..................... $ 2,426 $ 1,827 $ 1,941
======= ======= =======
Ratio of net charge-offs during the period to
average loans outstanding.................... 0.03% 0.09% 0.10%
Ratio of allowance for loan losses to total
loans at end of period....................... 0.58% 0.57% 0.55%
Ratio of allowance for loan losses to non-
performing loans............................. 168.47% 116.54% 95.33%
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Warwick Community Bancorp, Inc. ("Company"), headquartered in Warwick, New
York, was incorporated in September 1997 under the laws of the State of Delaware
and is a bank holding company within the meaning of the Bank Holding Company Act
of 1956, as amended ("BHCA"). The Company elected to become a financial holding
company under the BHCA in October 2000. The primary business of the Company is
the operation of its subsidiaries, The Warwick Savings Bank, a New York State
chartered stock savings bank ("Savings Bank"), and The Towne Center Bank, a de
novo commercial bank formed by the Company under the laws of the State of New
Jersey, which opened for business on October 26, 1999 ("Commercial Bank"). While
the following discussion of financial condition and results of operations
includes the collective results of the Company, the Savings Bank and the
Commercial Bank, this discussion reflects primarily the Savings Bank's
activities. Unless otherwise disclosed, the information presented herein
reflects the financial condition and results of operations of the Company, the
Savings Bank and the Commercial Bank on a consolidated basis.
FINANCIAL CONDITION
For the nine-month period ending September 30, 2000, total assets of the
Company increased $47.1 million, or 7.9%, from $597.7 million at December 31,
1999 to $644.9 million at September 30, 2000. This increase in total assets was
primarily attributable to a $66.8 million, or 19.0%, increase in total loans,
which increased from $351.3 million at December 31, 1999 to $418.1 million at
September 30, 2000, and a $12.7 million, or 136.6%, increase in other assets,
which increased from $9.3 million at December 31, 1999 to $21.9 million at
September 30, 2000. These increases resulted from continued growth in the
mortgage and commercial loan portfolios and the purchase of $10.0 million in
bank owned life insurance policies. The Federal Home Loan Bank of New York
("FHLBNY") stock portfolio increased by $1.5 million in conjunction with both
the Company's larger asset size and the utilization of advances provided by the
FHLBNY to help fund the aforementioned asset growth. Offsetting these increases
was the $7.7 million decrease in Federal funds sold, which was used to purchase
the above-mentioned bank owned life insurance, and the decrease of $26.3 million
in securities available for sale. During the quarter ended September 30, 2000,
the Company sold approximately $17.8 million of its lower-yielding investment
securities, and $10.0 million of its higher-yielding callable instruments were
called, which helped reduce the Company's level of wholesale funding.
Deposits increased $59.6 million, or 21.1%, from $283.1 million at December
31, 1999, to $342.7 million at September 30, 2000. This increase was primarily
attributable to a $36.5 million increase in certificates of deposit, a $15.7
million increase in NOW and money market accounts, a $6.6 million increase in
savings accounts and an $807 thousand increase in non-interest-bearing accounts.
Included in the $36.5 million increase in certificates of deposit at September
30, 2000 were brokered deposits in the amount of $20.0 million. In conjunction
with these brokered deposits, the Bank entered into a hedging strategy with
interest rate swaps to limit its interest rate risk.
Borrowed funds, comprised primarily of securities sold under repurchase
agreements and FHLBNY advances, decreased $25.8 million, from $239.1 million at
December 31, 1999 to $213.3 million at September 30, 2000. Securities sold under
repurchase agreements decreased $20.5 million to $16.8 million and FHLBNY
advances decreased $5.3 million to $196.4 million at September 30, 2000 from
$201.7 million at December 31, 1999. These decreases were the result of the
aforementioned sale of investment securities which enabled the Company to reduce
its level of wholesale funding in order to improve future net interest margins.
11
<PAGE>
Total stockholders' equity increased by $3.6 million, or 5.4%, from $66.6
million at December 31, 1999 to $70.1 million at September 30, 2000. The
increase was primarily attributable to net income of $3.4 million for the nine
months ended September 30, 2000 and the $2.5 million increase in accumulated
other comprehensive income. The increase in total stockholders' equity was
partially offset by the $2.8 million in open market purchases of 258,214 shares
of the Company's outstanding common stock during the first quarter of 2000 in
conjunction with the Company's stock repurchase programs. The Company may
repurchase an additional 283,215 of its shares prior to December 22, 2000
pursuant to its fifth stock repurchase program, which was adopted in March,
2000. The increase in stockholders' equity was also partially offset by the
payment of quarterly cash dividends to shareholders amounting to $1.1 million,
which dividends were paid on March 30, 2000, June 30, 2000 and September 30,
2000.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
AVERAGE BALANCE SHEETS. The following tables set forth certain information
regarding the Company's average statements of financial condition and its
statements of income for the three months and nine months ended September 30,
2000 and 1999 and reflect the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs were derived by
dividing interest income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. The yields include deferred
fees and discounts, which are considered yield adjustments. Average balances
were computed based on month- end balances. Management believes the use of
average monthly balances instead of average daily balances does not have a
material effect on the information presented.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ---------- --------- ----------- --------- -----------
ASSETS: (Dollars in thousands)
------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net.................... $324,927 $ 6,214 7.65% $236,607 $4,379 7.40%
Consumer and other loans, net.......... 88,175 2,023 9.18 67,010 1,426 8.51
Mortgage-backed securities............. 93,262 1,642 7.04 94,302 1,682 7.13
Federal funds sold..................... -- -- -- -- -- --
Interest earning accounts at banks..... 1,140 18 6.32 432 5 4.63
Investment securities.................. 103,403 1,874 7.25 101,524 1,720 6.78
-------- -------- -------- ------
Total interest-earning assets.......... 610,907 11,771 7.71 499,875 9,212 7.37
-------- ------
Non-interest earning assets............ 44,759 33,319
-------- --------
Total assets........................... $655,666 $533,194
======== ========
LIABILITIES AND RETAINED EARNINGS:
---------------------------------
Interest-bearing liabilities:
Passbook accounts...................... $ 94,467 $ 681 2.88% $ 88,282 $ 566 2.56%
Escrow deposits........................ 9,800 49 2.00 8,400 42 2.00
NOW accounts .......................... 26,777 96 1.43 23,670 85 1.44
Money market accounts.................. 54,015 644 4.77 49,421 510 4.13
Certificate accounts................... 119,368 1,784 5.98 71,399 828 4.64
-------- -------- -------- ------
Total deposits......................... 304,427 3,254 4.28 241,172 2,031 3.37
Borrowed funds......................... 239,460 3,787 6.33 179,780 2,404 5.35
-------- -------- -------- ------
Total interest-bearing liabilities..... 543,887 7,041 5.18 420,952 4,435 4.21
-------- ------
Non-interest bearing liabilities.......... 45,730 38,414
-------- --------
Total liabilities...................... 589,617 459,366
Retained earnings......................... 66,049 73,828
-------- --------
Total liabilities and retained
earnings............................... $655,666 $533,194
======== ========
Net interest income/interest rate spread.. $ 4,730 2.53% $4,777 3.16%
======== ====== ====== =======
Net interest-earning assets/net
interest margin........................ $ 67,020 3.10% $ 78,923 3.82%
======== ====== ======== =======
Ratio of interest-earning assets to
interest-bearing liabilities............ 112.32% 118.75%
====== ======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------
2000 1999
---------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ---------- --------- ----------- ---------- ---------
ASSETS: (Dollars in thousands)
------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net.................... $305,118 $17,256 7.54% $221,087 $12,151 7.33%
Consumer and other loans, net.......... 84,409 5,730 9.05 61,107 3,900 8.51
Mortgage-backed securities............. 94,366 5,021 7.09 83,561 4,372 6.98
Federal funds sold..................... 364 13 4.75 -- -- --
Interest earning accounts at banks..... 741 6.11 481 17 4.71
34
Investment securities.................. 103,261 5,663 7.31 94,022 4,517 6.41
-------- ------- -------- -------
Total interest-earning assets....... 588,259 33,717 7.64 460,258 24,957 7.23
------- -------
Non-interest earning assets............ 44,421 28,262
-------- --------
Total assets........................ $632,680 $488,520
======== ========
LIABILITIES AND RETAINED EARNINGS:
---------------------------------
Interest-bearing liabilities:
Passbook accounts...................... $ 92,339 $ 1,927 2.78% $ 85,588 $ 1,706 2.66%
Escrow deposits........................ 110 2.00 6,200 93 2.00
7,333
NOW accounts .......................... 25,608 274 1.43 22,523 263 1.56
Money market accounts.................. 50,521 1,706 4.50 42,086 1,213 3.84
Certificate accounts................... 101,615 4,164 5.46 71,952 2,510 4.65
-------- ------- -------- ------
Total deposits......................... 277,416 8,181 3.93 228,349 5,785 3.38
Borrowed funds......................... 247,156 11,260 6.07 146,140 5,859 5.35
-------- ------- -------- -------
Total interest-bearing liabilities.. 524,572 19,441 4.94 374,489 11,644 4.15
------- -------
Non-interest bearing liabilities.......... 42,854 36,908
-------- --------
Total liabilities................... 567,426 411,397
Retained earnings......................... 65,254 77,123
-------- --------
Total liabilities and
retained earnings................... $632,680 $488,520
======== ========
Net interest income/interest rate spread.. $14,276 2.70% $13,313 3.08%
======= ====== ======= ======
Net interest-earning assets/net
interest margin........................ $ 63,687 3.24% $ 85,769 3.86%
======== ====== ======== ======
Ratio of interest-earning assets to
interest-bearing liabilities............ 112.14% 122.90%
====== ======
</TABLE>
14
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
Compared to Compared to
Three Months Ended Nine months ended
September 30, 1999 September 30, 1999
--------------------------------------------------------------------------------
Increase (Decrease) in Net Increase (Decrease) in Net
Interest Income Due to Interest Income Due to
--------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
--------------------------------------------------------------------------------
(In thousands) (In thousands)
INTEREST-EARNING ASSETS:
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans, net................. $1,635 $ 200 $1,835 $4,618 $ 487 $5,105
Consumer and other loans, net....... 450 147 597 1,487 343 1,830
Mortgage-backed securities.......... (19) (21) (40) 566 83 649
Federal funds sold.................. -- -- -- 13 ----- 13
Interest earning accounts at banks.. 8 5 13 9 8 17
Investment securities............... 32 122 154 444 702 1,146
------ ------ ------ ------ ----- ------
Total..................... 2,106 453 2,559 7,137 1,623 8,760
------ ------ ------ ------ ----- ------
INTEREST-BEARING LIABILITIES:
----------------------------
Passbook accounts................... 40 75 115 135 86 221
Escrow accounts..................... 7 -- 7 17 -- 17
NOW accounts........................ 11 -- 11 36 (25) 11
Money market accounts............... 47 87 134 243 250 493
Certificates of deposit............. 556 400 956 1,035 619 1,654
Borrowed funds...................... 798 585 1,383 4,050 1,351 5,401
------ ------ ------ ------ ----- ------
Total..................... 1,459 1,147 2,606 5,516 2,281 7,797
------ ------ ------ ------ ----- ------
Net change in net interest income... $ 647 $ (694) $ (47) $1,621 $ (658) $ 963
====== ====== ====== ====== ====== ======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
GENERAL. For the three months ended September 30, 2000, the Company
recognized net income of $1.4 million, or $0.28 per share, as compared to net
income of $936 thousand, or $0.17 per share, for the three months ended
September 30, 1999. During the quarter ended September 30, 2000, the Company
made a strategic decision to exit the mortgage loan servicing business by
contracting to sell nearly all of its rights to service mortgage loans held for
other investors and by transferring the servicing of its own mortgage portfolio
loans to an outside vendor. These actions are expected to enhance the Company's
future performance by improving net interest income and reducing operating
expenses in future periods. Non-interest income, net,
15
<PAGE>
increased by $631 thousand, or 52.1%, for the three months ended September 30,
2000, and non-interest expense decreased $131 thousand, or 3.0%. Net interest
income decreased by $47 thousand, or 1%.
INTEREST INCOME. Interest income amounted to $11.8 million for the three
months ended September 30, 2000, as compared to $9.2 million for the three
months ended September 30, 1999. This increase of $2.6 million, or 27.8%, was
primarily the result of the increase of $1.8 million in interest earned on the
Company's mortgage loan portfolio, the increase of $597 thousand in interest
earned on other loans and the increase of $114 thousand in interest and
dividends earned on securities, as compared to the respective amounts earned
over the three-month period ended September 30, 1999.
The increase in interest earned on the Company's mortgage loan portfolio
resulted primarily from the increase in the average yield of the portfolio to
7.65% for the three months ended September 30, 2000 from 7.40% for the three
months ended September 30, 1999, as well as the $88.3 million, or 37.3%,
increase in the average balances of mortgage loans to $324.9 million for the
three months ended September 30, 2000 as compared to $236.6 million for the
three months ended September 30, 1999. The increase in interest income on
consumer and other loans was primarily the result of the increase in average
balances of $21.2 million, or 31.6%, coupled with an increase in the average
yield of such portfolio to 9.18% from 8.51%.
The increase in interest and dividends earned on securities resulted mainly
from the increase in the average balances of investment securities, including
mortgage-backed securities, to $196.7 million for the three months ended
September 30, 2000, as compared to $195.8 million for the three months ended
September 30, 1999. This increase resulted largely from the Company's
securitization of mortgage loans it originated and the utilization of additional
wholesale leverage transactions in order to enhance earnings. As the
above-mentioned sale of investment securities did not occur until the later part
of September 2000, the full effect of such sale did not have a material impact
on the average balances during this quarter.
INTEREST EXPENSE. Interest expense for the three-month period ended
September 30, 2000 on total interest-bearing deposits and borrowed funds
increased by $2.6 million, as compared to the same three-month period one year
earlier, primarily as a result of the increase in the average costs and average
balances of interest- bearing deposits and borrowed funds. Over the same
periods, the average balances of total interest-bearing liabilities increased by
$122.9 million, or 29.2%, from $421.0 million to $543.9 million, which increase
was primarily associated with funding the Company's loan and securities growth.
NET INTEREST INCOME. Net interest income for the three months ended
September 30, 2000 decreased slightly, by 1.0%, as compared to the three months
ended September 30, 1999. Increases in the average balances and average yields
of the Company's loan and investment securities portfolios were offset by the
increase in the average balances and average costs of the Company's
interest-bearing liabilities. Interest rate spread decreased to 2.53% from
3.16%, and net interest margin decreased to 3.10% from 3.82%, respectively, for
the three-month period ended September 30, 2000, as compared to the three-month
period ended September 30, 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three
months ended September 30, 2000 and 1999 was $225 thousand and $125 thousand,
respectively. This provision is a result of management's assessment of the loan
portfolio, the level of the Company's allowance for loan losses and its
assessment of the local economy and market conditions.
NON-INTEREST INCOME. Non-interest income, net, for the three months ended
September 30, 2000 increased to $1.8 million, as compared to $1.2 million for
the three months ended September 30, 1999, primarily because of the Company's
previously mentioned strategic decision to exit the mortgage loan servicing
business during the later part of the quarter ended September 30, 2000. The
increase resulted from a $1.3 million
16
<PAGE>
increase in other income, a $316 thousand increase in income earned from loan
transactions, a $168 thousand increase in service and fee income and a $168
thousand increase in the cash surrender value of the bank owned life insurance
that was purchased by the Savings Bank early in the first quarter of 2000. The
increase in other income was due to the $1.4 million gain on the sale of
mortgage servicing rights discussed above. The increase in service and fee
income resulted primarily from deposit and loan account growth. The increase in
income from loan transactions was attributable to an increase in the number of
originated mortgage loans that were sold with servicing released in conjunction
with the Company's decision to exit the mortgage loan servicing business.
Partially offsetting these increases was the $1.1 million decrease in income
from securities transactions for the three months ended September 30, 2000, as
compared to the same period in 1999. This decrease resulted from the sale of
$17.8 million of lower-yielding investment securities consisting of earlier
years' residential mortgage loan originations that were subsequently
securitized.
NON-INTEREST EXPENSE. Non-interest expense decreased by $131 thousand for
the three-month period ended September 30, 2000 as compared to September 30,
1999. Salaries and employee benefits expense remained level for the three months
ended September 30, 2000. In connection with the Company's decision to exit the
mortgage loan servicing business, the Company recognized a one-time $165
thousand charge against current earnings for the staff reduction costs
associated with the positions to be eliminated. Offsetting this one- time charge
was the decrease in salary expense associated with the origination of mortgage
loans. Other expenses and advertising expenses decreased by $176 thousand and
$112 thousand, respectively. These decreases were attributable to reductions in
various volume-based and controllable expenses. Partially offsetting these
decreases was the increase in occupancy expense of $122 thousand for the three
months ended September 30, 2000, which increase was primarily attributable to
the new operations of the Commercial Bank and the Savings Bank's new branch in
Newburgh, New York.
PROVISION FOR INCOME TAXES. The increase in the provision for income taxes
for the three-month period ended September 30, 2000, as compared to the same
period ended September 30, 1999, was primarily attributable to the 41.5%
increase in pre-tax income and was partially offset by the implementation of a
tax- planning strategy during the latter half of 1999.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999
GENERAL. For the nine months ended September 30, 2000, the Company
recognized net income of $3.4 million, or $0.70 per share, as compared to net
income of $2.5 million, or $0.44 per share, for the nine months ended September
30, 1999. The increase was primarily attributable to increased interest income
generated from the continued growth in the Company's loan and securities
portfolios, as well as, the previously discussed actions taken by the Company
during the later part of the quarter ended September 30, 2000. Net interest
income and non-interest income increased $963 thousand and $685 thousand, or
7.2% and 20.4%, respectively, for the nine months ended September 30, 2000, and
was partially offset by a $433 thousand, or 3.6%, increase in non-interest
expense.
INTEREST INCOME. Interest income amounted to $33.7 million for the nine
months ended September 30, 2000, as compared to $25.0 million for the nine
months ended September 30, 1999. This increase of $8.8 million, or 35.1%, was
primarily the result of the $5.1 million increase in interest earned on the
Company's mortgage loan portfolio, the increase of $1.8 million in interest and
dividends earned on securities and the increase of $1.8 million in interest
earned on other loans, as compared to the respective amounts earned over the
nine-month period ended September 30, 1999.
The increase in interest earned on the Company's mortgage loan portfolio
resulted primarily from the increase in the average yield of the portfolio to
7.54% for the nine months ended September 30, 2000 from 7.33% for the nine
months ended September 30, 1999, as well as the $84.0 million, or 38.0%,
increase in the
17
<PAGE>
average balance of mortgage loans to $305.1 million for the nine months ended
September 30, 2000, as compared to $221.1 million for the nine months ended
September 30, 1999. The increase in interest income on consumer and other loans
was primarily the result of the increase in average balances of $23.3 million,
or 38.1%, coupled with an increase in the average yield of such portfolio to
9.05% from 8.51%.
The increase in interest and dividends earned on securities resulted mainly
from the increase in the average balances of investment securities, including
mortgage-backed securities, to $197.6 million for the nine months ended
September 30, 2000, as compared to $177.6 million for the nine months ended
September 30, 1999. This increase resulted largely from the Company's
securitization of mortgage loans it originated and the utilization of additional
wholesale leverage transactions in order to enhance earnings.
INTEREST EXPENSE. Interest expense over the nine-month period ended
September 30, 2000 on total interest-bearing deposits and borrowed funds
increased by $7.8 million when compared to the same nine-month period one year
earlier, primarily as a result of the increase in the average costs and average
balances of interest- bearing deposits and borrowed funds. Over the same
periods, the average balances of total interest-bearing liabilities increased by
$150.1 million, or 40.1%, from $374.5 million to $524.6 million, which increase
was primarily associated with funding the Company's loan and securities growth.
NET INTEREST INCOME. Net interest income for the nine months ended
September 30, 2000 increased $963 thousand, or 7.2%, to $14.3 million, as
compared to the nine months ended September 30, 1999, primarily as a result of
the increase in the average balances of the Company's loan and investment
securities portfolios. This increase was partially offset by the increase in the
average balances and average costs of the Company's interest- bearing
liabilities. Interest rate spread decreased to 2.70% from 3.08%, and net
interest margin decreased to 3.24% from 3.86%, respectively, for the nine-month
period ended September 30, 2000, as compared to the nine- month period ended
September 30, 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine
months ended September 30, 2000 and 1999 was $615 thousand and $375 thousand,
respectively. This provision is a result of management's assessment of the loan
portfolio, the level of the Company's allowance for loan losses and its
assessment of the local economy and market conditions.
NON-INTEREST INCOME. Non-interest income, net, for the nine months ended
September 30, 2000 increased to $4.1 million from $3.4 million for the nine
months ended September 30, 1999. This increase resulted from increases in other
income, service and fee income and income on loan transactions of $1.8 million,
$503 thousand and $305 thousand, respectively, which were partially offset by
the $1.9 million decrease in income from securities transactions for the nine
months ended September 30, 2000, as compared to the same period in 1999. The
increase in other income was from the $1.4 million gain on the sale of the
Company's serviced-for-others mortgage loan portfolio, as well as an increase of
$467 thousand in the cash surrender value of the bank owned life insurance that
was purchased by the Savings Bank early in the first quarter of 2000 and the
$214 thousand reduction of a previously recognized $82 thousand unrealized loss
on the valuation of residential mortgage loans held-for-sale at the lower of
cost or market, in accordance with the FASB's Statement No. 65, "Accounting for
Certain Mortgage Banking Activities." The increase in service and fee income was
primarily from deposit and loan account growth, as well as income generated from
the sales of mutual funds and tax-deferred annuities. The increase in income
earned from loan transactions was attributable to an increase in the number of
originated mortgage loans that were sold with servicing released in conjunction
with the Company's decision to exit the mortgage loan servicing business. The
decrease in income from securities transactions resulted from the sale of $17.8
million of lower-yielding securities as management restructured the Company's
balance sheet.
18
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense increased by $433 thousand for
the nine-month period ended September 30, 2000 as compared to September 30,
1999. Salaries and employee benefits expense grew by $478 thousand for the nine
months ended September 30, 2000. This is primarily the result of 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 Commercial
Bank and the Savings Bank's new full-service branch in Newburgh, New York. Also
reflected in salaries and employee benefits is the one-time charge of $165
thousand for staff reduction costs associated with the elimination of positions
due to the Company exiting the mortgage loan servicing business. Occupancy
expense and data processing expense increased $382 thousand and $106 thousand,
respectively, for the nine months ended September 30, 2000, which increases were
primarily attributable to the new operations of the Commercial Bank and the
Savings Bank's new branch. FDIC insurance increased $22 thousand for the nine
months ended September 30, 2000. Partially offsetting these increases were the
decreases in other expense, advertising expense and professional fees of $309
thousand, $240 thousand and $6 thousand, respectively, as the result of
reductions in various volume-based and controllable expenses.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
nine-month period ended September 30, 2000 remained at $1.7 million, even though
pre-tax income for the nine months ended September 30, 2000 increased 23.6%.
This is a result of the implementation of the previously mentioned tax-planning
strategy during the latter part of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is managed from a composite of customer deposits, from cash and
short-term interest-earning assets, from mortgage loans held for sale, from the
investment securities portfolio held available for sale and from the Company's
ability to borrow from the FHLBNY. At September 30, 2000, management had
utilized $16.8 million in repurchase agreements and $196.4 million in FHLBNY
advances to augment the Company's earnings, and management intends to enter into
additional transactions in order to leverage the Company's capital base further.
At September 30, 2000, the Company's total approved loan origination
commitments outstanding totaled $63.9 million. At the same time, the unadvanced
portion of residential construction loans totaled $8.0 million. Certificates of
deposit scheduled to mature in one year or less at September 30, 2000 totaled
$98.7 million. Based on historical experience, management believes that a
significant portion of such deposits will remain with the Company.
At September 30, 2000, the Company had cash and due from banks of $22.4
million and securities available for sale of $158.7 million. Management believes
these amounts, together with the Company's borrowing capabilities, to be more
than adequate to meet its short-term cash needs.
REGULATORY CAPITAL POSITION
The Savings Bank and the Commercial Bank are subject to minimum regulatory
capital requirements imposed by the Federal Deposit Insurance Corporation
("FDIC"), which requirements are, as a general matter, based on the amount and
composition of an institution's assets. Insured institutions in the strongest
financial and managerial condition, with a rating of 1 (the highest examination
rating of the FDIC under the Uniform Financial Institutions Rating System) are
required to maintain Tier 1 capital of not less than 3.0% of total assets (the
"leverage capital ratio"). For all other banks, the minimum leverage capital
ratio is 4.0%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the institution.
19
<PAGE>
At September 30, 2000, the Company exceeded the minimum regulatory capital
guidelines imposed by the Federal Reserve Board, which are substantially similar
to the requirements of the FDIC, with a Tier 1 capital level of $74.6 million,
or 11.38% of average assets, which is well above the required level of $26.2
million, or 4% of average assets. The Company's ratio of Tier 1 capital to
risk-weighted assets of 21.00% at September 30, 2000 is also well above the
required level of 4%. The Company's ratio of total capital to risk-weighted
assets is 21.78%, which is well above the required level of 8%. In addition, the
Savings Bank's and the Commercial Bank's capital ratios qualify each of them to
be treated as "well capitalized" for regulatory purposes. The following table
shows the Savings Bank's regulatory capital positions and ratios at September
30, 2000.
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
Amount Percent Amount Percent Amount Percent
--------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital..................
(to risk-weighted assets) $57,158 16.83% $27,176 8.00% $29,982 8.83%
Tier 1 Capital.................
(to risk-weighted assets) 54,562 16.06 13,588 4.00 40,974 12.06
Tier 1 Capital.................
(to average assets) 54,562 8.19 26,659 4.00 27,903 4.19
</TABLE>
The following table shows the Commercial Bank's regulatory capital positions and
ratios as of September 30, 2000.
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
Amount Percent Amount Percent Amount Percent
--------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital..................
(to risk-weighted assets) $ 5,271 48.94% $ 216 8.00% $ 5,055 40.94%
Tier 1 Capital.................
(to risk-weighted assets) 5,212 48.39 108 4.00 5,104 44.39
Tier 1 Capital.................
(to average assets) 5,212 28.72 261 4.00 4,951 24.72
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1999 in the Company's Annual Report on Form 10-K, which was filed
with the Commission on March 30, 2000. There have been no material changes in
the Company's market risk at September 30, 2000 as compared to December 31,
1999.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
20
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (submitted only with filing in electronic
format)
(b) Reports on Form 8-K
On October 18, 2000, the Company filed a Current Report on Form 8-K
disclosing that its Board of Directors had adopted a shareholder rights plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WARWICK COMMUNITY BANCORP, INC.
(Registrant)
Date: November 13, 2000 By: /s/ Ronald J. Gentile
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Ronald J. Gentile
President and Chief Operating Officer
Date: November 13, 2000 By: /s/ Arthur W. Budich
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Arthur W. Budich
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
27. Financial Data Schedule (submitted only with filing in electronic format)
23
