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Provident New York Bancorp · S-4 · On 6/25/04

Filed On 6/25/04 12:51pm ET   ·   SEC File 333-116851   ·   Accession Number 1188112-4-975

  in   Show  and 
  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 6/25/04  Provident New York Bancorp        S-4                    4:310                                    Tri State Fina..Press/FA

Registration of Securities Issued in a Business-Combination Transaction   ·   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Registration of Securities Issued in a               304  1,320K 
                          Business-Combination Transaction                       
 2: EX-23.3     Consent of Experts or Counsel                          2      7K 
 3: EX-23.4     Consent of Experts or Counsel                          2      7K 
 4: EX-23.5     Consent of Experts or Counsel                          2      6K 


S-4   ·   Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
4How to Get Copies of Related Documents
5Table of Contents
11Summary
"What This Document Is About
"The Warwick Community Bancorp Annual Meeting
12The Companies
13The Merger
27Questions and Answers About the Voting Procedures for the Annual Meeting
29Selected Consolidated Historical Financial Data of Provident Bancorp, Inc
33Selected Consolidated Historical Financial Data of Warwick Community Bancorp, Inc
35Warwick Savings
36Selected Consolidated Unaudited Pro Forma Financial Data
"Unaudited Pro Forma Condensed Consolidated Financial Information
37Unaudited Pro Forma Condensed Consolidated Balance Sheet
39Unaudited Pro Forma Condensed Consolidated Statements of Income
42Comparative Pro Forma Per Share Data
43Risks Related to the Merger
"You May Not Receive the Form of Merger Consideration that You Elect
"Provident Bancorp May Fail to Realize the Anticipated Benefits of the Merger
44Because the Market Price of Provident Bancorp Common Stock May Fluctuate, You Cannot Be Sure of the Value of the Merger Consideration That You Will Receive
"Warwick Community Bancorp Stockholders Who Make Elections Will Be Unable to Sell Their Shares in the Market After Making Their Election
"Warwick Community Bancorp Directors and Officers Have Interests in the Merger Besides Those of A Stockholder
45Provident Bancorp May Not Receive Required Regulatory Approvals. Such Approvals, If Received, May Be Subject to Adverse Regulatory Conditions
"Risks About Provident Bancorp
"Our Commercial Real Estate, Commercial Business and Construction Loans Expose Us to Increased Credit Risks
46Changes in the Value of Goodwill Could Reduce Our Earnings
"We May Have Difficulty Managing Our Growth, Which May Divert Resources and Limit Our Ability to Successfully Expand Our Operations
47Provident Bancorp's Financial Success Depends on the Successful Integration of Its Recent Acquisitions
"The Issuance of Shares and Cash to the Charitable Foundation Will Adversely Affect Net Income in 2004
48Our Continuing Concentration of Loans in Our Primary Market Area May Increase Our Risk
"If Our Allowance for Loan Losses Is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could Decrease
49Changes in Market Interest Rates Could Adversely Affect Our Financial Condition and Results of Operations
"Strong Competition Within Our Market Area May Limit Our Growth and Profitability
50We Operate in A Highly Regulated Environment and We May Be Adversely Affected by Changes in Laws and Regulations
"The Implementation of Stock-Based Benefit Plans May Dilute Your Ownership Interest
51Our Recognition and Retention Plan Will Increase Our Costs, Which Will Reduce Our Profitability and Stockholders' Equity
"We May Be Required to Change the Way We Recognize Expense for Our Stock Options
"A Breach of Information Security Could Negatively Affect Our Earnings
52Various Factors May Make Takeover Attempts More Difficult to Achieve
"Risks Related to Prior Independent Registered Public Accounting Firm of Warwick Community Bancorp
54Cautionary Statement Regarding Forward-Looking Statements
56The Warwick Community Bancorp, Inc. Annual Meeting
"Matters to Be Considered
"Proxies
57Solicitation of Proxies
58Record Date
"Voting Rights and Vote Required
59Recommendation of the Board of Directors
"Attending the Warwick Community Bancorp Annual Meeting
"Participants in Warwick Community Bancorp's and Warwick Savings' Benefit Plans
"Security Ownership of Certain Beneficial Owners of Warwick Community Bancorp
60Beneficial Stock Ownership of Management
62Information About the Companies
65Proposal I -- the Proposed Merger
"General
"Background of the Merger
68Warwick Community Bancorp's Reasons for the Merger; Recommendation of Warwick Community Bancorp's Board of Directors
72Opinion of Warwick Community Bancorp, Inc.'s Financial Advisor
77Comparable Company Analysis
84Provident Bancorp's Reasons for the Merger
86Merger Consideration; Cash or Stock Election
"Merger Consideration
89Election Procedures; Surrender of Stock Certificates
91Treatment of Warwick Community Bancorp Stock Options
92Employee Matters
"Interests of Directors and Officers in the Merger
95Conduct of Business Pending the Merger
97Payment of Special Cash Dividend
"Representations and Warranties
98Conditions to the Merger
99Regulatory Approvals Required for the Merger
101No Solicitation
102Termination; Amendment; Waiver
104Management and Operations After the Merger
"Effective Date of Merger
"Public Trading Markets
105Warwick Community Bancorp Rights Agreement
"Provident Bancorp Dividends
106Fees and Expenses
"Material United States Federal Income Tax Consequences of the Merger
109Additional Considerations -- Recharacterization of Gain as a Dividend
111Material United States Federal Income Tax Consequences of the Merger to Participants in the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan and the 401(k) Savings Plan
113Resale of Provident Bancorp Common Stock
"Accounting Treatment
"Dissenters' Rights of Appraisal
119Warwick Community Bancorp Stock Trading and Dividend Information
120Provident Bancorp Stock Trading and Dividend Information
124Description Of Capital Stock Of Provident Bancorp
125Provisions of the Provident Bancorp Certificate of Incorporation and Bylaws
126Limitation of Voting Rights
127Business Combinations With Interested Stockholders
128Business Combination Statutes and Provisions
129Proposal Ii - Election of Directors
"Information As to Nominees and Continuing Directors
130Continuing Directors
"Nominees for Election As Directors
132Board Meetings, Board Committees and Corporate Governance Matters
136Audit Committee Report
137Relationship with Independent Registered Public Accounting Firm
138Independent Auditing Firm Fees
"Change in Auditors
139Directors Compensation
"Fee Arrangements
140Compensation Committee Interlocks and Insider Participation
"Compensation Committee Report on Executive Compensation
143Performance Graph
144Executive Compensation
"Summary Compensation Table
145Aggregated Option/Sar Exercises in Last Fiscal Year and Fy-End Option/Sar Values
"Other Compensation Plans and Arrangements
146Pension Plan
147Pension Plan Table(1)
"Supplemental Executive Retirement Plan
148Transactions With Certain Related Persons
"Compliance With Section 16(A) of the Exchange Act
"Equity Compensation Plan Information Table
149Proposal Iii - Ratification of Appointment of Independent Registered Public Accounting Firm
150Additional Information
151Experts
"Legal Opinions
152Other Matters
"Where You Can Find More Information
160Article I Certain Definitions
"1.1. Certain Definitions
166Article Ii the Merger
"2.1. Merger
1672.2. Closing; Effective Time
"2.3. Certificate of Incorporation and Bylaws
"2.4. Directors and Officers of Surviving Corporation
"2.5. Additional Directors of Pbi and Provident Bank
"2.6. Effects of the Merger
1682.7. Tax Consequences
"2.8. Possible Alternative Structures
"2.9. Additional Actions
169Article Iii Conversion of Shares
"3.1. Conversion of Wcbi Common Stock; Merger Consideration
1703.2. Election Procedures
1743.3. Procedures for Exchange of Wcbi Common Stock
1753.4. Treatment of Wcbi Options
1763.5. Bank Mergers
"3.6. Reservation of Shares
"Article Iv Representations and Warranties of Wcbi
1774.1. Standard
"4.2. Organization
1784.3. Capitalization
1794.4. Authority; No Violation
1804.5. Consents
"4.6. Financial Statements
1814.7. Taxes
1824.8. No Material Adverse Effect
"4.9. Material Contracts; Leases; Defaults
1834.10. Ownership of Property; Insurance Coverage
1844.11. Legal Proceedings
"4.12. Compliance With Applicable Law
1854.13. Employee Benefit Plans
1884.14. Brokers, Finders and Financial Advisors
1894.15. Environmental Matters
1904.16. Loan Portfolio
1924.17. Securities Documents
"4.18. Related Party Transactions
"4.19. Deposits
"4.20. Antitakeover Provisions Inapplicable; Required Vote
1934.21. Registration Obligations
"4.22. Risk Management Instruments
"4.23. Fairness Opinion
"4.24. Intellectual Property
1944.25. Trust Accounts
"4.26. Labor Matters
"4.27. Wcbi Information Supplied
"Article V Representations and Warranties of Pbi
1955.1. Standard
"5.2. Organization
1965.3. Capitalization
"5.4. Authority; No Violation
1975.5. Consents
"5.6. Financial Statements
1985.7. Taxes
"5.8. No Material Adverse Effect
1995.9. Ownership of Property; Insurance Coverage
"5.10. Legal Proceedings
"5.11. Compliance With Applicable Law
2015.12. Employee Benefit Plans
2025.13. Environmental Matters
2035.14. Loan Portfolio
2045.15. Securities Documents
"5.16. Deposits
"5.17. Antitakeover Provisions Inapplicable
"5.18. Risk Management Instruments
"5.19. Brokers, Finders and Financial Advisors
2055.20. Pbi Common Stock
"5.21. Material Contracts; Leases, Defaults
"5.22. Pbi Information Supplied
"Article Vi Covenants of Wcbi
"6.1. Conduct of Business
2106.2. Current Information
2116.3. Access to Properties and Records
"6.4. Financial and Other Statements
2126.5. Maintenance of Insurance
"6.6. Disclosure Supplements
"6.7. Consents and Approvals of Third Parties
2136.8. All Reasonable Efforts
"6.9. Failure to Fulfill Conditions
"6.10. No Solicitation
2146.11. Reserves and Merger-Related Costs
"6.12. Board of Directors and Committee Meetings
215Article Vii Covenants of Pbi
"7.1. Conduct of Business
"7.2. Current Information and Consultation
"7.3. Financial and Other Statements
2167.4. Disclosure Supplements
"7.5. Consents and Approvals of Third Parties
"7.6. All Reasonable Efforts
"7.7. Failure to Fulfill Conditions
"7.8. Employee Benefits
2197.9. Directors and Officers Indemnification and Insurance
2207.10. Stock Listing
"7.11. Stock and Cash Reserve
"7.12. Section 16(B) Exemption
221Article Viii Regulatory and Other Matters
"8.1. Meetings of Stockholders
"8.2. Proxy Statement-Prospectus; Merger Registration Statement
2228.3. Regulatory Approvals
"8.4. Affiliates
223Article Ix Closing Conditions
"9.1. Conditions to Each Party's Obligations Under This Agreement
2249.2. Conditions to the Obligations of Pbi Under This Agreement
"9.3. Conditions to the Obligations of Wcbi Under This Agreement
225Article X the Closing
"10.1. Time and Place
"10.2. Deliveries at the Pre-Closing and the Closing
226Article Xi Termination, Amendment and Waiver
"11.1. Termination
22711.2. Effect of Termination
22811.3. Amendment, Extension and Waiver
229Article Xii Miscellaneous
"12.1. Confidentiality
"12.2. Public Announcements
"12.3. Survival
"12.4. Notices
23012.5. Parties in Interest
"12.6. Complete Agreement
23112.7. Counterparts
"12.8. Severability
"12.9. Governing Law
"12.10. Interpretation
"12.11. Specific Performance
297Item 20. Indemnification of Directors and Officers
298Item 21. Exhibits and Financial Statement Schedules
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 2004 REGISTRATION NO. 333-_____________ ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PROVIDENT BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 6712 (State or other jurisdiction of (Primary Standard Industrial incorporation or organization) Classification Code Number) 80-0091851 (I.R.S. Employer Identification Number) 400 RELLA BOULEVARD MONTEBELLO, NEW YORK 10901 (845) 369-8040 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) GEORGE STRAYTON 400 RELLA BOULEVARD MONTEBELLO, NEW YORK 10901 (845) 369-8040 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies to: JOHN J. GORMAN, ESQ. EDWARD D. HERLIHY, ESQ. NED QUINT, ESQ. WACHTELL, LIPTON, ROSEN & KATZ LUSE GORMAN POMERENK & SCHICK, P.C. 51 WEST 52ND STREET 5335 WISCONSIN AVENUE, N.W., SUITE 400 NEW YORK, NEW YORK 10019 WASHINGTON, D.C. 20015 PHONE: (212) 403-1000 PHONE: (202) 274-2000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X] If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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· Enlarge/Download Table CALCULATION OF REGISTRATION FEE ========================================= ================== ==================== ==================== ===================== PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE ----------------------------------------- ------------------ -------------------- -------------------- --------------------- Common Stock, $0.01 par value per share 7,910,000 shares (1) $157,007,604 (1) $19,893 ========================================= ================== ==================== ==================== ===================== (1) Calculated based upon the payment of shares of common stock and cash for the cancellation of shares of common stock and the cancellation of stock options pursuant to the merger between Provident Bancorp, Inc. and Warwick Community Bancorp, Inc. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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[Provident Bancorp, Inc. Logo] [Warwick Community Bancorp, Inc. Logo] MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT The boards of directors of Provident Bancorp, Inc. and Warwick Community Bancorp, Inc. have both unanimously approved the merger of Warwick Community Bancorp with and into Provident Bancorp. If the merger is completed, Warwick Community Bancorp stockholders will have the opportunity to elect to receive in exchange for each share of Warwick Community Bancorp common stock they own immediately prior to completion 2.7810 shares of Provident Bancorp common stock, a cash payment of $32.26, or a combination of shares of Provident Bancorp common stock and cash. However, because 50% of the total number of shares of Warwick Community Bancorp common stock outstanding at the closing will be converted into Provident Bancorp common stock and the remaining 50% of the outstanding shares will be converted into cash (subject to a potential adjustment to preserve the intended federal income tax treatment of the merger), regardless of your election, you may receive a combination of cash and shares of Provident Bancorp common stock for your Warwick Community Bancorp shares that is different than what you elected depending on the elections made by other Warwick Community Bancorp stockholders. Based on the closing price of $_____ per share of Provident Bancorp common stock on __________, 2004, each share of Warwick Community Bancorp common stock that is exchanged solely for Provident Bancorp common stock would be converted into 2.7810 shares of Provident Bancorp common stock having an implied value of $_________. The market price of Provident Bancorp common stock will fluctuate over time, which will cause the implied value of the stock component of the merger consideration to fluctuate. You should obtain current market quotations for the shares of both companies from a newspaper, the internet or your broker. Provident Bancorp common stock is listed on the Nasdaq National Market under the symbol "PBCP." Warwick Community Bancorp common stock is listed on the Nasdaq National Market under the symbol "WSBI." We expect that the merger will generally be tax-free to you with respect to any Provident Bancorp common stock that you receive and will generally be taxable to you with respect to any cash that you receive. The merger cannot be completed unless the stockholders of Warwick Community Bancorp approve the merger agreement. Warwick Community Bancorp has scheduled an annual meeting so its stockholders can vote on the merger agreement, as well as vote on the election of three directors and ratify the appointment of Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. Warwick Community Bancorp's board of directors unanimously recommends that its stockholders vote "FOR" the merger agreement, "FOR" Warwick Community Bancorp's nominees to the Warwick Community Bancorp board of directors and "FOR" the ratification of KPMG LLP as its independent registered public accounting firm for the year ending December 31, 2004. Warwick Community Bancorp will hold its annual meeting of stockholders on ___________, 2004, at _____a.m., at ___________________, ________________, ______________, New York. This document describes the annual meeting, the merger, the documents related to the merger, and other related matters. WE URGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION TITLED "RISKS RELATED TO THE MERGER" BEGINNING ON PAGE 33. YOU CAN ALSO OBTAIN INFORMATION ABOUT OUR COMPANIES FROM DOCUMENTS THAT WE HAVE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Warwick Community Bancorp annual meeting, please take the time to vote by completing and mailing the enclosed proxy card to us. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote "FOR" the merger agreement and the other proposals being considered at the annual meeting. If you do not return the proxy card, it will have the same effect as a vote against the merger agreement. THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, NOR ANY OTHER BANK REGULATORY AGENCY, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Proxy Statement/Prospectus is dated ___________, 2004 and is first being mailed to stockholders of Warwick Community Bancorp on or about ___________, 2004.
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HOW TO GET COPIES OF RELATED DOCUMENTS This document incorporates important business and financial information about Provident Bancorp, Inc. and Warwick Community Bancorp, Inc. that is not included in or delivered with this document. Warwick Community Bancorp stockholders may receive the information free of charge by writing or calling the persons listed below. For Provident Bancorp documents, make your request to Provident Bancorp, Inc., 400 Rella Boulevard, Montebello, New York 10901, Attention: Roberta Lennett; telephone number (845) 369-8082. For Warwick Community Bancorp documents, make your request to Barbara A. Rudy-Moore, Senior Vice President, Shareholder Relations, Warwick Community Bancorp, Inc., P.O. Box 591, Warwick, New York 10990-0591; telephone number (845) 986-2206. We will respond to your request within one business day by sending the requested documents by first class mail or other equally prompt means. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF WARWICK COMMUNITY BANCORP'S STOCKHOLDERS' MEETINGS, ANY REQUEST SHOULD BE MADE BY _________, 2004. ALSO SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 142.
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· Enlarge/Download Table TABLE OF CONTENTS HOW TO GET COPIES OF RELATED DOCUMENTS............................................................................i SUMMARY...........................................................................................................1 WHAT THIS DOCUMENT IS ABOUT....................................................................................1 THE WARWICK COMMUNITY BANCORP ANNUAL MEETING...................................................................1 THE COMPANIES..................................................................................................2 THE MERGER.....................................................................................................3 QUESTIONS AND ANSWERS ABOUT THE VOTING PROCEDURES FOR THE ANNUAL MEETING..............................................................................................17 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PROVIDENT BANCORP, INC........................................19 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF WARWICK COMMUNITY BANCORP, INC................................23 SELECTED CONSOLIDATED UNAUDITED PRO FORMA FINANCIAL DATA.........................................................26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..............................................26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET......................................................27 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME...............................................29 COMPARATIVE PRO FORMA PER SHARE DATA..........................................................................32 RISKS RELATED TO THE MERGER......................................................................................33 RISKS RELATED TO THE MERGER...................................................................................33 YOU MAY NOT RECEIVE THE FORM OF MERGER CONSIDERATION THAT YOU ELECT...........................................33 PROVIDENT BANCORP MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER..................................33 BECAUSE THE MARKET PRICE OF PROVIDENT BANCORP COMMON STOCK MAY FLUCTUATE, YOU CANNOT BE SURE OF THE VALUE OF THE MERGER CONSIDERATION THAT YOU WILL RECEIVE................................................34 WARWICK COMMUNITY BANCORP STOCKHOLDERS WHO MAKE ELECTIONS WILL BE UNABLE TO SELL THEIR SHARES IN THE MARKET AFTER MAKING THEIR ELECTION........................................................34 WARWICK COMMUNITY BANCORP DIRECTORS AND OFFICERS HAVE INTERESTS IN THE MERGER BESIDES THOSE OF A STOCKHOLDER........................................................................................34 PROVIDENT BANCORP MAY NOT RECEIVE REQUIRED REGULATORY APPROVALS. SUCH APPROVALS, IF RECEIVED, MAY BE SUBJECT TO ADVERSE REGULATORY CONDITIONS..............................................................................35 RISKS ABOUT PROVIDENT BANCORP.................................................................................35 OUR COMMERCIAL REAL ESTATE, COMMERCIAL BUSINESS AND CONSTRUCTION LOANS EXPOSE US TO INCREASED CREDIT RISKS....35 CHANGES IN THE VALUE OF GOODWILL COULD REDUCE OUR EARNINGS....................................................36 WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH MAY DIVERT RESOURCES AND LIMIT OUR ABILITY TO SUCCESSFULLY EXPAND OUR OPERATIONS.........................................................................................36 PROVIDENT BANCORP'S FINANCIAL SUCCESS DEPENDS ON THE SUCCESSFUL INTEGRATION OF ITS RECENT ACQUISITIONS........37 THE ISSUANCE OF SHARES AND CASH TO THE CHARITABLE FOUNDATION WILL ADVERSELY AFFECT NET INCOME IN 2004.........37 OUR CONTINUING CONCENTRATION OF LOANS IN OUR PRIMARY MARKET AREA MAY INCREASE OUR RISK.............................................................................................38 IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO COVER ACTUAL LOAN LOSSES, OUR EARNINGS COULD DECREASE...38 ii
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· Enlarge/Download Table CHANGES IN MARKET INTEREST RATES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....39 STRONG COMPETITION WITHIN OUR MARKET AREA MAY LIMIT OUR GROWTH AND PROFITABILITY..............................39 WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY CHANGES IN LAWS AND REGULATIONS...................................................................................................40 THE IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP INTEREST............................40 OUR RECOGNITION AND RETENTION PLAN WILL INCREASE OUR COSTS, WHICH WILL REDUCE OUR PROFITABILITY AND STOCKHOLDERS' EQUITY..........................................................................................41 WE MAY BE REQUIRED TO CHANGE THE WAY WE RECOGNIZE EXPENSE FOR OUR STOCK OPTIONS...............................41 A BREACH OF INFORMATION SECURITY COULD NEGATIVELY AFFECT OUR EARNINGS.........................................41 VARIOUS FACTORS MAY MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE..........................................42 RISKS RELATED TO PRIOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF WARWICK COMMUNITY BANCORP.............42 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................................................44 THE WARWICK COMMUNITY BANCORP, INC. ANNUAL MEETING...............................................................46 MATTERS TO BE CONSIDERED......................................................................................46 PROXIES.......................................................................................................46 SOLICITATION OF PROXIES.......................................................................................47 RECORD DATE...................................................................................................48 VOTING RIGHTS AND VOTE REQUIRED...............................................................................48 RECOMMENDATION OF THE BOARD OF DIRECTORS......................................................................49 ATTENDING THE WARWICK COMMUNITY BANCORP ANNUAL MEETING........................................................49 PARTICIPANTS IN WARWICK COMMUNITY BANCORP'S AND WARWICK SAVINGS' BENEFIT PLANS................................49 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF WARWICK COMMUNITY BANCORP..................................49 INFORMATION ABOUT THE COMPANIES..................................................................................52 PROPOSAL I -- THE PROPOSED MERGER................................................................................55 GENERAL.......................................................................................................55 BACKGROUND OF THE MERGER......................................................................................55 WARWICK COMMUNITY BANCORP'S REASONS FOR THE MERGER; RECOMMENDATION OF WARWICK COMMUNITY BANCORP'S BOARD OF DIRECTORS.....................................................................................................58 OPINION OF WARWICK COMMUNITY BANCORP, INC.'S FINANCIAL ADVISOR................................................62 PROVIDENT BANCORP'S REASONS FOR THE MERGER....................................................................74 MERGER CONSIDERATION; CASH OR STOCK ELECTION..................................................................76 ELECTION PROCEDURES; SURRENDER OF STOCK CERTIFICATES..........................................................79 TREATMENT OF WARWICK COMMUNITY BANCORP STOCK OPTIONS..........................................................81 EMPLOYEE MATTERS..............................................................................................82 INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER.............................................................82 CONDUCT OF BUSINESS PENDING THE MERGER........................................................................85 PAYMENT OF SPECIAL CASH DIVIDEND..............................................................................87 REPRESENTATIONS AND WARRANTIES................................................................................87 CONDITIONS TO THE MERGER......................................................................................88 REGULATORY APPROVALS REQUIRED FOR THE MERGER..................................................................89 NO SOLICITATION...............................................................................................91 TERMINATION; AMENDMENT; WAIVER................................................................................92 MANAGEMENT AND OPERATIONS AFTER THE MERGER....................................................................94 EFFECTIVE DATE OF MERGER......................................................................................94 iii
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· Enlarge/Download Table PUBLIC TRADING MARKETS........................................................................................95 WARWICK COMMUNITY BANCORP RIGHTS AGREEMENT....................................................................95 PROVIDENT BANCORP DIVIDENDS...................................................................................95 FEES AND EXPENSES.............................................................................................96 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER..........................................96 RESALE OF PROVIDENT BANCORP COMMON STOCK.....................................................................103 ACCOUNTING TREATMENT.........................................................................................103 DISSENTERS' RIGHTS OF APPRAISAL..............................................................................103 WARWICK COMMUNITY BANCORP STOCK TRADING AND DIVIDEND INFORMATION.............................................109 PROVIDENT BANCORP STOCK TRADING AND DIVIDEND INFORMATION.....................................................110 DESCRIPTION OF CAPITAL STOCK OF PROVIDENT BANCORP............................................................114 PROVISIONS OF THE PROVIDENT BANCORP CERTIFICATE OF INCORPORATION AND BYLAWS..................................115 BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS...........................................................117 BUSINESS COMBINATION STATUTES AND PROVISIONS.................................................................118 PROPOSAL II - ELECTION OF DIRECTORS.............................................................................119 GENERAL......................................................................................................119 INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS..........................................................119 NOMINEES FOR ELECTION AS DIRECTORS...........................................................................120 CONTINUING DIRECTORS.........................................................................................121 BOARD MEETINGS, BOARD COMMITTEES AND CORPORATE GOVERNANCE MATTERS............................................122 AUDIT COMMITTEE REPORT.......................................................................................126 RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..............................................127 GENERAL......................................................................................................127 INDEPENDENT AUDITING FIRM FEES...............................................................................128 CHANGE IN AUDITORS...........................................................................................128 DIRECTORS COMPENSATION.......................................................................................129 FEE ARRANGEMENTS.............................................................................................129 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..................................................130 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION......................................................130 PERFORMANCE GRAPH............................................................................................133 EXECUTIVE COMPENSATION.......................................................................................134 SUMMARY COMPENSATION TABLE...................................................................................134 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES.............................135 OTHER COMPENSATION PLANS AND ARRANGEMENTS....................................................................135 PENSION PLAN TABLE(1)........................................................................................137 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.......................................................................137 TRANSACTIONS WITH CERTAIN RELATED PERSONS....................................................................138 COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT............................................................138 EQUITY COMPENSATION PLAN INFORMATION TABLE...................................................................138 PROPOSAL III - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..........................................................................139 ADDITIONAL INFORMATION..........................................................................................140 EXPERTS.........................................................................................................141 LEGAL OPINIONS..................................................................................................141 OTHER MATTERS...................................................................................................142 WHERE YOU CAN FIND MORE INFORMATION.............................................................................142 iv
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· Enlarge/Download Table APPENDICES A. Agreement and Plan of Merger by and between Provident Bancorp, Inc. and Warwick Community Bancorp, Inc. dated March 15, 2004...............................................................A-1 B. Opinion of Sandler O'Neill & Partners, L.P.................................................................B-1 C. Section 262 of the Delaware General Corporation Law........................................................C-1 D. Warwick Community Bancorp, Inc. Audit Committee Charter....................................................D-1 E. Warwick Community Bancorp, Inc. Nominating Committee Charter...............................................E-1 F. Index to Consolidated Financial Statements of E.N.B. Holding Company, Inc..................................F-1 v
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WARWICK COMMUNITY BANCORP, INC. 18 OAKLAND AVENUE WARWICK, NEW YORK 10990 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held on __________, 2004 NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Warwick Community Bancorp, Inc. will be held at ___________________, ___________________, __________, New York, on __________, 2004 at ________ a.m., local time, for the following purposes: 1. To consider and vote on a proposal to approve the Agreement and Plan of Merger, by and between Provident Bancorp, Inc. and Warwick Community Bancorp, Inc., dated as of March 15, 2004, and all of the matters contemplated in the agreement, pursuant to which Warwick Community Bancorp will merge with and into Provident Bancorp, with Provident Bancorp being the surviving corporation; 2. To elect three persons to serve as directors of Warwick Community Bancorp until the merger with Provident Bancorp is consummated or, if the merger is not consummated, for a term of three years each; 3. To ratify the appointment of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004; and such other matters as may properly come before the Warwick Community Bancorp annual meeting or any adjournment or postponement of the meeting, including any proposal to approve the adjournment of the annual meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to approve the proposals. As of the date of this Proxy Statement/Prospectus, management of Warwick Community Bancorp is not aware of any other business to be considered. We more fully describe the merger with Provident Bancorp and the other proposals in the attached Proxy Statement/Prospectus, which you should read carefully and in its entirety before voting. A copy of the merger agreement is included as APPENDIX A to the accompanying Proxy Statement/Prospectus. We have established __________, 2004 as the record date for determining the stockholders entitled to notice of and to vote at the annual meeting. Only record holders of Warwick Community Bancorp common stock as of the close of business on that date will be entitled to vote at the annual meeting or any adjournment or postponement of the meeting. If there are not sufficient votes for a quorum or to approve or ratify any of the foregoing proposals at the time of the annual meeting, the annual meeting may be adjourned in order to permit further solicitation of proxies by Warwick Community Bancorp. A list of stockholders entitled to vote
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at the annual meeting will be available at Warwick Community Bancorp, Inc., 18 Oakland Avenue, Warwick, New York, for ten days prior to the annual meeting and also will be available at the annual meeting. Our board of directors unanimously recommends that you vote "FOR" approval of the merger agreement and the transactions contemplated in the merger agreement, "FOR" each of the nominees for director listed in the Proxy Statement/Prospectus and "FOR" ratification of the appointment of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. Your vote is important, regardless of the number of shares that you own. Voting by proxy will not prevent you from voting in person at Warwick Community Bancorp's annual meeting, but will assure that your vote is counted if you are unable to attend. By Order of the Board of Directors, ---------------------------- Lois E. Ulatowski Corporate Secretary Warwick, New York ________, 2004
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SUMMARY This is a summary of certain information regarding the proposed merger and the stockholder meeting to vote on the merger agreement contained in this document. It does not contain all of the information that may be important to you. We urge you to carefully read the entire document, including the Appendices, before deciding how to vote. WHAT THIS DOCUMENT IS ABOUT The boards of directors of Warwick Community Bancorp, Inc. and Provident Bancorp, Inc. have approved the merger agreement between Warwick Community Bancorp and Provident Bancorp pursuant to which Warwick Community Bancorp will merge with and into Provident Bancorp. The merger cannot be completed unless the stockholders of Warwick Community Bancorp approve the merger agreement. Warwick Community Bancorp's stockholders will vote on the merger agreement at Warwick Community Bancorp's annual meeting. They will also vote on the election of three directors and the ratification of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. This document is the Proxy Statement used by your board to solicit proxies for the annual meeting. It is also the Prospectus of Provident Bancorp regarding the shares of Provident Bancorp common stock to be issued to Warwick Community Bancorp stockholders if the merger is completed. · Enlarge/Download Table THE WARWICK COMMUNITY BANCORP ANNUAL MEETING Date, Time and Place............................ Warwick Community Bancorp will hold its annual meeting of stockholders on __________, 2004, ________ a.m., at ___________________, ___________________, __________, New York. Record Date..................................... __________, 2004. Shares Entitled to Vote......................... _________ shares of Warwick Community Bancorp common stock were outstanding on the Record Date and entitled to vote at the Warwick Community Bancorp annual meeting. Purpose of the Annual Meeting................... To consider and vote on the merger agreement, the election of three directors and the ratification of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. Vote Required................................... A majority of the outstanding shares of Warwick Community Bancorp common stock entitled to vote must be cast in favor of the merger 1
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· Enlarge/Download Table agreement for it to be approved. Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which authority to vote for the nominees being proposed is withheld. The ratification of KPMG LLP as independent registered public accounting firm is determined by a majority of the votes cast, without regard to broker non-votes or proxies marked "ABSTAIN." As of the record date, the directors and executive officers of Warwick Community Bancorp and their affiliates beneficially owned ________ shares, or approximately ___% of the outstanding shares of Warwick Community Bancorp common stock. Pursuant to voting agreements entered into at the time the merger agreement with Provident Bancorp was signed, each director of Warwick Community Bancorp has agreed, among other things, to vote or cause to be voted all shares over which they maintain sole or shared voting power in favor of approval and adoption of the merger agreement. The Warwick Community Bancorp Board Recommends You Vote in Favor of the Proposals....................................... Warwick Community Bancorp's board of directors has unanimously approved the merger agreement and unanimously recommends that Warwick Community Bancorp stockholders vote "FOR" the merger agreement, "FOR" each of the nominees listed in this Proxy Statement/Prospectus for the Warwick Community Bancorp board and "FOR" the ratification of KPMG LLP as independent registered public accounting firm for the year ending December 31, 2004. THE COMPANIES Provident Bancorp............................... Provident Bancorp, a Delaware corporation, is the savings and loan holding company for Provident Bank. Provident Bank is a federally-chartered savings association that operates 27 full-service banking offices in Rockland, Orange, Ulster and Sullivan Counties in New York. Provident Bank has established Provident 2
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· Enlarge/Download Table Municipal Bank as a special purpose New York-chartered commercial bank that accepts deposits from municipalities in the State of New York. The Federal Deposit Insurance Corporation insures the deposits of Provident Bank and Provident Municipal Bank. At March 31, 2004, Provident Bancorp had $1.7 billion in total consolidated assets. Provident Bancorp's principal executive offices are located at 400 Rella Boulevard, Montebello, New York 10901. Provident Bancorp's telephone number is (845) 369-8040. Warwick Community Bancorp....................... Warwick Community Bancorp, a Delaware corporation, is the bank holding company for The Warwick Savings Bank, which we refer to in this document as "Warwick Savings", a New York savings bank that operates seven full-service banking offices in Orange and Putnam Counties in New York, and The Towne Center Bank, a New Jersey commercial bank with two banking offices in Bergen County, New Jersey. Warwick Savings has established Warwick Commercial Bank as a special purpose New York-chartered commercial bank that accepts deposits from municipalities in the State of New York. The Federal Deposit Insurance Corporation insures the deposits of Warwick Savings, The Towne Center Bank and Warwick Commercial Bank. At March 31, 2004, Warwick Community Bancorp had approximately $747 million in total consolidated assets. Warwick Community Bancorp's principal executive offices are located at 18 Oakland Avenue, Warwick, New York 10990. Warwick Community Bancorp's telephone number is (845) 986-2206. THE MERGER Warwick Community Bancorp will merge with and into General Description (See page 55).............. Provident Bancorp, with Provident Bancorp as the surviving entity. The merger will be completed within thirty days after all material conditions to closing have been met, unless Provident Bancorp and Warwick Community Bancorp agree on a different closing date. In 3
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· Enlarge/Download Table addition, in the event the closing would be required to occur on or after September 11, 2004 but before October 1, 2004, then, at Provident Bancorp's sole discretion, the closing may occur on the close of business on October 1, 2004, provided that all conditions precedent to the closing have been fulfilled or waived. A copy of the merger agreement is attached as APPENDIX A to this document and is incorporated by reference. Consideration Payable to Warwick Community Bancorp Stockholders (See page 76)...................... Warwick Community Bancorp stockholders will be offered the opportunity to elect to receive merger consideration in the form of 2.7810 shares of Provident Bancorp common stock, $32.26 in cash or a combination of Provident Bancorp common stock and cash in exchange for their shares of Warwick Community Bancorp common stock. However, because the merger agreement generally provides that 50% of the total number of shares of Warwick Community Bancorp common stock outstanding at the closing will be converted into Provident Bancorp common stock and the remaining 50% of the outstanding shares will be converted into cash, regardless of a Warwick Community Bancorp stockholder's election, a Warwick Community Bancorp stockholder may actually receive a combination of cash and shares of Provident Bancorp common stock for his, her or its Warwick Community Bancorp shares that is different than what such stockholder elected depending on the elections made by other Warwick Community Bancorp stockholders. All elections will be subject to the allocation and proration procedures described in the merger agreement. For tax reasons that are explained on page 77, the number of shares of Provident Bancorp common stock that will be issued in the merger to Warwick Community Bancorp stockholders may be increased, and the aggregate amount of cash that will be issued to Warwick Community Bancorp stockholders may be decreased. If this 4
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· Enlarge/Download Table tax-related adjustment becomes necessary, the amount of cash you would have received, after taking into account your election and any proration, will be reduced and you will receive additional shares of Provident Bancorp common stock instead. Whether the tax-related adjustment will be made, and the magnitude of the adjustment, if made, will be based on a number of factors, including the trading price of Provident Bancorp common stock on the date of the merger. Warwick Community Bancorp stockholders may also receive a special cash dividend based on factors relating to the disposition of the automobile lease portfolio held by Warwick Savings. Warwick Savings has disposed of all the automobiles and related lease receivables in the automobile lease portfolio for total consideration of $7,052,000, of which $7,008,000 was received by Warwick Savings in cash and $44,000 is being held in escrow. Warwick Savings realized a loss on this sale of $2,573,000, beyond reserves established for this portfolio through March 31, 2004, in the second calendar quarter of 2004. While Warwick Savings has disposed of all such automobiles, the ultimate amount of the dividend (if any) will depend on a number of additional factors, including certain costs and expenses relating to the portfolio and legal limitations (including the approval of the New York State Banking Department in respect of any special dividend payment). Accordingly, Warwick cannot give any assurances to the amount or timing of any special dividend. See page 87. Election of Cash or Stock Consideration (See page 79)....................................... No more than 40 business days and no less than 20 business days before the expected date of completion of the merger, Provident Bancorp will send an election form to Warwick Community Bancorp stockholders that you may use to indicate whether your preference is to receive cash, Provident Bancorp common stock or a combination of cash and Provident Bancorp common stock, or whether you have no 5
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· Download Table preference for your shares of Warwick Community Bancorp common stock. WARWICK COMMUNITY BANCORP STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE INSTRUCTIONS FROM THE PROVIDENT BANCORP EXCHANGE AGENT. The merger agreement contains allocation and proration provisions that are designed to ensure that, subject to a tax-related adjustment, 50% of the outstanding shares of common stock of Warwick Community Bancorp will be exchanged for shares of Provident Bancorp common stock and the remaining 50% of the outstanding shares of common stock of Warwick Community Bancorp will be exchanged for cash. Therefore, if the holders of more than 50% of the outstanding Warwick Community Bancorp common stock elect to receive Provident Bancorp common stock for such shares, the amount of Provident Bancorp common stock that each such stockholder would receive from Provident Bancorp will be reduced on a pro rata basis. As a result, these Warwick Community Bancorp stockholders will receive cash consideration for any Warwick Community Bancorp shares for which they do not receive Provident Bancorp common stock. Similarly, if the holders of more than 50% of the outstanding Warwick Community Bancorp common stock elect to receive cash for such shares, the amount of cash that each such stockholder would receive from Provident Bancorp will be reduced on a pro rata basis. As a result, such stockholders will receive Provident Bancorp common stock for any Warwick Community Bancorp shares for which they do not receive cash. THE DEADLINE FOR RETURNING THE ELECTION FORM IS THE CLOSE OF BUSINESS ON THE TWENTY-FIFTH DAY FOLLOWING THE MAILING DATE OF THE ELECTION FORM, NOT INCLUDING THE DATE OF MAILING, UNLESS 6
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· Enlarge/Download Table WARWICK COMMUNITY BANCORP AND PROVIDENT BANCORP MUTUALLY AGREE UPON ANOTHER DEADLINE DATE. IF YOU DO NOT MAKE AN ELECTION, YOU WILL BE ALLOCATED EITHER CASH OR SHARES OF PROVIDENT BANCORP COMMON STOCK, OR A COMBINATION OF CASH AND SHARES OF PROVIDENT BANCORP COMMON STOCK, DEPENDING ON THE ELECTIONS MADE BY OTHER WARWICK COMMUNITY BANCORP STOCKHOLDERS. Comparative Market Prices and Share Information (See page 109)...................... Provident Bancorp common stock is listed on the Nasdaq National Market under the symbol "PBCP." Warwick Community Bancorp common stock is listed on the Nasdaq National Market under the symbol "WSBI." The table below presents the per share closing prices of Provident Bancorp's and Warwick Community Bancorp's common stock and the equivalent per share price for Warwick Community Bancorp common stock on (1) March 15, 2004, the last trading date before public announcement of the merger agreement and (2) ________, 2004, the latest practicable date before printing of this Proxy Statement/Prospectus. The equivalent price per share column is calculated by assuming half of each share of Warwick Community Bancorp's common stock is converted into Provident Bancorp common stock at an exchange ratio of 2.7810 shares per full Warwick Community Bancorp share and the remaining half is converted into cash at $32.26 per full Warwick Community Bancorp share. For more information about the exchange ratio, see "Proposal I - The Proposed Merger - Merger Consideration; Cash or Stock Election," and for more information about the stock prices and dividends of Provident Bancorp and Warwick Community Bancorp, see "Warwick Community Bancorp Stock Trading and Dividend Information" and "Provident Bancorp Stock Trading and Dividend Information." 7
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· Enlarge/Download Table LAST REPORTED SALE PRICE FOR SHARES OF ------------------------------------------------ WARWICK PROVIDENT COMMUNITY BANCORP BANCORP EQUIVALENT COMMON COMMON PER SHARE STOCK STOCK PRICE ----------- ----------- ----------- March 15, 2004 $ 11.85 $ 33.57 $ 32.61 ________, 2004 The market price of Provident Bancorp's common stock will fluctuate between the date of this Proxy Statement/Prosp and the date on which the merger takes place, as well as after completion of the merger. Warwick Community Bancorp stockholders are advised to obtain current market quotations for Provident Bancorp's common stock. No assurance can be given as to the market price of Provident Bancorp's common stock at the time of the merger or thereafter. Provident Bancorp Dividends (See page 110)............................................ During the quarter ended June 30, 2004, Provident Bancorp paid a cash dividend on its common stock of $0.04 per share. Provident Bancorp currently expects to continue to pay a quarterly dividend of at least $0.04 per share of common stock. Although there is no present plan or intention to decrease this dividend, the Provident Bancorp board of directors may, subject to applicable law and regulations, change this dividend amount at any time, and Provident Bancorp's ability to pay dividends on its common stock is subject to various legal and regulatory limitations. Dissenters' Rights for Warwick Community Bancorp Stockholders (See page 103)............. Under Delaware General Corporation Law, holders of Warwick Community Bancorp common stock have the right to obtain an appraisal of the value of their shares of Warwick Community Bancorp common stock in connection with the merger. To perfect appraisal rights, a Warwick Community Bancorp stockholder must not vote for the adoption of the merger agreement and must strictly comply with all of the procedures required under Section 8
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· Enlarge/Download Table 262 of the Delaware General Corporation Law. These procedures are described more fully beginning on page 103. We have included a copy of the Delaware General Corporation Law - Section 262 -- Appraisal Rights as APPENDIX C to this document. Material Federal Income Tax Consequences of the Merger (See page 96)..................... The merger has been structured to qualify as a "reorganization" under Section 368(a) of the Internal Revenue Code for U.S. federal income tax purposes, and it is a condition to the respective obligations of the parties to complete the merger that Provident Bancorp and Warwick Community Bancorp each receive a legal opinion to the effect that the merger will so qualify. The consequences described below assume that, as expected, the merger will qualify as a reorganization for federal income tax purposes. The federal income tax consequences of the merger to you will depend on the form of consideration you receive in the merger. If you receive solely Provident Bancorp common stock in exchange for your Warwick Community Bancorp common stock, you will generally not recognize any gain or loss for federal income tax purposes (except with respect to cash received in lieu of any fractional shares). If you receive solely cash in exchange for your Warwick Community Bancorp common stock, you will generally recognize gain or loss in an amount equal to the difference between the amount of cash received and your tax basis in your shares of Warwick Community Bancorp common stock exchanged. If you receive a combination of Provident Bancorp common stock and cash in exchange for your shares of Warwick Community Bancorp common stock, and your tax basis in your shares of Warwick Community Bancorp common stock is less than the sum of the amount of cash and the fair market value of the Provident Bancorp common stock you receive, you generally will 9
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· Enlarge/Download Table recognize gain in an amount equal to the lesser of: (1) the sum of the amount of cash and the fair market value of the Provident Bancorp common stock you receive minus your tax basis in Warwick Community Bancorp common stock exchanged in the merger; or (2) the amount of cash that you receive in the merger. However, if you receive a combination of Provident Bancorp common stock and cash in exchange for your shares of Warwick Community Bancorp and you realize a loss because your tax basis in your shares of Warwick Community Bancorp common stock is greater than the sum of the amount of cash and the fair market value of the Provident Bancorp common stock you receive, the loss will not currently be allowed. THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND UPON YOUR OWN SITUATION. IN ADDITION, YOU MAY BE SUBJECT TO STATE, LOCAL OR FOREIGN TAX LAWS THAT ARE NOT DISCUSSED IN THIS DOCUMENT. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU. Treatment of Warwick Community Bancorp Stock Options (See page 81)............. In the merger, the outstanding and unexercised options to acquire Warwick Community Bancorp common stock will be cancelled and all rights under the options will be extinguished in exchange for a cash payment determined by multiplying the number of Warwick Community Bancorp common stock subject to the option by an amount equal to $32.26 less the exercise price per share of the option. 10
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· Enlarge/Download Table Reselling the Stock You Receive in the Merger (See page 103)....................... The shares of Provident Bancorp common stock to be issued in the merger will be registered under the Securities Act of 1933. Except as noted below, stockholders may freely transfer those shares after they receive them. Warwick Community Bancorp has identified certain of its directors, executive officers and others who may be deemed "affiliates" of Warwick Community Bancorp, and those persons have entered into agreements with Provident Bancorp restricting their ability to transfer the shares they will receive in the merger. Differences in Stockholders' Rights (See page 111)....................................... In the merger, each Warwick Community Bancorp stockholder who receives Provident Bancorp common stock will become a Provident Bancorp stockholder. The rights of Warwick Community Bancorp stockholders are currently governed by the Delaware General Corporation Law and Warwick Community Bancorp's certificate of incorporation and by-laws. The rights of Provident Bancorp stockholders are currently governed by Delaware General Corporation Law and Provident Bancorp's certificate of incorporation and by-laws. There are differences in the rights of stockholders of Warwick Community Bancorp and Provident Bancorp stockholders with respect to voting requirements and various other matters. Reasons for the Merger (See pages 58 and 74)............................................. On January 14, 2004, Provident Bank completed its "second step" conversion from the mutual holding company structure to the fully converted stock form of ownership. As part of the conversion, Provident Bancorp raised approximately $195.7 million in new capital. Over the last several years, Provident Bancorp has expanded its operations through acquisitions, including the 11
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· Enlarge/Download Table acquisition of E.N.B. Holding Company, Inc. completed on January 14, 2004, contemporaneous with the completion of the second step conversion transaction, and the acquisition of The National Bank of Florida in April 2002. Provident Bancorp identified Warwick Community Bancorp as a merger candidate that would add to its franchise by expanding its banking operations in Orange County, New York, which Provident Bancorp believes is an attractive market area. Warwick Community Bancorp entered into the merger agreement at the conclusion of a process in which Warwick Community Bancorp determined that a merger with Provident Bancorp was in the best interests of its stockholders. The reasons of the Warwick Community Bancorp board are discussed in more detail in the body of this document, and include among others the expectation that the combined company would have better future prospects than Warwick Community Bancorp was likely to achieve on a stand-alone basis. The Warwick Community Bancorp board of directors believes that the merger is fair to Warwick Community Bancorp stockholders and urges stockholders to vote "FOR" approval of the merger agreement. Opinion of Warwick Community Bancorp's Financial Advisor (See page 62)................. Among other factors considered in deciding to approve the merger agreement, the board of directors of Warwick Community Bancorp considered the opinion of Sandler O'Neill & Partners, L.P., its financial advisor, provided to the Warwick Community Bancorp board of directors on March 15, 2004 that as of that date, and based on and subject to the assumptions made, matters considered and qualifications and limitations in its opinion, the merger consideration provided for in the merger agreement was fair from a financial point of view to holders of Warwick Community Bancorp common stock. This opinion was subsequently confirmed in writing as of the date of this Proxy Statement/Prospectus. Holders of Warwick Community Bancorp common stock should carefully read Sandler O'Neill's opinion in its entirety. A copy of the full text of Sandler 12
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· Enlarge/Download Table O'Neill's fairness opinion dated as of the date of this Proxy Statement/Prospectus is included as APPENDIX B to this Proxy Statement/Prospectus. Sandler O'Neill's opinion is not intended to be and does not constitute a recommendation to any holder of Warwick Community Bancorp common stock as to how such holder should vote in connection with the merger transaction. Pursuant to an engagement letter between Warwick Community Bancorp and Sandler O'Neill, Warwick Community Bancorp agreed to pay Sandler O'Neill a fee, the principal portion of which is payable upon completion of the merger. Warwick Community Bancorp has paid Sandler O'Neill a fee of $200,000 in connection with rendering its opinion. Financial Interests of Warwick Community Bancorp's Directors and Officers in the Some of Warwick Community Bancorp's directors and Merger (See page 82)............................ executive officers have financial interests in the merger that are in addition to their interests as stockholders. The Warwick Community Bancorp board of directors considered these interests in deciding to approve the merger agreement. Provident Bancorp has agreed that two current directors of Warwick Community Bancorp will be appointed as directors of Provident Bancorp and Provident Bank when the merger is completed. In addition, Messrs. Fred G. Kowal, Ronald J. Gentile and Arthur W. Budich will each receive a payment in consideration of the termination of their existing employment agreements with Warwick Community Bancorp. Messrs. Kowal and Gentile are also participants in a non-tax-qualified benefit restoration plan which will be amended in connection with the change in control to require lump sum distributions to be paid to Messrs. Kowal and Gentile within thirty days following the change in control. In addition, Mr. Kowal is a 13
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· Enlarge/Download Table participant in a supplemental executive retirement plan. Mr. Kowal has agreed to a lump sum cash payment from the supplemental executive retirement plan at the effective time of the change in control in lieu of any further benefits or accruals under the supplemental executive retirement plan. Provident Bancorp has agreed to indemnify the directors and officers of Warwick Community Bancorp against certain liabilities following the merger. Provident Bancorp has also agreed to provide directors' and officers' liability insurance for a period of six years following the merger. On the Record Date, directors and executive officers of Warwick Community Bancorp and their affiliates owned _______ shares or ___% of the Warwick Community Bancorp common stock. Conditions to the Merger (See page 88).......... Completion of the merger is contingent on a number of customary conditions, including approval of the merger agreement by Warwick Community Bancorp stockholders at the annual meetings and receipt of the required regulatory approvals. Regulatory Approval (See page 89)............... The merger and related transactions are subject to the approval of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the New York State Banking Department, and the non-objection of the Federal Reserve Bank of New York. We have filed the applications required to obtain the necessary regulatory approvals. As of the date of this document, we have not received the required approvals. We filed a waiver notice with the Federal Reserve Bank of New York. Approval by any of these entities does not constitute an endorsement of the merger or a determination that the terms of the merger are fair to Warwick Community Bancorp stockholders. 14
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· Enlarge/Download Table Terminating the Merger Agreement (See page 92)........................................ Warwick Community Bancorp will be required to pay Provident Bancorp a termination fee in the amount of $6.5 million if, among other things, in connection with Warwick Community Bancorp's receipt of a superior proposal (as defined in the merger agreement), the merger agreement is terminated because Warwick Community Bancorp (i) enters into an acquisition agreement with respect to such superior proposal, (ii) terminates the merger agreement or (iii) withdraws or adversely modifies its recommendation to its stockholders to vote in favor of the merger agreement. The merger agreement also may be terminated by mutual consent, by either Warwick Community Bancorp or Provident Bancorp if the merger has not occurred by December 31, 2004 and under limited other circumstances described in the merger agreement. Amending the Merger Agreement (See page 92)........................................ The merger agreement may be amended by the written consent of Provident Bancorp and Warwick Community Bancorp at any time prior to the completion of the merger. However, under applicable law, an amendment that reduces the amount or value, or changes the form of the merger consideration payable to Warwick Community Bancorp stockholders, and certain other types of amendments cannot be made following adoption of the merger agreement by Warwick Community Bancorp stockholders without their approval. 15
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· Enlarge/Download Table Purchase Accounting Treatment of the Merger (See page 103)........................... Provident Bancorp expects to account for the merger as a purchase for financial reporting purposes. Under the purchase method of accounting, the tangible and identifiable intangible assets and liabilities of Warwick Community Bancorp will be recorded, as of completion of the merger, at their respective fair values. The excess of the purchase price over the net assets acquired will be recorded as goodwill. Goodwill resulting from the merger will not be amortized, but will be reviewed for impairment at least annually. Core deposit and other intangibles with finite useful lives recorded in connection with the merger will be amortized. Warwick Community Bancorp has Agreed Not to Solicit Alternative Transactions (See page 91)........................................ In the merger agreement, Warwick Community Bancorp has agreed not to initiate, solicit or knowingly encourage, negotiate with, or provide any information to any person other than Provident Bancorp concerning an acquisition transaction involving Warwick Community Bancorp or Warwick Savings. This restriction may deter other potential acquirors of control of Warwick Community Bancorp. However, Warwick Community Bancorp may take certain of these actions if its board of directors determines that it must do so in order to properly discharge its fiduciary duties following consultation with its legal counsel. 16
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· Enlarge/Download Table QUESTIONS AND ANSWERS ABOUT THE VOTING PROCEDURES FOR THE ANNUAL MEETING Q: WHAT DO I NEED TO DO NOW? Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR A: After you have carefully read this Proxy ME? Statement/Prospectus, indicate on your proxy card how you want your shares to be voted, then A: No. Your broker can not vote on the sign and mail it in the enclosed postage-paid merger proposal on your behalf without specific envelope as soon as possible so that your shares instructions from you. Your broker will vote may be represented and voted at the Warwick your shares on the merger proposal only if you Community Bancorp annual meeting. If you sign provide instructions on how to vote. You should and send in your proxy card and do not indicate follow the directions provided by your broker. how you want to vote, we will vote your shares Your broker can vote your shares on all other in favor of the merger agreement and the other proposals without your instructions. proposals to be voted on at the annual meeting. Q. WHAT IF I FAIL TO INSTRUCT MY BROKER? Q: WHY IS MY VOTE IMPORTANT? A. If you fail to instruct your broker how A. If you do not return your proxy card at to vote your shares and the broker submits an or prior to the annual meeting, it will be more unvoted proxy, the resulting broker "non-vote" difficult for Warwick Community Bancorp to will be counted toward a quorum at the annual obtain the necessary quorum to hold the annual meeting, but it will have the same effect as a meeting. The merger must be approved by the vote against the merger agreement. holders of a majority of the outstanding shares of Warwick Community Bancorp common stock Q. CAN I ATTEND THE ANNUAL MEETING AND VOTE entitled to vote at the Warwick Community MY SHARES IN PERSON? Bancorp annual meeting. Therefore, the failure of a Warwick Community Bancorp stockholder to A. Yes. All stockholders are invited to vote, by proxy or in person, will have the same attend the annual meeting. Stockholders of effect as a vote against the merger agreement. record can vote in person at the annual meeting. If a broker holds your shares in street name, Q: HOW DO I VOTE? then you are not the stockholder of record and you must ask your broker how you can vote at the A: You can vote by mail. For this method annual meeting in person. you will need to complete, sign, date and return your proxy card in the postage-paid envelope Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED provided. You can also vote in person at the MY SIGNED PROXY CARD? annual meeting. Even if you plan to attend the meeting in person, please take the time to properly return the proxy card to ensure that your vote is counted. 17
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· Enlarge/Download Table A: Yes. If you have not voted through your Q: WHOM SHOULD I CALL WITH QUESTIONS OR TO broker, there are three ways for you to revoke OBTAIN ADDITIONAL COPIES OF THIS PROXY your proxy and change your vote. First, you may STATEMENT/PROSPECTUS? send written notice to the Corporate Secretary of Warwick Community Bancorp stating that you You should contact: would like to revoke your proxy. Second, you may complete and submit a new proxy card. Third, you Warwick Community Bancorp, Inc. may vote in person at the annual meeting. If you 18 Oakland Avenue have instructed a broker to vote your shares, Warwick, New York 10990 you must follow the directions you receive from Attention: Barbara A. Rudy-Moore your broker to change your vote. Your last vote Senior Vice President, Shareholder Relations will be the vote that is counted. Phone Number: (845) 986-2206 Q: I AM A WARWICK COMMUNITY BANCORP STOCKHOLDER. SHOULD I SEND IN MY WARWICK COMMUNITY BANCORP STOCK CERTIFICATES NOW? A: No. You should not send in your stock certificates at this time. We will separately send you an election form with instructions for exchanging your Warwick Community Bancorp stock certificates. Q: WHEN DO YOU EXPECT TO MERGE? A: We are working toward completing the merger as quickly as possible. We expect to complete the merger in the fourth quarter of 2004. However, we cannot assure you when or if the merger will occur. We must first obtain the approvals of stockholders of Warwick Community Bancorp and all necessary regulatory approvals. 18
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PROVIDENT BANCORP, INC. The following tables set forth selected consolidated historical financial and other data of Provident Bancorp for the periods and at the dates indicated. In January 1999, Provident Bank reorganized from a mutual savings association into the mutual holding company structure. Prior to that date, Provident Bancorp had no significant assets, liabilities or operations and, accordingly, the financial and other data prior to that date represents the consolidated financial condition and results of operations of Provident Bank. The information at September 30, 2003 and 2002 and for the years ended September 30, 2003, 2002 and 2001 is derived in part from and should be read together with the audited consolidated financial statements and notes thereto of Provident Bancorp, incorporated by reference into this Proxy Statement/Prospectus. The information at September 30, 2001, 2000 and 1999 and for the years ended September 30, 2000 and 1999 was derived in part from audited consolidated financial statements that are not included or incorporated in this document. The information at March 31, 2004 and for the six months ended March 31, 2004 and 2003 is unaudited. However, in the opinion of management of Provident Bancorp, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the unaudited periods have been made. The selected operating data presented below for the six months ended March 31, 2004, are not necessarily indicative of the results that may be expected for future periods. You should read this information in conjunction with Provident Bancorp's consolidated financial statements and related notes included in Provident Bancorp's Annual Report on Form 10-K for the year ended September 30, 2003, which is incorporated by reference in this Proxy Statement/Prospectus and from which certain of this information is derived. See "Where You Can Find More Information" on page 142. The information presented below at and for the six months ended March 31, 2004 reflects the second-step conversion and the acquisition of E.N.B. Holding Company consummated in January 2004. 19
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· Enlarge/Download Table AT SEPTEMBER 30, AT MARCH -------------------------------------------------------------- 31, 2004 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) SELECTED FINANCIAL CONDITION DATA: Total assets........................ $1,713,940 $1,174,305 $1,027,701 $ 881,260 $ 844,303 $ 814,518 Loans, net (1)...................... 944,624 703,184 660,816 606,146 589,822 566,521 Securities available for sale....... 524,173 300,715 206,146 163,928 162,157 148,387 Securities held to maturity......... 69,735 73,544 86,791 71,355 48,586 56,782 Deposits............................ 1,208,374 869,553 799,626 653,100 608,976 586,640 Borrowings.......................... 134,726 164,757 102,968 110,427 127,571 117,753 Equity.............................. 348,086 117,857 110,867 102,620 90,986 90,299 SIX MONTHS ENDED MARCH 31, YEARS ENDED SEPTEMBER 30, ------------------------ -------------------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) SELECTED OPERATING DATA: Interest and dividend income... $ 33,403 $ 29,463 $ 57,790 $ 59,951 $ 60,978 $ 58,899 $ 52,267 Interest expense............... 5,914 6,336 12,060 17,201 26,244 26,034 21,589 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income......... 27,489 23,127 45,730 42,750 34,734 32,865 30,678 Provision for loan losses...... 350 600 900 900 1,440 1,710 1,590 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses. 27,139 22,527 44,830 41,850 33,294 31,155 29,088 Non-interest income............ 5,587 4,370 9,555 5,401 4,706 3,391 3,103 Non-interest expense .......... 28,220(11) 18,030 36,790 32,161 26,431 25,808 26,303 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income tax expense 4,506 8,867 17,595 15,090 11,569 8,738 5,888 Income tax expense............. 1,389 3,306 6,344 5,563 4,087 2,866 1,958 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.................. $ 3,117 $ 5,561 $ 11,251 $ 9,527 $ 7,482 $ 5,872 $ 3,930 ========== ========== ========== ========== ========== ========== ========== (FOOTNOTES ON FOLLOWING PAGES) 20
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· Enlarge/Download Table AT OR FOR THE SIX MONTHS ENDED MARCH 31, AT OR FOR THE YEARS ENDED SEPTEMBER 30, ------------------- ----------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- SELECTED FINANCIAL RATIOS AND OTHER DATA: PERFORMANCE RATIOS: Return on assets (ratio of net income to average total assets) ............. 0.44% 1.06% 1.04% 0.99% 0.87% 0.70% 0.52% Return on equity (ratio of net income to average equity) ................... 2.92 9.96 9.92 8.92 7.71 6.58 5.03 Average interest rate spread (2)..... 3.93 4.48 4.30 4.33 3.56 3.51 3.66 Net interest margin (3)............... 4.25 4.75 4.55 4.71 4.20 4.12 4.24 Efficiency ratio (4).................. 85.32(11) 65.57 66.55 66.79 67.02 71.18 77.86 Non-interest expense to average total assets ............................ 3.99 3.44 3.40 3.36 3.06 3.08 3.47 Ratio of average interest-earning assets to average interest-bearing liabilities........................ 135.88 120.39 121.33 120.03 120.20 118.54 119.28 PER SHARE AND RELATED DATA: Basic earnings per share (5)(10)...... $ 0.09 $ 0.16 $ 0.33 $ 0.28 $ 0.22 $ 0.17 $ 0.09 Diluted earnings per share (10)....... 0.09 0.16 0.32 0.28 0.22 0.17 0.09 Dividends per share (6) (10).......... 0.07 0.06 0.13 0.09 0.05 0.03 0.01 Dividend payout ratio (7) (10)........ 77.78% 37.50% 39.04% 33.06% 22.45% 19.74% 15.00% Book value per share (8) (10)......... $ 8.79 $ 3.21 $ 3.35 $ 3.13 $ 2.89 $ 2.45 $ 2.46 ASSET QUALITY RATIOS: Non-performing assets to total assets. 0.25% 0.53% 0.40% 0.49% 0.27% 0.50% 0.62% Non-performing loans to total loans... 0.44 0.82 0.66 0.74 0.37 0.67 0.81 Allowance for loan losses to non-performing loans............... 413.07 193.49 235.66 209.59 400.66 189.85 133.78 Allowance for loan losses to total loans 1.78 1.58 1.55 1.55 1.48 1.28 1.08 CAPITAL RATIOS: Equity to total assets at end of period 20.31% 10.41% 10.04% 10.79% 11.64% 10.78% 11.09% Average equity to average assets...... 15.12 10.69 10.47 11.15 11.24 10.67 10.29 Tier 1 leverage ratio (bank only)..... 11.93 8.49 8.14 8.45 10.20 9.59 9.56 OTHER DATA: Number of full service offices........ 27 18 18 17 15 13 12 ------------------------------------------ (1) Excludes loans held for sale. (2) The average interest rate spread interest-earning assets and the weig represents the difference between the weighted-average yield on (3) The net interest margin represents net interest income as a percent of average interest-earning assets for the period. (4) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income. (5) Basic earnings per share for fiscal 1999 was computed for the nine-month period following the stock offering based on net income of approximately $3.2 million for that period and 35,640,204 average common shares (as adjusted for the 4.4323 exchange ratio to reflect the second step offering completed January 14, 2004). (6) The following table sets forth aggregate cash dividends paid per period, which is calculated by multiplying the dividend declared per share by the number of shares outstanding as of the applicable record date. · Enlarge/Download Table FOR THE SIX MONTHS ENDED MARCH 31, FOR THE YEARS ENDED SEPTEMBER 30, ------------------- ----------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- Dividends paid to public stockholders $ 1,837 $ 882 $ 1,968 $ 1,435 $ 807 $ 563 $ 235 Dividends paid to Provident Bancorp, MHC -- 453 453 500 -- 486 132 -------- -------- -------- -------- -------- -------- -------- Total dividends paid $ 1,837 $ 1,335 $ 2,421 $ 1,935 $ 807 $ 1,049 $ 367 ======== ======== ======== ======== ======== ======== ======== Payments listed above exclude cash dividends waived by Provident Bancorp, MHC of $662,000, $739,000, $2.1 million, $1.3 million, $972,000, $177,000 and $132,000 for the six months ended March 31, 2004 and 2003 and for the years ended September 30, 2003, 2002, 2001, 2000 and 1999, respectively. Provident Bancorp, MHC began waiving dividends in May 1999, and, as of September 30, 2003, had waived dividends totaling $4.7 million. (7) The dividend payout ratio represents dividends per share divided by basic earnings per share. For fiscal 1999, the payout ratio is based on dividends of $0.06 per share and nine-month earnings of $0.40 per share. Based on six-month earnings of $0.29 per share for the third and fourth quarters of fiscal 1999, the dividend payout ratio would have been 20.69%. (8) Book value per share is based on total stockholders' equity and 39,619,261, 35,334,747, 35,221,365, 35,447,372, 35,565,510, 35,803,232 and 36,699,444 outstanding common shares at March 31, 2004 and 2003, and September 30, 2003, 2002, 2001, 2000 and 1999, respectively (as 21
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adjusted for the 4.4323 exchange ratio to reflect the second step offering completed January 14, 2004). For this purpose, common shares include unallocated employee stock ownership plan shares but exclude treasury shares. (9) Ratios for the six months ended March 31, 2004 and 2003 are annualized. (10) Prior period share information has been retroactively adjusted to reflect the 4.4323 exchange ratio due to the completion of the second step common stock offering completed January 14, 2004. (11) Reflects contribution of $5.0 million in shares of common stock and cash to the Provident Bank Charitable Foundation. 22
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF WARWICK COMMUNITY BANCORP, INC. The following tables set forth selected consolidated historical financial and other data of Warwick Community Bancorp, Inc. for the periods and at the dates indicated. The information at December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 is derived in part from and should be read together with the audited consolidated financial statements and notes thereto of Warwick Community Bancorp, incorporated by reference into this Proxy Statement/Prospectus. The information at December 31, 2001, 2000 and 1999 and for the years ended December 31, 2000 and 1999 is derived in part from audited consolidated financial statements that are not included or incorporated in this document. The information at March 31, 2004 and for the three months ended March 31, 2004 and 2003 is unaudited. However, in the opinion of management of Warwick Community Bancorp, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the unaudited periods have been made. The selected operating data presented below for the three months ended March 31, 2004, are not necessarily indicative of the results that may be expected for future periods. You should read this information in conjunction with Warwick Community Bancorp's consolidated financial statements and related notes included in Warwick Community Bancorp's Annual Report on Form 10-K for the year ended December 31, 2003, which is incorporated by reference in this Proxy Statement/Prospectus and from which this information is derived. See "Where You Can Find More Information" on page 142. 23
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· Enlarge/Download Table AT DECEMBER 31, AT MARCH -------------------------------------------------------------- 31, 2004 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) SELECTED FINANCIAL CONDITION DATA: Total assets $ 746,634 $ 759,996 $ 781,238 $ 806,702 $ 637,799 $ 597,714 Loans receivable, net 314,194 320,978 464,273 516,172 432,198 349,321 Investment securities 319,653 340,883 211,597 209,572 149,513 186,490 Real estate owned, net 499 505 1,145 1,149 1,268 415 Deposits 477,858 487,572 466,676 422,246 348,131 283,072 FHLBNY advances 178,495 183,495 216,495 290,785 188,800 201,675 Securities sold under repurchase agreements -- -- -- 2,500 16,845 37,375 Stockholders` equity 75,096 73,834 81,108 74,003 72,581 66,572 THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) SELECTED OPERATING DATA: Interest income $ 9,044 $ 10,912 $ 38,872 $ 49,706 $ 52,120 $ 45,630 $ 35,562 Interest expense 3,530 4,957 17,331 21,825 27,415 26,226 16,951 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income 5,514 5,955 21,541 27,881 24,705 19,404 18,611 Provision for loan losses 3,423 80 90 1,338 979 900 500 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 2,091 5,875 21,451 26,543 23,726 18,504 18,111 Non-interest income: Service and fee income 1,232 1,429 5,946 5,433 4,526 3,540 2,914 Gain (loss) on securities transactions -- 123 405 507 27 (878) 524 Net gain on sale of loans 16 135 451 350 687 600 109 Other income 172 198 695 1,577 700 2,106 258 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total non-interest income, net 1,420 1,885 7,497 7,867 5,940 5,368 3,805 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Non-interest expense: Salaries and employee benefits 2,859 2,649 10,538 10,423 11,642 10,109 9,536 FDIC insurance 21 20 84 80 72 62 31 Occupancy and equipment 566 537 2,094 2,136 2,191 1,889 1,452 Data processing 375 333 1,382 1,171 1,102 1,063 974 Advertising 54 54 275 304 134 182 500 Professional fees 791 193 1,110 1,095 1,394 1,192 1,006 Other operating expenses 843 756 3,276 3,334 3,912 2,908 3,308 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total non-interest expense 5,509 4,542 18,759 18,543 20,447 17,405 16,807 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before income tax expense (1,998) 3,218 10,189 15,867 9,219 6,467 5,109 Income tax expense (benefit) (617) 1,241 3,729 6,211 3,281 2,057 1,966 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ (1,381) $ 1,977 $ 6,460 $ 9,656 $ 5,938 $ 4,410 $ 3,143 ========== ========== ========== ========== ========== ========== ========== 24
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· Enlarge/Download Table AT OR FOR THE THREE MONTHS ENDED MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------- ----------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- SELECTED FINANCIAL RATIOS AND OTHER DATA: Per Share Data: Earnings (loss) per share, Basic $ (0.33) $ 0.45 $ 1.50 $ 2.11 $ 1.27 $ 0.91 $ 0.57 Earnings (loss) per share, Diluted (0.33) 0.42 1.44 2.02 1.24 0.91 0.57 Dividends declared per share 0.15 0.14 0.59 0.31 0.38 0.27 0.19 Book Value(2) 16.69 16.67 16.42 16.78 16.15 14.96 13.18 Performance Ratios: Return on average assets (0.74)% 0.99% 0.82% 1.23% 0.79% 0.70% 0.62% Return on average equity (7.34) 9.95 8.50 12.08 7.97 6.61 4.15 Average equity to average assets 10.08 9.91 9.60 10.19 9.86 10.51 14.83 Equity to total assets 10.06 9.33 9.72 10.38 9.17 11.38 11.14 Core deposits to total deposits(3) 80.20 78.60 79.87 74.87 70.90 64.70 68.48 Net interest spread(4) 2.82 2.70 2.48 3.31 2.96 2.71 3.14 Net interest margin(5) 3.13 3.14 2.88 3.78 3.48 3.28 3.87 Operating expense to average assets(7) 2.92 2.23 2.34 2.36 2.70 2.73 3.27 Average interest-earning assets to average interest-bearing liabilities 115.86 116.88 117.36 116.00 113.62 112.97 120.87 Efficiency ratio(6) 78.81 59.07 65.45 51.02 61.68 72.68 76.70 Dividend Payout Ratio n/a 33.33 40.97 15.35 30.65 29.67 33.33 REGULATORY CAPITAL RATIOS(1): Warwick Savings: Tier 1 capital to assets 7.38 7.78 7.77 8.33 7.08 8.68 9.38 Tier 1 capital to risk-weighted assets 15.70 14.65 15.80 14.88 12.87 16.33 17.60 Total capital to risk-weighted assets 16.98 15.79 17.05 15.99 13.70 17.16 18.34 Warwick Commercial: Tier 1 capital to assets 20.98 11.98 17.41 20.60 20.18 N/A N/A Tier 1 capital to risk-weighted assets 107.41 32.12 87.78 89.45 93.89 N/A N/A Total capital to risk-weighted assets 107.41 32.12 87.78 89.45 93.89 N/A N/A Towne Center: Tier 1 capital to assets 19.70 18.72 19.62 20.00 21.58 36.35 87.72 Tier 1 capital to risk-weighted assets 23.46 21.06 23.21 23.67 28.49 50.83 211.83 Total capital to risk-weighted assets 24.66 22.12 24.36 24.82 29.74 51.72 211.83 Warwick Community Bancorp: Tier 1 capital to assets 9.47 9.18 9.41 9.98 8.93 11.76 12.67 Tier 1 capital to risk-weighted assets 18.15 16.58 18.33 17.29 15.27 20.81 23.94 Total capital to risk-weighted assets 19.44 17.72 19.57 18.40 16.13 21.63 24.58 ASSET QUALITY RATIOS(1): Non-performing loans to total loans 0.69 0.58 0.68 0.44 0.30 0.28 0.58 Non-performing loans to total assets 0.30 0.30 0.29 0.26 0.20 0.19 0.34 Non-performing assets to total assets 0.44 0.43 0.36 0.41 0.34 0.39 0.41 Allowance for loan losses to total loans 2.38 1.16 1.51 1.05 0.71 0.63 0.55 Allowance for loan losses to non-performing loans 344.64 200.48 222.75 241.76 231.45 219.69 95.33 OTHER DATA: Branch Offices 9 8 9 8 8 7 6 -------------------- (1) Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios. With the exception of period-end ratios, all ratios are based on average monthly balances during the periods indicated. (2) Book Value represents total stockholders` equity divided by the shares outstanding for the period, net of unearned shares held by the Employee Stock Ownership Plan and Recognition and Retention Plan.\ (3) Warwick Community Bancorp considers the following to be core deposits: checking accounts, passbook accounts, NOW accounts and money market accounts. (4) The interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. (5) The net interest margin represents net interest income as a percentage of average interest-earning assets. (6) The efficiency ratio represents non-interest expense, excluding non-recurring items and amortization of intangibles, as a percentage of the sum of net interest income and non-interest income excluding any gains or losses on sales of assets. (7) The operating expense to average assets ratio represents non-interest expense, excluding amortization of intangibles and expense on other real estate owned, as a percentage of average assets. 25
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SELECTED CONSOLIDATED UNAUDITED PRO FORMA FINANCIAL DATA UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION On January 14, 2004, Provident Bancorp completed its stock offering in conjunction with the mutual-to-stock conversion of Provident Bancorp, MHC. On that same date, we completed our acquisition of E.N.B. Holding Company and its wholly-owned subsidiary, Ellenville National Bank, located in Ellenville, New York. This acquisition was accounted for as a purchase resulting in the creation of goodwill totaling approximately $52.1 million. At March 31, 2004, there was no impairment of goodwill resulting from this transaction. The following unaudited pro forma condensed consolidated balance sheet at March 31, 2004 and unaudited pro forma condensed consolidated statements of income for the six months ended March 31, 2004 and for the year ended September 30, 2003, give effect to the merger of Provident Bancorp and Warwick Community Bancorp based on the assumptions set forth below. The unaudited pro forma consolidated financial information is based on unaudited consolidated financial information of Provident Bancorp, and Warwick Community Bancorp at and for the six months ended March 31, 2004, the audited consolidated financial statements of Provident Bancorp for the year ended September 30, 2003, the audited consolidated financial statements of E.N.B. Holding Company for the year ended December 31, 2003 and the audited consolidated financial statements of Warwick Community Bancorp for the year ended December 31, 2003. The unaudited pro forma consolidated financial information gives effect to the E.N.B. Holding Company and Warwick Community Bancorp mergers using the purchase method of accounting under accounting principles generally accepted in the United States of America. However, no pro forma adjustments have been included herein that reflect potential effects of cost savings or synergies which may be obtained by combining the operations of Provident Bancorp and Warwick Community Bancorp, or the costs of combining the companies and their operations. The unaudited pro forma information is provided for informational purposes only. The pro forma financial information presented is not necessarily indicative of the actual results that would have been achieved had the merger been consummated on the dates or at the beginning of the periods presented, and is not necessarily indicative of future results. The unaudited pro forma financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto of Provident Bancorp incorporated by reference into this document from our Annual Report on Form 10-K for the year ended September 30, 2003, as amended. THE UNAUDITED PRO FORMA NET INCOME DERIVED FROM THE ABOVE ASSUMPTIONS IS QUALIFIED BY THE STATEMENTS SET FORTH ABOVE AND SHOULD NOT BE CONSIDERED INDICATIVE OF THE MARKET VALUE OF PROVIDENT BANCORP COMMON STOCK OR THE ACTUAL OR FUTURE RESULTS OF OPERATIONS OF PROVIDENT BANCORP FOR ANY PERIOD. 26
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· Enlarge/Download Table UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 2004 (1) ----------------------------------------------------------------- WARWICK COMMUNITY WARWICK BANCORP PROVIDENT COMMUNITY ACQUISITION BANCORP BANCORP ADJUSTMENTS COMBINED PRO HISTORICAL HISTORICAL (2)(3) FORMA ----------- ----------- ----------- ------------ (IN THOUSANDS) ASSETS: Cash and cash equivalents....................... $ 50,523 $ 69,200 $ -- $ 119,723 Securities available for sale................... 524,173 316,823 (93,697)(3)(6) 747,299 Securities held to maturity..................... 69,735 2,830 -- 72,565 Loans, net (4).................................. 945,570 314,194 (7,391)(3)(8) 1,252,373 Premises and equipment, net..................... 16,365 9,419 -- 25,784 Goodwill........................................ 65,670 2,351 94,196(5) 162,217 Other identifiable intangibles.................. 6,900 -- 7,931(5) 14,831 Other assets.................................... 35,004 31,817 8,242(7)(8) 75,063 ----------- ----------- ----------- ----------- Total assets.................................. $ 1,713,940 $ 746,634 $ 9,281 $ 2,469,855 =========== =========== =========== =========== LIABILITIES: Deposits........................................ $ 1,208,374 $ 477,858 $ 746(3) $ 1,686,978 Borrowed funds.................................. 134,726 178,495 9,505(3) 322,726 Other liabilities............................... 22,754 15,185 -- 37,939 ----------- ----------- ----------- ----------- Total liabilities............................. 1,365,854 671,538 10,251 2,047,643 STOCKHOLDERS' EQUITY: Common stock.................................... 396 67 (4) 459 Additional paid-in capital...................... 268,209 67,635 6,428 342,272 Retained earnings............................... 86,644 49,525 (49,525) 86,644 Accumulated other comprehensive income.......... 4,382 1,313 (1,313) 4,382 Less: Common stock held by employee stock ownership plan................................ (11,292) (2,997) 2,997 (11,292) Less: Common stock acquired by recognition and retention plan................................ (253) (914) 914 (253) Treasury stock.................................. -- (39,533) 39,533 -- ----------- ----------- ----------- ----------- Total stockholders' equity.................... 348,086 75,096 (970) 422,212 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity.... $ 1,713,940 $ 746,634 $ 9,281 $ 2,469,855 =========== =========== =========== =========== --------------------------- (1) Assumes that the acquisition of Warwick Community Bancorp was completed at March 31, 2004. (2) Assumes purchase accounting adjustments at March 31, 2004. (3) Assumes a purchase price for Warwick Community Bancorp of $145.1 million to be paid in equal amounts of common stock (6,256,000 shares at $11.60 per share) and cash ($72.6 million) paid from the sale of securities available for sale, along with after-tax acquisition expenses of $16.8 million. Excludes estimated integration costs for Warwick Community Bancorp of $660,000, after tax, in connection with the merger. Adjustments to reflect the fair value of assets and liabilities for Warwick Community Bancorp include an increase in value for loans ($3.0 million), less the carve-out of the automobile lease portfolio ($10.4 million), an increase in the value of deposits ($746,000) and an increase in the value of borrowings ($9.5 million). In addition, an estimated core deposit intangible asset is recorded ($7.9 million). A net deferred tax asset is reflected at a marginal rate of 40.0% for the tax effect on the fair market value adjustments and the deductible portion of the acquisition expenses. (4) Includes loans held for sale. 27
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(5) A reconciliation of the excess consideration paid by Provident Bancorp over Warwick Community Bancorp's net assets acquired ("Goodwill") is as follows (in thousands): · Enlarge/Download Table Cost to Acquire Warwick Community Bancorp: Note Cash 3 $ 72,569 Provident common stock issued 3 72,569 Estimated cash paid for transaction costs, net of taxes (*) 6,7 16,770 ---------- Consideration paid for Warwick Community Bancorp 161,908 Warwick Community Bancorp Net Assets at Fair Value: Warwick Community Bancorp stockholders' equity at March 31, 2004 75,096 Carve-out of lease portfolio, net of taxes (*) 8 (6,212) Capital adjustments related to elimination of stock benefit plans (1,557) --------- Subtotal (67,327) Fair Value Adjustments: Loans (2,962) Deposits 746 Borrowed funds 9,505 --------- Fair Value Adjustments 7,289 Tax effect of fair value adjustments (*) (2,916) Total adjustments to net assets acquired 4,373 -------- Adjusted net assets acquired (62,954) ---------- Subtotal 98,954 Core deposit intangible 7,931 Tax effect of core deposit intangible (*) (3,173) -------- Net core deposit intangible 4,758 ---------- Estimated Goodwill Recognized $ 94,196 ========== * Taxes estimated using a 40% marginal tax rate. (6) Transaction costs associated with the merger are estimated to be $16.8 million, net of taxes. Estimated transaction costs have been recorded as a component of goodwill on the Pro Forma Financial Statements (see Note 5), based on Provident Bancorp's and Warwick Community Bancorp's preliminary estimates. A summary of these costs is as follows (in thousands): Merger related compensation and benefits $7,650 Cash consideration paid for stock options 6,746 Systems costs 3,500 Professional fees 3,132 Other merger related expenses 100 ------------- Estimated pre-tax transaction costs 21,128 Less related tax benefit 4,358 ------------- Estimated transaction costs, net of taxes $16,770 ------------- (7) Deferred tax assets on the cash out of options and taxable transaction costs amounted to $4.4 million. Deferred tax assets on purchase accounting adjustments amounted to $2.9 million. Deferred tax assets related to the core deposit intangible amounted to $3.2 million. All tax calculations were based on an assumed rate of 40%. (8) Excludes net automobile lease portfolio of $10.4 million, any collection of which, after tax effect of $4.1 million, may be available as a special dividend to Warwick Community Bancorp shareholders. Warwick Savings has disposed of all of the automobiles and related lease receivables in the automobile lease portfolio for total consideration of $7,052,000, of which $7,008,000 was received by Warwick Savings in cash and $44,000 is being held in escrow. Warwick Savings realized a loss on this sale of $2,573,000, beyond reserves established for this portfolio through March 31, 2004, in the second calendar quarter of 2004. 28
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· Enlarge/Download Table UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED MARCH 31, 2004 (1) --------------------------------------------------- WARWICK COMMUNITY WARWICK BANCORP PROVIDENT COMMUNITY ACQUISITION BANCORP BANCORP ADJUSTMENTS COMBINED HISTORICAL HISTORICAL (2)(3) PRO FORMA ----------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income................................. $ 33,403 $ 17,943 $ (2,287) $ 49,059 Interest expense................................ 5,914 7,230 (1,691) 11,453 ----------- ---------- ---------- ----------- Net interest income........................ 27,489 10,713 (596) 37,606 Provision for loan losses....................... 350 3,423 -- 3,773 ----------- ---------- ---------- ----------- Net interest income after provision........ 27,139 7,290 (596) 33,833 Noninterest income.............................. 5,587 3,224 -- 8,811 Noninterest expense (4)......................... 28,220 10,571 1,405 40,196 ----------- ---------- ---------- ----------- Income before income taxes...................... 4,506 (57) (2,001) 2,448 Income taxes.................................... 1,389 (5) (758) 626 ----------- ---------- ---------- ----------- Net income (loss).......................... $ 3,117 $ (52) $ (1,243) $ 1,822 =========== ========== ========== =========== EARNINGS (LOSS) PER SHARE: Basic........................................ $ 0.09 $ (0.01) $ 0.04 Diluted...................................... $ 0.09 $ (0.01) $ 0.04 SHARES USED FOR CALCULATING: Basic........................................ 35,777,054 4,248,285 2,007,693 42,033,054 Diluted...................................... 36,391,057 4,456,813 1,802,442 42,647,057 --------------------------- (1) Assumes that the acquisition of Warwick Community Bancorp was completed at the beginning of the periods presented. (2) Purchase accounting adjustments are amortized using a level yield over the estimated life of the related assets and liabilities. See note 3 to the Pro Forma Condensed Consolidated Statements of Income for the Year Ended September 30, 2003, below. Amortization for the six months ended March 31, 2004 approximates one-half of the full-year amortization. (3) Included in interest income is lost earnings on after-tax merger-related costs for Warwick Community Bancorp that include 50% of the purchase price that is to be paid in cash ($72.6 million) and after-tax acquisition expenses ($16.8 million). These funds were applied to a reinvestment rate of 3.54% for the six months ended March 31, 2004, reflecting the average yield on Provident Bancorp's available for sale portfolio for the three months ended March 31, 2004. (4) Noninterest expense does not reflect anticipated cost savings. 29
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· Enlarge/Download Table FOR THE YEAR ENDED SEPTEMBER 30, 2003 (1) ------------------------------------------------------------------------------------------- E.N.B. HOLDING E.N.B. COMPANY HOLDING WARWICK E.N.B. ACQUISITION COMPANY WARWICK COMMUNITY HOLDING AND ACQUISITION COMMUNITY BANCORP PROVIDENT COMPANY CONVERSION AND BANCORP ACQUISITION BANCORP HISTORICAL ADJUSTMENTS CONVERSION HISTORICAL ADJUSTMENTS COMBINED HISTORICAL (6) (2)(3) PRO FORMA (6) (3)(4) PRO FORMA ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income............... $ 57,790 $ 20,021 $ (1,972) $ 75,839 $ 38,872 $ (4,905) $ 109,806 Interest expense.............. 12,060 3,889 (468) 15,481 17,331 (3,209) 29,603 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net interest income...... 45,730 16,132 (1,504) 60,358 21,541 (1,696) 80,203 Provision for loan losses..... 900 620 -- 1,520 90 -- 1,610 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision................ 44,830 15,512 (1,504) 58,838 21,451 (1,696) 78,593 Noninterest income............ 9,555 2,434 -- 11,989 7,497 -- 19,486 Noninterest expense (5)....... 36,790 13,353 2,453 52,596 18,759 2,471 73,826 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes.... 17,595 4,593 (3,957) 18,231 10,189 (4,167) 24,253 Income taxes.................. 6,344 1,917 (1,582) 6,679 3,729 (1,521) 8,887 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income............... $ 11,251 $ 2,676 $ (2,375) $ 11,552 $ 6,460 $ (2,646) $ 15,366 =========== =========== =========== =========== =========== =========== =========== EARNINGS PER SHARE: Basic...................... $ 0.33 $ 175.74 $ 0.30 $ 1.50 $ 0.34 Diluted.................... $ 0.32 $ 175.74 $ 0.30 $ 1.44 $ 0.34 SHARES USED FOR CALCULATING: Basic...................... 34,186,015 15,227 4,354,449 38,555,691 4,301,633 1,954,367 44,811,691 Diluted.................... 34,633,259 15,227 4,354,449 39,032,935 4,491,471 1,764,529 45,288,935 ------------------------------------ (1) Assumes that the mutual-to-stock conversion of Provident Bancorp, MHC and the acquisitions of E.N.B. Holding Company and Warwick Community Bancorp were completed at the beginning of the periods presented. (2) Included in interest income is lost earnings on after-tax merger-related costs for E.N.B. Holding Company that include the portion of the purchase price that was paid in cash ($36.773 million) and after-tax acquisition expenses ($6.8 million). These funds were applied to a reinvestment rate of 4.07% for the year ended September 30, 2003, reflecting the average rate on Provident Bancorp's available for sale portfolio as of September 30, 2003. (3) Purchase accounting adjustments are amortized using a level yield over the estimated life of the related assets and liabilities. The following table summarizes the estimated full-year impact of the amortization/(accretion) of the purchase accounting adjustments on the pro forma statement of income (dollars in thousands). · Enlarge/Download Table AMORTIZATION/ 2004 PREMIUMS/ ESTIMATED (ACCRETION) AMORTIZATION/ CATEGORY (DISCOUNTS) LIFE IN YEARS METHOD (ACCRETION) -------------------------- -------------- --------------- --------------- -------------- Core deposit intangibles $ 7,931 10 Level Yield $ 2,471 Deposits (746) 5 Level Yield (420) Borrowed funds (9,505) 7 Level Yield (2,789) Loans 2,962 5 Level Yield 1,160 ---------- ----------- $ 642 $ 422 ========== =========== The following table summarizes the estimated impact of the amortization/(accretion) of the purchase accounting adjustments made in connection with the merger on Provident Bancorp's results of operations of the following years. NET (INCREASE)/ PROJECTED FUTURE DECREASE IN AMOUNTS FOR THE YEARS CORE DEPOSIT NET ACCRETION/ INCOME BEFORE ENDED SEPTEMBER 30, INTANGIBLE (AMORTIZATION) TAXES --------------------- --------------- ----------------- ---------------- 2004 $ 2,471 $ (2,049) $ 422 2005 $ 1,568 $ (1,572) $ (4) 2006 $ 1,095 $ (1,105) $ (10) 2007 $ 798 $ (1,064) $ (266) 2008 $ 597 $ (545) $ 52 2009 $ 452 $ (607) $ (155) 30
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(4) Included in interest income is lost earnings on after-tax merger-related costs for Warwick Community Bancorp that include 50% of the purchase price that is to be paid in cash ($72.6 million) and after-tax acquisition expenses ($16.8 million). These funds were applied to a reinvestment rate of 4.07% for the year ended September 30, 2003, reflecting the yield on the Provident available for sale portfolio as of September 30, 2003. (5) Noninterest expense does not reflect anticipated cost savings. (6) E.N.B. Holding Company and Warwick Community Bancorp historical financial information is presented for the year ended December 31, 2003. 31
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COMPARATIVE PRO FORMA PER SHARE DATA The table below summarizes selected per share information about Provident Bancorp and Warwick Community Bancorp. The Provident Bancorp per share information is presented on a historical basis and then on a pro forma adjusted basis to reflect the mutual-to-stock conversion and related stock offering, and the mergers with E.N.B. Holding Company and Warwick Community Bancorp. The Warwick Community Bancorp per share information is presented both historically, and on a pro forma basis to reflect the merger. The data in the table should be read together with the financial information and the financial statements of Provident Bancorp and Warwick Community Bancorp incorporated by reference into this document. The pro forma per common share data is presented as an illustration only. The data does not necessarily indicate the combined financial position per share or combined results of operations per share that would have been reported if the merger had occurred when indicated, nor is the data a forecast of the combined financial position or combined results of operations for any future period. No pro forma adjustments have been included herein which reflect potential effects of cost savings or synergies which may be obtained by combining the operations of Provident Bancorp and Warwick Community Bancorp or the costs of combining the companies and their operations. · Enlarge/Download Table PRO FORMA WARWICK E.N.B. WARWICK COMMUNITY PROVIDENT HOLDING COMMUNITY COMBINED PRO BANCORP BANCORP COMPANY BANCORP FORMA EQUIVALENT HISTORICAL HISTORICAL HISTORICAL AMOUNTS (1) SHARES (2) ------------ ------------- ------------ ------------- ------------- Book value per share at March 31, 2004(5). $ 8.79 $ N/A $ 16.69 $ 9.20 $ 25.59 Book value per share at September 30, 2003(5) 3.35 1,845.60 16.42 9.20 25.59 Cash dividends paid per share for the six months ended March 31, 2004(4).......... 0.07 N/A 0.30 0.07 0.19 Cash dividends paid per share for the year ended September 30, 2003(3)(4).......... 0.13 76.00 0.59 0.13 0.36 Basic earnings (loss) per share for the six months ended March 31, 2004............. 0.09 N/A (0.01) 0.04 0.11 Basic earnings per share for the year ended September 30, 2003(3)................... 0.33 175.74 1.50 0.34 0.95 Diluted earnings (loss) per share for the six months ended March 31, 2004......... 0.09 N/A (0.01) 0.04 0.11 Diluted earnings per share for the year ended September 30, 2003(3)............. 0.32 N/A 1.44 0.34 0.95 ----------------- (1) Reflects the issuance of shares of common stock and 4.4323-for-one stock split by Provident Bancorp as part of Provident Bancorp, MHC's mutual-to-stock conversion, Provident Bancorp's related stock offering and acquisition of E.N.B. Holding Company, all completed January 14, 2004. (2) Per equivalent share of Warwick Community Bancorp's common stock is calculated by taking the product of the combined pro forma and an exchange ratio of 2.7810. (3) E.N.B. Holding Company and Warwick Community Bancorp financial information is presented for the year ended December 31, 2003. (4) Pro forma cash dividends represent the historical dividends of Provident Bancorp. (5) Pro forma book value per share is based on the pro forma stockholders' equity of the combined entity divided by the total pro forma common shares of the combined entity assuming conversion of 50% of the outstanding shares of Warwick Community Bancorp at an implied exchange ratio of 2.7810. 32
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RISKS RELATED TO THE MERGER IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE MATTERS ADDRESSED UNDER THE CAPTION "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS," YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR ADOPTION OF THE MERGER AGREEMENT. RISKS RELATED TO THE MERGER YOU MAY NOT RECEIVE THE FORM OF MERGER CONSIDERATION THAT YOU ELECT. The merger agreement contains provisions that are generally designed to ensure that 50% of the outstanding shares of Warwick Community Bancorp common stock are exchanged for the cash consideration and the other 50% of the shares are exchanged for shares of Provident Bancorp common stock, subject to a tax-related adjustment. If elections are made by Warwick Community Bancorp shareholders that would otherwise result in more or less than 50% of such shares being converted into Provident Bancorp stock, either those electing to receive all or a portion of their consideration in cash or those electing to receive all or a portion of their consideration in shares of Provident Bancorp common stock, will have the consideration of the type they selected reduced by a pro rata amount and will receive a portion of their consideration in the form that they did not elect to receive. Accordingly, there is a risk that you will not receive a portion of the merger consideration in the form that you elect, which could result in, among other things, tax consequences that differ from those that would have resulted had you received the form of consideration you elected (including the recognition of gain for federal income tax purposes with respect to the cash received). If you do not make an election, you will be deemed to have made an election to receive the merger consideration in such form of cash and/or shares of common stock as Provident Bancorp shall determine. PROVIDENT BANCORP MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER. The success of the merger will depend on, among other things, Provident Bancorp's ability to realize anticipated cost savings and to combine the businesses of Provident Bank, Warwick Savings and Towne Center Bank in a manner that does not materially disrupt the existing customer relationships of Provident Bank, Warwick Savings or Towne Center Bank or result in decreased revenues from any loss of customers. If Provident Bancorp is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. Provident Bancorp and Warwick Community Bancorp have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of Provident Bancorp's or Warwick Community Bancorp's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Provident Bancorp to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger. 33
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BECAUSE THE MARKET PRICE OF PROVIDENT BANCORP COMMON STOCK MAY FLUCTUATE, YOU CANNOT BE SURE OF THE VALUE OF THE MERGER CONSIDERATION THAT YOU WILL RECEIVE. Upon completion of the merger, each share of Warwick Community Bancorp common stock will be converted into merger consideration consisting of shares of Provident Bancorp common stock or cash pursuant to the terms of the merger agreement. The price of Provident Bancorp common stock may increase or decrease before or after completion of the merger and, therefore, the implied value of the stock portion of the merger consideration may be higher or lower than the implied value of the stock portion of the merger consideration on March 12, 2004, _________, 2004 or the closing date of the merger, and the market price of the stock component of the merger consideration may be more or less than the cash component of the merger consideration. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond our control. WARWICK COMMUNITY BANCORP STOCKHOLDERS WHO MAKE ELECTIONS WILL BE UNABLE TO SELL THEIR SHARES IN THE MARKET AFTER MAKING THEIR ELECTION. Warwick Community Bancorp stockholders may elect to receive the merger consideration in the form of cash or stock. Stockholders making an election must turn in their Warwick Community Bancorp stock certificates with their election form. During the time between when the election is made and when stock certificates are received by stockholders following the completion of the merger, Warwick Community Bancorp stockholders will be unable to sell their Warwick Community Bancorp common stock. If the merger is unexpectedly delayed, this period could extend for a significant period of time. Elections received after the close of the election period will not be accepted or honored. WARWICK COMMUNITY BANCORP DIRECTORS AND OFFICERS HAVE INTERESTS IN THE MERGER BESIDES THOSE OF A STOCKHOLDER. Some of Warwick Community Bancorp's executive officers participated in negotiations of the merger agreement with Provident Bancorp, and the board of directors approved the merger agreement and is recommending that Warwick Community Bancorp stockholders vote for the merger agreement. In considering these facts and the other information contained in this Proxy Statement/Prospectus, you should be aware that Warwick Community Bancorp's executive officers and directors have financial interests in the merger besides being Warwick Community Bancorp stockholders. See "Interests of Directors and Officers in the Merger." These interests include: o the payment of certain benefits in consideration of the termination of existing employment agreements. o the acceleration of and payment at or within thirty days following the merger of certain retirement benefits to two officers under two non tax-qualified retirement plans. 34
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o the appointment of two directors of Warwick Community Bancorp to the boards of directors of Provident Bancorp and Provident Bank upon the closing of the merger. o the payout at the effective time of the merger, of all outstanding vested and unvested stock options, including options for up to __________ shares of common stock held by Warwick Community Bancorp's executive officers and directors, in the form of cash. o the agreement by Provident Bancorp to indemnify Warwick Community Bancorp directors and officers and to provide such persons with directors' and officers' liability insurance. PROVIDENT BANCORP MAY NOT RECEIVE REQUIRED REGULATORY APPROVALS. SUCH APPROVALS, IF RECEIVED, MAY BE SUBJECT TO ADVERSE REGULATORY CONDITIONS Before the merger may be completed, various approvals must be obtained from, or notifications submitted to, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the New York State Banking Department and the Federal Reserve Bank of New York. We cannot guarantee that we will receive all required regulatory approvals in order to complete the merger. In addition, some of the governmental authorities from whom those approvals must be obtained may impose conditions on the completion of the merger or require changes in the terms of the merger. These conditions or changes could have the effect of delaying the merger or imposing additional costs or limiting the possible revenues of the combined company. RISKS ABOUT PROVIDENT BANCORP You should consider carefully the following risk factors in evaluating an investment in the shares of common stock. OUR COMMERCIAL REAL ESTATE, COMMERCIAL BUSINESS AND CONSTRUCTION LOANS EXPOSE US TO INCREASED CREDIT RISKS. At March 31, 2004, our portfolio of commercial real estate loans totaled $311.3 million, or 32.4% of total loans, our portfolio of commercial business loans totaled $101.0 million, or 10.5% of total loans, and our portfolio of construction loans totaled $41.7 million, or 4.3% of total loans. We plan to continue to emphasize the origination of these types of loans. Commercial real estate, commercial business and construction loans generally have greater credit risk than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful business operations of the borrowers. These loans typically have larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Many of our borrowers also have more than one commercial real estate, commercial business or construction loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to 35
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significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. CHANGES IN THE VALUE OF GOODWILL COULD REDUCE OUR EARNINGS. On April 23, 2002, we completed our acquisition of The National Bank of Florida. We recorded the assets acquired and liabilities assumed from The National Bank of Florida at their fair values at the closing date. The amount we paid for The National Bank of Florida in excess of the fair value of the net assets acquired was recorded as goodwill, which is an intangible asset. At December 31, 2003, the balance of goodwill on our balance sheet was $13.5 million. On January 14, 2004, we completed our acquisition of E.N.B. Holding Company. We recorded the assets acquired and liabilities assumed from E.N.B. Holding Company at their fair values at the closing date. The amount we paid for E.N.B. Holding Company in excess of the fair value of the net assets acquired was recorded as goodwill, which is an intangible asset. At March 31, 2004, the balance of goodwill resulting from the acquisition of E.N.B. Holding Company on our balance sheet was $52.1 million. We are required by accounting principles generally accepted in the United States of America to test goodwill for impairment at least annually. Testing for impairment of goodwill involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. As of March 31, 2004, if our goodwill were fully impaired and we were required to charge-off all of our goodwill, the pro forma reduction to our stockholders' equity would be approximately $1.32 per share. WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH MAY DIVERT RESOURCES AND LIMIT OUR ABILITY TO SUCCESSFULLY EXPAND OUR OPERATIONS. We have grown substantially from $757.9 million of total assets and $595.1 million of total deposits at December 31, 1998 to $1.7 billion of total assets and $1.2 billion of total deposits at March 31, 2004. We expect that our assets, deposits, number of customers and scale of operations will continue to grow significantly. Since 1998, we have expanded our branch network by both acquiring financial institutions and establishing de novo branches. At September 30, 1998, we had 11 branch offices, compared to 27 branches at March 31, 2004. In addition, during the next four years, we expect to open one new branch office per year. We cannot assure you that our ongoing branch expansion strategy will be accretive to our earnings, or that it will be accretive to earnings within a reasonable period of time. Numerous factors contribute to the performance of a new branch, such as a suitable location, qualified personnel and an effective marketing strategy. Additionally, it takes time for a new branch to generate significant deposits and make sufficient loans to produce enough income to offset expenses, some of which, like salaries and occupancy expense, are relatively fixed costs. We have incurred substantial expenses to build our management team and personnel, develop our delivery systems and establish an infrastructure to support future growth. Our future 36
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success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures, and to manage a growing number of client relationships. We may not be able to successfully implement improvements to our management information and control systems in an efficient or timely manner, and we may discover deficiencies in our existing systems and controls. Thus, we cannot assure you that our growth strategy will not place a strain on our administrative and operational infrastructure or require us to incur additional expenditures beyond current projections to support our future growth. Our future profitability will depend in part on our continued ability to grow. We cannot assure you that we will be able to sustain our historical growth rate or grow at all. PROVIDENT BANCORP'S FINANCIAL SUCCESS DEPENDS ON THE SUCCESSFUL INTEGRATION OF ITS RECENT ACQUISITIONS. Provident Bancorp's future growth and profitability depends, in part, on its ability to successfully complete its acquisition of Warwick Community Bancorp and manage the combined operations as well as the operations of E.N.B. Holding Company, which was acquired on January 14, 2004. For the acquisitions to be successful, Provident Bancorp will have to succeed in combining the personnel and operations of Provident Bancorp, Warwick Community Bancorp and E.N.B. Holding Company and in achieving expense savings by eliminating selected redundant operations. We cannot assure you that our plan to integrate and operate the combined operations will be timely or efficient, or that we will successfully retain existing customer relationships of Warwick Savings. THE ISSUANCE OF SHARES AND CASH TO THE CHARITABLE FOUNDATION WILL ADVERSELY AFFECT NET INCOME IN 2004. We established a charitable foundation in connection with the second-step conversion. We made a contribution to the charitable foundation in the form of shares of Provident Bancorp common stock and cash. We issued 400,000 shares of common stock to the charitable foundation, which equals 2.0% of the shares of common stock sold in the second-step offering. The balance of the contribution to the charitable foundation consisted of a cash payment of $1.0 million. The aggregate contribution will have an adverse effect on our net income for the fiscal year ending September 30, 2004. The after-tax expense of the contribution will reduce net income in our 2004 fiscal year by approximately $3.0 million. OUR CONTRIBUTION TO THE PROVIDENT BANK CHARITABLE FOUNDATION MAY NOT BE TAX DEDUCTIBLE, WHICH COULD REDUCE OUR PROFITS. We believe that the contribution to the Provident Bank Charitable Foundation, valued at $5.0 million, pre-tax, will be deductible for federal income tax purposes. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully. 37
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OUR CONTINUING CONCENTRATION OF LOANS IN OUR PRIMARY MARKET AREA MAY INCREASE OUR RISK. Our success depends primarily on the general economic conditions in the counties in which we conduct business, and in the New York metropolitan area in general. Unlike larger banks that are more geographically diversified, we provide banking and financial services to customers primarily in Rockland and Orange Counties, New York, as well as Sullivan and Ulster Counties, New York. Following our acquisition of Warwick Community Bancorp, we will also provide banking services to customers in Putnam County, New York and Bergen County, New Jersey. The local economic conditions in our market area have a significant impact on our loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. A significant decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would affect these local economic conditions and could adversely affect our financial condition and results of operations. Additionally, because we have a significant amount of commercial real estate loans, decreases in tenant occupancy also may have a negative effect on the ability of many of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO COVER ACTUAL LOAN LOSSES, OUR EARNINGS COULD DECREASE. Our loan customers may not repay their loans according to the terms of the loans, and the collateral securing the repayment of these loans may be insufficient to cover any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets, if any, serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we rely on our loan quality reviews, our experience and our evaluation of economic conditions, among other factors. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which may require additions to our allowance. Any material additions to our allowance for loan losses would materially decrease our net income. Our business strategy calls for continued growth of commercial real estate loans, commercial business loans and construction loans. These loans typically expose us to greater risk than one- to four-family residential real estate loans. As we further increase the amount of these loans in our loan portfolio, we may increase our provisions for loan losses, which could adversely affect our earnings. In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provisions for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities could have a material adverse effect on our results of operations and financial condition. 38
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CHANGES IN MARKET INTEREST RATES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Our financial condition and results of operations are significantly affected by changes in market interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. Our interest-bearing assets generally reprice or mature more quickly than our interest-earning liabilities. However, if rates increase rapidly as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments reprice, resulting in a negative impact on interest spreads and net interest income. In addition, the impact of rising rates could be compounded if deposit customers move funds from savings accounts back to higher-rate certificate of deposit accounts. Conversely, should market interest rates continue to fall below today's level, our net interest margin could also be negatively affected, as competitive pressures could keep us from reducing rates much lower on our deposits, and prepayments and curtailments on assets may continue. Such movements may cause a decrease in the interest rate spread and net interest margin. We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. Changes in interest rates also affect the value of our interest-earning assets, and in particular our securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. At March 31, 2004, our investment and mortgage-backed securities available for sale totaled $524.2 million. Unrealized gains on securities available for sale, net of tax, amounted to $4.4 million and are reported as a separate component of stockholders' equity. Decreases in the fair value of securities available for sale, therefore, could have an adverse effect on stockholders' equity. STRONG COMPETITION WITHIN OUR MARKET AREA MAY LIMIT OUR GROWTH AND PROFITABILITY. Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, internet banks, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or national institutions) have substantially greater resources and lending limits than we have, and may offer certain services that we do not or cannot provide. Our profitability depends upon our continued ability to successfully compete in our market area. 39
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WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY CHANGES IN LAWS AND REGULATIONS. Provident Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, its chartering authority, and by the Federal Deposit Insurance Corporation, which insures Provident Bank's deposits. Provident Municipal Bank is subject to extensive regulation, supervision and examination by the New York State Banking Department, its chartering authority, and by the Federal Deposit Insurance Corporation, which insures Provident Municipal Bank's deposits. As a savings and loan holding company, Provident Bancorp is subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision govern the activities in which financial institutions and their holding companies may engage and are intended primarily for the protection of the federal deposit insurance fund and depositors. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operations of financial institutions, the classification of assets by financial institutions and the adequacy of financial institutions' allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on Provident Bank, Provident Municipal Bank, Provident Bancorp and our operations. Our operations are also subject to extensive regulation by other federal, state and local governmental authorities, and are subject to various laws and judicial and administrative decisions that impose requirements and restrictions on our operations. These laws, rules and regulations are frequently changed by legislative and regulatory authorities. There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects. THE IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP INTEREST. We intend to adopt a stock option plan and a recognition and retention plan no earlier than six months following the second-step offering, which was completed on January 14, 2004, subject to receipt of stockholder approval. These stock-based benefit plans will be funded either through open market purchases, if permitted, or from the issuance of authorized but unissued shares of common stock of Provident Bancorp. While our intention is to fund these plans through open market purchases, stockholders will experience a reduction or dilution in ownership interest in the event newly issued shares are used to fund stock options and stock awards. In addition, at March 31, 2004, Provident Bancorp had outstanding options to purchase 1,381,152 shares of its common stock, as adjusted for the exchange ratio in the second-step conversion. If any existing options are exercised for authorized but unissued shares of common stock, stockholders will experience dilution. Because Office of Thrift Supervision regulations prohibit us from repurchasing our common stock during the first year following the second-step conversion unless compelling business reasons exist for such repurchases, we will be required to 40
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issue authorized but unissued shares to fund option exercises that occur during the first year following the conversion. OUR RECOGNITION AND RETENTION PLAN WILL INCREASE OUR COSTS, WHICH WILL REDUCE OUR PROFITABILITY AND STOCKHOLDERS' EQUITY. We intend to implement a recognition and retention plan no earlier than six months after the offering, subject to receipt of stockholder approval. Under this plan, our officers and directors may be awarded, at no cost to them, shares of common stock in an aggregate amount equal to 4% of the shares of common stock sold in the offering (including shares we issue to the Provident Bank Charitable Foundation). The shares of common stock awarded under the recognition plan will be expensed by us over their vesting period at the fair market value of the shares on the date they are awarded. The recognition and retention plan cannot be implemented until at least six months after the completion of the offering. If the plan is adopted within 12 months after the completion of the conversion, it is subject to Office of Thrift Supervision regulations. If the shares of common stock to be awarded under the plan are repurchased in the open market (rather than issued directly by Provident Bancorp) and cost the same as the closing price of $11.85 as of March 31, 2004, the reduction to stockholders' equity from the plan would be $9.5 million. WE MAY BE REQUIRED TO CHANGE THE WAY WE RECOGNIZE EXPENSE FOR OUR STOCK OPTIONS. We account for our stock option plan in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, we recognize compensation expense only if the exercise price of an option is less than the fair value of the underlying stock on the date of the grant. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages the use of a fair-value-based method of accounting for employee stock compensation plans, but permits our continued use of the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25. Under Statement of Financial Accounting Standards No. 123, the grant-date fair value of options is recognized as compensation expense over the vesting period. Our net income will decrease if the Financial Accounting Standards Board requires us to recognize expense using the fair-value-based method of accounting for stock options. See Note 3 of the Notes to Consolidated Financial Statements. A BREACH OF INFORMATION SECURITY COULD NEGATIVELY AFFECT OUR EARNINGS. Increasingly, we depend upon data processing, communication and information exchange on a variety of computing platforms and networks, and over the internet. We cannot be certain all our systems are entirely free from vulnerability to attack, despite safeguards we have instituted. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. These costs or losses could materially exceed the amount of insurance coverage, if any, which would adversely affect our earnings. 41
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VARIOUS FACTORS MAY MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE. Our board of directors has no current intention to sell control of Provident Bancorp. Provisions of our certificate of incorporation and bylaws, federal regulations, Delaware law and various other factors may make it more difficult for companies or persons to acquire control of Provident Bancorp without the consent of our board of directors. You may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock. The factors that may discourage takeover attempts or make them more difficult include: o OFFICE OF THRIFT SUPERVISION REGULATIONS. Office of Thrift Supervision regulations prohibit, for three years following the completion of a mutual-to-stock conversion, the direct or indirect acquisition of more than 10% of any class of equity security of a converted savings institution without the prior approval of the Office of Thrift Supervision. o CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS. Provisions of the certificate of incorporation and bylaws of Provident Bancorp and Delaware law may make it more difficult and expensive to pursue a takeover attempt that management opposes. These provisions also would make it more difficult to remove our current board of directors or management, or to elect new directors. These provisions include limitations on voting rights of beneficial owners of more than 10% of our common stock, supermajority voting requirements for certain business combinations and the election of directors to staggered terms of three years. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the board of directors. o REQUIRED CHANGE IN CONTROL PAYMENTS AND ISSUANCE OF STOCK OPTIONS AND RECOGNITION PLAN SHARES. We have entered into employment agreements with certain executive officers, which will require payments to be made to them in the event their employment is terminated following a change in control of Provident Bancorp or Provident Bank. We have also issued and intend to adopt one or more plans to permit additional issuances of stock options and recognition plan shares to key employees and directors that will require payments to them in connection with a change in control of Provident Bancorp. These payments will have the effect of increasing the costs of acquiring Provident Bancorp, thereby discouraging future takeover attempts. RISKS RELATED TO PRIOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF WARWICK COMMUNITY BANCORP Arthur Andersen LLP, who audited the financial statements of Warwick Community Bancorp for the year ended December 31, 2001, which financial statements are incorporated by reference into this Proxy Statement/Prospectus, was convicted on June 15, 2002 of federal obstruction of justice arising from the government's investigation of Enron Corp. As it has ceased operations, Arthur Andersen LLP has not consented to incorporation by reference into 42
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this Proxy Statement/Prospectus of their report on the financial statements of Warwick Community Bancorp for the year ended December 31, 2001. Under Section 11 of the Securities Act of 1933, stockholders may have no effective remedy against Arthur Andersen LLP in connection with a material misstatement or omission in the 2001 financial statements of Warwick Community Bancorp incorporated by reference into this Proxy Statement/Prospectus. 43
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This document contains or incorporates by reference a number of forward-looking statements regarding the financial condition, results of operations and business of Provident Bancorp and Warwick Community Bancorp, and may include statements for the period following the completion of the merger. You can find many of these statements by looking for words such as "plan," "believe," "expect," "intend," "anticipate," "estimate," "project," "potential" or other similar expressions. The ability of Provident Bancorp and Warwick Community Bancorp to predict results or the actual effects of its plans and strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results. Some of the factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, the following: o difficulties in obtaining required stockholder and regulatory approvals for the merger; o increases in competitive pressure among financial institutions or from non-financial institutions; o changes in the interest rate environment; o changes in deposit flows, loan demand or real estate values; o changes in accounting principles, policies or guidelines; o legislative or regulatory changes; o changes in general economic conditions, either nationally or in some or all of the operating areas in which the combined company will be doing business, or conditions in securities markets or the banking industry; o a materially adverse change in the financial condition of Provident Bancorp or Warwick Community Bancorp; o the level and timeliness of realization, if any, of expected cost savings from the merger; o difficulties related to the consummation of the merger and the integration of the businesses of Provident Bancorp and Warwick Community Bancorp; o lower than expected revenues following the merger; and o other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting operations, pricing and services. 44
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Because such forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Warwick Community Bancorp stockholders are cautioned not to place undue reliance on such statements, which speak only as of the date of this document or the date of any document incorporated by reference, or such other relevant historical date in this or incorporated documents. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to Provident Bancorp or Warwick Community Bancorp or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, Provident Bancorp and Warwick Community Bancorp undertake no obligation to update such forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. 45
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THE WARWICK COMMUNITY BANCORP, INC. ANNUAL MEETING THIS SECTION CONTAINS INFORMATION FOR WARWICK COMMUNITY BANCORP STOCKHOLDERS ABOUT THE ANNUAL MEETING OF STOCKHOLDERS WARWICK COMMUNITY BANCORP HAS CALLED TO CONSIDER AND APPROVE THE MERGER AGREEMENT AS WELL AS VOTE ON THE ELECTION OF THREE DIRECTORS AND RATIFY THE APPOINTMENT OF KPMG LLP AS WARWICK COMMUNITY BANCORP'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2004. Together with this document, Warwick Community Bancorp is also sending you a notice of the Warwick Community Bancorp annual meeting of stockholders and a form of proxy that is solicited by its board of directors. The annual meeting of stockholders will be held on __________, 2004 at ________ a.m., local time, at ___________________, ___________________, __________, New York. This Proxy Statement/ Prospectus is first being mailed to stockholders of Warwick Community Bancorp on or about ________, 2004. MATTERS TO BE CONSIDERED The purpose of the Warwick Community Bancorp annual meeting of stockholders is to vote on a proposal to approve the merger agreement as well as vote on the election of three directors and ratify the appointment of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. You may be asked to vote upon any other matters that may properly be submitted to a vote at the Warwick Community Bancorp annual meeting. You also may be asked to vote upon a proposal to adjourn or postpone the Warwick Community Bancorp annual meeting. Warwick Community Bancorp could use any adjournment or postponement for the purpose, among others, of allowing additional time to solicit proxies. PROXIES Each copy of this document mailed to Warwick Community Bancorp stockholders is accompanied by a proxy card with voting instructions for submission by mail. You should complete and return the proxy card accompanying this document to ensure that your vote is counted at the Warwick Community Bancorp annual meeting, or at any adjournment or postponement of the meeting, regardless of whether you plan to attend the Warwick Community Bancorp annual meeting. You can revoke your proxy at any time before the vote is taken at the Warwick Community Bancorp annual meeting. If your shares are held in "street name," your broker will vote your shares on Proposal I only if you provide instructions to your broker on how to vote. If you have not voted through your broker, you may revoke your proxy by: o submitting written notice of revocation to the Corporate Secretary of Warwick Community Bancorp prior to the voting of such proxy; o submitting a properly executed proxy bearing a later date; or o voting in person at the annual meeting; however, simply attending the annual meeting without voting will not revoke an earlier proxy. 46
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Written notices of revocation and other communications about revoking your proxy should be addressed to: Warwick Community Bancorp, Inc. 18 Oakland Avenue Warwick, New York 10990 Attention: Lois E. Ulatowski Corporate Secretary If your shares are held in street name, you should follow the instructions of your broker regarding the revocation of proxies. All shares represented by valid proxies Warwick Community Bancorp receives through this solicitation, and not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted "FOR" approval of the merger agreement as well as vote "FOR" the election of three directors and the ratification of the appointment of KPMG LLP as Warwick Community Bancorp's independent registered public accounting firm for the year ending December 31, 2004. The Warwick Community Bancorp board of directors is presently unaware of any other matters that may be presented for action at the annual meeting. If other matters do properly come before the annual meeting, or at any adjournment or postponement thereof, Warwick Community Bancorp intends that shares represented by properly submitted proxies will be voted, or not voted, by and at the discretion of the persons named as proxies on the proxy card. However, proxies that indicate a vote against approval of the merger agreement will not be voted in favor of adjourning or postponing the annual meeting to solicit additional proxies. WARWICK COMMUNITY BANCORP STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. WARWICK COMMUNITY BANCORP STOCKHOLDERS WILL BE SENT ELECTION FORMS AND INSTRUCTIONS, AT WHICH TIME THEY WILL BE REQUESTED TO SUBMIT THEIR STOCK CERTIFICATES. IF THE MERGER IS COMPLETED, WARWICK COMMUNITY BANCORP STOCKHOLDERS WHO DID NOT MAKE A TIMELY OR PROPER ELECTION WILL BE MAILED A TRANSMITTAL FORM PROMPTLY FOLLOWING THE COMPLETION OF THE MERGER WITH INSTRUCTIONS ON HOW TO EXCHANGE THEIR WARWICK COMMUNITY BANCORP STOCK CERTIFICATES FOR THE MERGER CONSIDERATION. SOLICITATION OF PROXIES Warwick Community Bancorp will bear the entire cost of soliciting proxies from its stockholders. In addition to solicitation of proxies by mail, Warwick Community Bancorp will request that banks, brokers and other record holders send proxies and proxy material to the beneficial owners of Warwick Community Bancorp common stock and secure their voting instructions, if necessary. Warwick Community Bancorp will reimburse the record holders for their reasonable expenses in taking those actions. Warwick Community Bancorp has also made arrangements with Georgeson Shareholder Communications Inc. to assist it in soliciting proxies and has agreed to pay them a fee of $________ plus reasonable expenses for these services. If necessary, Warwick Community Bancorp may use several of its regular employees, who will not 47
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be specially compensated, to solicit proxies from Warwick Community Bancorp stockholders, either personally or by telephone, telegram, facsimile or letter. RECORD DATE The Warwick Community Bancorp board of directors has fixed the close of business on __________, 2004 as the record date for determining the Warwick Community Bancorp stockholders entitled to receive notice of and to vote at the Warwick Community Bancorp annual meeting of stockholders. On __________, 2004, ___________ shares of Warwick Community Bancorp common stock were outstanding and held by approximately ______ holders of record. VOTING RIGHTS AND VOTE REQUIRED The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of Warwick Community Bancorp common stock is necessary to constitute a quorum at the Warwick Community Bancorp annual meeting of stockholders. Abstentions and broker non-votes will be counted solely for the purpose of determining whether a quorum is present. An unvoted proxy submitted by a broker is sometimes referred to as a broker non-vote. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Warwick Community Bancorp common stock entitled to vote at the Warwick Community Bancorp annual meeting. Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which the authority to vote the nominees being proposed is withheld. The ratification of the independent registered public accounting firm is determined by a majority of the votes cast, without regard to broker non-votes; however, proxies marked "Abstain" will have the same effect as a vote against ratification. You are entitled to one vote for each share of Warwick Community Bancorp common stock you held as of the record date. However, Warwick Community Bancorp's certificate of incorporation provides that stockholders of record who beneficially own in excess of 10% of the then-outstanding shares of common stock of Warwick Community Bancorp are not entitled to any vote with respect to the shares held in excess of the 10% limit. BECAUSE THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF WARWICK COMMUNITY BANCORP COMMON STOCK ENTITLED TO VOTE AT THE WARWICK COMMUNITY BANCORP ANNUAL MEETING IS NEEDED FOR US TO PROCEED WITH THE MERGER, THE FAILURE TO VOTE BY PROXY OR IN PERSON WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. ABSTENTIONS AND BROKER NON-VOTES ALSO WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. ACCORDINGLY, THE WARWICK COMMUNITY BANCORP BOARD OF DIRECTORS URGES WARWICK COMMUNITY BANCORP STOCKHOLDERS TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. As of the record date, directors and executive officers of Warwick Community Bancorp and their affiliates had the right to vote ________ shares of Warwick Community Bancorp common stock, or ____% of the outstanding Warwick Community Bancorp common stock at that date. As of that date, directors and executive officers of Provident Bancorp and their affiliates had the right to vote ________ shares of Warwick Community Bancorp common stock, or ____% of the outstanding Warwick Community Bancorp common stock at that date. 48
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Warwick Community Bancorp's directors have agreed to vote their shares of Warwick Community Bancorp common stock in favor of the merger agreement. It is currently anticipated that Warwick Community Bancorp's executive officers, and the directors and executive officers of Provident, will vote their shares of Warwick Community Bancorp common stock in favor of the merger agreement, although none of such persons (other than executive officers of Warwick Community Bancorp who are also directors of Warwick Community Bancorp) have entered into any agreements with respect to the voting of their shares. RECOMMENDATION OF THE BOARD OF DIRECTORS The Warwick Community Bancorp board of directors has unanimously approved the merger agreement and the transactions contemplated in the merger agreement. The Warwick Community Bancorp board of directors has determined that the merger agreement and the transactions contemplated in the merger agreement are advisable and in the best interests of Warwick Community Bancorp and its stockholders and unanimously recommends that you vote "FOR" approval of the merger agreement, "FOR" each of the Warwick Community Bancorp nominees for directors listed in this Proxy Statement/Prospectus and "FOR" the ratification of the appointment of KPMG LLP as independent registered public accounting firm for the year ending December 31, 2004. See "Proposal I--The Proposed Merger-- Warwick Community Bancorp's Reasons for the Merger; Recommendation of Warwick Community Bancorp's Board of Directors" on page 58 for a more detailed discussion of the Warwick Community Bancorp board of directors' recommendation. ATTENDING THE WARWICK COMMUNITY BANCORP ANNUAL MEETING If you want to vote your shares of Warwick Community Bancorp common stock held in street name in person at the annual meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares. PARTICIPANTS IN WARWICK COMMUNITY BANCORP'S AND WARWICK SAVINGS' BENEFIT PLANS Participants in the Warwick Community Bancorp's stock-based benefit plans, such as the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan, The Warwick Savings Bank 401(k) Savings Plan and the Recognition and Retention Plan of Warwick Community Bancorp, Inc. have the right to direct the voting of Warwick Community Bancorp common stock allocated to their plan accounts but do not have the right to vote these shares personally at Warwick Community Bancorp's annual meeting. Such participants should refer to the voting instructions provided by the plan trustees for information on how to direct the voting of these shares. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF WARWICK COMMUNITY BANCORP The following table sets forth certain information as to those persons that Warwick Community Bancorp believes are beneficial owners of more than 5% of Warwick Community Bancorp's outstanding common stock as of ___________, 2004. Persons and groups that beneficially own in excess of 5% of Warwick Community Bancorp's common stock are required 49
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to file certain reports with Warwick Community Bancorp and with the Securities and Exchange Commission regarding such beneficial ownership. For purposes of the table below and the table set forth under "Beneficial Stock Ownership of Management," a person is deemed to be the beneficial owner of any shares of common stock (1) over which the person has or shares, directly or indirectly, voting or investment power, or (2) of which the person has a right to acquire beneficial ownership at any time within 60 days after _________, 2004. "Voting Power" is the power to vote or direct the voting of shares and "investment power" includes the power to dispose or direct the disposition of shares. As of _________, 2004, there were _____ shares of Warwick Community Bancorp common stock outstanding. · Enlarge/Download Table AMOUNT AND NATURE PERCENT OF NAME AND ADDRESS OF OF BENEFICIAL COMMON STOCK BENEFICIAL OWNER OWNERSHIP OUTSTANDING ------------------------------------------------ --------------------------- --------------------------- Warwick Community Bancorp, Inc. 460,370(1) 10.23% Employee Stock Ownership Plan 18 Oakland Avenue Warwick, New York 10990-0591 Citigroup Global Markets, Inc. 430,983(2) 9.58% Citigroup Financial Products, Inc. Citigroup Global Markets Holdings Inc. 388 Greenwich Street New York, New York 10013 and Citigroup Inc. 399 Park Avenue New York, New York 10043 Kahn Brothers & Co., Inc. 428,415(3) 9.52% 555 Madison Avenue, 22nd Floor New York, New York 10022 ------------------------- (1) The Employee Stock Ownership Plan, referred to as the ESOP, is administered by the ESOP Committee consisting of the Company's President and Chief Operating Officer, Ronald J. Gentile, as plan administrator and a committee established pursuant to the ESOP, consisting of Warwick Community Bancorp officers. The ESOP trustee, RS Group Trust Co., will be instructed regarding investment of assets held in the ESOP. The ESOP generally votes all allocated shares held in the ESOP in accordance with the instructions of participants. As of December 31, 2003, 190,380 of the 460,370 shares held in the ESOP were allocated to participants. Pursuant to the terms of the ESOP, allocated shares for which no instructions are given and unallocated shares are generally voted by the ESOP trustee in a manner calculated to most accurately reflect the voting instructions received from participants regarding the allocated shares so long as such vote is in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended. (2) Based on information in a Schedule 13G/A, dated February 17, 2004, filed by Citigroup Global Markets, Inc. ("CGM"), a New York corporation, Citigroup Financial Products, Inc. ("CFP"), a Delaware corporation, Citigroup Global Markets Holdings Inc. ("CGMH"), a New York corporation and Citigroup Inc. ("Citigroup"), a Delaware corporation. CGM, CFP, CGMH and Citigroup have reported shared voting and shared dispositive power over all of the shares shown. (3) Based on information provided to us as of March 15, 2004, by Mr. Thomas G. Kahn, President and Director of Kahn Brothers & Co., Inc., a New York corporation and registered investment advisor. Kahn Brothers & Co., Inc. has reported shared voting and dispositive power over all of the shares shown. The reporting person may acquire or dispose of additional shares on behalf of its clients from time to time. Mr. Kahn is also a Director of the Company. See "Beneficial Stock Ownership of Management" below for additional shares beneficially owned by Mr. Kahn. BENEFICIAL STOCK OWNERSHIP OF MANAGEMENT The following table sets forth information with respect to the shares of Warwick Community Bancorp common stock beneficially owned by each director of Warwick 50
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Community Bancorp, by each executive officer of Warwick Community Bancorp identified in the Summary Compensation Table included on page 134 of this Proxy Statement/Prospectus and by all directors and executive officers as a group as of __________, 2004. Except as otherwise indicated, each person shown in the table has sole voting and investment power with respect to the shares of common stock indicated. The titles for the individuals listed in the following table are Warwick Community Bancorp titles, except as otherwise noted. · Enlarge/Download Table AMOUNT AND NATURE OF PERCENT OF BENEFICIAL COMMON STOCK NAME TITLE OWNERSHIP(1)(2)(3)(4)(5) OUTSTANDING -------------------------- ------------------------------------------ -------------------------- ----------------------- Fred G. Kowal Chairman of the Board and Chief (6) % Executive Officer Ronald J. Gentile President, Chief Operating Officer (6) % and Director Arthur W. Budich Senior Vice President, Treasurer and % Chief Financial Officer Anthony R. Bottini Director (7) % Thomas G. Kahn Director (7)(8) % R. Michael Kennedy Director % Fred M. Knipp Director % Emil R. Krahulik Director % David F. McBride Director % John J. McDermott, III Director % John W. Sanford, III Director (7) % Robert N. Smith Director % All directors and executive officers as a group (12) persons) % ------------------------------ * Represents less than 1.0% of the outstanding common stock. (1) Includes the following number of shares which individuals have the right to acquire beneficial ownership of by the exercise of vested stock options: Mr. Kowal, _______ shares; Mr. Gentile, _______ shares; Mr. Budich, _______ shares; each of Messrs. Kennedy, Knipp, Sanford and Smith, _______ shares; Mr. Krahulik, _______ shares; Mr. McBride, _______ shares; Mr. McDermott, _______ shares; each of Messrs. Kahn and Bottini, _______ shares; and all directors and executive officers as a group, _______ shares. (2) Includes the following number of shares that have been allocated as of December 31, 2003 to individual accounts of ESOP participants: Mr. Kowal, _______ shares; Mr. Gentile, _______ shares; Mr. Budich, _______ shares; and all executive officers as a group, _______ shares. Such persons have voting power (subject to the duties of the ESOP trustee) but no investment power, except in limited circumstances, as to these shares. The figures shown do not include _______ shares of Warwick Community Bancorp common stock that have not been allocated to any individual's account and as to which the members of Warwick Community Bancorp's ESOP Committee and each of the participants identified in the table may be deemed to share investment power, except in limited circumstances, thereby causing each such person to be deemed a beneficial owner of such unallocated shares. Each of the members of the ESOP Committee and the participants identified in the table disclaims beneficial ownership of such shares and, accordingly, such shares are not attributed to the members of the ESOP Committee or the participants identified in the table individually. (3) Includes the following number of shares held in Warwick Community Bancorp's 401(k) Savings Plan that have been allocated as of __________, 2004, the latest practicable date, to individual accounts as follows: Mr. 51
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Kowal, _______ shares; Mr. Gentile, _______ shares; Mr. Budich, _______ shares; and all executive officers as a group, _______ shares. Such persons have shared voting and investment power as to such shares. (4) Includes the following number of restricted shares of Company common stock over which each individual has sole voting but no investment power: Mr. Kowal, _______ shares; Mr. Gentile, _______ shares; Mr. Budich, _______ shares; each of Messrs. Kennedy, Knipp, Krahulik, Sanford and Smith, _______ shares; and all directors and executive officers as a group, _______ shares. (5) Includes the following number of shares over which individuals may be deemed to share voting and investment power (other than as disclosed in notes 1, 2, 3, and 4): Mr. Gentile, _______ shares; Mr. Budich, _______ shares; Mr. Kennedy, _______ shares; Mr. Knipp, _______ shares; Mr. McDermott, _______ shares; Mr. Kahn, _____ shares; and all directors and executive officers as a group, _______ shares. (6) Does not include _______ and _______ share-equivalent units credited to Mr. Kowal's and Mr. Gentile's share-unit accounts, respectively, under Warwick Community Bancorp's Benefit Restoration Plan, or BRP. The value of these share-equivalent units mirrors the value of Warwick Community Bancorp common stock. The amounts ultimately realized by these individuals will reflect changes in the market value of Warwick Community Bancorp's common stock from the date of accrual until the date of payout. The share-equivalent units do not have voting rights, but are credited with dividend equivalent units. Share-equivalent units under the BRP are payable only in cash. (7) Includes share-equivalent units, as follows: Messrs Bottini, Kahn and Sanford, _______ shares, _______ shares and _______ shares, respectively, in deferral accounts. The value of these share-equivalent units mirrors the value of Warwick Community Bancorp common stock. The amounts ultimately realized by these individuals will reflect changes in the market value of Warwick Community Bancorp's common stock from the date of deferral until the date of payout. The share-equivalent units do not have voting rights, but are credited with dividend equivalent units. (8) Does not include _______ shares held by Kahn Brothers & Co., Inc. of which Mr. Kahn disclaims beneficial ownership. See footnote 3 under the " Beneficial Stock Ownership of 5% or More Shareholders" table above. INFORMATION ABOUT THE COMPANIES PROVIDENT BANCORP, INC. 400 RELLA BOULEVARD MONTEBELLO, NEW YORK 10901 (845) 369-8040 Provident Bancorp, Inc. is a Delaware corporation which, on January 14, 2004, became the savings and loan holding company for Provident Bank, following the completion of the second step conversion of Provident Bank from the mutual holding company structure to full stock ownership. On January 14, 2004, Provident Bancorp issued an aggregate of 35,240,358 shares of its common stock, par value $0.01 per share, in a subscription offering and an exchange offering. As a result of the conversion and the related stock offering, Provident Bancorp raised $192.4 million in net proceeds, of which $140.0 million was infused into Provident Bank and $52.4 million was retained by Provident Bancorp. Contemporaneous with the completion of the second step conversion, Provident Bancorp acquired E.N.B. Holding Company, Inc. for a purchase price consisting of 3,969,676 shares of Provident Bancorp common stock, and $36.8 million in cash. Immediately following the acquisition of E.N.B. Holding Company, its subsidiary, Ellenville National Bank, was merged into Provident Bank. As of the completion of the second step conversion on January 14, 2004, Provident Bancorp owned all of the outstanding common stock of Provident Bank. Currently, Provident Bancorp's activities consist solely of managing Provident Bank and investing its portion of the net proceeds received in the second step conversion. At March 31, 2004, Provident Bancorp had total consolidated assets of $1.7 52
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billion, net loans of $944.6 million, total deposits of $1.2 billion, and total stockholders' equity of $348.1 million. Provident Bank is a full-service, community-oriented savings association that provides financial services to individuals, families and businesses. Following the consummation of the E.N.B. Holding Company acquisition, Provident Bank operates through 27 branch offices and 37 ATMs throughout Rockland, Orange, Ulster and Sullivan Counties, New York. Originally organized in 1888 as a New York State-chartered mutual savings and loan association, Provident Bank reorganized into the mutual holding company structure in January 1999 and became the wholly-owned subsidiary of Provident Bancorp. As part of the mutual holding company reorganization, Provident Bancorp conducted an initial public offering and sold 46.7% of its shares of common stock to depositors. At September 30, 1998, we operated 11 branch offices. Subsequent to the mutual holding company reorganization and initial stock offering, we have broadened our market reach through de novo branching and our acquisition in April 2002 of The National Bank of Florida, located in Florida, New York. At the time of the acquisition, The National Bank of Florida had assets of $104.0 million and deposits of $88.2 million. In April 2002, Provident Bank organized Provident Municipal Bank as a wholly-owned subsidiary. Provident Municipal Bank is a New York State-chartered limited purpose commercial bank that is engaged in the business of accepting deposits from municipalities in our market area. Provident Bank's business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential, multi-family residential and commercial real estate loans, commercial business loans, consumer loans and in investment securities and mortgage-backed securities. Provident Bank is subject to regulation and supervision by the Office of Thrift Supervision, and by the Federal Deposit Insurance Corporation. Provident Municipal Bank is regulated by the New York State Banking Department, and by the Federal Deposit Insurance Corporation. Provident Bancorp routinely evaluates opportunities to expand through merger or acquisition. As a result, merger or acquisition discussions and, in some cases, negotiations may take place in the future, and mergers and acquisitions involving cash, debt or equity securities may occur. The impact of a merger or an acquisition would likely be reflected in Provident Bancorp's financial condition and results of operations. Additional information about Provident Bancorp and its subsidiaries is included in documents incorporated by reference in this Proxy Statement/Prospectus. See "Where You Can Find More Information" on page 142. 53
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WARWICK COMMUNITY BANCORP, INC. 18 OAKLAND AVENUE WARWICK, NEW YORK 10990 (845) 986-2206 Warwick Community Bancorp is a bank holding company incorporated in September 1997 under the laws of the State of Delaware and is registered under the Bank Holding Company Act of 1956, as amended. Warwick Community Bancorp elected to become a financial holding company under the BHCA in October 2000. Warwick Community Bancorp was organized for the purpose of acquiring all of the outstanding capital stock of Warwick Savings. Warwick Community Bancorp's operations consist principally of the operations of Warwick Savings and, as of October 26, 1999, The Towne Center Bank, a de novo commercial bank formed by Warwick Community Bancorp under the laws of the State of New Jersey and headquartered in Lodi, New Jersey. On February 26, 2001, Warwick Community Bancorp acquired Hardenburgh Abstract Company of Orange County, Inc., to engage in the title insurance agency business. On July 24, 2001, The Warwick Commercial Bank, a limited purpose commercial bank, was formed by Warwick Savings under the laws of the State of New York to hold deposits from public entities. Warwick Community Bancorp's subsidiaries' deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation up to the maximum amounts permitted by law. Warwick Savings' principal business has been and continues to be attracting retail deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, primarily in commercial business and multi-family and commercial real estate loans and investing in various mortgage-backed, debt and equity securities. Prior to 2002, Warwick Community Bancorp emphasized conventional mortgage loans secured by one-to four family residences. Warwick Community Bancorp currently emphasizes commercial lending products to be retained in its loan portfolio. Warwick Savings also originates home mortgage and equity loans known as "Good Neighbor Home Loans" and lines of credit and consumer loans. Towne Center opened for business on October 26, 1999. Towne Center's principal business consists of attracting business and consumer deposits and investing those deposits in consumer and commercial real estate and commercial business loans. Towne Center also invests in U.S. Treasury and agency securities, mortgage-backed securities and other investments deemed prudent by its Board of Directors. Warwick Community Bancorp's revenues are derived principally from the interest on its loans and investments and, to a lesser degree, from its loan and securities sales, servicing fee income, income derived from investment products offered through WSB Financial Services, Inc. ("WSB Financial") and title insurance fees generated through Hardenburgh. Warwick Community Bancorp's primary sources of funds are deposits, borrowings, principal and interest payments on loans and securities and proceeds from the sale of loans and securities. 54
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PROPOSAL I -- THE PROPOSED MERGER THE DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS DESCRIBES THE MATERIAL TERMS OF THE MERGER AGREEMENT; HOWEVER, IT DOES NOT PURPORT TO BE COMPLETE. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. WE HAVE ATTACHED A COPY OF THE MERGER AGREEMENT AS APPENDIX A. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT. GENERAL Pursuant to the merger agreement, Warwick Community Bancorp will merge into Provident Bancorp, with Provident Bancorp as the surviving entity. Outstanding shares of Warwick Community Bancorp common stock will be converted into the right to receive cash, shares of Provident Bancorp common stock or a combination of cash and stock. Cash will be paid in lieu of any fractional share of Provident Bancorp common stock. See "--Merger Consideration; Cash or Stock Election" below. As a result of the merger, the separate corporate existence of Warwick Community Bancorp will cease and Provident Bancorp will succeed to all of the rights and be responsible for all of the obligations of Warwick Community Bancorp. Following the merger of Warwick Community Bancorp into Provident Bancorp, Warwick Savings Bank and Towne Center Bank will merge into Provident Bank and the separate corporate existence of Warwick Savings Bank and Towne Center Bank shall cease. BACKGROUND OF THE MERGER The Warwick Community Bancorp board of directors has periodically discussed and reviewed with management the business, strategic direction, performance and prospects of Warwick Community Bancorp in the context of the current and prospective business environment and financial services landscape. The Warwick Community Bancorp board of directors has also at times discussed with management various potential strategic options, including strategies to grow Warwick Community Bancorp's business through business and marketing initiatives and through business combinations with other financial institutions. In this regard, the management of Warwick Community Bancorp has from time to time communicated informally with representatives of other financial institutions regarding industry trends and issues, their respective companies' strategic direction and the potential benefits and issues arising from potential business combination or other strategic transactions. In early December 2003, the Warwick Community Bancorp board of directors held a board meeting at which it reviewed with management the current financial services environment and the strategic options potentially available to Warwick Community Bancorp, including strategies for continuing as an independent entity and strategies for undertaking a strategic business combination with another financial institution. At the conclusion of this meeting, the board determined to invite Sandler O'Neill & Partners, L.P. to make a presentation to the board at its next board meeting later in December to review strategic options. In mid December 2003, representatives of Sandler O'Neill met with the Warwick Community Bancorp board and reviewed with the board financial and other information relating 55
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to Warwick Community Bancorp. Management and Sandler O'Neill also reviewed with the Warwick Community Bancorp board the current financial services environment, including continued consolidation, evolving trends in technology and increasing competition, and the potential impact of that environment on Warwick Community Bancorp's business, performance, prospects and strategic options. Management and Sandler O'Neill also discussed with the Warwick Community Bancorp board of directors the potential risks and benefits of various strategies. Among other things, the board noted that, as had previously been discussed by the board, size and diversification beyond a level it believed to be reasonably achievable by Warwick Community Bancorp on an independent basis was becoming increasingly important to continued success in the current financial services environment. At the conclusion of this meeting, the Warwick Community Bancorp board of directors preliminarily determined that a business combination with another financial institution was likely to present the best prospect for enhancing stockholder value, and authorized management to engage Sandler O'Neill as its financial advisor, and authorized management and Sandler O'Neill to make preliminary contacts with potential strategic partners. Beginning in early January, a number of financial institutions were contacted regarding their interest in a potential business combination transaction with Warwick Community Bancorp. Some of these institutions entered into confidentiality agreements with Warwick Community Bancorp, including Provident Bancorp, and were then provided with information concerning Warwick Community Bancorp. Beginning in late January, some of these financial institutions, including Provident Bancorp, indicated that they were interested in further considering a potential transaction with Warwick Community Bancorp, subject to due diligence, further discussions regarding the potential terms of a transaction, negotiation of definitive transaction documentation as appropriate, and board approval. Over the next two months, Warwick Community Bancorp management and its advisors discussed the possibility of a transaction with the interested institutions, including matters relating to the potential strategic benefits that a combination might offer and the possible range of terms for a transaction. These discussions included discussions among Warwick Community Bancorp management and its financial advisor and Provident Bancorp management and its financial advisor. During this time, the Warwick Community Bancorp board held a series of regular and special meetings at which it received updates on the progress of the discussions and authorized the continued pursuit of a possible transaction. Also during this time, some of the institutions contacted, including Provident Bancorp, conducted due diligence investigations of Warwick Community Bancorp. During the first two weeks of March 2004, Provident Bancorp finalized its due diligence investigation of Warwick Community Bancorp. Also during that period, representatives of Warwick Community Bancorp and its advisors conducted a due diligence investigation of Provident Bancorp. After further discussion, senior management of Warwick Community Bancorp and Provident Bancorp determined that, assuming the finalization of definitive transaction documentation, they were each prepared to present to their respective boards of directors a proposed part-cash, part-stock merger transaction. Following further arm's length negotiations, taking into account, among other things, the contributions of Warwick Community Bancorp to the business, operations, financial condition and prospects of the combined company, anticipated cost savings and the impact of the merger consideration on the combined company's 56
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earnings and prospects, management from each company agreed that they were willing to take to their respective boards of directors a transaction that would allow Warwick Community Bancorp stockholders to receive, at their election (but subject to adjustment in the event that either form of merger consideration was over-subscribed), for each share of Warwick Community Bancorp common stock owned as of the completion of the merger, either $32.26 in cash or 2.781 shares of Provident Bancorp common stock. Also during this time, legal counsel to Provident Bancorp and Warwick Community Bancorp worked to prepare definitive documentation with respect to the proposed merger. On March 15, 2004, the board of directors of Warwick Community Bancorp held a special meeting. Mr. Kowal and other members of senior management, together with Warwick Community Bancorp's financial and legal advisors, reviewed with the board of directors the terms of the proposed merger with Provident Bancorp. Mr. Kowal and representatives of Sandler O'Neill also reviewed prior discussions regarding strategic alternatives, solicitations of other indications of interests in a possible transaction with Warwick Community Bancorp, and the results and status of prior discussions with other potential merger partners. Mr. Kowal and other members of senior management, as well as representatives of Sandler O'Neill, also discussed with the board the results of their due diligence review of Provident Bancorp. In addition, representatives of Sandler O'Neill discussed a range of matters, including the matters set forth in "Opinion of Warwick Community Bancorp's Financial Advisors." Representatives of Sandler O'Neill, together with Warwick Community Bancorp management, also reviewed the special dividend that Warwick Community Bancorp would be entitled to pay prior to completion of the merger. Representatives of Sandler O'Neill and management discussed with the Warwick Community Bancorp board of directors the fact that the amount of the dividend would depend upon the disposition of automobiles contained in the automobile lease portfolio held by Warwick Savings Bank, but noted that the total dividend payout possibility was limited to approximately $7.8 million (or approximately $1.74 per share), and that the ultimate amount of the dividend (if any) would depend on a number of factors that prevented any assurance as to the amount or timing of the potential special dividend. After this discussion, Sandler O'Neill rendered to the Warwick Community Bancorp board of directors its oral opinion (subsequently confirmed in writing) that, as of the date of the board meeting and based upon and subject to the considerations described in its opinion, the proposed merger consideration was fair, from a financial point of view, to holders of Warwick Community Bancorp common stock. Representatives of Wachtell, Lipton, Rosen & Katz then discussed with the Warwick Community Bancorp board of directors the legal standards applicable to its decisions and actions with respect to the proposed transactions and reviewed the legal terms of the proposed merger and the related agreements. Following these presentations, the Warwick Community Bancorp board meeting continued with discussions and questions among the members of the Warwick Community Bancorp board, management and Warwick Community Bancorp's legal and financial advisors. The board discussed, among other things, the fact that the implied value of the merger consideration, based on the exchange ratio and the closing stock price of Provident Bancorp common stock on the Nasdaq National Market on the last trading day prior to the board meeting, and the cash portion of the merger consideration, was less than Warwick Community Bancorp's closing stock price on the prior day. The board of directors, however, noted its belief that 57
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Warwick Community Bancorp common stock was trading above the levels at which it would otherwise be trading due in large part to the rumors of a potential business combination transaction involving Warwick Community Bancorp. The Warwick Community Bancorp board, among other things, noted that based on the closing price of Provident Bancorp common stock on the Nasdaq on March 12, 2004 (the last trading day prior to Warwick Community Bancorp board meeting approving the merger agreement) and the cash component of the merger consideration, the implied value of the merger consideration to be received by Warwick Community Bancorp stockholders in the merger, viewed on a blended basis ($32.75), represented a premium of approximately 8% over the prevailing market price of Warwick Community Bancorp common stock on the Nasdaq National Market at the beginning of December when the Warwick Community Bancorp board first began to consider a business combination transaction, and a discount of approximately 4.2% over the closing price of Warwick Community Bancorp common stock on March 12, 2004 (in each case without considering any additional value from the potential special dividend). After further discussion, and taking into consideration the factors described under "- Warwick Community Bancorp's Reasons for the Merger; Recommendation of the Merger by the Warwick Community Bancorp Board of Directors," the Warwick Community Bancorp board determined that the combined company would have better future prospects than Warwick Community Bancorp was likely to achieve on a stand-alone basis and that the proposed merger with Provident Bancorp presented the best opportunity for enhancing Warwick Community Bancorp stockholder value. Accordingly, the Warwick Community Bancorp board determined that the Provident Bancorp transaction was advisable and in the best interests of Warwick Community Bancorp and its stockholders, and the Warwick Community Bancorp board unanimously approved the merger with Provident Bancorp. Following approval of each board of directors, the parties executed the merger agreement. The next day, the parties publicly announced the transaction by joint press release. WARWICK COMMUNITY BANCORP'S REASONS FOR THE MERGER; RECOMMENDATION OF WARWICK COMMUNITY BANCORP'S BOARD OF DIRECTORS The Warwick Community Bancorp board of directors reviewed and discussed the transaction with Warwick Community Bancorp's management and its financial and legal advisors in determining that the merger is in the best interests of Warwick Community Bancorp and its stockholders. In reaching its conclusion to approve the merger agreement, the Warwick Community Bancorp board of directors considered a number of factors, including the following: o The fact that, based on the closing price of Provident Bancorp common stock on the Nasdaq National Market on March 12, 2004 (the last trading day prior to Warwick Community Bancorp board meeting approving the merger agreement) and the cash component of the merger consideration, the implied value of the merger consideration to be received by Warwick Community Bancorp stockholders in the merger, viewed on a blended basis ($32.75), represented a premium of approximately 8% over the prevailing market price of Warwick Community Bancorp common stock on the Nasdaq National Market at the beginning of December when the Warwick Community Bancorp board first began to consider a business combination transaction, and a discount of approximately 58
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4.2% over the closing price of Warwick Community Bancorp common stock on March 12, 2004 (in each case without considering any additional value from the potential special dividend). o The fact that the cash/stock election feature of the merger consideration offers Warwick Community Bancorp stockholders both the opportunity to participate in the growth and opportunities of the combined company through the stock component and the opportunity to realize cash for the value of their shares through the cash component, subject in some circumstances to the allocation procedures in the merger agreement in the event that either form of merger consideration is over-subscribed. o Its understanding of the business, operations, financial condition, earnings and prospects of Warwick Community Bancorp. o Its understanding of the business, operations, financial condition, earnings and prospects of Provident Bancorp, taking into account Warwick Community Bancorp's due diligence investigation of Provident Bancorp. o The current and prospective environment in which Warwick Community Bancorp and Provident Bancorp operate, including national and local economic conditions, the competitive environment for financial institutions generally and the trend toward consolidation in the financial services industry. o The ability of Warwick Community Bancorp under the terms of the merger agreement to make a special dividend payment to its stockholders prior to completion of the merger in an amount reflecting the disposition of automobiles contained in the automobile lease portfolio held by Warwick Savings Bank. o The review by the Warwick Community Bancorp board of directors with its legal and financial advisors of the structure of the merger and the financial and other terms of the merger agreement, including the exchange ratio and cash consideration offered by Provident Bancorp. o The board structure of the combined company provided for under the merger agreement, including the 2 board seats reserved for current Warwick Community Bancorp directors on the Provident Bancorp board of directors following the completion of the merger, as discussed in greater detail under "--Board Representation." o The complimentary nature of the respective markets, customers and asset/liability mix of the two companies. o The expectation that the merger will be more than twenty percent accretive to GAAP and cash earnings of Provident Bancorp in 2005. 59
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o The anticipated cost saving opportunities, estimated to be approximately $4.5 million (or 25% of Warwick Community Bancorp's operating expense base) on a pre-tax basis when fully phased in during the first year following the merger. o The reports of Warwick Community Bancorp management and the financial presentation by Sandler O'Neill to Warwick Community Bancorp's board of directors concerning the operations, financial condition and prospects of Provident Bancorp and the expected financial impact of the merger on the combined company, including pro forma assets, earnings, deposits and other financial metrics. o The likelihood that the regulatory approvals needed to complete the transaction will be obtained. o The historical and current market prices of Provident Bancorp common stock and Warwick Community Bancorp common stock. o The opinion delivered to the Warwick Community Bancorp board of directors by Sandler O'Neill that, as of the date of the opinion and based upon and subject to the considerations in its opinion, the merger consideration was fair, from a financial point of view, to holders of Warwick Community Bancorp common stock. o The benefits of increased liquidity that Warwick Community Bancorp stockholders would have as prospective stockholders of Provident Bancorp. The Warwick Community Bancorp board of directors also considered potential risks associated with the merger in connection with its deliberations of the proposed transaction, including: o The challenges of combining the businesses, assets and workforces of the two companies, which could impact the post-merger success of the combined company and the ability to achieve anticipated cost savings and other potential synergies. o The after-tax charge of approximately $10 million that is expected to be taken by Provident Bancorp in connection with completing the merger, reflecting costs and expenses expected to be incurred as a result of the transaction and integrating the two companies. o The possibility that, due to certain factors, including the performance of the automobile lease portfolio held by Warwick Savings Bank, legal limitations, costs associated with the portfolio and contractual restrictions, Warwick Community Bancorp would not be able to pay all or a portion of any special dividend to its stockholders. 60
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o That the fixed exchange ratio component of the merger consideration will not adjust to compensate for changes in the stock price of Provident Bancorp or Warwick Community Bancorp prior to completion of the merger, and that neither company has any price-based termination right under the merger agreement. o The interests of Warwick Community Bancorp executive officers and directors with respect to the merger apart from their interests as holders of Warwick Community Bancorp common stock, and the risk that these interests might influence their decision with respect to the merger. See "The Merger - Warwick Community Bancorp's Directors and Officers Have Financial Interests in the Merger." o The risk that the terms of the merger agreement, including provisions relating to the payment of a termination fee under specified circumstances, although required by Provident Bancorp as a condition to its willingness to enter into a merger agreement, could have the effect of discouraging other parties that might be interested in a transaction with Warwick Community Bancorp from proposing such a transaction. The discussion of the information and factors considered by the Warwick Community Bancorp board of directors is not exhaustive, but includes all material factors considered by the Warwick Community Bancorp board of directors. In view of the wide variety of factors considered by the Warwick Community Bancorp board of directors in connection with its evaluation of the merger and the complexity of these matters, the Warwick Community Bancorp board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. The Warwick Community Bancorp board of directors evaluated the factors described above, including asking questions of Warwick Community Bancorp management and Warwick Community Bancorp legal and financial advisors, and reached consensus that the merger was in the best interests of Warwick Community Bancorp and Warwick Community Bancorp stockholders. In considering the factors described above, individual members of the Warwick Community Bancorp board of directors may have given different weights to different factors. The Warwick Community Bancorp board of directors considered these factors as a whole, and overall considered them to be favorable to, and to support, its determination. It should be noted that this explanation of the Warwick Community Bancorp board of directors' reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under "Cautionary Statement Regarding Forward-Looking Statements." The Warwick Community Bancorp board of directors determined that the merger, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Warwick Community Bancorp and its stockholders. The Warwick Community Bancorp board of directors also determined that the merger agreement and the transactions contemplated thereby are consistent with, and in furtherance of, Warwick Community Bancorp's business strategies. Accordingly, the Warwick Community Bancorp board of directors unanimously approved the merger agreement and unanimously recommends that Warwick Community Bancorp stockholders vote "FOR" approval of the merger agreement. 61
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OPINION OF WARWICK COMMUNITY BANCORP, INC.'S FINANCIAL ADVISOR By letter dated December 17, 2003, Warwick Community Bancorp retained Sandler O'Neill as its independent financial advisor in connection with a possible business combination with another financial institution. Sandler O'Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O'Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. Sandler O'Neill acted as Warwick Community Bancorp's financial advisor in connection with the proposed merger and participated in certain of the negotiations leading to the merger agreement. At the March 15, 2004 meeting at which Warwick Community Bancorp's board considered and approved the merger agreement, Sandler O'Neill delivered to the board its oral opinion, subsequently confirmed in writing, that, as of such date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations stated in its opinion, the merger consideration was fair to Warwick Community Bancorp stockholders from a financial point of view. Sandler O'Neill has confirmed its March 15th opinion by delivering to the board a written opinion dated the date of this joint proxy statement/prospectus. In rendering its updated opinion, Sandler O'Neill confirmed the appropriateness of its reliance on the analyses used to render its earlier opinion by reviewing the assumptions upon which its analyses were based, performing procedures to update certain of its analyses and reviewing the other factors considered in rendering its opinion. THE FULL TEXT OF SANDLER O'NEILL'S UPDATED OPINION IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE OPINION OUTLINES THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SANDLER O'NEILL IN RENDERING ITS OPINION. THE DESCRIPTION OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. WE URGE YOU TO READ THE ENTIRE OPINION CAREFULLY IN CONNECTION WITH YOUR CONSIDERATION OF THE PROPOSED MERGER. SANDLER O'NEILL'S OPINION SPEAKS ONLY AS OF THE DATE OF THE OPINION. THE OPINION WAS DIRECTED TO THE WARWICK COMMUNITY BANCORP BOARD AND IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION TO WARWICK COMMUNITY BANCORP STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF WARWICK COMMUNITY BANCORP TO ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE MERGER AND IS NOT A RECOMMENDATION TO ANY WARWICK COMMUNITY BANCORP SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING WITH RESPECT TO THE MERGER, THE FORM OF CONSIDERATION A SHAREHOLDER SHOULD ELECT IN THE MERGER OR ANY OTHER MATTER. In connection with rendering its March 15, 2004 opinion, Sandler O'Neill reviewed and considered, among other things: 1. the merger agreement; 2. certain publicly available financial statements and other historical financial information of Warwick Community Bancorp that they deemed relevant; 62
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3. certain publicly available financial statements and other historical financial information of Provident Bancorp that they deemed relevant; 4. internal financial projections for Warwick Community Bancorp for the year ending December 31, 2004 prepared by and reviewed with management of Warwick Community Bancorp; 5. internal financial projections for Provident Bancorp for the period ending September 30, 2004 prepared by and reviewed with the management of Provident Bancorp and earnings per share estimates for Provident Bancorp for the years ending December 31, 2004 and 2005 published by I/B/E/S; 6. the pro forma financial impact of the merger on Provident Bancorp, based on assumptions relating to transaction expenses, purchase accounting adjustments and cost savings determined by the senior managements of Warwick Community Bancorp and Provident Bancorp; 7. the publicly reported historical price and trading activity for Warwick Community Bancorp's and Provident Bancorp's common stock, including a comparison of certain financial and stock market information for Warwick Community Bancorp and Provident Bancorp with similar publicly available information for certain other companies the securities of which are publicly traded; 8. the financial terms of certain recent business combinations in the savings institutions industry, to the extent publicly available; 9. the current market environment generally and the banking environment in particular; and 10. such other information, financial studies, analyses and investigations and financial, economic and market criteria as they considered relevant. Sandler O'Neill also discussed the business, financial condition, results of operations and prospects of Warwick Community Bancorp with certain members of Warwick Community Bancorp's senior management and held similar discussions with certain members of Provident Bancorp's senior management regarding the business, financial condition, results of operations and prospects of Provident Bancorp. In performing its reviews and in rendering its opinion, Sandler O'Neill assumed and relied upon the accuracy and completeness of all the financial and other information that was publicly available or otherwise furnished to or reviewed by it and further relied on the assurances of Warwick Community Bancorp's and Provident Bancorp's managements that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. Sandler O'Neill was not asked to and did not independently verify the accuracy or completeness of any of such information and they did not assume any responsibility or liability for the accuracy or completeness of any of such information. Sandler O'Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Warwick Community Bancorp or Provident Bancorp or 63
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any of their respective subsidiaries, including without limitation, the Auto Lease Portfolio, or the collectibility of any such assets, nor was it furnished with any such evaluations or appraisals. Sandler O'Neill is not an expert in the evaluation of allowances for loan losses and it did not make an independent evaluation of the adequacy of the allowance for loan losses of Warwick Community Bancorp or Provident Bancorp, nor did it review any individual credit files relating to Warwick Community Bancorp or Provident Bancorp. With Warwick Community Bancorp's consent, Sandler O'Neill assumed that the respective allowances for loan losses for both Warwick Community Bancorp and Provident Bancorp were adequate to cover such losses and would be adequate on a combined basis for the combined entity. In addition, Sandler O'Neill did not conduct any physical inspection of the properties or facilities of Warwick Community Bancorp or Provident Bancorp. Sandler O'Neill's opinion was necessarily based upon financial, economic, market and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Sandler O'Neill assumed, in all respects material to its analyses, that all of the representations and warranties contained in the merger agreement and all related agreements were true and correct, that each party to such agreements would perform all of the covenants required to be performed by such party under such agreements and that the conditions precedent in the merger agreement were not waived. Sandler O'Neill also assumed, with Warwick Community Bancorp's consent, that there had been no material change in Warwick Community Bancorp's and Provident Bancorp's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to them, that Warwick Community Bancorp and Provident Bancorp would remain as going concerns for all periods relevant to its analyses, and that the merger would qualify as a tax-free reorganization for federal income tax purposes. Finally, with Warwick Community Bancorp's consent, Sandler O'Neill relied upon the advice Warwick Community Bancorp received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. In rendering its March 15, 2004 opinion, Sandler O'Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O'Neill, but is not a complete description of all the analyses underlying Sandler O'Neill's opinion. The summary includes information presented in tabular format. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES, THESE TABLES MUST BE READ TOGETHER WITH THE ACCOMPANYING TEXT. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O'Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O'Neill's comparative analyses described below is identical to Warwick Community Bancorp or Provident Bancorp and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading 64
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values or merger transaction values, as the case may be, of Warwick Community Bancorp or Provident Bancorp and the companies to which they are being compared. The earnings projections for Warwick Community Bancorp and Provident Bancorp used and relied upon by Sandler O'Neill in its analyses were based upon internal financial projections provided by the management of each company. With respect to such financial projections and all projections of transaction costs, purchase accounting adjustments and expected cost savings relating to the merger, Warwick Community Bancorp's and Provident Bancorp's managements confirmed to Sandler O'Neill that they reflected the best currently available estimates and judgments of the future financial performance of Warwick Community Bancorp and Provident Bancorp, respectively, and Sandler O'Neill assumed for purposes of its analyses that such performances would be achieved. Sandler O'Neill expressed no opinion as to such financial projections or the assumptions on which they were based. The financial projections for Warwick Community Bancorp and Provident Bancorp were prepared for internal purposes only and not with a view towards public disclosure. These projections, as well as the other estimates used by Sandler O'Neill in its analyses, were based on numerous variables and assumptions which are inherently uncertain and, accordingly, actual results could vary materially from those set forth in such projections. In performing its analyses, Sandler O'Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Warwick Community Bancorp, Provident Bancorp and Sandler O'Neill. The analyses performed by Sandler O'Neill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Sandler O'Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the Warwick Community Bancorp board at the March 15th meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O'Neill's analyses do not necessarily reflect the value of Warwick Community Bancorp's common stock or Provident Bancorp's common stock or the prices at which Warwick Community Bancorp's or Provident Bancorp's common stock may be sold at any time. Sandler O'Neill expressed no opinion regarding the payment or amounts, if any, of any special dividend. SUMMARY OF PROPOSAL. Sandler O'Neill reviewed the financial terms of the proposed transaction. Based upon the closing price of Provident Bancorp's common stock on March 12, 2004 of $11.95 and assuming 50% of Warwick Community Bancorp's shares are converted into Provident Bancorp stock and the remaining 50% are converted into cash at $32.26 per share in the merger, Sandler O'Neill calculated an implied transaction value of $32.75 per share. Sandler O'Neill also considered a potential special cash dividend to the Warwick Community Bancorp shareholders based on the sale or liquidation of an auto lease portfolio. Based upon Warwick Community Bancorp's December 31, 2003 financial information, Sandler O'Neill calculated the following ratios: 65
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· Enlarge/Download Table --------------------------------------------------------------------------------------------------------------------- TRANSACTION RATIOS --------------------------------------------------------------------------------------------------------------------- ANNOUNCED GIVING EFFECT TO RANGE OF VALUE POTENTIAL SPECIAL DIVIDENDS ---------------------------------------------------------- ------------ --------------------------------------------- Loss on Sale as a % of Residual Value (1) 100% 75% 50% 25% 0% Potential Special Dividend $0.00 $0.49 $0.98 $1.46 $1.74 Initial Deal Price Per Share Plus Potential Special $32.75 $33.23 $33.72 $34.21 $34.49 Dividend ---------------------------------------------------------- ------------ --------- ----------- ----------- ----------- Transaction value / LTM Earnings per share 22.7X 23.1x 23.4x 23.8x 23.9x Transaction value / Estimated 2004 earnings per share (2) 19.7X 20.0x 20.3x 20.6x 20.8x Transaction value / Stated book value per share 199.4% 202.4% 205.4% 208.3% 210.0% Transaction value / Tangible book value per share 206.1% 209.2% 212.2% 215.3% 217.0% Tangible book premium/Core deposits (3) 17.5% 18.0% 18.5% 19.0% 19.3% ---------------------------------------------------------- ------------ --------- ----------- ----------- ----------- (1) Excluding any costs of disposition. (2) Based on Warwick Community Bancorp management's estimate of 2004 operating EPS of $1.66. (3) Core deposits are Warwick Community Bancorp's total deposits of $487.6 million minus non-core deposits (jumbo CDs and brokered deposits) of $17.6 million. For purposes of Sandler O'Neill's analyses, earnings per share were based on fully diluted shares. Based on Provident Bancorp's stock price as of March 12, 2004 and excluding any special dividends, the aggregate transaction value was approximately $154 million, based upon 4.5 million shares of Warwick Community Bancorp common stock outstanding plus the intrinsic value of outstanding options to purchase 456,542 shares calculated using the implied transaction value less the weighted average exercise price of the options of $17.48. Sandler O'Neill noted that the transaction value represented a 4.2% discount to the March 12, 2004 closing price of Warwick Community Bancorp's common stock. WARWICK COMMUNITY BANCORP, INC. STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported trading prices and volume of Warwick Community Bancorp's common stock and the relationship between the movements in the prices of Warwick Community Bancorp's common stock to movements in certain stock indices, including the Standard & Poor's 500 Index, Standard & Poor's Bank Index, the Nasdaq Bank Index and the weighted average performance (based upon market capitalization) of a peer group of publicly-traded savings institutions for Warwick Community Bancorp (the Warwick Peer Group) selected by Sandler O'Neill. The composition of the Warwick Peer Group is discussed under "Comparable Company Analysis" below. During the one- and three-year periods ended March 12, 2004, Warwick Community Bancorp's common stock underperformed the Warwick Peer Group, and each of the indices to which its was compared. 66
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· Enlarge/Download Table ------------------------------------------------------------------------------------------------------------------- WARWICK COMMUNITY BANCORP'S ONE-YEAR STOCK PERFORMANCE ------------------------------------------------------------------------------------------------------------------- BEGINNING INDEX VALUE ENDING INDEX VALUE MARCH 12, 2003 MARCH 12, 2004 ------------------------------------------- ---------------------------------------- Warwick Community Bancorp 100.00% 114.09% Warwick Peer Group 100.00 128.00 Nasdaq Bank Index 100.00 139.03 S&P 500 Index 100.00 139.34 S&P Bank Index 100.00 138.70 ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- WARWICK COMMUNITY BANCORP'S THREE-YEAR STOCK PERFORMANCE ------------------------------------------------------------------------------------------------------------------- BEGINNING INDEX VALUE ENDING INDEX VALUE MARCH 12, 2001 MARCH 12, 2004 ------------------------------------------- ---------------------------------------- Warwick Community Bancorp 100.00% 223.15% Warwick Peer Group 100.00 207.49 Nasdaq Bank Index 100.00 158.19 S&P 500 Index 100.00 94.95 S&P Bank Index 100.00 126.39 ------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available information to compare selected financial and market trading information for Warwick Community Bancorp and the following publicly traded savings institutions (the Warwick Peer Group) that had total assets of between $300 million and $1.8 billion and are located in the Mid-Atlantic region of the United States: ESB Financial Corporation Pamrapo Bancorp, Inc. Fidelity Bancorp, Inc. Parkvale Financial Corporation First Keystone Financial, Inc. PennFed Financial Services, Inc. FMS Financial Corporation PHSB Financial Corp. Harleysville Savings Financial Corporation Sound Federal Bancorp, Inc. Laurel Capital Group, Inc. Willow Grove Bancorp, Inc. OceanFirst Financial Corp. WVS Financial Corp. The analysis compared publicly available financial information for Warwick Community Bancorp and that of the Warwick Peer Group as of or for the twelve-month period ended December 31, 2003. The table below sets forth the comparative data for Warwick Community Bancorp and the median data for the Warwick Peer Group as of or for the period ended December 31, 2003, with pricing data as of March 12, 2004. 67
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· Enlarge/Download Table ----------------------------------------------------------------------------------------------------------- WARWICK PEER GROUP ANALYSIS ----------------------------------------------------------------------------------------------------------- WARWICK COMMUNITY BANCORP WARWICK PEER GROUP ------------------------------------------------- ------------------------------ -------------------------- Total assets (IN MILLIONS) $760.0 $766.5 ------------------------------------------------- ------------------------------ -------------------------- Tangible equity/tangible assets 9.43% 6.96% ------------------------------------------------- ------------------------------ -------------------------- Intangible assets/total equity 3.25% 1.49% ------------------------------------------------- ------------------------------ -------------------------- Net loans/total assets 42.23% 52.31% ------------------------------------------------- ------------------------------ -------------------------- Gross loans/total deposits 66.84% 76.02% ------------------------------------------------- ------------------------------ -------------------------- Total borrowings/total assets 24.14% 19.34% ------------------------------------------------- ------------------------------ -------------------------- NPAs/total assets 0.36% 0.22% ------------------------------------------------- ------------------------------ -------------------------- LLR/gross loans 1.51% 1.07% ------------------------------------------------- ------------------------------ -------------------------- Net interest margin 2.86% 2.44% ------------------------------------------------- ------------------------------ -------------------------- Non-interest income/average assets 0.90% 0.41% ------------------------------------------------- ------------------------------ -------------------------- Fees/revenues 24.77% 14.51% ------------------------------------------------- ------------------------------ -------------------------- Non-interest expense/average assets 2.37% 1.85% ------------------------------------------------- ------------------------------ -------------------------- Efficiency ratio 65.52% 65.54% ------------------------------------------------- ------------------------------ -------------------------- LTM Return on average assets 0.82% 0.70% ------------------------------------------------- ------------------------------ -------------------------- LTM Return on average equity 8.50% 9.30% ------------------------------------------------- ------------------------------ -------------------------- Price/book value per share 208.06% 166.07% ------------------------------------------------- ------------------------------ -------------------------- Price/tangible book value per share 215.06% 173.09% ------------------------------------------------- ------------------------------ -------------------------- Price/LTM earnings per share 23.73x 18.82x ------------------------------------------------- ------------------------------ -------------------------- Price/estimated 2004 earnings per share (1) 20.58x 20.47x ------------------------------------------------- ------------------------------ -------------------------- Price/LTM Core EPS 24.76x 19.53x ------------------------------------------------- ------------------------------ -------------------------- Dividend payout ratio 40.97% 43.74% ------------------------------------------------- ------------------------------ -------------------------- Dividend yield 1.73% 2.38% ------------------------------------------------- ------------------------------ -------------------------- Market capitalization (IN MILLIONS) $153.6 $129.1 ------------------------------------------------- ------------------------------ -------------------------- (1) For PennFed, OceanFirst, Parkvale, Sound and Willow Grove, estimated EPS is the median of 2004 I/B/E/S estimates. For Warwick Community Bancorp, estimated 2004 operating EPS of $1.66 provided by management. PROVIDENT BANCORP, INC. STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported trading prices and volume of Provident Bancorp's common stock and the relationship between the movements in the prices of Provident Bancorp's common stock to movements in certain stock indices, including the Standard & Poor's 500 Index, Standard & Poor's Bank Index, the Nasdaq Bank Index and the weighted average performance of (based upon market capitalization) a peer group of publicly-traded savings institutions for Provident Bancorp (the "Provident Peer Group") selected by Sandler O'Neill. The composition of the Provident Peer Group is discussed under "Comparable Company Analysis" below. During the one- and three-year periods ended March 12, 2004, Provident Bancorp's common stock outperformed the Provident Peer Group, and each of the indices to which it was compared. 68
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· Enlarge/Download Table ------------------------------------------------------------------------------------------------------------- PROVIDENT BANCORP'S ONE-YEAR STOCK PERFORMANCE ------------------------------------------------------------------------------------------------------------- BEGINNING INDEX VALUE ENDING INDEX VALUE MARCH 12, 2003 MARCH 12, 2004 ------------------------------------------- ---------------------------------------- Provident Bancorp 100.00% 174.82% Provident Peer Group 100.00 134.73 Nasdaq Bank Index 100.00 139.03 S&P 500 Index 100.00 139.34 S&P Bank Index 100.00 138.70 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- PROVIDENT BANCORP'S THREE-YEAR STOCK PERFORMANCE ------------------------------------------------------------------------------------------------------------- BEGINNING INDEX VALUE ENDING INDEX VALUE MARCH 12, 2001 MARCH 12, 2004 ------------------------------------------- ---------------------------------------- Provident Bancorp 100.00% 304.86% Provident Peer Group 100.00 244.69 Nasdaq Bank Index 100.00 158.19 S&P 500 Index 100.00 94.95 S&P Bank Index 100.00 126.39 ---------------------------------------------------------------------- -------------------------------------- COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available information to compare selected financial and market trading information for Provident Bancorp and the following publicly traded savings institutions (the Provident Peer Group) that had total assets of between $400 million and $3.6 billion and are located in the Mid-Atlantic region of the United States: Dime Community Bancshares, Inc. Harleysville Savings Financial Corporation ESB Financial Corporation Hudson River Bancorp, Inc. Fidelity Bancorp, Inc. OceanFirst Financial Corp. First Keystone Financial, Inc. Parkvale Financial Corporation First Niagara Financial Group, Inc. PennFed Financial Services, Inc. Flushing Financial Corporation Willow Grove Bancorp, Inc. FMS Financial Corporation WVS Financial Corp. The analysis compared publicly available financial information for Provident Bancorp and the data for the Provident Peer Group as of or for the period ended December 31, 2003 (except that balance sheet data for Provident Bancorp is as of January 31, 2004 and reflects the completion of its second-step conversion and its acquisition of Ellenville National Bank). The table below sets forth the comparative data for Provident Bancorp and the median data for the Provident Peer Group as of or for the period ended December 31, 2003 with pricing data as of March 12, 2004. 69
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· Enlarge/Download Table --------------------------------------------------------------------------------------------------- PROVIDENT PEER GROUP ANALYSIS --------------------------------------------------------------------------------------------------- PROVIDENT BANCORP PROVIDENT PEER GROUP ---------------------------------------------- ----------------------- ---------------------------- Total assets (IN MILLIONS) $1,719.5 $1,481.5 ---------------------------------------------- ----------------------- ---------------------------- Tangible equity/tangible assets 16.60% 6.96% ---------------------------------------------- ----------------------- ---------------------------- Intangible assets/total equity 20.87% 3.96% ---------------------------------------------- ----------------------- ---------------------------- Net loans/total assets 54.07% 58.21% ---------------------------------------------- ----------------------- ---------------------------- Gross loans/total deposits 80.93% 86.81% ---------------------------------------------- ----------------------- ---------------------------- Total borrowings/total assets 10.60% 24.52% ---------------------------------------------- ----------------------- ---------------------------- NPAs/total assets 0.32% 0.23% ---------------------------------------------- ----------------------- ---------------------------- LLR/gross loans 1.80% 1.10% ---------------------------------------------- ----------------------- ---------------------------- Net interest margin 4.69% 2.66% ---------------------------------------------- ----------------------- ---------------------------- Non-interest income/average assets 0.59% 0.45% ---------------------------------------------- ----------------------- ---------------------------- Fees/revenues 12.15% 18.34% ---------------------------------------------- ----------------------- ---------------------------- Non-interest expense/average assets 3.14% 1.74% ---------------------------------------------- ----------------------- ---------------------------- Efficiency ratio 64.70% 59.41% ---------------------------------------------- ----------------------- ---------------------------- LTM Return on average assets 1.05% 0.70% ---------------------------------------------- ----------------------- ---------------------------- LTM Return on average equity 7.02% 10.31% ---------------------------------------------- ----------------------- ---------------------------- Price/book value per share 137.02% 171.49% ---------------------------------------------- ----------------------- ---------------------------- Price/tangible book value per share 173.16% 179.75% ---------------------------------------------- ----------------------- ---------------------------- Price/estimated 2004 EPS (1)(2) 30.10x 17.16x ---------------------------------------------- ----------------------- ---------------------------- Price/IBES 2004 estimated EPS 29.15x 17.16x ---------------------------------------------- ----------------------- ---------------------------- Price/IBES 2005 estimated EPS 21.73x 15.07x ---------------------------------------------- ----------------------- ---------------------------- Dividend payout ratio (1) 40.29% 33.00% ---------------------------------------------- ----------------------- ---------------------------- Dividend yield (1) 1.34% 1.85% ---------------------------------------------- ----------------------- ---------------------------- Market capitalization (IN MILLIONS) $473.4 $177.3 ---------------------------------------------- ----------------------- ---------------------------- 1. Provident Bancorp's estimates for the year ended September 30, 2004. Estimates exclude the charitable foundation expense. 2. Assumes common shares outstanding and options outstanding as of March 12, 2004. ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed all merger transactions announced nationwide from January 1, 2003 through March 12, 2004 involving publicly traded savings institutions as acquired institutions with transaction values greater than $15 million. Sandler O'Neill separately reviewed the 20 Mid-Atlantic/New England region transactions involving publicly traded savings institutions with transaction values greater than $15 million announced during that same period. Sandler O'Neill reviewed the multiples of transaction price at announcement to last twelve months' earnings per share, transaction price to estimated current year earnings per share, transaction price to book value per share, transaction price to tangible book value per share, tangible book premium to core deposits and premium to market price and computed high, low, mean and median multiples and premiums for both groups of transactions. The median multiples were applied to Warwick Community Bancorp's financial information as of and for the year ended December 31, 2003. As illustrated in the following table, Sandler O'Neill derived an imputed range of values per share of Warwick Community Bancorp's common stock of $28.25 to $35.75 based upon the median multiples for nationwide savings institution transactions and $32.10 to $41.77 based upon the median multiples for 70
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regional savings institution transactions. The implied transaction value of the merger (excluding any special dividends) as calculated by Sandler O'Neill was $32.75 per share. · Enlarge/Download Table ------------------------------------------------------------------------------------------- NATIONWIDE TRANSACTION MULTIPLES ------------------------------------------------------------------------------------------- Range of Median Implied Multiples Multiple Value (1) ------------------------------------------- Transaction price/LTM EPS 10.6x - 62.1x 19.6x $28.25 Transaction price/estimated 2004 EPS (2) 10.7x - 28.3x 18.5x $30.69 Transaction price/book value 99.7% - 332.5% 183.8% $30.19 Transaction price/tangible book value 99.7% - 396.0% 197.9% $31.44 Tangible book premium/core deposits (3) 1.1% - 42.8% 17.8% $34.44 Premium to market (4) (9.6)% - 64.4% 17.5% $35.75 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- MID-ATLANTIC/NEW ENGLAND TRANSACTION MULTIPLES ------------------------------------------------------------------------------------------- Range of Median Implied Multiples Multiple Value (1) ------------------------------------------- Transaction price/LTM EPS 10.6x - 58.7x 22.5x $32.32 Transaction price/estimated 2004 EPS (2) 10.7x - 28.3x 19.4x $32.10 Transaction price/book value 124.8% - 301.0% 225.1% $36.97 Transaction price/tangible book value 125.6% - 396.0% 262.9% $41.77 Tangible book premium/core deposits (3) 5.4% - 42.8% 21.8% $38.68 Premium to market (4) (1.6)% - 64.4% 18.4% $36.03 ------------------------------------------------------------------------------------------- (1) Using median multiple. (2) Based on Warwick Community Bancorp management's estimated 2004 operating EPS of $1.66. (3) Assumes that all deposits other than jumbo certificates of deposit and brokered deposits are core deposits. (4) Based on Warwick Community Bancorp's December 16, 2003 closing price of $30.43. DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill performed an analysis that estimated the future stream of after-tax dividend flows of Warwick Community Bancorp through December 31, 2007 under various circumstances, assuming Warwick Community Bancorp's projected dividend stream and that Warwick Community Bancorp performed in accordance with the earnings projections reviewed with management. For periods after fiscal 2004, Sandler O'Neill assumed a growth rate of earnings per share of approximately 7% to 9% based upon discussions with Warwick Community Bancorp management. To approximate the terminal value of Warwick Community Bancorp common stock at December 31, 2007, Sandler O'Neill applied price/earnings multiples ranging from 12.0x to 22.0x and multiples of tangible book value ranging from 100% to 225%. The dividend income streams and terminal values were then discounted to present values using different discount rates ranging from 9% to 15% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Warwick Community Bancorp common stock. As illustrated in the following tables, this analysis indicated an imputed range of values per share of Warwick Community Bancorp common stock of $15.94 to $34.04 when applying multiples of earnings per share and $14.24 to $36.38 when applying multiples of tangible book value. 71
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· Enlarge/Download Table EARNINGS PER SHARE MULTIPLES ----------------------------------------------------------------------------------------------------------- DISCOUNT RATE 12X 14X 16X 18X 20X 22X ------------- ----------------------------------------------------------------------------------------- 9.0% $19.57 $22.46 $25.36 $28.25 $31.15 $34.04 10.0% 18.89 21.68 24.48 27.27 30.06 32.85 11.0% 18.25 20.94 23.63 26.33 29.02 31.71 12.0% 17.63 20.23 22.83 25.43 28.02 30.62 13.0% 17.04 19.55 22.06 24.56 27.07 29.58 14.0% 16.48 18.90 21.32 23.74 26.16 28.58 15.0% 15.94 18.28 20.61 22.95 25.29 27.62 ----------------------------------------------------------------------------------------------------------- TANGIBLE BOOK VALUE MULTIPLES ----------------------------------------------------------------------------------------------------------- DISCOUNT RATE 100% 125% 150% 175% 200% 225% ------------- ----------------------------------------------------------------------------------------- 9.0% $17.45 $21.23 $25.02 $28.81 $32.59 $36.38 10.0% 16.85 20.50 24.15 27.80 31.45 35.10 11.0% 16.28 19.80 23.32 26.84 30.36 33.89 12.0% 15.74 19.13 22.53 25.93 29.32 32.72 13.0% 15.22 18.49 21.77 25.05 28.33 31.60 14.0% 14.72 17.88 21.05 24.21 27.37 30.54 15.0% 14.24 17.29 20.35 23.40 26.46 29.52 ----------------------------------------------------------------------------------------------------------- Sandler O'Neill performed a similar analysis that estimated the future stream of after-tax dividend flows of Provident Bancorp through December 31, 2007 under various circumstances, assuming Provident Bancorp's projected dividend stream and that Provident Bancorp performed in accordance with the earnings projections reviewed with management. For periods after 2004, Sandler O'Neill assumed a growth rate of earnings per share of approximately 13% based upon discussions with Provident Bancorp management. To approximate the terminal value of Provident Bancorp common stock at December 31, 2007, Sandler O'Neill applied price/earnings multiples ranging from 18x to 33x. The dividend income streams and terminal values were then discounted to present values using different discount rates ranging from 9% to 15% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Provident Bancorp common stock. As illustrated in the following tables, this analysis indicated an imputed range of values per share of Provident Bancorp common stock of $7.38 to $16.17 when applying multiples of earnings per share and $5.47 to $14.35 when applying multiples of tangible book value. 72
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· Enlarge/Download Table EARNINGS PER SHARE MULTIPLES ----------------------------------------------------------------------------------------------------------- DISCOUNT RATE 18X 21X 24X 27X 30X 33X ------------- ----------------------------------------------------------------------------------------- 9.0% $9.09 $10.51 $11.92 $13.34 $14.75 $16.17 10.0% 8.78 10.14 11.50 12.87 14.23 15.59 11.0% 8.47 9.79 11.10 12.42 13.73 15.05 12.0% 8.18 9.45 10.72 11.99 13.25 14.52 13.0% 7.90 9.12 10.35 11.57 12.80 14.02 14.0% 7.63 8.82 10.00 11.18 12.36 13.54 15.0% 7.38 8.52 9.66 10.80 11.94 13.09 ----------------------------------------------------------------------------------------------------------- TANGIBLE BOOK VALUE MULTIPLES ----------------------------------------------------------------------------------------------------------- DISCOUNT RATE 100% 125% 150% 175% 200% 225% ------------- ----------------------------------------------------------------------------------------- 9.0% $6.73 $8.25 $9.78 $11.30 $12.82 $14.35 10.0% 6.50 7.97 9.43 10.90 12.37 13.84 11.0% 6.27 7.69 9.11 10.52 11.94 13.35 12.0% 6.06 7.43 8.79 10.16 11.52 12.89 13.0% 5.86 7.17 8.49 9.81 11.13 12.45 14.0% 5.66 6.93 8.21 9.48 10.75 12.02 15.0% 5.47 6.70 7.93 9.16 10.39 11.62 ----------------------------------------------------------------------------------------------------------- In connection with its analyses, Sandler O'Neill considered and discussed with the Warwick Community Bancorp Board how the present value analyses would be affected by changes in the underlying assumptions, including variations with respect to net income. Sandler O'Neill noted that the discounted dividend stream and terminal value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results. PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro forma effects of the merger, assuming the following: (1) the merger closes in the fourth quarter of 2004, (2) 50% of the Warwick Community Bancorp shares are exchanged for cash at a value of $32.26 per share, (3) 50% of the Warwick Community Bancorp shares are exchanged for Provident Bancorp common stock at an exchange ratio of 2.781, (4) Warwick Community Bancorp's stock options are cancelled and converted into cash for an amount equal to the excess of $32.26 over the weighted average exercise price of $17.84 multiplied by the number of Warwick Community Bancorp's stock options, and (5) purchase accounting adjustments, charges and transaction costs associated with the merger and cost savings determined by the senior managements of Warwick Community Bancorp and Provident Bancorp. The analysis indicated that for the year ending December 31, 2005, the merger would be accretive to Provident Bancorp's projected earnings per share. In addition, the analysis indicated that for the period ending December 31, 2004 (the assumed closing of the transaction), the merger would be dilutive to Provident Bancorp's tangible book value per share. The actual results achieved by the combined company may vary from projected results and the variations may be material. 73
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Warwick Community Bancorp has agreed to pay Sandler O'Neill a transaction fee in connection with the Merger of an amount equal to 1% of the Aggregate Purchase Price of which $384,000 was paid upon the signing of the definitive agreement and the balance shall be paid on the day of closing of the Merger. Based upon the closing price of Provident Bancorp common stock as of _____________, 2004, the transaction fee is approximately $______________. Warwick Community Bancorp has also paid Sandler O'Neill a fee of $200,000 for rendering its opinion, which will be credited against that portion of the transaction fee due upon closing of the merger. Warwick Community Bancorp has also agreed to reimburse certain of Sandler O'Neill's reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Sandler O'Neill and its affiliates and their respective partners, directors, officers, employees, agents, and controlling persons against certain expenses and liabilities, including liabilities under securities laws. In the past, Sandler O'Neill has provided certain other investment banking services to Warwick Community Bancorp and has received compensation for such services, and Sandler O'Neill may provide additional services, and receive compensation for such services, prior to the closing of the merger. In the ordinary course of its business as a broker-dealer, Sandler O'Neill may purchase securities from and sell securities to Warwick Community Bancorp and Provident Bancorp and their respective affiliates and may actively trade the debt and/or equity securities of Warwick Community Bancorp and Provident Bancorp and their respective affiliates for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. PROVIDENT BANCORP'S REASONS FOR THE MERGER The Provident Bancorp board of directors expects the merger to enhance Provident Bancorp's banking franchise and competitive position, in particular in Orange County, New York. The merger also increases Provident Bancorp's operating and marketing scale. In addition, the merger is consistent with Provident Bancorp's plans to deploy the capital raised in Provident Bank's recent second step conversion transaction. The Provident Bancorp board of directors consulted with Provident Bancorp management as well as financial and legal advisors and determined that the merger is in the best interest of Provident Bancorp and Provident Bancorp's stockholders. In reaching its conclusion to approve the merger agreement, the Provident Bancorp board considered the following factors as generally supporting its decision to enter into the merger agreement: (i) The effectiveness of the merger as a method of implementing and accelerating Provident Bancorp's strategies for expanding Provident Bancorp's franchise in one of the most desirable banking markets in New York; (ii) The effectiveness of the merger as a means of deploying a portion of the conversion proceeds of Provident Bank's second step conversion transaction; (iii) Its understanding of Provident Bancorp's business, operations, financial condition, earnings and prospects and of Warwick Community Bancorp's business, operations, financial condition, earnings and prospects, including 74
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Warwick Community Bancorp's strong franchise in the Orange County, New York market in which it primarily operates; (iv) The reports of Provident Bancorp management and the financial presentations by RP Financial, LC. and Ryan Beck & Co., Inc. to Provident Bancorp's board of directors concerning the operations, financial condition and prospects of Warwick Community Bancorp and the expected financial impact of the merger on the combined company; (v) The similarity between Provident Bancorp's and Warwick Community Bancorp's management, philosophies, approaches and commitments to the communities and customers they serve and their respective employees; (vi) The proposed appointment of two Warwick Community Bancorp directors as directors of Provident Bancorp and Provident Bank, which would help assure the continuity of management, the likelihood of successful integration and the successful operation of the combined companies; (vii) The opinions delivered to the Provident Bancorp board of directors by RP Financial, LC. and Ryan Beck & Co., Inc. to the effect that, as of the date of the opinions and based upon and subject to the conditions described in the opinions and other matters as RP Financial, LC. and Ryan Beck & Co., Inc. considered relevant, the merger consideration to be paid by Provident Bancorp was fair, from a financial point of view, to Provident Bancorp. The Provident Bancorp board of directors also considered potential risks associated with the merger in connection with its deliberations of the proposed transaction, including the challenges of integrating Warwick Community Bancorp's business, operations and workforce with those of Provident Bancorp, the need to obtain Warwick Community Bancorp stockholder and regulatory approvals in order to complete the transaction, and the risks associated with achieving the anticipated cost savings. The Provident Bancorp board of directors considered all of these factors as a whole and, on balance, concluded that they supported a favorable determination to enter into the merger agreement. The foregoing discussion of the information and factors considered by the Provident Bancorp board of directors is not exhaustive, but includes the material factors considered by the Provident Bancorp board of directors. In view of the wide variety of factors considered by the Provident Bancorp board of directors in connection with its evaluation of the merger and the complexity of these matters, the Provident Bancorp board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual members of the Provident Bancorp board of directors may have given different weights to different factors. 75
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On the basis of these considerations, the merger agreement was unanimously approved by Provident Bancorp's board of directors. MERGER CONSIDERATION; CASH OR STOCK ELECTION MERGER CONSIDERATION. Under the terms of the merger agreement, at the effective time of the merger each outstanding share of Warwick Community Bancorp common stock (other than dissenting shares and shares held by Provident Bancorp and Warwick Community Bancorp) will be converted into the right to receive, at the election of the holder of such share, either: o $32.26 in cash (without interest), assuming payment solely of cash in exchange for Warwick Community Bancorp common stock; or o 2.7810 shares of Provident Bancorp common stock, assuming payment solely of Provident Bancorp common stock in exchange for a share of Warwick Community Bancorp common stock; or o a combination of cash PLUS Provident Bancorp common stock. No fractional shares of Provident Bancorp common stock will be issued in connection with the merger. Instead Warwick Community Bancorp stockholders will receive, without interest, a cash payment from Provident Bancorp equal to the fractional share interest they otherwise would have received, multiplied by the value of Provident Bancorp common stock. For this purpose, Provident Bancorp common stock will be valued at the average of its daily closing sales prices during the five consecutive trading days immediately preceding the completion date of the merger. Based on the closing price of $_____ per share of Provident Bancorp common stock on __________, 2004, the latest practicable date prior to the mailing of this Proxy Statement/Prospectus, the value of 2.7810 shares of Provident Bancorp common stock would be $______. We cannot give you any assurance as to whether or when the merger will be completed, and you are advised to obtain current market quotations for Provident Bancorp common stock. For more information about the stock prices of Provident Bancorp, see "Provident Bancorp Stock Trading and Dividend Information." CASH OR STOCK ELECTION. All elections by Warwick Community Bancorp stockholders are subject to the allocation and proration procedures described in the merger agreement. These procedures are intended to ensure that, subject to a tax-related adjustment, 50% of the outstanding shares of Warwick Community Bancorp common stock will be converted into the right to receive Provident Bancorp common stock, and the remaining 50% of the outstanding shares of Warwick Community Bancorp common stock will be converted into the right to receive cash. It is unlikely that elections will be made in the exact proportions provided for in the merger agreement. As a result, the merger agreement describes procedures to be followed if Warwick Community Bancorp stockholders in the aggregate elect to receive more or less of 76
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Provident Bancorp common stock than Provident Bancorp has agreed to issue. These procedures are summarized below. o IF PROVIDENT BANCORP COMMON STOCK IS OVERSUBSCRIBED: If Warwick Community Bancorp stockholders elect to receive more Provident Bancorp common stock than Provident Bancorp has agreed to issue in the merger, then all Warwick Community Bancorp stockholders who have elected to receive cash or who have made no election will receive cash for their Warwick Community Bancorp shares and all stockholders who elected to receive Provident Bancorp common stock will receive a pro rata portion of the available Provident Bancorp shares plus cash for those shares not converted into Provident Bancorp common stock. o IF PROVIDENT BANCORP COMMON STOCK IS UNDERSUBSCRIBED: If Warwick Community Bancorp stockholders elect to receive fewer shares of Provident Bancorp common stock than Provident Bancorp has agreed to issue in the merger, and -- the number of shares as to which Warwick Community Bancorp stockholders have made no election is less than or equal to this shortfall, then all Warwick Community Bancorp stockholders who have elected to receive Provident Bancorp common stock or who have made no election will receive Provident Bancorp common stock, and all Warwick Community Bancorp stockholders who have elected to receive cash will receive a pro rata portion of the available cash consideration plus Provident Bancorp shares for those Warwick Community Bancorp shares not converted into cash; or if -- the number of no election shares is greater than the shortfall, then all Warwick Community Bancorp stockholders who have elected to receive Provident Bancorp common stock will receive Provident Bancorp common stock, all Warwick Community Bancorp stockholders who have elected to receive cash will receive cash, and all Warwick Community Bancorp stockholders who made no election will receive a pro rata portion of the remaining available cash consideration plus Provident Bancorp's shares for those Warwick Community Bancorp shares not converted into cash. TAX-RELATED ADJUSTMENT. Provident Bancorp and Warwick Community Bancorp have structured the merger to qualify as a "reorganization" for U.S. federal income tax purposes. The merger might not qualify as a reorganization, however, if, on the closing date of the merger, the total value of the Provident Bancorp shares that Warwick Community Bancorp stockholders receive is less than 42.5% of the value of the total consideration - including Provident Bancorp common stock, cash, and any other amounts treated as consideration in connection with the merger for federal income tax purposes - that Warwick Community Bancorp shareholders (including shareholders who exercise dissenters' rights) receive in connection with the merger. To prevent this from happening, if the value of the Provident Bancorp shares received would otherwise be less than 42.5% (subject to upward adjustment to up to 45%, depending on the 77
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number of Warwick Community Bancorp shares with respect to which dissenters' rights are exercised) of the value of the total consideration, the number of Warwick Community Bancorp shares that will be converted into Provident Bancorp shares will be increased, and the number of Warwick Community Bancorp shares converted into cash will be correspondingly decreased. If this tax-related adjustment is necessary, the amount of cash you would have received, after taking into account your election and any proration, will be reduced and you will receive additional shares of Provident Bancorp common stock. Whether the tax-related adjustment will be made, and the magnitude of the tax-related adjustment, if made, will be based on a number of factors, including the trading price of shares of Provident Bancorp common stock on the date the merger is completed and the number of shares of Warwick Community Bancorp common stock for which dissenters' rights are exercised. However, in no event will Provident Bancorp be obligated to issue more than 7,910,000 shares of common stock as merger consideration. Neither Warwick Community Bancorp nor Provident Bancorp is making any recommendation as to whether Warwick Community Bancorp stockholders should elect to receive cash or Provident Bancorp common stock in the merger. Each Warwick Community Bancorp stockholder must make his or her own decision with respect to such election. No guarantee can be made that you will receive the amounts of cash or stock you elect. As a result of the allocation procedures and other limitations outlined in this document and in the merger agreement, you may receive Provident Bancorp common stock or cash in amounts that vary from the amounts you elect to receive. Employees who hold allocated shares of Warwick Community Bancorp common stock in their employee stock ownership plan accounts will be able to direct the employee stock ownership plan trustee to make an election to receive cash, Provident Bancorp common stock or a combination of cash and Provident Bancorp common stock for their allocated shares. For any allocated shares for which no directions are received, the employee stock ownership plan trustee will make an election to receive cash or Provident Bancorp common stock, in the same proportion with respect to which the trustee received elections, unless the trustee determines that it may not, consistent with its fiduciary duties, make such election for the allocated shares for which no written instructions have been given in the same proportion, in which case it will make elections for the shares in the manner as it, in its discretion, determined to be in the best interests of the participants. The employee stock ownership plan trustee will make an election to receive cash or Provident Bancorp common stock for the unallocated shares of Warwick Community Bancorp common stock held in the employee stock ownership plan. Employees who hold shares of Warwick Community Bancorp common stock in their accounts in the Warwick Savings Bank 401(k) Savings Plan will be able to direct the trustee of such plan to make an election to receive cash, Provident Bancorp common stock or a combination of cash and Provident Bancorp common stock for their allocated shares. For any shares for which no directions are received, the plan trustee will make an election to receive cash, Provident Bancorp common stock, in the same proportion with respect to which the trustee received elections, unless the trustee determines that it may not, consistent with its fiduciary duties, make the election for the allocated shares for which no written instructions have been given in the same proportion, in which case it will make elections for the shares in the manner as it, in its discretion, determined to be in the best interests of the participants. 78
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ELECTION PROCEDURES; SURRENDER OF STOCK CERTIFICATES If you are a record holder of Warwick Community Bancorp common stock, an election form will be provided to you under separate cover. The election form will entitle you to elect to receive cash, Provident Bancorp common stock, or a combination of cash and Provident Bancorp common stock, or to make no election with respect to the merger consideration that you wish to receive. To make a valid election, you must submit a properly completed election form to Registrar and Transfer Company, which will be acting as the exchange agent, on or before 5:00 p.m., New York time, on the twenty-fifth day following the mailing of the election form. Registrar and Transfer Company will act as exchange agent in the merger and in that role will process the exchange of Warwick Community Bancorp common stock certificates for cash and/or Provident Bancorp common stock. Shortly after the merger, the exchange agent will allocate cash and shares of Provident Bancorp common stock among Warwick Community Bancorp stockholders, consistent with their elections, the allocation and proration procedures and the tax-related adjustment. If you do not submit an election form, you will receive instructions from the exchange agent on where to surrender your Warwick Community Bancorp stock certificates after the merger is completed. PLEASE DO NOT FORWARD YOUR WARWICK COMMUNITY BANCORP STOCK CERTIFICATES AND ELECTION FORM WITH YOUR PROXY CARDS. STOCK CERTIFICATES AND ELECTION FORMS SHOULD BE RETURNED TO THE EXCHANGE AGENT IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN THE ELECTION FORM. An election form will be deemed properly completed only if accompanied by stock certificates representing all shares of Warwick Community Bancorp common stock covered by the election form (or an appropriate guarantee of delivery). You may change your election at any time prior to the election deadline by written notice accompanied by a properly completed and signed, revised election form received by the exchange agent prior to the election deadline. You may revoke your election by written notice received by the exchange agent prior to the election deadline. All elections will be revoked, and share certificates returned, automatically if the merger agreement is terminated. If you have a preference for receiving either Provident Bancorp common stock and/or cash for your Warwick Community Bancorp common stock, you should complete and return the election form. If you do not make an election, you will be allocated Provident Bancorp common stock and/or cash depending on the elections made by other Warwick Community Bancorp stockholders. You should be aware, however, that if you make an election you will not be able to sell or otherwise transfer your shares of Warwick Community Bancorp common stock unless you properly withdraw your election prior to the election deadline. If stock certificates for Warwick Community Bancorp common stock are not immediately available or time will not permit the election form and other required documents to reach the exchange agent prior to the election deadline, Warwick Community Bancorp shares may be properly exchanged provided that: 1. such exchanges are made by or through a member firm of the National Association of Securities Dealers, Inc., or another registered national securities 79
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exchange, or by a commercial bank or trust company having an office, branch or agency in the United States; 2. the exchange agent receives, prior to the election deadline, a properly completed and duly executed notice of guaranteed delivery substantially in the form provided with the election form (delivered by hand, mail, telegram, telex or facsimile transmission); and 3. the exchange agent receives, prior to the election deadline, the certificates for all exchanged Warwick Community Bancorp shares, or confirmation of the delivery of all such certificates into the exchange agent's account with the Depository Trust Company in accordance with the proper procedures for such transfer, together with a properly completed and duly executed election form and any other documents required by the election form. Warwick Community Bancorp stockholders who do not submit a properly completed election form or revoke their election form prior to the election deadline will have their shares of Warwick Community Bancorp common stock designated as non-election shares. Warwick Community Bancorp stockholders who hold their shares of common stock in "street name" through a bank, broker or other financial institution, and who wish to make an election, should seek instructions from the institution holding their shares concerning how to make the election. Provident Bancorp will deposit with the exchange agent the shares representing Provident Bancorp's common stock and cash to be issued to Warwick Community Bancorp stockholders in exchange for their shares of Warwick Community Bancorp common stock. Within five business days after the completion of the merger, the exchange agent will mail to Warwick Community Bancorp stockholders who do not submit election forms or who have revoked such forms a letter of transmittal, together with instructions for the exchange of their Warwick Community Bancorp stock certificates for the merger consideration. Upon surrendering his or her certificate(s) representing shares of Warwick Community Bancorp common stock, together with the signed letter of transmittal, the Warwick Community Bancorp stockholder shall be entitled to receive, as applicable: (i) certificate(s) representing a number of whole shares of Provident Bancorp common stock (if any) determined in accordance with the exchange ratio or (ii) a check representing the amount of cash (if any) to which such holder shall have become entitled to and (iii) a check representing the amount of cash in lieu of fractional shares, if any. Until you surrender your Warwick Community Bancorp stock certificates for exchange after completion of the merger, you will not be paid dividends or other distributions declared after the merger with respect to any Provident Bancorp common stock into which your shares have been exchanged. No interest will be paid or accrued to Warwick Community Bancorp stockholders on the cash consideration, cash in lieu of fractional shares or unpaid dividends and distributions, if any. After the completion of the merger, there will be no further transfers of Warwick Community Bancorp common stock. Warwick Community Bancorp stock certificates presented for transfer will be canceled and exchanged for the merger consideration. 80
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If your stock certificates have been lost, stolen or destroyed, you will have to prove your ownership of these certificates and that they were lost, stolen or destroyed before you receive any consideration for your shares. Upon request, Registrar and Transfer Company will send you instructions on how to provide evidence of ownership. If any certificate representing shares of Provident Bancorp's common stock is to be issued in a name other than that in which the certificate for shares surrendered in exchange is registered, or cash is to be paid to a person other than the registered holder, it will be a condition of issuance or payment that the certificate so surrendered be properly endorsed or otherwise be in proper form for transfer and that the person requesting the exchange either: o pay to the exchange agent in advance any transfer or other taxes required by reason of the issuance of a certificate or payment to a person other than the registered holder of the certificate surrendered, or o establish to the satisfaction of the exchange agent that the tax has been paid or is not payable. Any portion of the cash or shares of Provident Bancorp common stock made available to the exchange agent that remains unclaimed by Warwick Community Bancorp stockholders for six months after the effective time of the merger will be returned to Provident Bancorp. After six months after the effective time, any Warwick Community Bancorp stockholder who has not exchanged shares of Warwick Community Bancorp common stock for the merger consideration in accordance with the merger agreement may look only to Provident Bancorp for payment of the merger consideration for these shares and any unpaid dividends or distributions. Nonetheless, Provident Bancorp, Warwick Community Bancorp, the exchange agent or any other person will not be liable to any Warwick Community Bancorp stockholder for any amount properly delivered to a public official under applicable abandoned property, escheat or similar laws. TREATMENT OF WARWICK COMMUNITY BANCORP STOCK OPTIONS Each option to purchase shares of Warwick Community Bancorp common stock outstanding and unexercised immediately prior to the effective time of the merger will be cancelled and all rights under such option will be extinguished in exchange for a cash payment equal to $32.26 less the exercise price per share of the stock option, multiplied by the number of shares of Warwick Community Bancorp common stock subject to the stock option, less any required tax withholding. Each of Messrs. Kowal, Gentile and Budich entered into agreements with Warwick Community Bancorp contemporaneously with the execution of the merger agreement agreeing not to exercise their outstanding options prior to the effective time of the merger and to receive, in exchange for such options, a cash payment equal to the excess of $32.26 over the exercise price per share of such options multiplied by the number of shares of Warwick Community Bancorp subject to such options. Provident Bancorp will be entitled to deduct and withhold from the consideration otherwise payable pursuant to the merger agreement to any Warwick Community Bancorp optionholder any amount that Provident Bancorp is required to deduct and withhold under any 81
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provision of federal, state, local or foreign tax law. Any withheld amounts will be treated for all purposes of the merger agreement as having been paid to the Warwick Community Bancorp optionholder in respect of which the deduction and withholding was made by Provident Bancorp. EMPLOYEE MATTERS The Warwick Community Bancorp employee stock ownership plan will be terminated upon consummation of the merger. The employee stock ownership plan loan will be paid in full and the assets of the employee stock ownership plan will be allocated and distributed to the employee stock ownership plan participants in cash or shares of Provident Bancorp common stock. Provident Bancorp will review all other Warwick Community Bancorp compensation and employee benefit plans that do not otherwise terminate (whether pursuant to the terms of any such plan or the merger agreement) to determine whether to maintain, terminate or continue such plans. In the event employee compensation or benefits as currently provided by Warwick Community Bancorp, Warwick Savings or Towne Center Bank are changed or terminated by Provident Bancorp, Provident Bancorp has agreed to provide compensation and benefits that are, in the aggregate, substantially similar to the compensation and benefits provided to similarly situated Provident Bancorp employees. All Warwick Community Bancorp employees who become employees of Provident Bancorp at the effective time generally will be given credit for service at Warwick Community Bancorp or its subsidiaries for eligibility to participate in and the satisfaction of vesting requirements (but not for pension benefit accrual purposes) under Provident Bancorp's compensation and benefit plans (but not for any purpose under the Provident Bancorp employee stock ownership plan or retiree health plan or to the extent that providing such credit would result in a duplication of benefits). Provident Bancorp has also agreed to honor the Change in Control Severance Plan of Warwick Community Bancorp. See "--Interests of Directors and Officers In the Merger" below for a discussion of employment agreements. See "--Material United States Federal Income Tax Consequences of the Merger to Participants in the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan and the 401(k) Savings Plan" below for a discussion of material U.S. federal income tax treatment of accounts under those plans. INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER EMPLOYMENT AGREEMENTS. Warwick Community Bancorp is party to employment agreements with each of its Chairman of the Board and Chief Executive Officer, Fred G. Kowal, its President and Chief Operating Officer, Ronald J. Gentile, and its Senior Vice-President, Treasurer and Chief Financial Officer, Arthur W. Budich. The consummation of the merge