<PAGE> 1
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
or 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 No. 0-17222
WARREN BANCORP, INC.
(Exact Name of registrant as specified in the charter)
MASSACHUSETTS 04-3024165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 MAIN STREET, PEABODY, MASSACHUSETTS 01960
(Address of principal executive offices) (Zip Code)
(978) 531-7400
(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 report(s), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 6, 2000
--------------------------------------- -----------------------------------
Common Stock, par value $.10 per share 7,337,611
<PAGE> 2
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks (non-interest bearing) $ 15,035 $ 9,251
Money market funds and overnight investments 7,332 12,205
--------- ---------
Cash and cash equivalents 22,367 21,456
Investment and mortgage-backed securities available
for sale (amortized cost of $62,627 at September 30,
2000 and $75,367 at December 31, 1999) 62,484 75,363
Other investments (fair value of $7,284 at September 30,
2000 and $7,034 at December 31, 1999) 7,044 6,794
Loans held for sale 1,358 1,816
Loans 331,517 291,014
Allowance for loan losses (4,641) (4,271)
--------- ---------
Net loans 326,876 286,743
Banking premises and equipment, net 5,097 5,051
Accrued interest receivable 2,365 2,613
Other assets 2,657 2,411
--------- ---------
Total assets $ 430,248 $ 402,247
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 377,208 $ 355,534
Borrowed funds 11,439 7,510
Escrow deposits of borrowers 1,376 1,132
Accrued interest payable 488 512
Accrued expenses and other liabilities 2,930 1,915
--------- ---------
Total liabilities 393,441 366,603
--------- ---------
Stockholders' equity:
Preferred stock, $.10 par value; Authorized
- 10,000,000 shares;
Issued and outstanding - none -- --
Common stock, $.10 par value; Authorized
- 20,000,000 shares;
Issued - 8,094,414 shares at September 30, 2000
and December 31, 1999
Outstanding - 7,327,171 shares at September 30,
2000, and 7,333,211 shares at December 31, 1999 809 809
Additional paid-in capital 35,759 35,841
Retained earnings 6,668 5,305
Treasury stock, at cost, 767,243 shares at September 30,
2000 and 761,203 shares at December 31, 1999 (6,330) (6,304)
--------- ---------
36,906 35,651
Unrealized loss on securities available for sale, net of
income taxes (99) (7)
--------- ---------
Total stockholders' equity 36,807 35,644
--------- ---------
Total liabilities and stockholders' equity $ 430,248 $ 402,247
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in thousands, except per-share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans $ 7,019 $ 5,713 $ 20,066 $ 16,825
Interest and dividends on investments 1,145 1,213 3,618 3,764
Interest on mortgage-backed securities 235 271 705 885
-------- -------- -------- --------
Total interest and dividend income 8,399 7,197 24,389 21,474
-------- -------- -------- --------
Interest expense:
Interest on deposits 3,246 2,865 9,287 8,542
Interest on borrowed funds 107 84 274 235
-------- -------- -------- --------
Total interest expense 3,353 2,949 9,561 8,777
-------- -------- -------- --------
Net interest income 5,046 4,248 14,828 12,697
Provision for loan losses 114 36 342 69
-------- -------- -------- --------
Net interest income after provision for loan losses 4,932 4,212 14,486 12,628
Non-interest income:
Customer service fees 367 240 943 700
Gains on sales of investment securities 208 17 208 17
Gain on sale of fixed assets to a related party 376 -- 376 --
Gains on sales of mortgage loans 39 43 125 196
Other 1 1 4 (16)
-------- -------- -------- --------
Total non-interest income 991 301 1,656 897
-------- -------- -------- --------
Income before non-interest expense and income taxes 5,923 4,513 16,142 13,525
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits 1,756 1,702 5,266 4,793
Office occupancy and equipment 288 262 878 796
Professional services 45 56 125 169
Marketing 79 35 276 140
Real estate operations (income) 0 (68) -- (78)
Outside data processing 133 120 436 354
Other 500 464 1,415 1,320
-------- -------- -------- --------
Subtotal operating expenses 2,801 2,571 8,396 7,494
Expenses for formation of Warren Real Estate
Investment Corporation -- 87 -- 87
-------- -------- -------- --------
Total non-interest expenses 2,801 2,658 8,396 7,581
-------- -------- -------- --------
Income before income taxes 3,122 1,855 7,746 5,944
Income tax expense 1,081 593 2,578 2,028
-------- -------- -------- --------
Net income $ 2,041 $ 1,262 $ 5,168 $ 3,916
======== ======== ======== ========
Basic earnings per share $ 0.28 $ 0.17 $ 0.71 $ 0.53
======== ======== ======== ========
Diluted earnings per share $ 0.27 $ 0.17 $ 0.70 $ 0.51
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 5,168 $ 3,916
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 342 69
Depreciation and amortization 377 369
Deferred income tax expense -- 69
Amortization of premiums and discounts 27 487
(Gains) on sales of investment securities (208) (17)
(Gains) on sales of mortgage loans (125) (196)
(Gains) on sale of fixed assets (376) --
(Gains) on sale of real estate acquired by foreclosure -- (30)
Decrease in loans held for sale 458 203
Decrease in accrued interest receivable 248 393
(Increase) decrease in other assets (199) 209
(Decrease) in accrued interest payable (24) (95)
Increase in other liabilities and escrow deposits 1,261 690
-------- --------
Net cash provided by operating activities 6,949 6,067
-------- --------
Cash flows from investing activities:
Purchase of investment securities (22,925) (11,560)
Proceeds from sales of investment securities available for sale 2,204 17
Proceeds from maturities of investment securities 31,840 28,663
Proceeds from payments of mortgage-backed securities 1,552 4,864
Proceeds from sales of real estate acquired by foreclosure -- 91
Proceeds from sales of fixed assets 669 --
Net (increase) in loans (40,350) (11,971)
Purchases of premises and equipment (716) (448)
-------- --------
Net cash provided by (used in) investing activities (27,726) 9,656
-------- --------
Cash flows from financing activities:
Net increase in deposits 21,674 1,015
Net increase in other borrowed funds 3,929 180
Dividends paid (3,805) (3,942)
Purchase of treasury stock (183) (4,634)
Stock options exercised 73 91
-------- --------
Net cash provided by (used in) financing activities 21,688 (7,290)
-------- --------
Net increase in cash and cash equivalents 911 8,433
Cash and cash equivalents at beginning of period 21,456 12,039
-------- --------
Cash and cash equivalents at end of period $ 22,367 $ 20,472
======== ========
Cash paid during the period for:
Interest $ 9,585 $ 8,872
Income taxes $ 1,644 $ 1,580
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
INCOME STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------------- ------ ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $809 $35,710 $4,516 $799 ($1,913) $39,921
Comprehensive income:
Net income $3,916 -- -- 3,916 -- -- 3,916
Other comprehensive income (loss):
Unrealized loss on securities available
for sale, net of taxes (498) (498) (498)
------
Comprehensive income $3,418
======
Tax benefit of stock options exercised -- 13 -- -- -- 13
Dividends paid -- -- (3,942) -- -- (3,942)
Purchase of treasury stock (523,400 shares) -- -- -- -- (4,634) (4,634)
Issuance of 23,520 shares for exercise
of options -- (99) -- -- 190 91
---- ------- ------ ---- ------- --------
Balance at September 30, 1999 $809 $35,624 $4,490 $301 ($6,357) $34,867
Comprehensive income:
Net income $1,548 -- -- 1,548 -- -- 1,548
Other comprehensive income (loss):
Unrealized (loss) on securities available
for sale, net of taxes (308) (308) (308)
-------
Comprehensive income $1,240
=======
Tax benefit of stock options exercised -- 233 -- -- -- 233
Dividends paid -- -- (733) -- -- (733)
Issuance of 6,400 shares for exercise
of options -- (16) -- -- 53 37
---- ------- ------ ---- ------- --------
Balance at December 31, 1999 $809 $35,841 $5,305 ($7) ($6,304) $35,644
Comprehensive income:
Net income $5,168 -- -- 5,168 -- -- 5,168
Other comprehensive income (loss):
Unrealized gain on securities available
for sale, net of taxes 43
Less: Reclassification adjustment for
securities gains, net of tax expense of
$73, included in net income (135)
------
Total other comprehensive (loss) (92) -- -- -- (92) -- (92)
------
Comprehensive income $5,076
======
Tax benefit of stock options exercised -- 2 -- -- -- 2
Dividends paid -- -- (3,805) -- -- (3,805)
Purchase of treasury stock (25,000 shares) -- -- -- -- (183) (183)
Issuance of 18,960 shares for exercise
of options -- (84) -- -- 157 73
---- ------- ------ ---- ------- --------
Balance at September 30, 2000 $809 $35,759 $6,668 ($99) ($6,330) $36,807
==== ======= ====== ==== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
WARREN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements of Warren Bancorp, Inc. (the
"Corporation") presented herein should be read in conjunction with the
consolidated financial statements of the Corporation as of and for the year
ended December 31, 1999. The accompanying consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Corporation believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, the consolidated financial statements reflect all adjustments
necessary for a fair presentation of the results for the interim periods
presented.
EARNINGS PER SHARE
The components of basic and diluted EPS for the quarters and nine months
ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------
(In thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $2,041 $1,262 7,324 7,324 $0.28 $0.17
Effect of dilutive
stock options -- -- 123 214 (0.01) --
------ ------ ------ ------ ----- -----
Dilutive EPS $2,041 $1,262 7,447 7,538 $0.27 $0.17
====== ====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------
(In thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $5,168 $3,916 7,318 7,449 $0.71 $0.53
Effect of dilutive
stock options -- -- 109 199 (0.01) (0.02)
------ ------ ------ ------ ----- -----
Dilutive EPS $5,168 $3,916 7,427 7,648 $0.70 $0.51
====== ====== ====== ====== ===== =====
</TABLE>
1
<PAGE> 7
BUSINESS SEGMENTS
For internal reporting, planning and business purposes, the Corporation
segments its operations into distinct business groups. An individual business
group's profit contribution to the Corporation as a whole is determined based
upon the Corporation's profitability reporting system which assigns capital and
other balance sheet items and income statement items to each of the business
groups. This segmentation mirrors the Corporation's organizational structure.
Management accounting policies are in place for assigning revenues and expenses
that are not directly incurred by the business groups, such as overhead, the
results of asset allocations, and transfer revenues and expenses. Accordingly,
the Corporation's business-segment operating results will differ with other
similar information published by other financial institutions. In addition,
management accounting concepts are periodically refined and results may change
to reflect these refinements.
For purposes of this disclosure, operating segments are defined as
components of an enterprise that are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Corporation's chief operating decision maker is the President
and Chief Executive Officer of the Corporation. This disclosure has no effect on
the Corporation's primary financial statements.
The Corporation has identified its reportable operating business segments
as the Corporate Banking Business and the Personal Banking Business. A
description of each reportable business segment is discussed below:
CORPORATE BANKING
The Corporate Banking Business provides services to business customers in
the Corporation's market area. These services include, but are not limited to,
commercial real estate and construction loans, asset-based financing and cash
management/deposit services. It services all loans in its business.
PERSONAL BANKING
The Personal Banking Business provides services to consumers in the
Corporation's market area through its branch and ATM network. These services
include, but are not limited to, home equity loans, installment loans, safe
deposit boxes and an array of deposit services. This business purchases
adjustable-rate mortgage loans from another business group and services all
loans in its business.
Non-reportable operating segments of the Corporation's operations that do
not meet the qualitative and quantitative thresholds requiring disclosure are
included in the Other category in the disclosure of business segments below.
Revenues in these segments consist mainly of interest income on investments and
gains on sales of mortgage loans and securities.
2
<PAGE> 8
Specific reportable segment information as of and for the quarters and
nine-month periods ended September 30, 2000 and 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 2000
CORPORATE PERSONAL WARREN BANCORP
BANKING BANKING OTHER ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income-external $ 5,384 $ 2,914 $ 101 -- $ 8,399
Interest income-internal -- 2,514 17 $(2,531) --
Fee and other income 144 224 623 -- 991
Net income 1,195 724 122 -- 2,041
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1999
CORPORATE PERSONAL WARREN BANCORP
BANKING BANKING OTHER ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income-external $ 4,832 $ 2,341 $ 24 -- $ 7,197
Interest income-internal -- 2,310 7 $(2,317) --
Fee and other income 24 218 59 -- 301
Net income 1,011 629 (378) -- 1,262
</TABLE>
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
CORPORATE PERSONAL WARREN BANCORP
BANKING BANKING OTHER ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income-external $15,864 $ 8,308 $ 217 -- $24,389
Interest income-internal -- 7,345 63 $(7,408) --
Fee and other income 287 661 708 -- 1,656
Net income 3,415 2,188 (435) -- 5,168
</TABLE>
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
CORPORATE PERSONAL WARREN BANCORP
BANKING BANKING OTHER ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income-external $14,066 $ 7,262 $ 146 -- $21,474
Interest income-internal -- 6,629 27 $(6,656) --
Fee and other income 123 590 184 -- 897
Net income 3,051 1,904 (1,039) -- 3,916
</TABLE>
3
<PAGE> 9
RELATED-PARTY TRANSACTION
During the 2000 quarter, the Corporation sold a parcel of land and
building, which was the former location of the Bank's South Peabody branch
office, to a director of the Corporation. The cash sale for $675,000 resulted in
a gain of $376,000. The transaction was completed and transfer of title occurred
within the 2000 quarter. See "Non-Interest Income" under "Results of Operations
- For the Three Months Ended September 30, 2000 Compared to the Three Months
Ended September 30, 1999" and "Results of Operations - For the Nine Months Ended
September 30, 2000 compared to Nine Months Ended September 30, 1999" below.
4
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. The words "believe," "expect," "anticipate," "intend,"
"estimate," "plan," "assume" and other similar expressions which are predictions
of or indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Corporation and may cause the actual results, performance or achievements of
the Corporation to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements.
Certain factors that might cause such differences include, but are not
limited to, the following: interest rates may increase, adversely affecting the
ability of borrowers to repay adjustable-rate loans and the Corporation's
earnings and income which derive in significant part from loans to borrowers;
unemployment in the Corporation's market area may increase, adversely affecting
the ability of individual borrowers to repay loans; property values may decline,
adversely affecting the ability of borrowers to repay loans and the value of
real estate securing repayment of loans; and general economic and market
conditions in the Corporation's market area may decline, adversely affecting the
ability of borrowers to repay loans, the value of real estate securing repayment
of loans and the Corporation's ability to make profitable loans. Any of the
above may also result in lower interest income, increased loan losses,
additional charge-offs and writedowns and higher operating expenses. These and
other factors that might cause differences between actual and anticipated
results, performance and achievements are discussed in greater detail in this
Form 10-Q.
GENERAL
Warren Bancorp, Inc.'s operating results for the three and nine months
ended September 30, 2000 (the "2000 quarter" and "2000 period") reflect the
operations of its only subsidiary, Warren Five Cents Savings Bank (the "Bank").
The Bank, which is wholly owned by the Corporation, operates as a community bank
and is in the business of making individual and commercial loans to customers in
its market area.
The Corporation recorded an increased profit for the 2000 period as
compared to the nine months ended September 30, 1999 (the "1999 period")
primarily due to increased interest-rate spreads, due to generally higher
interest rates than in the 1999 period, increased asset levels, a gain on sale
of a parcel of land and building of the former location of the Bank's South
Peabody branch office, and a gain on sale of a preferred equity security, which
was called. When general interest rates increase, the yield on the Bank's total
assets will typically increase more than its cost of funds. This is mainly
because certain sources of funds, namely demand deposits and stockholders'
equity, do not bear interest, and other sources of funds at already low interest
rates may not have their rates increased at the same rate as the Bank's assets.
Reductions in general interest rates may reduce the Bank's interest-rate spread
and net yield on average earning assets.
Nonperforming loans decreased by $1,421,000 to $126,000 during the 2000
period. Management continues to monitor the nonperforming loan portfolio
closely. If conditions in the Massachusetts' real estate market become unstable
and values deteriorate, the amount of nonaccrual loans and real estate acquired
by foreclosure would be expected to increase, resulting in lower interest income
and increased loan losses, which could require additional loan loss provisions
to be charged to operating income. Moreover, the Corporation may acquire real
estate through foreclosure, which may give rise to additional charge-offs and
writedowns and higher expenses for property taxes and other carrying costs.
ASSET/LIABILITY MANAGEMENT
A primary objective of the Corporation's asset/liability management policy
is to manage interest-rate risk over time to achieve a prudent level of net
interest income in changing interest-rate environments. Management's strategies
are intended to be responsive to changes in interest rates and to recognize
market demands for particular types of deposit and loan products. These
strategies are
5
<PAGE> 11
overseen by an internal Asset/Liability Management Committee and by the Bank's
Board of Directors, and the risks are managed with techniques such as simulation
analysis, which measures the effect on net interest income of possible changes
in interest rates, and "gap" analysis, using models similar to the one shown on
the following page.
The Corporation uses simulation analysis to measure exposure of net
interest income to changes in interest rates over a one-year period. This period
is measured because the Corporation is most vulnerable to changes in short-term
(one year and under) rates. Simulation analysis involves projecting future
interest income and expense under various rate scenarios. The Corporation's
policy on interest-rate risk specifies that if short-term interest rates were to
shift immediately up or down 100 basis points, estimated net interest income for
the next 12 months should decline by less than 17%. This policy remained in
effect during the period, and in management's opinion there were no material
changes in interest rate risk since December 31, 1999, the date as of which the
simulation analysis was performed. Certain shortcomings are inherent in a
simulation analysis. Estimates of customer behavior to changing interest rates
may differ significantly from actual. Areas of these estimates include loan
prepayment speeds, shifting between adjustable-rate and fixed-rate loans, and
activity within different categories of deposit products. Also, the ability of
some borrowers to repay their adjustable-rate loans may decrease in the event of
interest-rate increases.
The following table summarizes the Corporation's interest-rate sensitivity
position as of September 30, 2000. Assets and liabilities are classified as
interest-rate sensitive if they have a remaining term to maturity of 0-12
months, or are subject to interest-rate adjustments within those time periods.
Adjustable-rate loans and mortgage-backed securities are shown as if the entire
balance came due on the repricing date. Nonaccruing loans are not included in
this analysis due to their status as non-earning assets. Estimates of fixed-rate
loan and fixed-rate mortgage-backed security amortization and prepayments are
included with rate sensitive assets. The following types of deposit accounts are
assumed to have effective maturities as follows based on their past retention
characteristics: NOW accounts-up to five years; cash manager and passbook plus
accounts-up to six months; and regular savings accounts-up to greater than five
years. None of these assets is considered a trading asset.
6
<PAGE> 12
INTEREST-RATE SENSITIVITY POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
0-3 3-6 6-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Investment securities .................... $ 28,365 $ 5,561 $ 4,990 $ 23,966 $ --
Loans held for sale ...................... 1,358 -- -- -- --
Adjustable-rate loans .................... 87,990 10,287 31,796 145,856 --
Fixed-rate loans ......................... 1,758 886 3,808 36,155 12,982
Mortgage-backed securities ............... 1,935 1,743 4,804 3,225 727
-------- -------- -------- -------- --------
Total interest sensitive assets ....... 121,406 18,477 45,398 209,202 13,709
-------- -------- -------- -------- --------
INTEREST SENSITIVE LIABILITIES:
Cash manager and passbook plus
accounts ................................ 22,735 22,735 -- -- --
Time deposits ............................ 44,010 45,771 26,226 46,254 --
Other deposits(a)......................... 12,145 11,688 23,792 86,561 9,848
Borrowings ............................... 8,768 -- 14 2,019 638
-------- -------- -------- -------- --------
Total interest sensitive liabilities .. 87,658 80,194 50,032 134,834 10,486
-------- -------- -------- -------- --------
Excess (deficiency) of interest sensitive
assets over interest sensitive
liabilities ............................. $ 33,748 $(61,717) $ (4,634) $ 74,368 $ 3,223
======== ======== ======== ======== ========
Excess of cumulative
interest sensitive assets over cumulative
interest sensitive liabilities .......... $ 33,748 $(27,969) $(32,603) $ 41,765 $ 44,988
======== ======== ======== ======== ========
Cumulative interest sensitive assets
as a percentage of cumulative
interest sensitive liabilities .......... 138.5% 83.3% 85.0% 111.8% 112.4%
======== ======== ======== ======== ========
Cumulative excess as a
percentage of total assets .............. 7.8% (6.5)% (7.6)% 9.7% 10.5%
======== ======== ======== ======== ========
</TABLE>
----------
(a) Other deposits consist of regular savings and N.O.W. accounts.
Interest-rate sensitivity statistics are static measures that do not
necessarily take into consideration external factors which might affect the
sensitivity of assets and liabilities and consequently cannot be used alone to
predict the operating results of a financial institution in a changing
environment. However, these measurements do reflect major trends and thus the
Corporation's sensitivity to interest rates changes over time.
LIQUIDITY
The Bank seeks to ensure sufficient liquidity is available to meet cash
requirements while earning a return on liquid assets. The Bank uses its
liquidity primarily to fund loan and investment commitments, to supplement
deposit flows and to meet operating expenses. The primary sources of liquidity
are interest and amortization from loans, mortgage-backed securities and
investments, sales and maturities of investments, loan sales, deposits and
Federal Home Loan Bank of Boston ("FHLBB") advances, which include a $15 million
overnight line of credit. The Bank also has access to the Federal Reserve Bank's
discount window and may borrow from the Depositors Insurance Fund Liquidity
Fund. During the 2000 period, the Bank did not use the Federal Reserve Bank
discount window and did not borrow from the Depositors Insurance Fund Liquidity
Fund.
7
<PAGE> 13
The Bank also uses the longer term borrowings facilities within its total
available credit line with the FHLBB. Advances from the FHLBB, none of which
were from the overnight facility, were $2,671,000 at September 30, 2000.
During 2000, the primary sources of liquidity for the Bank were $21.7
million increase in deposits, loan paydowns and amortization of $80.6 million,
proceeds from maturities of investment securities of $31.8 million and proceeds
from paydowns of mortgage-backed securities of $1.6 million. Primary uses of
funds were $130.3 million in residential, commercial real estate and commercial
loan originations and $22.9 million to purchase investment securities. At
September 30, 2000, the Bank had $7.3 million in overnight investments.
From time to time, the Bank has obtained time deposits in denominations of
$100,000 and over. The following table summarizes maturities of time deposits of
$100,000 or more outstanding at September 30, 2000:
Within One Year (IN THOUSANDS)
---------------
Less than 3 months......................... $ 7,128
3 to 6 months.............................. 9,766
6 to 12 months............................. 2,834
--------
19,728
More than 12 months........................ 8,946
--------
$ 28,674
========
The primary source of liquidity for Warren Bancorp, Inc. (the bank holding
company) is dividends from the Bank. The primary uses of this liquidity are
dividends paid and stock repurchases.
CAPITAL ADEQUACY
Total stockholders' equity at September 30, 2000 was $36.8 million, an
increase of $1.2 million from $35.6 million at December 31, 1999. This change
was primarily due to earnings offset by $3.8 million of dividends paid to
shareholders and a $183,000 increase in treasury stock due to the Corporation's
stock repurchase program. Included in stockholders' equity at September 30, 2000
is an unrealized loss on securities available for sale, which decreased
stockholders' equity, of $99,000 as compared to an unrealized loss at December
31, 1999 of $7,000. Future interest-rate increases could reduce the fair value
of these securities and reduce stockholders' equity. As a percentage of total
assets, stockholders' equity was 8.55% at September 30, 2000 compared to 8.86%
at December 31, 1999.
At September 30, 2000, neither the Federal Reserve Board ("FRB") nor the
FDIC permitted the unrealized loss to be used in their calculation of Tier I
capital.
The FRB's leverage capital-to-assets guidelines require the strongest and
most highly rated bank holding companies to maintain at least a 3.00% ratio of
Tier I capital to average consolidated assets. All other bank holding companies
are required to maintain at least 4.00% to 5.00%, depending on how the FRB
evaluates their condition. The FRB may require a higher capital ratio. At
September 30, 2000, the FRB leverage capital ratio was 8.70% compared to 8.94%
at December 31, 1999.
The FDIC's leverage capital-to-assets ratio guidelines are substantially
similar to those adopted by the FRB and described above. At September 30, 2000,
the Bank's leverage capital ratio, under FDIC guidelines, was 8.38% compared to
8.58% at December 31, 1999.
The FRB and the FDIC have also imposed risk-based capital requirements on
the Corporation and the Bank, respectively, which give different risk weightings
to assets and to off-balance sheet assets such as loan commitments and loans
sold with recourse. Both the FRB and FDIC guidelines require the Corporation and
the Bank to have an 8.00% risk-based capital ratio. The Corporation's and the
Bank's risk-based capital ratios were 11.56% and 11.17%, respectively, at
September 30, 2000 compared to 11.80% and 11.28% at December 31, 1999, thus
exceeding their risk-based capital requirements.
8
<PAGE> 14
As of September 30, 2000, the Bank's total risk-based capital ratio, Tier I
risk-based capital ratio and leverage capital ratio were 11.17%, 9.92%, and
8.38%, respectively. Based on these capital ratios, the Bank is considered to be
"well capitalized."
FINANCIAL CONDITION
The Corporation's total assets increased to $430.2 million at September 30,
2000 from $402.2 million at December 31, 1999. Increases occurred in residential
mortgages, commercial real estate and commercial loans and were partially offset
by decreases in commercial construction loans and investments available for
sale.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investments, consisting of investment securities and mortgage-backed
securities available for sale, and other investments, decreased to $69.5 million
at September 30, 2000 from $82.2 million at December 31, 1999. A majority of
this decrease was from the maturity of corporate notes, as well as a call of a
$2.0 million preferred equity security. Mortgage-backed securities decreased to
$12.4 million at September 30, 2000 from $14.0 million at December 31, 1999 due
to principal paydowns. Future increases in interest rates could reduce the value
of these investments.
INVESTMENTS AT SEPTEMBER 30, 2000 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
Fixed income mutual funds .......... $ 28,706 $ 69 $ (113) $ 28,662
FNMA mortgage-backed securities .... 8,765 258 -- 9,023
GNMA mortgage-backed securities .... 3,669 -- (96) 3,573
U.S. Government and related
obligations ....................... 7,614 15 -- 7,629
Corporate notes .................... 8,559 1 (6) 8,554
Preferred stock .................... 5,314 16 (287) 5,043
-------- -------- -------- --------
62,627 359 (502) 62,484
-------- -------- -------- --------
OTHER
Foreign government bonds and
notes ............................ 1,250 -- -- 1,250
Stock in Federal Home Loan Bank
of Boston ........................ 4,110 -- -- 4,110
Stock in Depositors Insurance Fund
Liquidity Fund ................... 108 -- -- 108
Stock in Savings Bank Life Insurance
Company of Massachusetts ......... 1,576 240 -- 1,816
-------- -------- -------- --------
7,044 240 -- 7,284
-------- -------- -------- --------
$ 69,671 $ 599 $ (502) $ 69,768
======== ======== ======== ========
</TABLE>
LOANS AND LOANS HELD FOR SALE
Loans and loans held for sale increased by $40.0 million during the 2000
period to $332.9 million at September 30, 2000. This increase is the result of
increases in residential, commercial real estate and commercial loans.
Commercial real estate, commercial construction and commercial loans typically
earn higher yields than residential mortgage loans, but usually carry higher
risk due to loan size.
9
<PAGE> 15
The following table sets forth the classification of the Corporation's
loans as of September 30, 2000 and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Residential mortgages ............................... $ 83,142 $ 52,209
Commercial real estate .............................. 174,656 167,221
Commercial construction ............................. 12,887 19,590
Commercial loans .................................... 37,088 29,446
Consumer loans ...................................... 23,744 22,548
-------- --------
$331,517 $291,014
======== ========
</TABLE>
Residential mortgage loan originations during the 2000 period were $52.1
million compared to $30.8 million in the 1999 period. The Corporation originated
$10.6 million in fixed-rate loans during the 2000 period compared to $19.4
million during the 1999 period. Adjustable-rate loans totaling $41.5 million
were originated during the 2000 period compared to $11.4 million during the 1999
period. The Corporation sold loans totaling $10.6 million during the 2000 period
compared to $18.3 million sold in the 1999 period. At September 30, 2000, the
Corporation held $1.4 million of fixed-rate residential mortgage loans for sale
compared to $1.8 million at December 31, 1999.
CREDIT QUALITY
IMPAIRED AND NONPERFORMING LOANS
Loans are deemed by the Corporation to be impaired when, based on current
information and events, it is probable that the Corporation will be unable to
collect all amounts due according to the contractual terms of the original loan
agreement. Generally, nonaccruing loans are deemed impaired. Large groups of
homogeneous loans, such as smaller balance residential mortgage and consumer
installment loans are collectively evaluated for impairment. Typically, the
minimum delay in receiving payments according to the contractual terms of the
loan that can occur before a loan is considered impaired is ninety days.
Impaired loans are analyzed and categorized by level of credit risk and
collectibility in order to determine their related allowance for loan losses. At
September 30, 2000 there were two loans considered impaired and performing
totaling $1,003,000 compared to none considered impaired and performing at
December 31, 1999.
Loans past due 90 days or more, or past due less than 90 days but in
nonaccrual status were $126,000 at September 30, 2000 compared to $1.5 million
at December 31, 1999. There are no loans considered impaired and nonperforming
at September 30, 2000. There was one loan considered impaired and nonperforming
at December 31, 1999 in the amount of $329,000. Accrual of interest on loans is
discontinued either when a reasonable doubt exists as to that the full, timely
collection of principal or interest or when the loans become contractually past
due by ninety days or more, unless they are adequately secured and are in the
process of collection.
When a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period interest income. Income on
such loans is recognized to the extent that cash is received and where the
ultimate collection of principal and interest is probable. Following collection
procedures, the Corporation generally institutes appropriate action to foreclose
the property or acquire it by deed in lieu of foreclosure.
The table below details nonperforming loans at:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accruing loans 90 days or more in arrears $ 126 $ 633
Nonaccrual loans .................................... 0 914
------ ------
Total nonperforming loans ........................... $ 126 $1,547
====== ======
Percentage of nonperforming loans to:
Total loans ......................................... 0.04% 0.53%
====== ======
Total assets ........................................ 0.03% 0.38%
====== ======
</TABLE>
10
<PAGE> 16
ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses
for the nine months ended September 30, 2000 and September 30, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Balance at beginning of period .......................... $ 4,271 $ 4,023
------- -------
Losses charged to the allowance:
Residential mortgage ................................ -- 12
Commercial mortgage and construction ................ -- --
Commercial loans .................................... 14 --
Consumer loans ...................................... 8 44
------- -------
22 56
------- -------
Loan recoveries:
Residential mortgage ................................ 17 23
Commercial mortgage and construction ................ 1 80
Commercial loans .................................... 17 42
Consumer loans ...................................... 15 23
------- -------
50 168
------- -------
Net recoveries .......................................... (28) (112)
------- -------
Provision for loan losses charged to income ............ 342 69
------- -------
Balance at end of period ................................ $ 4,641 $ 4,204
======= =======
Allowance to total loans at end of period ............... 1.40% 1.50%
======= =======
Allowance to nonperforming loans at end of period ....... 3683.3% 334.4%
======= =======
Allocation of ending balance:
Residential mortgage ................................ $ 781 $ 423
Commercial mortgage and construction ................ 3,066 3,118
Commercial loans .................................... 562 455
Consumer loans ...................................... 232 208
------- -------
$ 4,641 $ 4,204
======= =======
</TABLE>
Notwithstanding the foregoing allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans. Loan losses
are charged against the allowance when management believes that the
collectibility of the loan principal is doubtful.
Balances in the allowance for loan losses are determined on a periodic
basis by management and the Loan Committee of the Board of Directors with
assistance from an independent credit review consulting firm. Loan loss
allocations are based on the conditions of each loan, whether performing or
non-performing, including collectibility, collateral adequacy and the general
condition of the borrowers, economic conditions, delinquency statistics, market
area activity, the risk factors associated with each of the various loan
categories and the borrower's adherence to the original terms of the loan.
Individual loans, including loans considered impaired, are analyzed and
categorized by level of credit risk and collectibility. In determining the
allowance, management uses specific estimated losses on certain problem loans,
loss factors determined for each category of credit risk using historical
charge-off statistics and factors that consider economic condition and trends.
The associated provision for loan losses is the amount required to bring the
allowance for loan losses to the balance considered necessary by management at
the end of the period after accounting for the effect of loan charge-offs (which
decrease the allowance) and loan-loss recoveries (which increase the allowance).
The allowance for loan losses included above attributable to $1.0 million of
impaired loans, all of which is measured using the fair value method, is
$108,000.
11
<PAGE> 17
The required allowance for loan losses could increase in future periods if
the condition of the loan portfolio deteriorates or if the balance of the
portfolio increases. Such an increase in the allowance could require additional
provisions for loan losses to be charged to income.
LEGAL AND OFF-BALANCE SHEET RISKS
Various legal claims arise from time to time in the course of business of
the Corporation and its subsidiaries. At September 30, 2000, there were no legal
claims against the Corporation or its subsidiaries.
The Corporation is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations of interest rates.
These financial instruments include commitments to originate loans, unused lines
of credit, standby letters of credit, recourse arrangements on sold assets and
forward commitments to sell loans. The financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets.
OTHER ASSETS
Included in other assets at September 30, 2000 and December 31, 1999 are
$1.7 million and $1.6 million, respectively, of deferred income taxes
receivable.
LIABILITIES
Deposits increased to $377.2 million at September 30, 2000 from $355.5
million at December 31, 1999.
The following table sets forth the classification of the Corporation's
deposits as of September 30, 2000 and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Noninterest bearing ....................... $ 25,443 $ 19,019
NOW ....................................... 45,099 36,784
Money market .............................. 45,470 37,235
Savings ................................... 98,935 99,909
Time ...................................... 162,261 162,587
-------- --------
$377,208 $355,534
======== ========
</TABLE>
Federal Home Loan Bank of Boston advances were $2.7 million at September
30, 2000 and December 31, 1999. Securities sold under agreement to repurchase
were $8.8 million at September 30, 2000 and $4.8 million at December 31, 1999.
12
<PAGE> 18
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
GENERAL
The Corporation recorded a profit for the 2000 quarter of $2.0 million
compared to a profit for the 1999 quarter of $1.3 million. The increase in the
2000 quarter profit is primarily due to increased spreads, due to generally
higher interest rates as compared to the 1999 quarter, increased asset levels, a
gain on sale of a parcel of land and building of the former location of the
Bank's South Peabody branch office, and a gain on sale of a preferred equity
security, which was called.
Net interest income for the 2000 and 1999 quarters was $5.0 million and
$4.2 million, respectively. The weighted average interest rate spread for the
2000 quarter was 4.78% compared to 4.34% for the 1999 quarter. The net yield on
average earning assets was 4.98% for the 2000 quarter and 4.51% for the 1999
quarter. The return on average assets and the return on average stockholders'
equity were 1.93% and 22.80%, respectively, for the 2000 quarter compared to
1.28% and 14.66%, respectively, for the 1999 quarter.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $8.4 million for the 2000
quarter from $7.2 million for the 1999 quarter. Interest on loans increased to
$7.0 million for the 2000 quarter from $5.7 million for the 1999 quarter. The
average loan yield increased to 8.65% for the 2000 quarter from 8.33% for the
1999 quarter and average loans outstanding increased during the 2000 quarter as
compared to the 1999 quarter. Interest and dividends on investments was $1.1
million for the 2000 quarter and $1.2 million in the 1999 quarter. The average
amount of investments held decreased while the average yield on investments
increased to 6.60% for the 2000 quarter from 5.54% for the 1999 quarter.
Mortgage-backed securities income decreased to $235,000 in the 2000 quarter from
$271,000 in the 1999 quarter primarily due to a decrease in the average amount
of mortgage-backed securities held due to paydowns.
INTEREST EXPENSE
Interest on deposits increased to $3.2 million for the 2000 quarter from
$2.9 million for the 1999 quarter. The average balance of deposits increased in
the 2000 quarter and the average cost of deposits increased to 3.47% for the
2000 quarter from 3.26% for the 1999 quarter. Interest on borrowed funds and
escrow deposits of borrowers increased to $107,000 from $84,000 for the 2000 and
1999 quarters, respectively. The average cost decreased to 3.46% for the 2000
quarter from 3.66% in the 1999 quarter.
NON-INTEREST INCOME
Total non-interest income for the 2000 quarter was $991,000 compared to
$301,000 for the 1999 quarter. Customer service fees increased to $367,000 in
the 2000 quarter from $240,000 in the 1999 quarter due to commercial real estate
loan prepayment fees. The gain from the sale of mortgage loans was $39,000 in
the 2000 quarter compared to $43,000 in the 1999 quarter. Non-interest income
also included two aforementioned items in the 2000 quarter. One was a gain of
$208,000 resulting from a call of a preferred equity security. The other was a
gain of $376,000 from the sale of a parcel of land and building of the former
location of the Bank's South Peabody branch office (see "Related-Party
Transaction" above).
NON-INTEREST EXPENSE
Total non-interest expense increased to $2.8 million in the 2000 quarter
from $2.7 million in the 1999 quarter. The 1999 quarter included expenses
incurred in the formation of a real estate investment trust ("REIT") of $87,000.
Salaries and benefits increased due to salaries and benefit increases for
existing staff and increases in staff. Occupancy and equipment increased in the
2000 quarter to $288,000 from $262,000 in the 1999 quarter due to expenses
associated with the new location of the South Peabody branch. Marketing costs
increased with additional emphasis being given to the Corporation's marketing
and sales efforts. Other expenses contained $50,000 of nonrecurring expense for
the 2000 quarter while salaries and employee benefits contained $50,000 of
nonrecurring expense in the 1999 quarter.
13
<PAGE> 19
INCOME TAX EXPENSE
The Corporation's tax rate increased to 34.6% in the 2000 quarter from
32.0% in the 1999 quarter mainly due to a higher percentage of income taxed at a
higher state tax rate.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
GENERAL
The Corporation recorded a profit for the 2000 period of $5.2 million
compared to a profit for the 1999 period of $3.9 million. The increase in the
2000 period is primarily due to increased spreads, due to generally higher
interest rates as compared to the 1999 period, increased asset levels, a gain on
sale of a parcel of land and building of the former location of the Bank's South
Peabody branch office, and a gain on sale of a preferred equity security, which
was called.
Net interest income for the 2000 and 1999 periods were $14.8 million and
$12.7 million, respectively. The weighted average interest rate spread for the
2000 period was 4.75% compared to 4.30% for the 1999 period. The net yield on
average earning assets was 4.97% for the 2000 period and 4.54% for the 1999
period. The return on average assets and the return on average stockholders'
equity were 1.67% and 19.46%, respectively, for the 2000 period compared to
1.34% and 14.48%, respectively, for the 1999 period.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $24.4 million for the 2000
period from $21.5 million for the 1999 period. Interest on loans increased to
$20.1 million for the 2000 period from $16.8 million for the 1999 period.
Average loans outstanding increased during the 2000 period and the average loan
yield increased to 8.63% for the 2000 period compared to 8.34% for the 1999
period. Interest and dividends on investments was $3.6 and $3.8 million for the
2000 and 1999 periods, respectively. The average amount of investments held
decreased while the average yield on investments increased to 6.40% for the 2000
period from 5.62% for the 1999 period. Mortgage-backed securities income
decreased to $705,000 in the 2000 period from $885,000 in the 1999 period
primarily due to a decrease in the average amount of mortgage-backed securities
held due to paydowns.
INTEREST EXPENSE
Interest on deposits increased to $9.3 million for the 2000 period from
$8.5 million for the 1999 period. This increase was related to an increase in
the average cost of deposits to 3.40% for the 2000 period from 3.31% for the
1999 period as well as an increase in average total deposits outstanding.
Interest on borrowed funds and escrow deposits of borrowers increased to
$274,000 in the 2000 period from $235,000 for the 1999 period. The average cost
decreased to 3.57% in the 2000 period from 3.62% in the 1999 period while the
average balances increased.
NON-INTEREST INCOME
Total non-interest income for the 2000 period was $1.7 million compared to
$897,000 for the 1999 period. Customer service fees increased to $943,000 in the
2000 period from $700,000 in the 1999 period due to commercial real estate loan
prepayment fees and increased letters-of-credit fees. The gain from the sale of
mortgage loans was $125,000 in the 2000 period compared to $196,000 in the 1999
period. Because the Corporation sells fixed-rate loans that it originates, and
because fewer fixed-rate loans were originated in the 2000 period, gains on sale
of mortgage loans decreased. Non-interest income also included two
aforementioned items in the 2000 period. One was a gain of $208,000 resulting
from a call of a preferred equity security. The other was a gain of $376,000
from the sale of a parcel of land and building of the former location of the
Bank's South Peabody branch office (see "Related-Party Transaction" above).
14
<PAGE> 20
NON-INTEREST EXPENSE
Total non-interest expense was $8.4 million in the 2000 period and $7.6
million in the 1999 period. The 1999 period included expenses incurred in the
formation of a REIT of $87,000. Salary and employee benefits were $5.3 million
in the 2000 period and $4.8 million for the 1999 period, respectively. Salaries
and benefits increased in compensation and benefits for existing staff as well
as additions to staff. Occupancy and equipment increased in the 2000 period to
$878,000 from $796,000 in the 1999 period due to expenses associated with the
new location of the South Peabody branch. Marketing costs increased with
additional emphasis being given for the Corporation's marketing and sales
efforts. Nonrecurring expenses in the 2000 period occurred in outside data
processing expense in the amount of $43,000 and other expense in the amount of
$50,000. Salaries and benefits expense in the 1999 period included a
nonrecurring expense of $50,000.
INCOME TAX EXPENSE
The Corporation's tax rate decreased in the 2000 period to 33.3% from 34.1%
in the 1999 period mainly because the tax benefit of forming the REIT is
realized for entire 2000 period and only realized in the third quarter in the
1999 period. The tax benefit of the REIT in the 2000 period is partially offset
by a higher percentage of income subject to a higher state tax rate.
15
<PAGE> 21
WARREN BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
27.1 Financial Data Schedule - 2000
16
<PAGE> 22
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.
WARREN BANCORP, INC.
DATE: November 6, 2000 By: /s/ John R. Putney
-----------------------------------------
John R. Putney
President and
Chief Executive Officer
DATE: November 6, 2000 By: /s/ Paul M. Peduto
-----------------------------------------
Paul M. Peduto
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
17
