================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2000

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                                     0-23293
                            (COMMISSION FILE NUMBER)

                         WARWICK COMMUNITY BANCORP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                        06-1497903
     (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NUMBER

           18 OAKLAND AVENUE,                                   10990-0591
           WARWICK, NEW YORK                                    (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (845) 986-2206
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)


           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

           Securities Registered Pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

                         PREFERRED STOCK PURCHASE RIGHTS
                                (TITLE OF CLASS)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES      X                 NO
    --------------

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]

         As of March 9, 2001, there were 5,214,576 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's common
stock (based on closing price quoted on March 9, 2001) held by non-affiliates
was approximately $66,720,900.


                       DOCUMENTS INCORPORATED BY REFERENCE

(1)      Portions of the definitive Proxy Statement for the Registrant's 2000
         Annual Meeting of Shareholders are incorporated by reference into Items
         10, 11, 12 and 13 of Part III hereof.

================================================================================

<PAGE>

                                     PART I
                                     ------

ITEM 1.           BUSINESS

General
-------

         Warwick Community Bancorp, Inc. (the "Company") is a bank holding
company incorporated in September 1997 under the laws of the State of Delaware
and is registered under the Bank Holding Company Act of 1956, as amended
("BHCA"). The Company elected to become a financial holding company under the
BHCA in October 2000. The Company was organized for the purpose of acquiring all
of the outstanding capital stock of The Warwick Savings Bank ("Warwick
Savings"). On December 23, 1997, Warwick Savings completed its conversion from a
New York State chartered mutual savings bank to a New York State chartered stock
savings bank, the Company completed the sale of 6,414,125 shares of common stock
at $10.00 per share and the Company made a charitable contribution of 192,423
shares of its common stock to The Warwick Savings Foundation, a charitable
foundation organized by the Company and Warwick Savings. The Company's
operations commenced on December 23, 1997 and 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 the Company under the laws of the
State of New Jersey and headquartered in Lodi, New Jersey ("Towne Center").

         Warwick Savings was organized in 1875 as a New York State chartered
mutual savings bank and became a New York State chartered stock savings bank on
December 23, 1997. Warwick Savings' deposits are insured by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") 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 in the area surrounding its
five branches and investing those deposits, together with funds generated from
operations and borrowings, primarily in one-to four-family residential mortgage
loans, mortgage-backed securities, commercial business and commercial real
estate loans and various debt and equity securities. Warwick Savings also
originates home equity loans (Good Neighbor Home Loans) and lines of credit,
consumer loans, student loans and its own credit card loans. Additionally,
Warwick Savings sells Savings Bank Life Insurance.

         Warwick Savings' revenues are derived principally from the interest on
its mortgage loans, securities, commercial and consumer loans and, to a lesser
degree, from its mortgage banking activities, loan and securities sales,
servicing fee income and income derived from non-traditional investment products
offered through its wholly owned subsidiary, WSB Financial Services, Inc. ("WSB
Financial"). Warwick Savings' primary sources of funds are deposits, borrowings,
principal and interest payments on loans and securities and proceeds from the
sale of loans and securities.

         Towne Center opened for business on October 26, 1999. Towne Center's
principal business consists of taking business and consumer deposits and making
consumer and commercial loans in the areas surrounding its two branches. Towne
Center also invests in short duration U.S. Treasury and agency securities,
mortgage-backed securities and other conservative investments deemed prudent by
its Board of Directors. The deposits of Towne Center are insured by the BIF of
the FDIC up to the maximum amounts permitted by law.

         While the following discussion of the Company's business includes the
Company, Warwick Savings and Towne Center collectively, this discussion reflects
primarily Warwick Savings' activities because Towne Center has not yet
contributed significantly to the Company's operations. Unless otherwise
disclosed, the information presented herein reflects information regarding the
Company, Warwick Savings and Towne Center on a consolidated basis, and, as used
herein, the "Company" refers to the Company and its subsidiaries collectively.

                                       -2-


<PAGE>



Market Area
-----------

         Warwick Savings has been, and intends to continue to be, a
community-oriented savings institution offering a variety of financial services
to meet the needs of the communities it serves. Warwick Savings maintains its
headquarters in the village of Warwick in Orange County, New York and operates
four additional branch offices located in the village of Monroe, the town of
Woodbury, the town of Wallkill and the town of Newburgh, Orange County, New
York. Warwick Savings' primary deposit gathering areas are currently
concentrated in proximity to its full-service banking offices. Warwick Savings'
current primary lending market includes not only Orange County, New York, but
also Rockland, Dutchess and, to a lesser extent, Westchester, Putnam and
Sullivan Counties, New York, by virtue of the various loan originators servicing
these areas. In addition, with its mortgage banking subsidiary, The Towne Center
Mortgage Company, Inc. ("Towne Center Mortgage"), and its attendant loan
production offices in West Milford, Passaic County, New Jersey, and Mahwah,
Bergen County, New Jersey, Warwick Savings has expanded its mortgage banking
operations into the northeastern New Jersey market.

         Although Warwick Savings' market area is predominantly rural with many
small towns, many of the area's residents work in northern New Jersey, western
Connecticut and New York City. Some of the county's major employers are ShopRite
Supermarkets, the Arden Hill Hospital and related life care complex, Horton
Memorial Hospital, Yellow Freight, the Wakefern Corporation, the County of
Orange school districts, the County of Orange and the United States Military
Academy at West Point.

         Warwick Savings' market area grew significantly in population during
the 1980's as rising housing prices closer to New York City, coupled with the
abundance of vacant land in Orange County, led to a boom in housing
construction. As the economy throughout the region declined in the late 1980's
and early 1990's, communities surrounding Warwick Savings' offices, particularly
in the Warwick area, continued to experience growth, but more slowly. The
conversion of Stewart International Airport, approximately 20 miles to the
northeast of Warwick Savings' main office in Warwick, into a full-service
commercial airport in 1990 gave Warwick Savings' market area an additional
boost. However, the health of the economy in the New York City metropolitan area
has, and will continue to have, a direct impact on the economic well-being of
residents and businesses in Warwick Savings' market area.

Competition
-----------

         The Company faces substantial competition for both deposits and loans.
The deregulation of the financial services industry has led to increased
competition among savings banks, commercial banks and other financial
institutions for a significant portion of the deposit and lending activity that
had traditionally been the arena of savings banks and savings and loan
associations. The Company competes for savings deposits with other savings
banks, savings and loan associations, commercial banks, credit unions, money
market mutual funds, insurance companies, brokerage firms and other financial
institutions, many of which are substantially larger in size than the Company.

         The Company's competition for loans comes principally from savings
banks, savings and loan associations, commercial banks, mortgage bankers,
finance companies and other institutional lenders, many of whom maintain offices
in the Company's market area. The Company's principal methods of competition
include providing personal customer service, a variety of financial services and
competitive loan and deposit pricing, as well as implementing advertising and
marketing programs.

         While the Company is subject to competition from other financial
institutions, some of which have much greater financial and marketing resources,
the Company believes it benefits by its community bank orientation as well as
its relatively high core deposit base. Management believes that the variety,
depth and stability of the communities in which the Company is located support
the service and lending activities conducted by the Company. The relative
economic stability of the Company's lending area is reflected in the small
number of mortgage delinquencies experienced by the Company.

                                       -3-


<PAGE>



Lending Activities
------------------

         LOAN PORTFOLIO COMPOSITION. The Company's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At December 31, 2000, the Company had total gross loans outstanding
of $435.2 million (before deducting the allowance for loan losses and net
deferred loan fees), of which $299.1 million, or 68.7%, were conventional one-
to four-family, owner-occupied residential first mortgage loans. The remainder
consisted of $70.0 million of commercial business and commercial real estate
loans, or 16.1% of total loans, $25.6 million in home equity loans, or 5.9% of
total loans, $10.1 million in residential construction mortgage loans (net of
undisbursed portion), or 2.3% of total loans, and $30.4 million in consumer
loans, or 7.0% of total loans. Additionally, Warwick Savings originates Veterans
Administration ("VA") guaranteed loans and Federal Housing Authority ("FHA")
insured loans. For the year ended December 31, 2000, Warwick Savings originated
$3.3 million of such loans. Warwick Savings is active in the origination of
State of New York Mortgage Association ("SONYMA") loans, which are subject to
certain customer eligibility requirements and are subsequently sold to the State
of New York. For the year ended December 31, 2000, Warwick Savings originated
$5.7 million in SONYMA loans. Warwick Savings continues to service these loans
for such agency and, instead of a servicing fee, Warwick Savings obtains a state
(franchise) income tax credit.

         The types of loans that Warwick Savings and Towne Center may originate
are subject to federal and state laws and regulations. Interest rates charged by
Warwick Savings and Towne Center on loans are affected by the demand for such
loans, the supply of money available for lending purposes and the rates offered
by competitors. These factors are in turn affected by, among other things,
economic conditions, monetary policies of the federal government, including the
Board of Governors of the Federal Reserve System ("FRB"), and legislative tax
policies.

         The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated:



<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                                            ---------------
                                             2000                     1999                    1998                   1997
                                             ----                     ----                    ----                   ----
                                                 PERCENT                  PERCENT                 PERCENT                  PERCENT
                                                    OF                       OF                      OF                       OF
                                       AMOUNT     TOTAL         AMOUNT     TOTAL       AMOUNT      TOTAL        AMOUNT      TOTAL
                                       ------     -----         ------     -----       ------      -----        ------      -----
                                                                        (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>         <C>          <C>       <C>           <C>        <C>           <C>
MORTGAGE LOANS:
Conventional one- to-four-family
   loans...........................   $296,928    68.22%      $239,522     68.10%    $167,147      63.43%     $114,219      62.91%
Mortgage loans held for sale.......      1,954     0.45          4,163      1.18       13,737       5.21         5,348       2.94
VA or FHA loans....................        266     0.06            213      0.06          641       0.24           554       0.31
Home equity loans..................     25,594     5.88         22,317      6.35       18,061       6.85        15,618       8.60
Residential construction loans.....     15,522     3.57         18,222      5.18       16,105       6.11         6,159       3.39
Undisbursed portion of
   construction loans..............     (5,398)   (1.24)        (8,399)    (2.39)      (6,304)     (2.39)       (2,510)     (1.38)
                                        ------    -----         ------     -----       ------      -----        ------      -----
Total mortgage loans...............    334,866    76.94        276,037     78.48      209,387      79.45       139,385      76.77
                                       -------    -----        -------     -----      -------      -----       -------      -----

CONSUMER AND OTHER LOANS:
Commercial.........................     69,993    16.08         45,553     12.95       35,381      13.43        28,467      15.68
Automobile.........................     27,675     6.36         26,994      7.67       13,788       5.23         8,125       4.47
Student............................        159     0.04            195      0.06          332       0.13         1,195       0.66
Credit card........................        965     0.22          1,196      0.34        1,296       0.49         1,402       0.77
Other consumer loans...............      1,580     0.36          1,747      0.50        3,345       1.27         2,995       1.65
                                         -----     ----          -----      ----        -----       ----         -----       ----
Total consumer and other loans.....    100,372    23.06         75,685     21.52       54,142      20.55        42,184      23.23
                                       -------    -----         ------     -----       ------      -----        ------      -----
Total loans........................    435,238   100.00%       351,722    100.00%     263,529     100.00%      181,569     100.00%
                                                 ======                   ======                  ======                   ======
Discounts, premiums and deferred
   loan fees, net..................       (318)                   (460)                  (339)                    (243)
Allowance for loan losses..........     (2,722)                 (1,941)                (1,727)                  (1,372)
                                        -------                 -------                -------                  -------

Total loans, net...................    $432,198                $349,321               $261,463                $179,954
                                       ========                ========               ========                ========
</TABLE>

                                           AT DECEMBER 31,
                                           ---------------
                                                1996
                                                ----
                                                     PERCENT
                                                        OF
                                          AMOUNT      TOTAL
                                          ------      -----
                                        (DOLLARS IN THOUSANDS)
MORTGAGE LOANS:
Conventional one- to-four-family
   loans...........................      $74,503      56.86%
Mortgage loans held for sale.......        2,496       1.91
VA or FHA loans....................        1,267       0.97
Home equity loans..................       12,925       9.86
Residential construction loans.....        2,791       2.13
Undisbursed portion of
   construction loans..............       (1,307)     (1.00)
                                          ------      -----
Total mortgage loans...............       92,675      70.73
                                          ------      -----

CONSUMER AND OTHER LOANS:
Commercial.........................       21,217      16.19
Automobile.........................       11,170       8.53
Student............................        1,205       0.92
Credit card........................        1,441       1.10
Other consumer loans...............        3,311       2.53
                                           -----       ----
Total consumer and other loans.....       38,344      29.27
                                          ------      -----
Total loans........................      131,019     100.00%
                                                     ======
Discounts, premiums and deferred
   loan fees, net..................         (157)
Allowance for loan losses..........       (1,183)
                                          -------

Total loans, net...................     $129,679
                                        ========


                                       -4-

<PAGE>



         LOAN MATURITY. The following table shows the contractual maturity of
the Company's loans at December 31, 2000. The table reflects the entire unpaid
principal balance in the maturity period that includes the final loan payment
date and, accordingly, does not give effect to periodic principal repayments or
possible prepayments. Principal repayments and prepayments totaled $80.2
million, $66.6 million and $46.7 million for the years ended December 31, 2000,
1999 and 1998, respectively. Additionally, since Warwick Savings regularly sells
and securitizes residential mortgage loans as part of its mortgage banking
operations, these activities have resulted in loan sales and securitizations of
$43.2 million and $3.6 million, respectively, for the year ended December 31,
2000, $14.1 million and $69.9 million, respectively, for the year ended December
31, 1999, and $14.0 million and $75.4 million, respectively, for the year ended
December 31, 1998.



<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31, 2000
                                                                  --------------------
                                        MORTGAGE LOANS
                                        --------------
                                                                         HOME
                                                ADJUSTABLE              EQUITY
                                    FIXED RATE     RATE    COMMERCIAL  LINES OF   CONSUMER      OTHER    TOTAL LOANS
                                     MORTGAGES  MORTGAGES    LOANS      CREDIT      LOANS       LOANS    RECEIVABLE
                                     ---------  ---------    -----      ------      -----       -----    ----------
                                                                     (IN THOUSANDS)
<S>                                  <C>        <C>        <C>         <C>        <C>         <C>        <C>
Amounts due:
Within one year..................... $  10,374  $      --  $  19,430   $      --  $   1,217   $      --  $  31,021
                                     ---------  ---------  ---------   ---------  ---------   ---------  ---------
After one year:
     One to three years.............       351          3      9,396          --     20,601         159     30,510
     Three to five years............       854      1,342     25,126          66      9,885          --     37,273
     Five to 10 years...............     5,493        595      9,995         830      6,407          --     23,320
     Over 10 years..................   206,727     83,534      6,046      10,575      5,268         965    313,115
                                     ---------  ---------  ---------   ---------  ---------   ---------  ---------
         Total due after one year...   213,425     85,473     50,563      11,471     42,161       1,124    404,217
                                     ---------  ---------  ---------   ---------  ---------   ---------  ---------
         Total amounts due.......... $ 223,799  $  85,473  $  69,993   $  11,471  $  43,378   $   1,124    435,238
                                     =========  =========  =========   =========  =========   =========
Discounts, premiums and deferred
     loan fees, net.................                                                                          (318)
Allowance for loan losses...........                                                                        (2,722)
                                                                                                         ---------
Loans receivable, net...............                                                                     $ 432,198
                                                                                                         =========
</TABLE>


         The following table sets forth the dollar amounts in each loan category
at December 31, 2000 that are contractually due after December 31, 2001, and
whether such loans have fixed interest rates or adjustable interest rates.



                                    DUE AFTER DECEMBER 31, 2001
                                    ---------------------------
                                 FIXED      ADJUSTABLE--    TOTAL
                                 -----      ------------    -----
                                          (IN THOUSANDS)

Mortgage loans...............  $213,425      $ 85,473      $298,898
Commercial loans.............    43,872         6,691        50,563
Home equity lines of credit..        --        11,471        11,471
Consumer loans...............    42,161            --        42,161
Other loans..................     1,124            --         1,124
                               --------      ---------     --------
Total loans..................  $300,582      $103,635      $404,217
                               ========      ========      ========

         ORIGINATION, PURCHASE, SALE AND SERVICING OF LOANS. Warwick Savings'
residential lending activities are conducted through its team of commissioned
loan originators, who regularly call upon realtors, builders and others in the
real estate business in an effort to solicit mortgage loan applications. The
loans are all self- originated, as Warwick Savings does not use mortgage
brokers, with applications taken at Warwick Savings' various branch offices and
loan production offices. Thereafter, the applications are processed,
underwritten and prepared for closing at the Newburgh loan production office,
and the data is electronically linked together during the various stages of the
application process to facilitate tracking and monitoring at Warwick Savings'
Warwick office.

                                       -5-


<PAGE>



         Warwick Savings originates both adjustable-rate and fixed-rate mortgage
loans. Its ability to originate loans is dependent upon the relative customer
demand for fixed-rate or adjustable-rate mortgage loans, which is affected by
the current and expected future levels of interest rates. Warwick Savings
currently holds for its portfolio all adjustable-rate, bi-weekly mortgage loans
and any non-conforming loans it originates and sells most of the fixed-rate
mortgage loans it originates, with servicing released. Periodically, Warwick
Savings considers the possible sale of its jumbo loans; however, management
believes it has the ability to build relationships with jumbo mortgage customers
to create cross-selling opportunities.

         The residential loan products currently offered by Warwick Savings
include VA guaranteed and FHA insured mortgage loans, a variety of loans that
conform to the underwriting standards specified by the Federal National Mortgage
Association ("FNMA") ("conforming loans"), SONYMA loans and, to a much lesser
extent, non-conforming loans, I.E., jumbo loans. Warwick Savings sells most of
the conforming mortgage loans it originates to FNMA in exchange for FNMA
mortgage-backed securities through purchase and guarantee programs sponsored by
FNMA. Warwick Savings then sells such FNMA mortgage-backed securities to private
investors and retains the servicing rights. In those cases in which
non-conforming loans are sold to private institutional investors, servicing
rights are typically released. SONYMA loans are all originated for sale back to
SONYMA, with servicing retained in exchange for tax credits.

         During the time between the processing of a residential mortgage loan
application and the final disposition or sale of such loan after it is closed,
Warwick Savings is exposed to movements in the market price due to changes in
market interest rates. Warwick Savings attempts to manage this risk by utilizing
forward sales of mortgage-backed securities and put options on mortgage-backed
securities to securities brokers and dealers, as well as cash sales to FNMA.
Depending upon market conditions, interest rate expectations, economic data and
other factors, Warwick Savings' Hedging Committee, comprised of various members
of senior operating management, which meets daily, attempts to cover certain
percentages of its pipeline and warehouse. However, there can be no assurance
that Warwick Savings will be successful in its efforts to mitigate the risk of
interest rate fluctuation between the time of origination and the ultimate
disposition or sale of such loans. At December 31, 2000, there were no forward
sale commitments.

         Currently, Warwick Savings services all of its commercial business and
commercial real estate, home equity and consumer loans. All FHA and VA loans are
sold on a servicing-released basis, as are other selected loans sold to private
institutional investors. Additionally, Warwick Savings services a large volume
of conforming fixed-rate and adjustable-rate loans that it has previously
securitized and kept in its securities portfolio or sold to private investors.
However, during the quarter ended September 30, 2000, the Company made a
strategic decision to exit the mortgage loan servicing business by contracting
to sell all of its rights to service mortgage loans held for other investors and
by transferring the servicing of its own mortgage portfolio loans to an outside
vendor. At December 31, 2000, Warwick Savings was servicing $50.7 million of
residential mortgage loans for others, as compared to servicing $248.7 million
of such loans at December 31, 1999. For the years ended December 31, 2000, 1999
and 1998, loan servicing fees totaled $452 thousand, $576 thousand and $409
thousand, respectively. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, making inspections as required
of mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
ensuring the status of insurance and tax payments on behalf of the borrowers and
generally administering the loans.


                                       -6-


<PAGE>



         The following table sets forth the Company's loan originations,
repayments and other portfolio activity for the periods indicated.


<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED DECEMBER 31,
                                                                 -------------------------------
                                                               2000           1999            1998
                                                               ----           ----            ----
                                                                          (IN THOUSANDS)
<S>                                                           <C>            <C>            <C>
MORTGAGE LOANS (GROSS):
     At beginning of period...............................    $253,720       $191,326       $123,767
     Mortgage loans originated:

     Fixed-rate mortgages.................................     103,304        147,714        167,214
     Adjustable-rate mortgages............................      20,990         23,610          9,051
                                                              --------       --------       --------
          Total mortgage loans originated.................     124,294        171,324        176,265
     Principal repayments.................................     (21,886)       (24,977)       (19,327)
     Sale of loans........................................     (43,240)       (14,100)       (13,989)
     Securitizations......................................      (3,616)       (69,853)       (75,390)
                                                              --------       --------       --------
     At end of period.....................................    $309,272       $253,720       $191,326
                                                              ========       ========       ========
OTHER LOANS (GROSS):
     At beginning of period...............................    $ 98,002       $ 72,203       $ 57,802
     Commercial loans originated..........................      65,860         35,957         24,605
     Consumer loans originated............................      20,334         31,467         17,456
     Commercial repayments................................     (41,779)       (25,775)       (17,693)
     Consumer repayments..................................     (16,376)       (15,850)        (9,967)
     Other loans sold.....................................         (75)            --             --
                                                              --------       --------       --------
     At end of period.....................................    $125,966       $ 98,002       $ 72,203
                                                              ========       ========       ========
</TABLE>

         ONE- TO FOUR-FAMILY MORTGAGE LENDING. Warwick Savings offers both
fixed-rate and adjustable-rate mortgage and construction loans, with maturities
up to 30 years, which are secured by one- to four-family, owner-occupied
residences. Warwick Savings' primary lending area is Orange County, New York,
and therefore, the majority of such loans are secured by property located in
Orange County, New York; however, there are a number of loans secured by
property located in Rockland and Dutchess Counties, New York, and, to a lesser
extent, in Westchester, Putnam and Sullivan Counties, New York.

         At December 31, 2000, the Company's total gross loans outstanding were
$435.2 million, of which $309.3 million, or 71.1%, were mortgage and
construction loans secured by one- to four-family, owner- occupied residences.
Of the one- to four-family residential mortgage loans outstanding at that date,
72.4%, or $223.8 million, were fixed-rate loans, and 27.6%, or $85.4 million,
were adjustable-rate loans. The interest rates for the majority of Warwick
Savings' adjustable-rate mortgage loans are indexed to the yield on one-year
U.S. Treasury securities. Warwick Savings currently offers adjustable-rate
mortgage loan programs with interest rates that adjust either every one or three
years. An adjustable-rate mortgage loan may carry an initial interest rate that
is less than the fully-indexed rate for the loan. All adjustable-rate mortgage
loans offered have lifetime interest rate caps or ceilings. Generally,
adjustable-rate mortgage loans pose credit risks somewhat greater than the
credit risk inherent in fixed-rate loans primarily because, as interest rates
rise, the underlying payments of the borrowers rise, increasing the potential
for default. During rising interest rate environments, there could be instances
where the borrower's payments remain constant, although the interest portion
increases. In these cases, the borrower has not paid enough to cover the
interest due amount, resulting in negative amortization. Warwick Savings
currently has no mortgage loans that are subject to negative amortization.


                                       -7-


<PAGE>



         COMMERCIAL LENDING. As part of the Company's commercial lending
program, the Company originates various types of secured and unsecured
commercial business loans and lines of credit and commercial real estate and
construction loans. The Company's commercial loan portfolio consisted of the
following types of commercial loans at the dates indicated.



<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                                                  ---------------
                                    2000              1999              1998               1997              1996
                                    ----              ----              ----               ----              ----
                                        PERCENT           PERCENT           PERCENT            PERCENT           PERCENT
                                          OF                OF                 OF                OF                OF
                                         TOTAL             TOTAL             TOTAL              TOTAL             TOTAL
                               AMOUNT    LOANS   AMOUNT    LOANS   AMOUNT    LOANS    AMOUNT    LOANS   AMOUNT    LOANS
                               ------    -----   ------    -----   ------    -----    ------    -----   ------    -----
                                                              (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>    <C>        <C>    <C>        <C>    <C>         <C>    <C>        <C>
COMMERCIAL LOANS BY TYPE:
Non-farm and
non-residential..........    $ 31,756    7.30%  $ 23,820   6.77%  $ 17,170   6.52%  $ 13,278    7.31%  $  8,098   6.18%
One- to four-family......       1,583    0.36      1,961   0.56      2,142   0.81      1,128    0.62      1,177   0.90
Multi-family.............       7,267    1.67      2,231   0.63      3,988   1.51      3,664    2.02      1,599   1.22
Farm.....................       1,024    0.24        794   0.23        996   0.38        411    0.23        324   0.25
Acquisition, development
  & construction.........       1,839    0.42      5,074   1.44      4,339   1.65      2,841    1.57      3,099   2.36
Term loans...............       2,482    0.57        338   0.10        411   0.16        444    0.24        155   0.12
Installment loans........       8,742    2.01      4,488   1.28      2,435   0.92      2,037    1.12      1,610   1.23
Demand loans.............         278    0.06        335   0.10        853   0.32        497    0.27        608   0.46
Time loans...............       2,377    0.55        729   0.21         80   0.03         87    0.05        138   0.10
S.B.A. loans.............         280    0.06        205   0.06        328   0.13        533    0.29        563   0.43
Lines of credit..........      11,876    2.73      4,833   1.37      2,327   0.88      2,906    1.60      3,336   2.55
Loans and draws disbursed          65    0.01        327   0.09        194   0.07        430    0.24        484   0.37
Non-accrual..............         424    0.10        418   0.12        118   0.04        211    0.12         26   0.02
                             --------  ------   -------- ------   -------- ------   --------  ------   -------- ------
  TOTAL..................    $ 69,993   16.08%  $ 45,553  12.95%  $ 35,381  13.42%  $ 28,467   15.68%  $ 21,217  16.19%
                             ========  ======   ======== ======   ======== ======   ========  ======   ======== ======
</TABLE>

         Commercial business loans generally carry greater credit risks than
residential mortgage loans because their repayment is more dependent on (i) the
underlying financial condition of the borrower and/or the value of any property
or the cash flow from any property securing the loan or the business being
financed and (ii) general as well as local economic conditions. Mortgage loans
secured by commercial real estate properties, including construction and
development lending, are generally larger and involve a higher degree of risk
than one- to four-family residential mortgage loans. This risk is attributable
to the uncertain realization of projected income-producing cash flows, which are
affected by vacancy rates, the ability to maintain rent levels against
competitively-priced properties and the ability to collect rent from tenants on
a timely basis. Also, in the case of construction and development lending, risk
is largely dependent upon the accuracy of the initial estimate of the property's
value at completion of construction or development compared to the estimated
cost (including interest payments) of construction and other assumptions. In
addition, commercial construction loans are subject to many of the same risks as
residential construction loans.

         COMMERCIAL BUSINESS LENDING. The Company also offers various types of
short-term and medium- term commercial business loans on a secured and unsecured
basis to borrowers located in the Company's market area. Borrowers in the
commercial market are generally local companies engaged in retailing and
construction that require traditional working capital financing with cyclical
repayments coming primarily from asset conversion. These loans include time and
demand loans, term loans and lines of credit. The Company is also an approved
Small Business Administration ("SBA") lender. At December 31, 2000, the
Company's commercial business loan portfolio amounted to $70.0 million, or 16.1%
of total gross loans outstanding. The largest commercial business loan
outstanding at December 31, 2000 was a $2.9 million loan to a beverage
distributor in Middletown, New York. In addition, the Company has committed a
line of

                                       -8-


<PAGE>



credit of $2.5 million to the Warwick Valley Telephone Company. At December 31,
2000, $2.0 million of such line was outstanding.

         The Company's lines of credit are typically established for one year
and are subject to renewal upon satisfactory review of the borrower's financial
statements and credit history. Secured short-term commercial business loans are
usually collateralized by real estate and are generally guaranteed by a
principal of the borrower. Interest on these loans is usually payable monthly at
fixed rates or rates that fluctuate based on a spread above the prime rate. The
Company offers term loans with terms generally not exceeding five years.
Typically, term loans have floating interest rates based on a spread above the
prime rate. The Company also offers business loans on a revolving basis, whereby
the borrower pays interest only. Interest on such loans fluctuates based on the
prime rate. Normally these loans require periodic interest payments during the
loan term, with full repayment of principal and interest at maturity. The
Company offers business and merchant credit cards to its corporate customers;
however, these services are provided through third party vendors. The Company
bears the credit risk in the case of business credit cards, but credit risk is
borne by the third party on merchant credit cards, with the Company receiving a
fee in the latter case. In approving a commercial business loan, the Company
will consider the borrower's sources of cash flow to repay the loan, a secondary
source of repayment and the borrower's credit standing.

         COMMERCIAL REAL ESTATE AND CONSTRUCTION LENDING. The Company originates
commercial real estate mortgage loans that are generally secured by a
combination of residential property for development and retail facilities and
properties used for business purposes, such as small office buildings and
apartment buildings located in the Company's market area. Loans are also made to
develop land and for land acquisition. The Company's loan policy and
underwriting procedures provide that commercial real estate loans may generally
be made in amounts up to the lesser of (i) 80% of the lesser of the appraised
value or purchase price of the property, in the case of improved, existing
commercial, investment property, (ii) 75% of the lesser of the appraised value
or purchase price of the property, in the case of commercial, multi-family and
non-residential construction property, (iii) 70% of the lesser of the appraised
value or purchase price of the property, in the case of commercial land
development, generally for subdivision or industrial park land development
property and (iv) 60% of the lesser of the appraised value or purchase price of
the property in the case of raw land. In addition to restrictions on loan to
value, the Company's underwriting procedures provide that commercial real estate
loans may generally be made in amounts up to the lesser of (x) $2.5 million or
(y) the Company's current loans-to-one borrower limit. Regarding clauses (iii)
and (iv) above, the Company usually engages in this type of lending only with
experienced local developers operating in the Company's primary market area.
Such loans are typically offered for the construction of properties that are
pre-sold or for which permanent financing has been secured. At December 31,
2000, the Company had $1.8 million in a variety of acquisition, development and
construction ("ADC") loans in its commercial lending area. The Company's policy
is not to make construction loans for purposes of speculation, so the borrower
must have secured permanent financing commitments from generally recognized
lenders for an amount greater than the amount of the loan. In most cases, the
Company itself provides the permanent financing. While the number and volume of
this type of specialized lending is presently limited, it should be noted that
the Company intends to continue to emphasize its commercial real estate,
including ADC, loan activity as it expands its mortgage origination operations
into New Jersey through Towne Center Mortgage. The largest commercial real
estate loan in the Company's portfolio as of December 31, 2000 was an $8.0
million loan secured by a medical office building used primarily as a radiation,
oncology and cancer research center in Goshen, New York of which $4.0 million
was participated out to another bank.

         The Company's commercial mortgage loans are generally prime rate-based
and may be made with terms up to ten years, generally with a five-year or
ten-year balloon maturity and a 30-year amortization schedule. In reaching its
decision as to whether to make a commercial real estate loan, the Company
considers the qualifications of the borrower as well as the underlying property.
Some of the factors considered are: the net operating income of the mortgaged
premises before debt service and depreciation, the debt service ratio (the ratio
of the property's net cash flow to debt service requirements), which must be a
minimum of 1.25, the ratio of loan amount to appraised value and the credit
worthiness of the borrower.

                                       -9-


<PAGE>



         RESIDENTIAL CONSTRUCTION LENDING. Warwick Savings originates loans for
the acquisition and development of property to individuals in its market area.
Warwick Savings' residential construction loans primarily have been made to
finance the construction of one- to four-family, owner-occupied residential
properties. Warwick Savings offers construction to permanent financing loans
with one or two closings, and will not make residential construction loans
unless the borrower has been approved for permanent financing.
The interest rate charged during the construction phase of the loan is based on
the 30-year fixed mortgage rate. Warwick Savings' policies provide that
construction loans may be made in amounts up to 95% of the appraised value of
the completed property. At December 31, 2000, the Company had $10.1 million of
residential construction loans (net of undisbursed portion), which amounted to
2.3% of the Company's gross loans outstanding.

         Construction lending generally involves additional risks to the lender
as compared with residential mortgage lending. These risks are attributable to
the fact that loan funds are advanced upon the security of the project under
construction, predicated on the present value of the property and the
anticipated future value of the property upon completion of construction or
development. Moreover, because of the uncertainties inherent in delays resulting
from labor problems, materials shortages, weather conditions and other
contingencies, it is relatively difficult to evaluate the total funds required
to complete a project and to establish the loan-to-value ratio. If Warwick
Savings' initial estimate of the property's value at completion is inaccurate,
Warwick Savings may be confronted with a project that, when completed, has an
insufficient value to assure full repayment.

         HOME EQUITY LENDING. The Company offers fixed-rate, fixed-term home
equity loans, called Good Neighbor Home Loans, and adjustable-rate home equity
lines of credit in its market area. Both the home equity loans and lines of
credit are offered in amounts up to 80% of the appraised value of the property
(reduced by any existing first mortgage) with a maximum loan amount of up to
$100 thousand. Fixed-rate, fixed-term Good Neighbor Home Loans are offered with
terms of up to 15 years. Home equity lines of credit are offered for terms of up
to 20 years, with the first five years being offered on a revolving basis,
requiring payments of interest only; thereafter, the line converts to an
amortizing loan. As of December 31, 2000, $25.6 million, or 5.9%, of the
Company's gross loans were home equity loans.

         CONSUMER LENDING. The Company offers various types of secured and
unsecured consumer loans, including automobile loans, home improvement loans,
personal loans, student loans and credit cards (VISA).
The Company's consumer loans have original maturities of not more than five
years. Interest rates charged on such loans are set at competitive rates, taking
into consideration the type and term of the loan. Consumer loan applications are
reviewed and approved in conformance with the Company's Board-approved lending
policy. At December 31, 2000, the Company's consumer loan portfolio totaled
$30.4 million, or 7.0% of the total gross loans outstanding.

         LOAN APPROVAL PROCEDURES AND AUTHORITY. Warwick Savings' Board of
Directors establishes the lending policies and loan approval limits of Warwick
Savings. Conforming residential mortgage loans are approved in accordance with
FNMA guidelines by Warwick Savings' underwriting group. Certain conforming loans
and all non-conforming loans (loans not immediately saleable in the secondary
market) are approved by either Warwick Savings' Executive Director or President.
Warwick Savings' Board of Directors has established the following lending
authority for commercial lending, including commercial real estate lending: (i)
various officers have limited individual authority up to $100 thousand; (ii)
certain officers have joint authority up to $250 thousand; (iii) certain
officers have joint authority up to $500 thousand; and (iv) Warwick Savings'
Commercial Loan Committee has authority to approve loans of up to $1.0 million.
Loans in excess of $1.0 million must be approved by the full Board of Directors
of Warwick Savings, which meets on a bi-weekly basis. The approval of consumer
loans generally requires the dual authorization of two lending officers for
loans over certain amounts ($5 thousand for unsecured loans and $25 thousand for
secured loans). The foregoing lending limits are reviewed and reaffirmed
annually by Warwick Savings' Board of Directors.


                                      -10-


<PAGE>



         Towne Center's Board of Directors has established the following lending
authority for commercial lending, including commercial real estate lending: (i)
certain officers have joint authority up to $250 thousand; and (ii) certain
officers have joint authority up to $500 thousand. Loans in excess of $500
thousand must be approved by the full Board of Directors of Towne Center, which
meets on a monthly basis. The approval of consumer loans generally requires the
dual authorization of two lending officers for loans over certain amounts ($10
thousand for unsecured loans and $25 thousand for secured loans). The foregoing
lending limits are reviewed and reaffirmed annually by Towne Center's Board of
Directors.

         For all loans originated by the Company, upon receipt of a completed
loan application from a prospective borrower, a credit report is ordered and
certain other information is verified by an independent credit agency, and, if
necessary, additional financial information is required to be submitted by the
borrower. An appraisal of any real estate intended to secure the proposed loan
is required, which currently is performed by an independent appraiser designated
and approved by the Board of Directors. The Boards of Directors of both Warwick
Savings and Towne Center annually approve the independent appraisers used by
them and both Boards of Directors approve their respective appraisal policy. It
is the Company's policy to obtain title and hazard insurance on all real estate
loans. In connection with a borrower's request for a renewal of a multi-family
or commercial mortgage loan with a balloon maturity, the Company evaluates both
the borrower's ability to service the renewed loan applying an interest rate
that reflects prevailing market conditions, as well as the value of the
underlying collateral property. The reevaluation of the property typically
requires a new appraisal, depending upon the loan amount and other factors. It
is the Company's policy to note all exceptions to policy in the respective
credit files and report such exceptions to the original decision-making body
(I.E., the Commercial Loan Committee, Executive Committee or Board of Directors)
prior to closing if a condition of the original approval is not met.

Asset Quality
-------------

         NON-PERFORMING LOANS. Warwick Savings' and Towne Center's management
and Boards of Directors perform a monthly review of delinquent loans. The
actions taken by each Board of Directors with respect to delinquencies vary
depending on the nature of the loan and period of delinquency. Warwick Savings'
policies on residential mortgage loans provide that delinquent mortgage loans be
reviewed and that a late charge notice be mailed no later than the 15th day of
delinquency, with the delinquency charge assessed on the 16th day. Warwick
Savings' collection policies on residential mortgage loans essentially mirror
those shown in the FNMA servicing agreements. On other loans, telephone contact
and various delinquency notices at different intervals are the methods used to
collect past due loans.

         It is Warwick Savings' and Towne Center's general policy to discontinue
accruing interest on all loans when management has determined that the borrower
will be unable to meet contractual obligations or when unsecured interest or
principal payments are 90 days past due. Generally, when residential mortgage or
secured consumer loans are delinquent 90 days, they are classified as
non-accrual. When a loan is classified as non-accrual, the recognition of
interest income ceases. Interest previously accrued and remaining unpaid is
reversed against income. Cash payments received are applied to principal, and
interest income is not recognized unless management determines that the
financial condition and payment record of the borrower warrant the recognition
of income. If a foreclosure action is commenced and the loan is not brought
current, paid in full or an acceptable workout arrangement is not agreed upon
before the foreclosure sale, the real property securing the loan is generally
sold at foreclosure. Property acquired by the Company as a result of foreclosure
on a mortgage loan is classified as "real estate owned" and is recorded at the
lower of the unpaid balance or fair value less costs to sell at the date of
acquisition and thereafter. Upon foreclosure, it is the Company's policy to
generally require an appraisal of the property and, thereafter, appraise the
property on an as-needed basis.


                                      -11-


<PAGE>



         The following table sets forth information regarding non-accrual loans,
other past due loans and other real estate owned ("OREO"). There were no
troubled debt restructurings within the meaning of Statement of Financial
Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," at any of the dates presented below.




<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                                                  ---------------
                                              2000          1999        1998         1997         1996
                                              ----          ----        ----         ----         ----
                                                               (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>         <C>          <C>          <C>
Non-accrual mortgage loans delinquent
more than 90 days........................   $   416       $   693     $   631      $  1,165     $  1,247

Non-accrual other loans delinquent
more than 90 days........................       542           521          88           246           28
                                            -------       -------     -------      --------     --------

Total non-accrual loans..................       958         1,214         719         1,411        1,275

Total 90 days or more delinquent
and still accruing interest..............       281           822       1,363           114          383
                                            -------       -------     -------      --------     --------

Total non-performing loans...............     1,239         2,036       2,082         1,525        1,658

Total foreclosed real estate.............     1,268           415         371           562          433
                                            -------       -------     -------      --------     --------

Total non-performing assets..............   $ 2,507       $ 2,451     $ 2,453      $  2,087     $  2,091
                                            =======       =======     =======      ========     ========

Non-performing loans to total loans......      0.28%         0.58%       0.81%        0.84%         1.28%

Total non-performing assets to total
assets...................................      0.39%         0.41%       0.55%        0.61%         0.73%
</TABLE>

         Interest income that would have been recorded if the non-accrual
mortgage loans had been performing in accordance with their original terms
aggregated approximately $80,000, $72,000 and $90,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.

         OTHER REAL ESTATE OWNED. At December 31, 2000, the Company's OREO, net,
which consisted of one single-family residential property and one commercial
property, totaled $1.3 million and was held directly by the Company.

         CLASSIFIED ASSETS. Federal regulations and the Company's Internal Loan
Review and Grading System, which is a part of the Company's loan policy, require
that the Company utilize an internal asset classification system as a means of
reporting problem and potential problem assets. Warwick Savings limits its loan
review procedure to the higher-risk commercial business and commercial real
estate loans, commercial loans greater than $25,000 and jumbo residential
mortgage loans. Towne Center reviews all commercial loans in excess of $250,000
and all such loans are subject to review and grading on at least an annual
basis, and more frequently if conditions dictate.

         At each regularly scheduled Board of Directors meeting, a watch list is
presented, showing all loans listed as "Special Mention," "Substandard,"
"Doubtful" and "Loss." An asset is considered Substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Assets classified as Doubtful have all the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and viewed as non-bankable assets, worthy of charge-off. Assets
which do not currently expose the Company to sufficient risk to warrant
classification in one of the aforementioned categories, but possess weaknesses
which may or may not be out of the control of management, are deemed to be
"Special Mention."

         When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which,

                                      -12-


<PAGE>



unlike specific allowances, have not been allocated to specific problem assets.
When an insured institution classifies one or more assets, or portions thereof,
as Loss, it is required either to establish a specific allowance for losses
equal to 100% of the amount of the asset so classified or to charge-off such
amount.

         The Company's determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by the FDIC, the
Banking Department of the State of New York ("NYSBD") and the State of New
Jersey Department of Banking and Insurance ("NJBD") which can order the
establishment of additional general or specific loss allowances. The FDIC, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on the allowance for loan and lease losses. The policy
statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that (i) institutions have effective systems and controls to
identify, monitor and address asset quality problems; (ii) management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and (iii) management has established acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement. Management believes it has established an adequate allowance for
possible loan and lease losses and analyzes its process regularly, with
modifications made if needed, and reports those results four times per year at
the Company's Board of Directors meetings. However, there can be no assurance
that the regulators, in reviewing the Company's loan portfolio, will not request
the Company to materially increase its allowance for loan and lease losses at
that time. Although management believes that adequate specific and general loan
loss allowances have been established, actual losses are dependent upon future
events and, as such, further additions to the level of specific and general loan
loss allowances may become necessary.

         At December 31, 2000, the Company had $601 thousand of assets
classified as Substandard and $923 thousand of assets classified as Special
Mention. There were no assets classified as Doubtful or Loss as of December 31,
2000. The $601 thousand of loans classified as Substandard were also impaired
under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--
Income Recognition Disclosures," which was adopted in fiscal 1995. SFAS No. 114
defines an impaired loan as a loan for which it is probable, based on current
information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement.


                                      -13-


<PAGE>



         The following table sets forth delinquencies in the Company's loan
portfolio at the dates indicated:


<TABLE>
<CAPTION>
                                        AT DECEMBER 31, 2000                         AT DECEMBER 31, 1999
                                        --------------------                         --------------------
                                  60-89 DAYS          90 DAYS OR MORE          60-89 DAYS         90 DAYS OR MORE
                                  ----------          ---------------          ----------         ---------------
                                        PRINCIPAL              PRINCIPAL             PRINCIPAL             PRINCIPAL
                              NUMBER     BALANCE     NUMBER     BALANCE    NUMBER   BALANCE OF   NUMBER     BALANCE
                             OF LOANS   OF LOANS    OF LOANS   OF LOANS   OF LOANS     LOANS     OF LOANS  OF LOANS
                             --------   --------    --------   --------   --------     -----     --------  --------
                                                             (DOLLARS IN THOUSANDS)
<S>                          <C>        <C>         <C>        <C>        <C>        <C>         <C>       <C>
One- to four-family.........      --    $    --           3    $   416          3    $    373          8    $   693
Multi-family................      --         --          --         --         --          --         --         --
Commercial loans............       1        120           5        706          4         594          9      1,240
Home equity lines of credit.       3        171          --         --         --          --          1         36
Other loans.................      50        316          26        117         26          78         16         67
                               -----    -------       -----    -------      -----    --------      -----    -------
     Total loans............      54    $   607          34    $ 1,239         33    $  1,045         34    $ 2,036
                               =====    =======       =====    =======      =====    ========      =====    =======
</TABLE>


                                      AT DECEMBER 31, 1998
                                      --------------------
                              60-89 DAYS               90 DAYS OR MORE
                              ----------               ---------------

                                        PRINCIPAL                PRINCIPAL
                              NUMBER    BALANCE OF    NUMBER      BALANCE
                             OF LOANS     LOANS       OF LOANS    OF LOANS
                             --------     -----       --------    --------
                                         (DOLLARS IN THOUSANDS)

One- to four-family.........     11      $1,263         12       $  631
Multi-family................     --          --         --           --
Commercial loans............      4         279          6        1,405
Home equity lines of credit.     --          --          1           16
Other loans.................     16          48          8           30
                              -----      ------      -----       ------
     Total loans............     31      $1,590         27       $2,082
                              =====      ======      =====       ======

         ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan and lease
losses is based upon management's periodic evaluation of the loan portfolio
under current economic conditions, considering factors such as asset
classifications, the Company's past loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay and the estimated value of the underlying collateral. The allowance for
loan and lease losses is maintained at an amount management considers adequate
to cover loan and lease losses that are deemed probable and estimable. At
December 31, 2000, the Company's allowance for loan and lease losses was $2.7
million, or 0.63% of total loans, as compared to $1.9 million, or 0.55%, at
December 31, 1999 and $1.7 million, or 0.67%, at December 31, 1998. The Company
had non-performing loans of $1.2 million, $2.0 million and $2.1 million at
December 31, 2000, 1999 and 1998, respectively. The Company will continue to
monitor and modify its allowance for loan losses as conditions dictate. Various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. These agencies may
require the Company to establish additional valuation allowances, based on their
judgments of the information available at the time of the examination.


                                      -14-


<PAGE>



         The following table sets forth activity in the Company's allowance for
loan losses for the periods indicated.



<TABLE>
<CAPTION>
                                                    AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                    -------------------------------------
                                               2000        1999       1998       1997      1996
                                               ----        ----       ----       ----      ----
                                                            (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>        <C>        <C>       <C>
ALLOWANCE FOR LOAN LOSSES:
  Balance at beginning of period..........   $ 1,941     $ 1,727    $ 1,372    $ 1,184   $ 1,336
CHARGE-OFFS:
  Real estate mortgage loans..............       (29)       (157)       (30)      (160)     (128)
  Commercial loans........................       (63)       (161)       (56)        (1)       --
  Consumer loans..........................       (64)        (54)       (89)      (118)      (97)
                                             -------     -------    -------    -------   -------
  Total charge-offs.......................      (156)       (372)      (175)      (279)     (225)
RECOVERIES:
  Real estate mortgage loans..............        27          23         --          1         9
  Commercial loans........................        --          42          9         --        --
  Consumer loans..........................        10          21         21         12         4
                                             -------     -------    -------    -------   -------
     Total recoveries.....................        37          86         30         13        13
  Provision for loan losses...............       900         500        500        454        60
                                             -------     -------    -------    -------   -------
  Balance at end of period................   $ 2,722     $ 1,941    $ 1,727    $ 1,372   $ 1,184
                                             =======     =======    =======    =======   =======
  Ratio of net charge-offs
   during the period to average loans
   outstanding............................      0.03%       0.10%      0.07%      0.17%     0.17%
  Ratio of allowance for loan
   losses to total loans at end of
   period.................................      0.63%       0.55%      0.67%      0.76%     0.90%
  Ratio of allowance for loan
   losses to non-performing
   loans..................................    219.69%      95.33%     82.95%     89.79%    71.35%
</TABLE>


         The following table sets forth the Company's allowance for loan losses
allocated by loan category, the percent of the allocated allowances to the total
allowance and the percent of loans in each category to total loans at the dates
indicated.


<TABLE>
<CAPTION>
                                                                 AT DECEMBER 31,
                                                                 ---------------
                                 2000               1999               1998               1997               1996
                                 ----               ----               ----               ----               ----
                                       % OF               % OF               % OF              % OF              % OF
                                     LOANS IN           LOANS IN           LOANS IN          LOANS IN           LOANS IN
                                     CATEGORY           CATEGORY           CATEGORY          CATEGORY           CATEGORY
                                     TO TOTAL           TO TOTAL           TO TOTAL          TO TOTAL           TO TOTAL
                             AMOUNT   LOANS     AMOUNT   LOANS     AMOUNT   LOANS    AMOUNT   LOANS      AMOUNT  LOANS
                             ------   -----     ------   -----     ------   -----    ------   -----      ------  -----
                                                              (DOLLARS IN THOUSANDS)
Allowance for mortgage
<S>                         <C>      <C>        <C>     <C>       <C>       <C>     <C>       <C>        <C>     <C>
    loan loss..........     $  617   76.94%     $  379  78.48%    $  373    79.46%  $  288    76.77%     $  203  70.73%
Allowance for consumer
    loan loss..........        548    6.98         461   8.57        375     7.12      373     7.55         399  13.08
Allowance for commercial
    loan loss..........      1,557   16.08       1,101  12.95        979    13.42      711    15.68         582  16.19
                            ------  ------      ------ ------     ------   ------   ------   ------      ------ ------
 Total allowances
    for loan loss......     $2,722  100.00%     $1,941 100.00%    $1,727   100.00%  $1,372   100.00%     $1,184 100.00%
</TABLE>

Environmental Issues
--------------------

         The Company encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on properties securing
their loans. In addition, the existence of hazardous materials may make it
unattractive for a lender to foreclose on such properties. Although
environmental risks are usually associated with loans


                                      -15-


<PAGE>



secured by commercial real estate, risks also may be substantial for residential
real estate loans if environmental contamination makes security property
unsuitable for use. As of December 31, 2000, the Company was not aware of any
environmental issues that would subject the Company to material liability.
No assurance, however, can be given that the values of properties securing loans
in the Company's portfolio will not be adversely affected by unforseen
environmental contamination.

Investment Activities
---------------------

         INVESTMENT POLICIES. Warwick Savings' investment policy, which is
established by its Board of Directors, is contained in Warwick Savings'
Liquidity and Funds Management Policy. It is based upon asset/liability
management goals and emphasizes high credit quality and diversified investments
while seeking to optimize net interest income within acceptable limits of safety
and liquidity. Warwick Savings also considers the investment advice it receives
from some of its outside investment advisers. Recently, Warwick Savings has
engaged in leveraging activities to enhance returns on equity. The policy is
designed to provide and maintain liquidity to meet day-to-day, cyclical and
long-term changes in Warwick Savings' asset/liability structure, and to provide
needed flexibility to meet loan demand. Towne Center's investment policy is
similar, except that Towne Center does not engage in hedging activities and is
not permitted to invest in mutual funds. Approximately 95% of the Company's debt
security portfolio at December 31, 2000 is classified as available-for-sale.

         The Company's investment policies permit Warwick Savings and Towne
Center to invest in U.S. government obligations, securities of various
government-sponsored agencies, including mortgage-backed securities
issued/guaranteed by FNMA, the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Government National Mortgage Association ("GNMA"), certain types of
equity securities (such as institutional mutual funds), certificates of deposit
of insured banks, federal funds and investment grade corporate debt securities
and commercial paper.

         The investment policy prohibits investment in certain types of mortgage
derivative securities that management considers to be high risk. The Company
generally purchases only short- and medium-term classes of collateralized
mortgage obligations ("CMOs") guaranteed by FNMA or FHLMC. At December 31, 2000,
the Company held no securities issued by any one entity with a total carrying
value in excess of 10% of the Company's equity at that date, except for
obligations of the U.S. government and government- sponsored agencies and
certain mortgage-backed securities, which are fully collateralized by mortgages
held by single purpose entities and guaranteed by government-sponsored agencies.

         MORTGAGE-BACKED SECURITIES. The Company invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities. At December 31, 2000, the amortized cost of mortgage-backed
securities totaled $59.6 million, or 9.3% of total assets. The market value of
all mortgage- backed securities totaled $59.6 million at December 31, 2000. All
of the Company's mortgage-backed securities are included in its
available-for-sale portfolio. Additionally, the Company's securities portfolio
includes CMOs, with an amortized cost of $13.6 million and a market value of
$13.5 million at December 31, 2000. A CMO is a special type of debt security in
which the stream of principal and interest payments on the underlying mortgages
or mortgage-backed securities is used to create classes with different
maturities and, in some cases, amortization schedules as well as a residual
interest, with each class possessing different risk characteristics. However,
management regularly monitors the risks inherent in its CMOs and believes these
securities may represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available.

         At December 31, 2000, all securities in the Company's mortgage-backed
securities portfolio were directly or indirectly issued or guaranteed by GNMA,
FNMA or FHLMC. The Company's mortgage-backed securities portfolio had a weighted
average yield of 6.85% at December 31, 2000.


                                      -16-


<PAGE>



         Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage- backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Company. In general, mortgage-backed securities issued or
guaranteed by GNMA, FNMA and FHLMC are weighted at no more than 20% for
risk-based capital purposes, compared to the 50% risk weighting assigned to most
non-securitized residential mortgage loans.

         While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors, such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed
and value of such securities. In contrast to mortgage-backed pass-through
securities in which cash flow is received (and, hence, prepayment risk is
shared) pro rata by all securities holders, the cash flows from the mortgages or
mortgage-backed securities underlying CMOs are segmented and paid in accordance
with a pre-determined priority to investors holding various tranches of such
securities or obligations. A particular tranche of a CMO may therefore carry
prepayment risk that differs from that of both the underlying collateral and
other tranches. It is the Company's strategy to purchase tranches of CMOs that
are categorized as "planned amortization classes," "targeted amortization
classes" or "very accurately defined maturities" and are intended to produce
stable cash flows in different interest rate environments.

         The following table sets forth activity in the Company's securities
portfolio for the periods indicated.


<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31,
                                                                  -------------------------------
                                                                  2000           1999        1998
                                                                  ----           ----        ----
                                                                           (IN THOUSANDS)
<S>                                                            <C>            <C>         <C>
BEGINNING BALANCE............................................  $186,490       $155,490    $127,563
                                                               --------       --------    --------

Debt securities purchased-- held-to-maturity.................     2,922          1,393       5,536
Debt securities purchased-- available-for-sale...............     5,000         48,340      39,179
Equity securities purchased-- available-for-sale.............     1,144          1,078      12,923
Mortgage-backed securities purchased -- held-to-maturity.....        --             --          --
Mortgage-backed securities purchased -- available-for-sale...       984         10,192      39,772
Mortgage-backed securities formed by securitizing originated
     mortgage loans..........................................     3,567         69,131      70,627

LESS:

Sale of debt securities-- available-for-sale.................     2,016             --       6,568
Sale of equity securities-- available-for-sale...............     2,900         10,979       1,782
Sale of mortgage-backed securities available-for-sale........     8,998          3,732      11,237
Sale of mortgage-backed securities formed by securitizing
     originated mortgage loans-- trading.....................    21,000         26,969      70,933
Principal repayments on mortgage-backed securities
     and debt securities.....................................    11,524         20,722      25,479
Maturities and called debt securities........................    13,650         24,000      24,888
Accretion of discount/amortization of (premium)..............     2,291          1,533         627
Change in gross unrealized gains (losses) on
     available-for-sale securities...........................     7,203        (14,265)        150
                                                               --------        -------    --------
ENDING BALANCE...............................................   149,513        186,490     155,490
                                                               ========        =======    ========
</TABLE>


                                      -17-

<PAGE>

           The following table sets forth the amortized cost and market value of
the Company's securities by accounting classification category and by type of
security, at the dates indicated:



<TABLE>
<CAPTION>
                                                                     AT DECEMBER 31,
                                                    2000                    1999                  1998
                                                    ----                    ----                  ----
                                           AMORTIZED      MARKET    AMORTIZED     MARKET   AMORTIZED   MARKET
                                              COST        VALUE        COST       VALUE      COST       VALUE
                                                                     (IN THOUSANDS)
<S>                                        <C>          <C>        <C>          <C>       <C>         <C>
Debt securities held-to-maturity:
       U.S. Government obligations.......  $  1,001     $  1,005   $    645     $    644  $    895    $    899
       Agency securities.................     1,400        1,412        700          693     5,000       4,962
       Municipal bonds...................     1,295        1,298         73           73       104         106
       Other debt obligations............        --           --         --           --        --          --
                                           --------     --------   --------     --------  --------    --------

       Total debt securities
       held-to-maturity..................     3,696        3,715      1,418        1,410     5,999       5,967
                                           --------     --------   --------     --------  --------    --------
Debt securities available-for-sale:
       U.S. Government obligations.......        --           --      2,016        2,053     3,023       3,165
       Agency securities.................    51,497       48,452     57,328       52,224    38,430      38,694
       Municipal bonds...................     4,966        4,850      4,963        4,750       104         106
       Other debt obligations............    14,158       12,703     14,181       12,896     8,045      82,300
                                           --------     --------   --------     --------  --------    --------

       Total debt securities
       available-for-sale................    70,621       66,005     78,488       71,923    49,498      50,089
                                           --------     --------   --------     --------  --------    --------
Equity securities available-for-sale:
       Preferred stock...................     1,102          956      1,112          951     1,112       1,120
       Common stock......................       192          191      2,851        2,167     2,275       1,941
       Mutual funds......................     4,886        5,592      3,973        4,848    14,449      16,232
                                           --------     --------   --------     --------  --------    --------
       Total equity securities
       available-for-sale................     6,180        6,739      7,936        7,966    17,836      19,293
                                           --------     --------   --------     --------  --------    --------
Total debt and equity securities.........    80,496       76,459     87,842       81,299    73,333      75,349
                                           --------     --------   --------     --------  --------    --------
Mortgage-backed securities
available-for-sale:
       FHLMC.............................     1,579        1,591      1,903        1,888     7,018       7,145
       GNMA..............................    20,305       20,048     33,611       32,097    33,849      33,824
       FNMA..............................    37,691       37,950     58,054       55,590    20,436      21,036
       CMOs..............................    13,625       13,484     16,466       15,608    17,976      18,104
                                           --------     --------   --------     --------  --------    --------
       Total mortgage-backed securities
       available-for-sale................    73,200       73,073    110,034      105,183    79,279      80,109
                                           --------     --------   --------     --------  --------    --------
       Total mortgage-backed securities..    73,200       73,073    110,034      105,183    79,279      80,109
                                           --------     --------   --------     --------  --------    --------
Net unrealized (losses) gains on trading
       securities........................        --                      --                    --
Net unrealized (losses) gains on
       available-for-sale and trading
       securities........................    (4,184)                (11,386)                 2,878
                                           --------                --------               --------
       Total securities..................  $149,513      149,532    186,490      186,482   155,490     155,458
                                           ========     ========   ========     ========  ========    ========
</TABLE>


                                      -18-


<PAGE>



         The following table sets forth the composition of the Company's
securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,
                                                             ---------------
                                           2000                   1999                   1998
                                           ----                   ----                   ----
                                   CARRYING   PERCENT OF  CARRYING   PERCENT OF   CARRYING  PERCENT OF
                                     VALUE       TOTAL      VALUE       TOTAL       VALUE      TOTAL
                                     -----       -----      -----       -----       -----      -----
                                                         (DOLLARS IN THOUSANDS)
<S>                                <C>        <C>         <C>        <C>          <C>       <C>
Debt securities:
         U.S. Government
         obligations.............  $  1,001      0.67%    $  2,698      1.80%     $  4,060      2.61%
         Agency securities.......    49,852     33.34       52,924     28.38        43,694     28.10
         Municipal bonds.........     6,145      4.11        4,823      2.59           104      0.07
         Other debt obligations..    12,703      8.50       12,896      6.91         8.230      5.29
                                   --------    ------     --------    ------      --------    ------
         Total debt securities...    69,701     46.62       73,341     39.33        56,088     36.07
                                   --------    ------     --------    ------      --------    ------
Equity securities:
         Preferred stock.........       956      0.64          951      0.51         1,120      0.72
         Common stock............       191      0.13        2,167      1.16         1,941      1.25
         Mutual funds............     5,592      3.74        4,848      2.60        16,232     10.44
                                   --------    ------     --------    ------      --------    ------
         Total equity securities      6,739      4.51        7,966      4.27        19,293     12.41
                                   --------    ------     --------    ------      --------    ------
Mortgage-backed securities.......
         FHLMC...................     1,591      1.06        1,888      1.01         7,145      4.60
         GNMA....................    20,048     13.41       32,097     17.21        33,824     21.75
         FNMA....................    37,950     25.38       55,590     29.81        21,036     13.53
         CMOs....................    13,484      9.02       15,608      8.37        18,104     11.64
                                   --------    ------     --------    ------      --------    ------
         Total mortgage-backed
         securities..............    73,073     48.87      105,183     56.40        80,109     51.52
                                   --------    ------     --------    ------      --------    ------
         Total securities........  $149,513    100.00%    $186,490    100.00%     $155,490    100.00%
                                   ========    ======     ========    ======      ========    ======
         Debt and equity
         securities
         available-for-sale......  $ 72,745     48.65%    $ 79,889     42.84%     $ 69,382     44.62%
         Debt and equity
         securities
         held-to-maturity........     3,695      2.47        1,418      0.76         5,999      3.86
                                   --------    ------     --------    ------      --------    ------
         Total debt and equity
         securities..............    76,440     51.13       81,307     43.60        75,381     48.48
                                   --------    ------     --------    ------      --------    ------
         Mortgage-backed
         securities
         available-for-sale......    73,073     48.87      105,183     56.40        80,109     51.52
                                   --------    ------     --------    ------      --------    ------
         Total mortgage-backed
         securities..............    73,073     48.87      105,183     56.40        80,109     51.52
                                   --------    ------     --------    ------      --------    ------
         Total securities........  $149,513    100.00%    $186,490    100.00%     $155,490   100.00%
                                   ========    ======     ========    ======      ========    ======
</TABLE>


                                      -19-

<PAGE>

         The following table sets forth certain information regarding the
carrying value and weighted average yield of the Company's securities at
December 31, 2000, by remaining period to contractual maturity. Actual
maturities may differ from contractual maturities because certain security
issuers may have the right to call or prepay their obligations.



<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31, 2000
                                                                      --------------------
                                                   MORE THAN ONE YEAR  MORE THAN FIVE YEARS       MORE THAN
                                ONE YEAR OR LESS      TO FIVE YEARS        TO TEN YEARS           TEN YEARS            TOTAL
                                ----------------      -------------        ------------           ---------            -----
                                         WEIGHTED             WEIGHTED             WEIGHTED             WEIGHTED            WEIGHTED
                               CARRYING   AVERAGE   CARRYING   AVERAGE   CARRYING   AVERAGE   CARRYING   AVERAGE  CARRYING   AVERAGE
                                VALUE      YEILD     VALUE      YEILD     VALUE      YEILD     VALUE      YEILD    VALUE      YEILD
                                -----      -----     -----      -----     -----      -----     -----      -----    -----      -----
                                                                     (DOLLARS IN THOUSANDS)
<S>                            <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>       <C>       <C>
Held-to-maturity:
    Municipal bonds........... $  969      4.80%    $   --        --%    $   --        --%    $    326     5.71%  $  1,295    5.03%
    U.S. Government
      obligations.............  1,001      6.25         --        --         --        --           --       --      1,001    6.25
    Agency securities.........     --        --      1,400     6.48          --        --           --       --      1,400    6.48
                               ------               ------               ------               --------            --------
       Total held-to-maturity.  1,970      5.54      1,400     6.48          --        --          326     5.71      3,696    5.91
                               ------               ------               ------               --------            --------
Available-for-sale:
    Mortgage backed
      securities:
      Variable-Rate:
       FHLMC..................     --        --         --       --          --        --           --       --         --      --
       GNMA...................     --        --         --       --          --        --          328     7.01        328    7.01
       FNMA...................     --        --         --       --          --        --          511     7.91        511    7.91
       CMOs...................     --        --         --       --          --        --        2,595     6.75      2,595    6.75
      Fixed-Rate:
       FHLMC..................     --         --        26     9.50         228      6.91        1,337     7.33      1,591    7.31
       GNMA...................     --         --        --       --          62      9.04       19,658     7.60     19,720    7.60
       FNMA...................     --         --        --       --       2,512      7.32       34,927     6.90     37,439    6.93
       CMOs...................     --         --        --       --          --        --       10,889     6.73     10,889    6.73
                               ------               ------               ------               --------            --------
       Total mortgage-backed
         securities...........     --         --        26     9.50       2,802      7.32       70,245     7.08     73,073    6.85
                               ------               ------               ------               --------            --------

    Debt securities:
      Municipal bonds.........     --         --        --       --          --        --        4,850     7.94      4,850    7.94
      U.S. Government
        obligations...........     --         --        --       --          --        --           --       --         --      --
      Agency securities.......     --         --     1,002     7.44       1,002      8.00       46,448     6.80     48,452    6.84
      Other debt obligations..     --         --       750     7.06          --        --       11,953     8.90     12,703    8.79
                               ------               ------               ------               --------            --------
       Total debt securities..     --         --     1,752     7.28       1,002      8.00       63,251     7.28     66,005    7.29
                               ------               ------               ------               --------            --------
    Equity Securities:
      Preferred stock.........     --         --        --       --          --        --          956     7.78        956    7.78
      Common stock ...........     --         --        --       --          --        --          191     1.11        191    1.11
      Mutual funds............     --         --        --       --          --        --        5,592    10.05      5,592   10.05
                               ------               ------               ------               --------            --------
       Total equity
         securities...........     --         --        --       --          --        --        6,739     9.47      6,739    9.47
                               ------               ------               ------               --------            --------
       Total
         available-for-sale...     --         --     1,778     7.31       3,804      7.50      140,235     7.29    145,817    7.17
                               ------               ------               ------               --------            --------
       TOTAL SECURITIES....... $1,970       5.54    $3,178     6.94      $3,804      7.50     $140,561     7.28   $149,513    7.14
                               ======               ======               ======               ========            ========
</TABLE>




                                      -20-


<PAGE>



SOURCES OF FUNDS

         GENERAL. Deposits, borrowings, loan and security repayments and
prepayments, proceeds from sales of securities and cash flows generated from
operations are the primary sources of the Company's funds for use in lending,
investing and for other general purposes. The Company's management intends to
increase its deposit base through competitive pricing but continually evaluates
wholesale funding through Federal Home Loan Bank of New York ("FHLBNY") advances
and other sources, depending upon market conditions.

         DEPOSITS. The Company offers a variety of deposit accounts with a range
of interest rates and terms. The Company's deposits consist of regular
(passbook) savings accounts, statement savings accounts, checking accounts, NOW
accounts, basic banking accounts, money market accounts and certificates of
deposit. In recent years, the Company has offered certificates of deposit with
maturities of up to 60 months.
At December 31, 2000, the Company's core deposits, which the Company considers
to consist of checking accounts, NOW accounts, money market accounts, regular
savings accounts and statement savings accounts, constituted 64.7% of total
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Company's deposits are obtained predominantly from the areas in
proximity to its office locations. The Company relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Company's ability to attract and
retain deposits. Certificate accounts in excess of $100 thousand are not
actively solicited by the Company; however, during July 2000, the Company
obtained brokered deposits in the amount of $20.0 million at an annual rate of
7.5%.

         The following table presents the deposit activity of the Company for
the periods indicated.


<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                       -------------------------------
                                                    2000             1999            1998
                                                    ----             ----            ----
                                                               (IN THOUSANDS)
<S>                                             <C>              <C>              <C>
Deposits ...................................    $2,056,067       $1,353,829       $1,304,048
Withdrawals.................................    (2,001,487)      (1,325,253)      (1,277,839)
                                                ----------       ----------       ----------
Deposits in excess of withdrawals...........        54,580           28,576            6,209
Interest credited on deposits...............        10,478            7,611            7,164
                                                ----------       ----------       ----------
Net increase in deposits....................    $   65,058       $   36,187       $   33,373
                                                ==========       ==========       ==========
</TABLE>


         At December 31, 2000, the Company had $40.5 million in certificates of
deposit accounts in amounts of $100 thousand or more, including the brokered
certificates of deposit, maturing as follows:



                                                             WEIGHTED AVERAGE
                                               AMOUNT              RATE
                                               ------              ----
                                                 (DOLLARS IN THOUSANDS)
Maturity Period:
     Three months or less................     $ 8,456             5.85%
     Over 3 through 6 months.............       2,581             5.94
     Over 6 through 12 months............       6,484             6.46
     Over 12 months......................      22,968             7.31
                                              -------           ------
                         Total...........     $40,489             6.78%
                                              =======           ======


                                      -21-


<PAGE>



         The following table sets forth the distribution of the Company's
deposit accounts and the related weighted average interest rates for the periods
indicated.


<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                            --------------------------------
                                         2000                            1999                            1998
                                         ----                            ----                            ----
                                                   WEIGHTED                        WEIGHTED                        WEIGHTED
                                       PERCENT OF  AVERAGE             PERCENT OF  AVERAGE              PERCENT    AVERAGE
                              AVERAGE    TOTAL     NOMINAL   AVERAGE     TOTAL     NOMINAL    AVERAGE   OF TOTAL   NOMINAL
                              BALANCE   DEPOSITS     RATE    BALANCE    DEPOSITS     RATE     BALANCE   DEPOSITS     RATE
                              -------   --------     ----    -------    --------     ----     -------   --------     ----
                                                                 (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>        <C>       <C>        <C>         <C>       <C>        <C>        <C>
Checking accounts........... $ 39,197    12.08%       --    $ 24,575     9.64%         --    $ 20,277     9.09%        --
                             --------   ------    ------    --------   ------      ------    --------   ------     ------
Passbook accounts...........   91,888    28.31      2.81%     85,379    33.48        2.64%     79,404    35.61       2.93%
NOW accounts................   12,876     3.97      1.88      11,767     4.62        2.03       8,500     3.82       2.23
Interest-on-checking
  accounts..................   12,597     3.88      0.99      10,909     4.28        0.99       8,772     3.93       0.99
                             --------   ------              --------   ------                --------   ------
Total passbook, NOW and
  interest-on-checking
  accounts..................  117.361    36.16      2.51     108,054    42.38        2.41      96,676    43.36       2.69
                             --------   ------              --------   ------                --------   ------
Money market accounts.......   53,772    16.57      4.65      43,002    16.86        3.89      29,986    13.45       3.60
                             --------   ------              --------   ------                --------   ------
Certificate accounts:
 Certificates of deposit--
   one year and less........   58,590    18.05      4.77      53,909    21.14        4.60      53,258    23.88       4.93
 IRA Certificates of
   deposit--one year and
   less.....................    6,377     1.96      4.98       7,771     3.05        4.58       7,702     3.45       4.91
 Certificates of deposit--
   more than one year.......   37,587    11.58      7.10       8,243     3.23        5.32       6,354     2.85       5.15
 IRA Certificates of
   deposit--more than one
   year.....................    4,908     1.51      5.34       3,831     1.50        5.02       4,030     1.81       5.15
                             --------   ------              --------   ------                --------   ------
Total certificates..........  107,462    33.10      5.62      73,755    28.92        4.70      71,344    31.99       4.96
                             --------   ------              --------   ------                --------   ------
Escrow deposits.............    6,800     2.09      2.00       5,600     2.20        2.00       4,700     2.11       2.00
                             --------   ------              --------   ------                --------   ------
Total deposits.............. $324,592   100.00%     3.60%   $254,986   100.00%       3.12%   $222,983   100.00%      3.32%
                             ========   ======              ========   ======                ========   ======
</TABLE>


         The following table presents, by interest rate ranges, the amount of
certificate accounts outstanding at the dates indicated and the period to
maturity of the certificate accounts outstanding at December 31, 2000.


<TABLE>
<CAPTION>
                               PERIOD TO MATURITY FROM DECEMBER 31, 2000           AT DECEMBER 31,
                               -----------------------------------------           ---------------
                                                                OVER
                         LESS THAN    ONE TO       TWO TO       THREE
                         ONE YEAR   TWO YEARS    THREE YEARS    YEARS      2000         1999        1998
                         --------   ---------    -----------    -----      ----         ----        ----
                                                           (IN THOUSANDS)
<S>                      <C>        <C>          <C>           <C>       <C>          <C>          <C>
Certificate accounts:
   3.99% or less........ $    --     $    --      $    --      $    --   $     --     $    --      $    __
   4.00% to 4.99%.......  10,672         254           --          507     11,433      47,464       42,424
   5.00% to 5.99%.......  33,204       2,719        1,783           --     37,706      24,692       28,571
   6.00% to 6.99%.......  43,762       9,005          127          757     53,651      17,067           --
   7.00% to 7.99%.......      --         136           --       19,965     20,101          --           --
   8.00% to 8.99%.......      --          --           --           --         --          --           --
                         -------     -------       ------      -------   --------     -------      -------
        Total........... $87,638     $12,114       $1,910      $21,229   $122,891     $89,223      $70,995
                         =======     =======       ======      =======   ========     =======      =======
</TABLE>


         BORROWINGS. Warwick Savings became a member of the FHLBNY in 1995 and
has utilized FHLBNY advances as a source of borrowings since then. FHLBNY
advances may also be used to acquire certain other assets as may be deemed
appropriate for investment purposes, including leveraging opportunities. This
form of leveraging allows for a reasonable net margin of return, the majority of
which is locked in for a specified period. Since the locked-in period might
cover only a part of the investment's term (up to its call date in the majority
of the transactions), such a practice might result in a limited degree of
interest rate risk, since the earlier maturing borrowings are required to be
rolled over to fund the remaining lives of the particular investments. FHLBNY
advances are to be collateralized primarily by certain of Warwick Savings'
mortgage loans and mortgage-backed securities and secondarily by Warwick
Savings'

                                      -22-


<PAGE>



investment in capital stock of the FHLBNY. Such advances may be made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. The maximum amount that the FHLBNY will advance to member
institutions, including Warwick Savings, fluctuates from time to time in
accordance with the policies of the FHLBNY. At December 31, 2000, Warwick
Savings had $203.7 million in outstanding FHLBNY advances and the capability to
borrow additional funds of $113.0 million from the FHLBNY upon complying with
the FHLBNY collateral requirements.

         Warwick Savings at times sells securities under agreements to
repurchase, which transactions are treated as financings, and the obligation to
repurchase the securities sold is reflected as a liability in the statements of
financial condition. The dollar amount of securities underlying the agreements
remains in the asset account and are held in safekeeping. There were $16.8
million, $37.4 million and $25.3 million of securities sold under repurchase
agreements outstanding at December 31, 2000, 1999 and 1998, respectively.

         The following table sets forth certain information regarding borrowed
funds for the dates indicated.


<TABLE>
<CAPTION>
                                                                    AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                                    -------------------------------------
                                                                   2000              1999              1998
                                                                   ----              ----              ----
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                             <C>               <C>               <C>
FHLBNY Advances:
      Average balance outstanding............................   $ 191,552         $ 140,378         $  56,346
      Maximum amount outstanding at any month-end during the
        period...............................................     202,375           201,675           84,375
      Balance outstanding at end of period...................     188,800           201,675           79,480
      Weighted-average interest rate during the period.......        6.10%             5.50%            5.36%
      Weighted-average interest rate at end of period........        6.11%             5.40%            5.38%
Other Borrowings:
      Average balance outstanding............................   $  47,189         $  26,779         $  25,764
      Maximum amount outstanding at any month-end during the
        period...............................................      67,112            37,375            27,500
      Balance outstanding at end of period...................      16,845            37,375            25,310
      Weighted-average interest rate during the period.......        6.18%             5.56%             5.87%
      Weighted-average interest rate at end of period........        6.10%             5.66%             6.19%
Total Borrowings:
      Average balance outstanding............................   $ 238,741         $ 167,157         $  82,110
      Maximum amount outstanding at any month-end during the
        period...............................................     269,487           239,050            55,000
      Balance outstanding at end of period...................     205,645           239,050           104,790
      Weighted-average interest rate during the period.......        6.11%             5.50%             5.48%
      Weighted-average interest rate at end of period........        6.11%             5.45%             5.64%
</TABLE>

Subsidiary Activities
---------------------

         Warwick Savings has three wholly owned subsidiaries, WSB Financial,
Warsave Development Corp. ("Warsave") and Towne Center Mortgage. Warwick Savings
offers mutual funds and tax deferred annuities through WSB Financial to Warwick
Savings' customers and members of the community. WSB Financial contributed $150
thousand, $88 thousand and $121 thousand in net income, before taxes, to Warwick
Savings' net income for the years ended December 31, 2000, 1999 and 1998,
respectively.

         Warsave was formed to acquire and hold real estate. Its single asset as
of December 31, 2000 is a two-story house situated adjacent to Warwick Savings'
Warwick office. The building, which may ultimately be used for future expansion,
is presently rented for the purpose of generating rental income.

         Towne Center Mortgage, formerly known as WSB Mortgage Company of New
Jersey, Inc., was formed in New Jersey in 1997 for the purpose of engaging in
mortgage banking operations in New Jersey.
Towne Center Mortgage contributed $62 thousand, $76 thousand and $63 thousand,
before taxes, to Warwick Savings' net income for the years ended December 31,
2000, 1999 and 1998, respectively.

                                      -23-


<PAGE>



         Warwick Savings also has a real estate investment trust subsidiary, WSB
Funding Corp., which was incorporated in 1999 for the purpose of the investment
and reinvestment of its assets in mortgage loans secured by real property,
interests in mortgage loans secured by real property and possibly
mortgage-backed and mortgage-related securities and U.S. government and agency
obligations.

         In addition, the Company has a title insurance agency subsidiary,
Hardenburgh Abstract Company of Orange County, Inc., which was acquired in
February 2001 to engage in the title insurance business.

Personnel
---------

         As of December 31, 2000, Warwick Savings had 115 full-time and 33
part-time employees. Warwick Savings has experienced a very low turnover rate
among its employees and, as of December 31, 2000, 67 of Warwick Savings'
employees had been with Warwick Savings for more than five years. As of December
31, 2000, Towne Center had 13 full-time employees. The employees are not
represented by a collective bargaining unit, and Warwick Savings and Towne
Center consider their respective relationships with their employees to be good.


                           FEDERAL AND STATE TAXATION

Federal Taxation
----------------

         GENERAL. The following is intended only as a discussion of material
federal income tax matters and does not purport to be a comprehensive
description of the federal income tax rules applicable to Warwick Savings, Towne
Center or the Company. For federal income tax purposes, the Company, Warwick
Savings and Towne Center file or will file consolidated income tax returns and
report their income on a calendar year basis using the accrual method of
accounting and will be subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly Warwick Savings'
tax reserve for bad debts, discussed below.

         BAD DEBT RESERVES. Prior to its taxable year beginning January 1, 1999,
Warwick Savings was considered to be a "small bank" (one with assets having an
adjusted tax basis of $500 million or less) for federal income tax purposes and
was permitted to maintain a reserve for bad debts with respect to "qualifying
loans," which, in general, are loans secured by certain interests in real
property, and to make, within specified formula limits, annual additions to the
reserve which are deductible for purposes of computing Warwick Savings' taxable
income. Pursuant to the Small Business Job Protection Act of 1996, Warwick
Savings is now recapturing (taking into income) over a multi-year period a
portion of the balance of its bad debt reserve as of December 31, 1995.

         In 1999, Warwick Savings became a "large bank" (one with assets having
an adjusted tax basis of more than $500 million) for federal income tax purposes
and therefore may no longer use the bad debt reserve method described above.
Instead, Warwick Savings may now deduct loan losses only as they are incurred
and may also be required to recapture an additional portion of its bad debt
reserve. As a commercial bank, Towne Center is required to deduct loan losses
only as they are incurred.

         DISTRIBUTIONS. To the extent that Warwick Savings makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from Warwick Savings' "base year reserve," I.E., its reserve as of
December 31, 1987, and then from Warwick Savings' supplemental reserve for
losses on loans, to the extent thereof, and an amount based on the amount
distributed (but not in excess of the amount of such reserves) will be included
in Warwick Savings' income. Non-dividend distributions include distributions in
excess of Warwick Savings' current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial

                                      -24-


<PAGE>



or complete liquidation. Dividends paid out of Warwick Savings' current or
accumulated earnings and profits will not be so included in Warwick Savings'
income.

         The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if Warwick Savings
makes a non-dividend distribution to the Company, approximately one and one-half
times the amount of such distribution (but not in excess of the amount of such
reserves) would be includible in income for federal income tax purposes,
assuming a 34% federal corporate income tax rate. See "Regulation and
Supervision" herein for limits on the payment of dividends by Warwick Savings.
Warwick Savings does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.

         CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986,
as amended ("Code"), imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating loss
carryovers of which both Warwick Savings and Towne Center currently have none.
AMTI is also adjusted by determining the tax treatment of certain items in a
manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, a bank's AMTI is increased by an amount equal to
75% of the amount by which its adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses). Neither Warwick Savings nor Towne Center expects to be
subject to the AMT.

         ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Company may
exclude from its income 100% of dividends received from Warwick Savings and
Towne Center as members of the same affiliated group of corporations.

State Taxation
--------------

         NEW YORK STATE TAXATION. Warwick Savings is subject to the New York
State Franchise Tax on Banking Corporations in an annual amount equal to the
greater of (i) 9% of Warwick Savings' "entire net income" allocable to New York
State during the taxable year (8.5% effective for tax years beginning after June
30, 2000, 8.0% effective for tax years beginning after June 30, 2001 and 7.5%
effective for tax years beginning after June 30, 2002), or (ii) the applicable
alternative minimum tax. The alternative minimum tax is generally the greatest
of (a) 0.01% of the value of the taxable assets allocable to New York State with
certain modifications, (b) 3% of Warwick Savings' "alternative entire net
income" allocable to New York State or (c) $250. Entire net income is similar to
federal taxable income, subject to certain modifications and alternative entire
net income is equal to entire net income without certain adjustments. For
purposes of computing its entire net income, Warwick Savings is permitted a
deduction for an addition to the reserve for losses on qualifying real property
loans. For New York State purposes, the applicable percentage to calculate bad
debt deduction under the percentage of taxable income method is 32%.

         New York State passed legislation that enabled Warwick Savings to avoid
the recapture of the New York State tax bad debt reserves that otherwise would
have occurred as a result of changes in federal law and to continue to utilize
either the federal method or a method based on a percentage of its taxable
income for computing its additions to bad debt reserve. However, the New York
bad debt reserve is subject to recapture for "non-dividend distributions" in a
manner similar to the recapture of federal bad debt reserves for such
distributions. Also, the New York bad debt reserve is subject to recapture in
the event that Warwick Savings fails to satisfy certain definitional tests
relating to its assets and the nature of its business.

         A Metropolitan Business District Surcharge on banking corporations
doing business in the metropolitan district has been applied since 1982. Warwick
Savings does all of its business within this District and is subject to this
surcharge. For the tax year ending December 31, 2000 the surcharge rate is 17%.


                                      -25-


<PAGE>



         NEW JERSEY STATE TAXATION. Towne Center is subject to New Jersey income
tax. Generally, the income of financial institutions in New Jersey, which is
calculated based on federal taxable income, subject to certain adjustments, is
subject to New Jersey tax.

         DELAWARE STATE TAXATION. As a Delaware holding company not earning
income in Delaware, the Company is exempted from Delaware corporate income tax
but is required to file annual returns and pay annual fees and a franchise tax
to the State of Delaware.


                           REGULATION AND SUPERVISION

General
-------

         Warwick Savings is a New York State chartered stock savings bank, and
its deposit accounts are insured up to applicable limits by the FDIC under the
BIF. Warwick Savings is subject to extensive regulation, examination and
supervision by the NYSBD as its chartering agency, and by the FDIC as the
deposit insurer. Warwick Savings must file reports with the NYSBD and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approval prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions and opening or acquiring branch
offices.

         Towne Center is a New Jersey State chartered commercial bank, and its
deposit accounts are insured up to applicable limits by the FDIC under the BIF.
Towne Center is subject to extensive regulation, examination and supervision by
the NJBD as its chartering agency, and by the FDIC as the deposit insurer.
Towne Center must file reports with the NJBD and the FDIC concerning its
activities and financial condition, and it must obtain regulatory approval prior
to entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions and opening or acquiring branch offices.

         The NYSBD and the FDIC conduct periodic examinations to assess Warwick
Savings' compliance with, and the NJBD and the FDIC conduct periodic
examinations to assess Towne Center's compliance with, various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank and a commercial bank can engage
and is intended primarily for the protection of the deposit insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes.

         The Company, as a bank holding company controlling Warwick Savings and
Towne Center, is subject to the BHCA and the rules and regulations of the
Federal Reserve Board ("FRB") under the BHCA.
The Company is required to file reports with, and otherwise comply with the
rules and regulations of, the FRB. The Company is also required to file certain
reports with, and otherwise comply with the rules and regulations of, the
Securities and Exchange Commission ("SEC") under the federal securities laws. In
addition, the Company must also comply with certain federal and state laws and
regulations applicable to corporations generally.

         Certain of the laws and regulations applicable to the Company, Warwick
Savings and Towne Center are summarized below or elsewhere herein, and the
following discussion focuses primarily on the laws and regulations applicable to
Warwick Savings and the Company. These summaries do not purport to be complete
and are qualified in their entirety by reference to such laws and regulations.
Any change in such laws and regulations could have a material adverse impact on
the Company, Warwick Savings and Towne Center and their respective operations
and stockholders.


                                      -26-


<PAGE>



New York Banking Regulation
---------------------------

         ACTIVITY POWERS. Warwick Savings derives its lending, investment and
other activity powers primarily from the applicable provisions of the New York
Banking Law ("Banking Law") and the regulations adopted thereunder. Under these
laws and regulations, savings banks, including Warwick Savings, generally may
invest in real estate mortgages, consumer and commercial loans, specific types
of debt securities, including certain corporate debt securities and obligations
of federal, state and local governments and agencies, certain types of corporate
equity securities, and certain other assets. A savings bank may also invest
pursuant to a "leeway" power that permits investments not otherwise permitted by
the Banking Law. "Leeway" investments must comply with a number of limitations
on the individual and aggregate amounts of "leeway" investments. A savings bank
may also exercise trust powers upon approval of the NYSBD. The exercise of these
lending, investment and activity powers are limited by federal law and the rules
and regulations adopted thereunder. See "-- Federal Banking Regulation --
Activity Restrictions on State- Chartered Banks" below.

         LOANS-TO-ONE-BORROWER LIMITATIONS. With certain specified exceptions, a
New York State chartered savings bank may not make loans or extend credit to a
single borrower and to entities related to the borrower in an aggregate amount
that would exceed 15% of the bank's net worth. A savings bank may lend an
additional 10% of its net worth if secured by collateral meeting the
requirements of the Banking Law. Warwick Savings currently complies with all
applicable loans-to-one-borrower limitations.

         COMMUNITY REINVESTMENT ACT. Warwick Savings is also subject to
provisions of the Banking Law that, like the provisions of the federal Community
Reinvestment Act ("CRA"), impose continuing and affirmative obligations upon a
banking institution organized in the State of New York to serve the credit needs
of its local community ("NYCRA"). The obligations under the NYCRA are similar to
those imposed by the CRA, and the New York Banking Board's regulations
implementing the NYCRA are consistent with the federal regulations implementing
the CRA.

         The New York Banking Board's regulations require a biennial assessment
of a bank's compliance with the NYCRA, utilizing a four-tiered rating system,
and require the NYSBD to make available to the public such rating and a written
summary of the assessment results. Pursuant to the NYCRA, a bank must file with
the NYSBD an annual NYCRA report and copies of all federal CRA reports. Warwick
Savings' latest NYCRA rating, received by letter dated April 7, 2000 from the
NYSBD, was a rating of "Satisfactory." The NYCRA also requires the
Superintendent of Banks of the State of New York ("Superintendent") to consider
a bank's NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application.

         DIVIDENDS. Under the Banking Law, Warwick Savings may declare and pay a
dividend on its capital stock only out of its net profits. The approval of the
Superintendent is required if the total of all dividends declared by Warwick
Savings in any calendar year will exceed the net profits for that year plus the
retained net profits of the preceding two years less any required transfer to
surplus or a fund for the retirement of preferred stock. In addition, Warwick
Savings may not pay declare, credit or pay any dividend if the effect thereof
would cause its capital to be reduced below the amount required by the
Superintendent or the FDIC.

         ENFORCEMENT. Under the Banking Law, the Superintendent may issue an
order to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Superintendent that
any director, trustee or officer of any banking organization has violated any
law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the
Superintendent to discontinue such practices, the Superintendent may remove such
director, trustee or officer from office after notice and an opportunity to be
heard. Warwick Savings does not know

                                      -27-


<PAGE>



of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the NYSBD against Warwick Savings or any of
its directors or officers.

         CHANGE IN BANK CONTROL RESTRICTIONS. The Banking Law generally requires
prior approval of the New York Banking Board before any action is taken that
causes any company to acquire direct or indirect control of a banking
institution that is organized in the State of New York. For this purpose, the
term "company" is defined to include corporations, partnerships and other types
of business entities, chartered or doing business in New York, and an individual
or combination of individuals acting in concert and residing or doing business
in New York, and the term "control" is defined generally to mean the power to
direct or cause the direction of the management and policies of the banking
institution and is presumed to exist if the company owns, controls or holds with
power to vote 10% or more of the voting stock of the banking institution.

FEDERAL BANKING REGULATION

         CAPITAL REQUIREMENTS. FDIC regulations require BIF-insured banks, such
as Warwick Savings and Towne Center, to maintain minimum levels of capital. The
FDIC regulations define two Tiers, or classes, of capital. Tier 1 capital is
generally comprised of the sum of common stockholders' equity (excluding the net
unrealized appreciation or depreciation, net of tax, from available-for-sale
securities), non-cumulative perpetual preferred stock (including any related
surplus) and minority interests in consolidated subsidiaries, minus all
intangible assets (other than qualifying servicing rights), and any net
unrealized loss on marketable equity securities. The components of Tier 2
capital generally include cumulative perpetual preferred stock, certain
perpetual preferred stock for which the dividend rate may be reset periodically,
mandatory convertible securities, subordinated debt, intermediate preferred
stock and allowance for possible loan losses. Allowance for possible loan losses
includible in Tier 2 capital is limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of Tier 2 capital that may be included in total
capital cannot exceed 100% of Tier 1 capital.

         The FDIC regulations establish a minimum leverage capital requirement
for banks in the strongest financial and managerial condition, with a rating of
1 (the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, and that are not experiencing or
anticipating significant growth, of a ratio of Tier 1 capital to total assets of
not less than 3%. For all other banks, the minimum leverage capital requirement
is 4%, unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution. The FDIC
regulations also require that banks meet a risk-based capital standard. The
risk-based capital standard requires the maintenance of a ratio of total capital
(which is defined as the sum of Tier 1 capital and Tier 2 capital) to
risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.

         The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.


                                      -28-


<PAGE>



         The following table shows Warwick Savings' actual capital amounts and
its ratios at December 31, 2000, as compared to the minimum amounts and ratios
and the amounts and ratios required to be classified as well capitalized under
the FDIC's Prompt Corrective Action regulations:


<TABLE>
<CAPTION>
                                                                        MINIMUM CAPITAL            FOR CLASSIFICATION AS
                                           BANK ACTUAL                     ADEQUACY                  WELL-CAPITALIZED
                                           -----------                     --------                  ----------------
                                      AMOUNT           RATIO         AMOUNT          RATIO          AMOUNT         RATIO
                                      ------           -----         ------          -----          ------         -----
                                                                   (DOLLARS IN THOUSANDS)
<S>                                 <C>                <C>         <C>               <C>          <C>              <C>
Leverage (Tier 1) capital......     $ 56,067           8.68%       $  25,848         4.00%        $ 32,310         5.00%

Risk-based capital:
    Tier 1.....................       56,067          16.33           13,735         4.00           20,603         6.00
    Total......................       58,923          17.16           27,471         8.00           34,338        10.00
</TABLE>


         As the preceding table shows, Warwick Savings exceeded the minimum
capital adequacy requirements, and the requirements to be classified as well
capitalized, at the date indicated.

         The following table shows Towne Center's actual capital amounts and its
ratios at December 31, 2000, as compared to the minimum amounts and ratios and
the amounts and ratios required to be classified as well capitalized under the
FDIC's Prompt Corrective Action regulations:



<TABLE>
<CAPTION>
                                                                        MINIMUM CAPITAL            FOR CLASSIFICATION AS
                                           BANK ACTUAL                     ADEQUACY                  WELL-CAPITALIZED
                                           -----------                     --------                  ----------------
                                      AMOUNT           RATIO         AMOUNT          RATIO          AMOUNT         RATIO
                                      ------           -----         ------          -----          ------         -----
                                                                   (DOLLARS IN THOUSANDS)
<S>                                 <C>                <C>         <C>               <C>          <C>              <C>
Leverage (Tier 1) capital......     $ 9,026            36.35%        $  993          4.00%         $ 1,242         5.00%

Risk-based capital:
    Tier 1.....................       9,026            50.83            710          4.00            1,065         6.00
    Total......................       9,185            51.72          1,421          8.00            1,776        10.00
</TABLE>

         As the preceding table shows, Towne Center exceeded the minimum capital
adequacy requirements, and the requirements to be classified as well
capitalized, at the date indicated.

         ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the
Federal Deposit Insurance Act, as amended ("FDIA"), which was added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
generally limits the activities and investments of state-chartered FDIC-insured
banks and their subsidiaries to those permissible for national banks and their
subsidiaries, unless such activities and investments are specifically exempted
by Section 24 or consented to by the FDIC.

         Section 24 provides an exception for investments by a bank in common
and preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from
the FDIC to make or retain such investments. Upon receiving such FDIC approval,
an institution's investment in such equity securities will be subject to an
aggregate limit up to the amount of its Tier 1 capital.

         Warwick Savings received approval from the FDIC to retain and acquire
such equity investments subject to a maximum permissible investment equal to the
lesser of 100% of Warwick Savings' Tier 1 capital

                                      -29-


<PAGE>



or the maximum permissible amount specified by the Banking Law. Section 24 also
provides an exception for majority owned subsidiaries of a bank, but Section 24
limits the activities of such subsidiaries to those permissible for a national
bank under Section 24 and the FDIC regulations issued pursuant thereto, or as
approved by the FDIC.

         Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 or the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.

         The Gramm-Leach-Bliley Act ("GLB Act"), which was enacted on November
12, 1999, permits a state-chartered bank to engage, through financial
subsidiaries, in any activity in which a national bank may engage through a
financial subsidiary and on substantially the same terms and conditions. In
general, the GLB Act permits a national bank that is well capitalized and well
managed to conduct, through a financial subsidiary, any activity permitted for a
financial holding company other than insurance underwriting, insurance
investments, real estate investment or development or merchant banking. The
total assets of all such financial subsidiaries may not exceed the lesser of 45%
of the bank's total assets or $50 billion. The bank must have policies and
procedures to assess the financial subsidiary's risk and protect the bank from
such risk and potential liability, must not consolidate the financial
subsidiary's assets with the bank's and must exclude from its own assets and
equity all equity investments, including retained earnings, in the financial
subsidiary. State chartered banks may retain, after March 11, 2000, existing
subsidiaries engaged in activities that are not authorized under the GLB Act;
otherwise, the GLB Act will preempt all state laws regarding the permissibility
of certain activities for state chartered banks if such state law is in conflict
with the provisions of the GLB Act (with the exception of certain insurance
activities), regardless of whether the state law would authorize broader or more
restrictive activities. Although Warwick Savings and Towne Center meet all
conditions necessary to establish and engage in permitted activities through
financial subsidiaries, they have not yet determined whether or the extent to
which they will seek to engage in such activities.

         ENFORCEMENT. The FDIC has extensive enforcement authority over insured
banks, including Warwick Savings and Towne Center. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist orders and to remove directors and officers, to order
divestitures and withhold approval of the acquisition of business or the
exercise of powers, to terminate deposit insurance coverage and to place a
depository institution in receivership. In general, these enforcement actions
may be initiated in response to violations of laws and regulations and to unsafe
or unsound practices.

         The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including : (i) insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others), (ii) substantial dissipation of assets or
earnings through violations of law or unsafe or unsound practices, (iii)
existence of an unsafe or unsound condition to transact business, (iv)
likelihood that the bank will be unable to meet the demands of its depositors or
to pay its obligations in the normal course of business, and (v) insufficient
capital, or the incurring or likely incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment of capital without federal assistance.

         SAFETY AND SOUNDNESS STANDARDS. Pursuant to the requirements of FDICIA,
as amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and

                                      -30-


<PAGE>



internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder.

         In addition, the FDIC adopted regulations to require a bank that is
given notice by the FDIC that it is not satisfying any of such safety and
soundness standards to submit a compliance plan to the FDIC. If, after being so
notified, a bank fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the FDIC may issue an
order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. If a bank fails to comply with such an
order, the FDIC may seek to enforce such an order in judicial proceedings and to
impose civil monetary penalties.

         PROMPT CORRECTIVE ACTION. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the bank regulators are required to take certain supervisory
actions against undercapitalized institutions, based upon five categories of
capitalization which FDICIA created: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically capitalized."

         The FDIC's regulations defines the five capital categories as follows:
Generally, an institution will be treated as well capitalized if its ratio of
total capital to risk-weighted assets is at least 10%, its ratio of Tier 1
capital to risk-weighted assets is at least 6%, its ratio of Tier 1 capital to
total assets is at least 5% and it is not subject to any order or directive by
the FDIC to meet a specific capital level. An institution will be treated as
adequately capitalized if its ratio of total capital to risk-weighted assets is
at least 8%, its ratio of Tier 1 capital to risk-weighted assets is at least 4%
and its ratio of Tier 1 capital to total assets is at least 4% (3% if the bank
receives the highest rating under the Uniform Financial Institutions Rating
System) and it is not a well capitalized institution. An institution that has a
ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier
1 capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital
to total assets that is less than 4% (or less than 3% if the bank receives the
highest rating under the Uniform Financial Institutions Rating System) would be
considered to be undercapitalized. An institution that has a ratio of total
capital to risk-weighted assets of less than 6%, a ratio of Tier 1 capital to
risk-weighted assets of less than 3% or a ratio of Tier 1 capital to total
assets that is less than 3% would be considered to be significantly
undercapitalized, and an institution that has a tangible capital to assets ratio
equal to or less than 2% would be deemed to be critically undercapitalized.

         The severity of the action authorized or required to be taken under the
FDIC's Prompt Corrective Action regulations increases as a bank's capital
decreases within the three undercapitalized categories. All banks are prohibited
from paying dividends or other capital distributions or paying management fees
to any controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of: (1) an amount equal to five percent of the bank's total assets
at the time it became undercapitalized, and (2) the amount that is necessary (or
would have been necessary) to bring the bank into compliance with all capital
standards applicable with respect to such bank as of the time it fails to comply
with the plan. If a bank fails to submit an acceptable plan when required, it is
treated as if it were significantly undercapitalized. Banks that are
significantly or critically undercapitalized are subject to a wider range of
regulatory requirements and restrictions.


                                      -31-


<PAGE>



         DEPOSIT INSURANCE. Pursuant to FDICIA, the FDIC established a system
for setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds.
Under the risk-based deposit insurance assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending six months before the
assessment period. The three capital categories are (1) well capitalized, (2)
adequately capitalized and (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subcategories within each capital group.
With respect to the capital ratios, institutions are classified as well
capitalized, adequately capitalized or undercapitalized, using ratios that are
substantially similar to the Prompt Corrective Action capital ratios discussed
above. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor).

         An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (I.E.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed. Any increase in insurance assessments could have an adverse
effect on the earnings of an insured institution.

         Under the Deposit Insurance Funds Act of 1996 ("Funds Act"), the
assessment base for the payments on the bonds ("FICO bonds") issued in the late
1980's by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as Warwick
Savings and Towne Center. Warwick Savings' and Towne Center's total expense in
2000 for the assessment for deposit insurance and the FICO payments was $62
thousand.

         Under the FDIA, the FDIC may terminate the insurance of an
institution's deposits upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. Neither the management of Warwick Savings nor the
management of Towne Center knows of any practice, condition or violation that
might lead to termination of deposit insurance.

         Under the FDIA, depository institutions are liable to the FDIC for
losses suffered or anticipated by the FDIC in connection with the default of a
commonly controlled depository institution or any assistance provided by the
FDIC to such an institution in danger of default.

         Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, purchase of assets from or issuance of letter of
credit on behalf of the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such bank holding company
or its subsidiaries as collateral for loans. In addition, provisions of the
Federal Reserve Act and FRB regulations limit the amounts of, and establish
required procedures and credit standards with respect to, loans and other
extensions of credit to officers, directors and principal shareholders of the
bank holding company or its subsidiaries and related interests of such persons.
Moreover, banks are prohibited from engaging in certain tie-in arrangements
(with the bank's parent holding company or any of the holding company's
subsidiaries) in connection with any extension of credit, lease or sale of
property or furnishing of services.

         TRANSACTIONS WITH AFFILIATES. Transactions between an insured bank and
any of its affiliates is governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a bank is any company or entity that controls, is
controlled by or is under common control with the bank. Currently, a subsidiary
of

                                      -32-


<PAGE>



a bank that is not also a depository institution is not treated as an affiliate
of the bank for purposes of Sections 23A and 23B, but the FRB has proposed
treating any subsidiary of a bank that is engaged in activities not permissible
for bank holding companies under the BHCA as an affiliate for purposes of
Sections 23A and 23B. Generally, Sections 23A and 23B (i) limit the extent to
which the bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that all such
transactions be on terms that are consistent with safe and sound banking
practices. The term "covered transaction" includes the making of loans, purchase
of assets, issuance of guarantees and other similar types of transactions.
Further, most loans by a bank to any of its affiliate must be secured by
collateral in amounts ranging from 100 to 130 percent of the loan amounts. In
addition, any covered transaction by a bank with an affiliate and any purchase
of assets or services by a bank from an affiliate must be on terms that are
substantially the same, or at least as favorable, to the institution as those
that would be provided to a non-affiliate.

         In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.

         PROHIBITIONS AGAINST TYING ARRANGEMENTS. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements and
extensions of credit by correspondent banks. In general, a depository
institution is prohibited, subject to certain exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution.

         PRIVACY STANDARDS. Pursuant to the GLB Act, financial institutions are
required to establish a policy governing the collection, use and protection of
non-public information about their customers and consumers, provide notice of
such policy to consumers and provide a mechanism for consumers to opt out of any
practice of the institution whereby nonpublic personal information would
otherwise be disclosed to unaffiliated third parties. The federal banking
agencies, jointly with the Federal Trade Commission and the SEC, have released
final regulations to implement the privacy standards of the GLB Act, which
became effective November 13, 2000. Under the regulations, the Company, Warwick
Savings and Towne Center will be required to adopt and implement a privacy
policy no later than July 1, 2001. The Company is reviewing the extent to which
the privacy standards will affect its operations and is in the process of
preparing its privacy policies.

         The GLB Act also provides for the ability of each state to enact
legislation that is more protective of consumers' personal information.
Currently, there are a number of privacy bills pending in the New York State
legislature. No action has been taken on any of these bills and, accordingly,
the Company cannot yet determine the impact, if any, that such bills will have
on its operations.

         The federal banking agencies have also proposed guidelines establishing
standards for safeguarding customer information to implement certain provisions
of the GLB Act. The proposed guidelines describe the agencies' expectations for
the creation, implementation and maintenance of an information security program,
which would include administrative, technical and physical safeguards
appropriate to the size and complexity of the institution and the nature and
scope of its activities. The standards set forth in the guidelines are intended
to insure the security and confidentiality of customer records and information,
protect against any anticipated threats or hazards to the security or integrity
of such records and protect against unauthorized access to or use of such
records or information that could result in substantial harm or inconvenience to
any customer. The Company does not know when or if final guidelines will be
adopted and, accordingly, cannot yet determine the impact, if any, that the
final guidelines will have on its operations.

                                      -33-


<PAGE>



         UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.

         The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral, (ii) for land development loans (I.E., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%, (iii) for loans for the construction of commercial,
multi-family or other non-residential property, the supervisory limit is 80%,
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%, and (v) for loans secured by other improved property
(E.G., farmland, completed commercial property and other income-producing
property, including non-owner occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one- to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.

         COMMUNITY REINVESTMENT ACT. Under the CRA, an insured depository
institution has a continuing and affirmative obligation consistent with its safe
and sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community. The CRA
requires the FDIC, in connection with its examination of a savings bank, to
assess the depository institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution, including applications for additional branches
and acquisitions.

         Pursuant to current CRA regulations, an institution is evaluated based
on its actual performance in meeting community needs, as compared to the
process-based assessment factors used under prior CRA regulations. This new
evaluation system focuses on three tests: (a) a lending test, to evaluate the
institution's record of making loans in its service areas, (b) an investment
test, to evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefitting low or moderate income
individuals and businesses, and (c) a service test, to evaluate the
institution's delivery of services through its branches, ATMs and other offices.
Small banks are assessed pursuant to a streamlined approach focusing on a lesser
range of information and performance standards.

         The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating.
Warwick Savings received a "satisfactory" rating in its most recent CRA
examination.


                                      -34-


<PAGE>



Federal Home Loan Bank System
-----------------------------

         Warwick Savings is a member of the FHLBNY, which is one of the twelve
regional Federal Home Loan Banks ("FHLBs") that comprise the FHLB System. Each
of the FHLBs is subject to supervision and regulation by the Federal Housing
Finance Board ("FHFB"). The FHLB System provides a central credit facility
primarily for member thrift institutions, as well as other entities involved in
home mortgage lending.
It is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLBs. It makes loans to members (i.e., advances) in
accordance with policies and procedures, including collateral requirements,
established by the respective boards of directors of the FHLBs. These policies
and procedures are subject to the regulation and oversight of the FHFB.
Long-term advances may only be made for the purpose of providing funds for
residential home financing. The FHFB has also established standards of community
or investment service that members must meet to maintain access to such
long-term advances.

         Warwick Savings, as a member of the FHLBNY, is required to purchase and
hold shares of capital stock in the FHLBNY in an amount at least equal to the
greater of (i) 1% of the aggregate principal amount of its unpaid mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year; (ii) 0.3% of its assets; or (iii) 5% (or such greater fraction as
established by the FHLB) of its advances from the FHLBNY. Pursuant to the GLB
Act, the foregoing minimum share ownership requirement will be replaced by
regulations to be promulgated by the FHFB. The GLB Act specifically provides
that the minimum requirement in existence immediately prior to adoption of the
GLB Act shall remain in effect until such regulations are adopted. Warwick
Savings was in compliance with this requirement with an investment in FHLBNY
stock at December 31, 2000 of $13.3 million.

Federal Reserve System
----------------------

         Under FRB regulations, each of Warwick Savings and Towne Center is
required to maintain non-interest-earning reserves against its transaction
accounts (primarily NOW and regular checking accounts). The FRB regulations
generally require that reserves of 3% must be maintained against aggregate
transaction accounts of $42.8 million or less (subject to adjustment by the FRB)
and an initial reserve of $1.3 million plus 10% (subject to adjustment by the
FRB between 8% and 14%) against that portion of total transaction accounts in
excess of $42.8 million. The first $5.5 million of otherwise reservable balances
(subject to adjustments by the FRB) are exempted from the reserve requirements.
Warwick Savings is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a FRB or a pass-through account as defined by
the FRB, the effect of this reserve requirement is to reduce Warwick Savings'
and Towne Center's interest-earning assets.

Federal Bank Holding Company Regulation
---------------------------------------

         GENERAL. The Company is a bank holding company subject to examination,
regulation and periodic reporting under the BHCA, as administered by the FRB.

         IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT. Among other things,
the GLB Act establishes a comprehensive- framework to permit affiliations among
commercial banks, insurance companies and securities firms. Generally, the new
law (i) repeals the historical restrictions and eliminates many federal and
state law barriers to affiliations among banks and securities firms, insurance
companies and other financial service providers, (ii) provides a uniform
framework for the activities of banks, savings institutions and their holding
companies, (iii) broadens the activities that may be conducted by subsidiaries
of national banks and state banks, (iv) provides an enhanced framework for
protecting the privacy of information gathered by financial institutions
regarding their customers and consumers, (v) adopts a number of provisions
related to the capitalization, membership, corporate governance and other
measures designed to modernize the FHLB System, (vi) requires public disclosure
of certain agreements relating to funds expended in connection with an
institution's compliance with the CRA, and (vii) addresses a variety of other
legal and

                                      -35-


<PAGE>



regulatory issues affecting both day-to-day operations and long-term activities
of financial institutions, including the functional regulation of bank
securities and insurance activities.

         Bank holding companies are now permitted to engage in a wider variety
of financial activities than permitted under the prior law, particularly with
respect to insurance and securities activities. In addition, in a change from
the prior law, bank holding companies are in a position to be owned, controlled
or acquired by any company engaged in financially related activities.

         ACTIVITY RESTRICTIONS. The BHCA generally limits the Company's
activities to managing or controlling banks, furnishing services to or
performing services for its subsidiaries and engaging in other activities that
the FRB determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining whether a
particular activity is permissible, the FRB must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public that outweigh possible adverse effects. Possible benefits include
greater convenience, increased competition and gains in efficiency. Possible
adverse effects include undue concentration of resources, decreased or unfair
competition, conflicts of interest and unsound banking practices. Some of the
principal activities that the FRB has determined by regulation to be so closely
related to banking as to be a proper incident thereto are: (i) making or
servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor; (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.

         The FRB may require that the Company terminate an activity or terminate
control of or liquidate or divest certain subsidiaries or affiliates when the
FRB believes the activity or the control of the subsidiary or affiliate
constitutes a significant risk to the financial safety, soundness or stability
of any of its banking subsidiaries. The FRB also has the authority to regulate
provisions of certain bank holding company debt, including authority to impose
interest ceilings and reserve requirements on such debt.

         Effective March 11, 2000, the GLB Act expanded the range of permitted
activities of certain bank holding companies to include the offering of
virtually any type of service that is financial in nature or incidental thereto,
including banking, securities underwriting, insurance (both underwriting and
agency), merchant banking, acquisitions of and combinations with insurance
companies and securities firms and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. In order to engage in these new
activities, a bank holding company must qualify and register with the FRB as a
financial holding company. To qualify as a financial holding company, a bank
holding company must demonstrate that each of its bank subsidiaries is well
capitalized and well managed and has a rating of "satisfactory" or better under
the CRA. Certain of the additional activities authorized under the GLB Act may
also be undertaken by a financial subsidiary of a bank. Under the GLB Act, a
functional system of regulation will apply to financial holding companies under
which banking activities will be regulated by the federal banking regulators,
securities activities will be regulated by the federal securities regulators,
and insurance activities will be subject to regulation by the appropriate state
insurance authorities. In October 2000, the Company elected to become a
financial holding company.

         ACQUISITION AND SALE OF CONTROL. Under the federal Change in Bank
Control Act ("CBCA"), any person (including a company), or group acting in
concert, seeking to acquire 10% or more of the outstanding shares of the
Company's common stock will be required to submit prior notice to the FRB,
unless the FRB has found that the acquisition of such shares will not result in
a change in control of the Company. Under the CBCA, the FRB has 60 days within
which to act on such notice, taking into consideration certain factors,
including the financial and managerial resources of the acquiror, the
convenience and needs of the communities served by the Company and Warwick
Savings, and the antitrust effects of the acquisition. Under the BHCA, any
company would be required to obtain prior approval from the FRB before it may

                                      -36-


<PAGE>



obtain "control" of the Company within the meaning of the BHCA. Control
generally is defined under the BHCA to mean the ownership or power to vote 25%
or more of any class of voting securities of the Company or the ability to
control in any manner the election of a majority of the Company's directors.

         The Company is required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval will be required for the Company to acquire direct
or indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly
or indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company.

         CAPITAL; DIVIDENDS; SHARE REPURCHASES; SOURCE OF STRENGTH. The FRB
imposes certain capital requirements on the Company under the BHCA, including a
minimum leverage ratio and a minimum ratio of "qualifying" capital to
risk-weighted assets. These minimum requirements are substantially the same as
the FDIC's minimum capital requirements described above under "Federal Banking
Regulation -- Capital Requirements." Subject to its capital requirements and
certain other restrictions, the Company is able to borrow money to make a
capital contribution to Warwick Savings or Towne Center, and such loans may be
repaid from dividends paid from Warwick Savings or Towne Center to the Company.
The Company is also able to raise capital for contribution to Warwick Savings or
Towne Center by issuing securities without having to receive regulatory
approval, subject to compliance with federal and state securities laws.

         The following table shows the Company's actual capital amounts and its
ratios at December 31, 2000, as compared to the minimum amounts and ratios:


<TABLE>
<CAPTION>
                                                                        MINIMUM CAPITAL            FOR CLASSIFICATION AS
                                         COMPANY ACTUAL                    ADEQUACY                  WELL CAPITALIZED
                                         --------------                    --------                  ----------------
                                      AMOUNT           RATIO         AMOUNT          RATIO          AMOUNT         RATIO
                                      ------           -----         ------          -----          ------         -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                 <C>                <C>          <C>              <C>           <C>             <C>
Leverage (Tier 1) capital......     $ 75,213           11.76%       $ 25,592         4.00%         $ 31,990        5.00%

Risk-based capital:
    Tier 1.....................      75,213            20.81          14,456         4.00            21,684        6.00
    Total......................      78,187            21.63          28,912         8.00            36,140       10.00
</TABLE>

         As the table shows, the Company exceeded the minimum capital adequacy
requirements at the date indicated.

         Except as described below, the Company is required to give the FRB
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the company's
consolidated net worth. The FRB may disapprove such a purchase or redemption if
it determines that the proposal would constitute an unsafe and unsound practice,
or would violate any law, regulation, FRB order or directive, or any condition
imposed by, or written agreement with, the FRB. Such notice and approval is not
required for a bank holding company that would be treated as well capitalized
under applicable regulations of the FRB, that has received a composite "1" or
"2" rating at its most recent bank holding company examination by the FRB, and
that is not the subject of any unresolved supervisory issues.

         Regulations of the FRB provide that a bank holding company must serve
as a source of strength to any of its subsidiary banks and must not conduct its
activities in an unsafe or unsound manner. A bank holding company should stand
ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. Under the Prompt
Corrective Action provisions of FDICIA, a bank holding company parent of an
undercapitalized

                                      -37-


<PAGE>



subsidiary bank would be directed to guarantee, within limitations, the capital
restoration plan that is required of such an undercapitalized bank. See "Federal
Banking Regulation -- Prompt Corrective Action" above. If the undercapitalized
bank fails to file an acceptable capital restoration plan or fails to implement
an accepted plan, the FRB may prohibit the bank holding company parent of the
undercapitalized bank from paying any dividend or making any other form of
capital distribution without the prior approval of the FRB.

New York Holding Company Regulation
-----------------------------------

         Under the Banking Law, certain companies owning or controlling banks
are regulated as a bank holding company. For purposes of the Banking Law, the
term "bank holding company" is defined generally to include any "company" that,
directly or indirectly, either (a) controls the election of a majority of the
directors or (b) owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. The term "company" is defined to
include corporations, partnerships and other types of business entities,
chartered or doing business in New York, and the term "banking institution" is
defined to include commercial banks, stock savings banks and stock savings and
loan associations.

         A company controlling, directly or indirectly, only one banking
institution located in the State of New York will not be deemed to be a bank
holding company for the purposes of the Banking Law. Under the Banking Law, the
prior approval of the New York Banking Board is required before: (1) any action
is taken that causes any company to become a bank holding company; (2) any
action is taken that causes any banking institution to become or to be merged or
consolidated with a subsidiary of a bank holding company; (3) any bank holding
company acquires direct or indirect ownership or control of more than 5% of the
voting stock of a banking institution; (4) any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. Additionally, certain
restrictions apply to New York State bank holding companies regarding the
acquisition of banking institutions that have been chartered for five years or
less and are located in smaller communities.

         Directors, officers and employees of a New York State bank holding
company are subject to limitations regarding their affiliation with securities
underwriting or distribution firms and with other bank holding companies, and
directors and executive officers are subject to limitations regarding loans
obtained from certain of the holding company's banking subsidiaries. Although
the Company is not a bank holding company for purposes of the Banking Law, any
future acquisition of ownership, control, or the power to vote 10% or more of
the voting stock of another banking institution or bank holding company having
its principal office in the State of New York would cause it to become such.

Interstate Banking and Branching
--------------------------------

         In the past, interstate banking was limited under the BHCA to those
states that permitted interstate banking by statute. New York was one of a
number of states that permitted, subject to the reciprocity conditions of the
Banking Law, out-of-state bank holding companies to acquire New York banks. By
1995, most states had adopted statutes permitting multistate bank holding
companies.

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act") was enacted in 1994. The Interstate Banking Act
permits approval under the BHCA of the acquisition by a bank holding company
that is well capitalized and managed of a bank outside of the holding company's
home state regardless of whether the acquisition was permitted under the law of
the state of the bank to be acquired. The FRB may not approve an acquisition
under the BHCA that would result in the acquiring holding company controlling
more than 10% of the deposits in the United States or more than 30% of the
deposits in any particular state.


                                      -38-


<PAGE>



         In the past, branching across state lines was not generally available
to a state bank, such as Warwick Savings. While out-of-state branches were
authorized under the Banking Law, similar authority was not generally available
under the laws of most other states. Beginning in 1997, the Interstate Banking
Act, permitted the responsible federal banking agencies to approve merger
transactions between banks located in different states, regardless of whether
the merger would be prohibited under state law. Accordingly, the Interstate
Banking Act permits a bank to have branches in more than one state.

         Before any bank acquisition can be completed, prior approval thereof
may also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired, including the NYSBD. The Interstate
Banking Act facilitates the consolidation of the banking industry that has taken
place over recent years and allows the creation of larger, presumably more
efficient, banking networks.

Federal Securities Law
----------------------

         The Company's securities are registered with the SEC under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Company is
subject to the information, proxy solicitation, insider trading and other
requirements and restrictions of the Exchange Act.

ITEM 2.           PROPERTIES

         Warwick Savings conducts its business through its main office in
Warwick, New York and its four branch offices located in Monroe, Woodbury,
Wallkill and Newburgh, New York. Towne Center conducts its business through its
office in Lodi, New Jersey and its branch office in Moonachie, New Jersey.
Management believes that Warwick Savings' and Towne Center's current facilities
are adequate to meet the present and immediately foreseeable needs of Warwick
Savings, Towne Center and the Company.

         The following sets forth information regarding Warwick Savings' branch
offices and loan production offices and Towne Center's branch offices at
December 31, 2000.


<TABLE>
<CAPTION>
                                                            LEASED                DATE
                                                              OR                LEASED OR         LEASE EXPIRATION
                                                            OWNED               ACQUIRED                DATE
                                                            -----               --------                ----
<S>                                                        <C>                  <C>               <C>
WARWICK SAVINGS
---------------

Main Office:
         18 Oakland Avenue
         Warwick, New York 10990......................      Owned                 1972                   N/A

Branches:
         591 Route 17M
         Monroe, New York 10950.......................      Owned                 1976                  N/A

         556 Route 32
         Highland Mills, New York 10930...............      Owned                 1979                  N/A

         1 Industrial Avenue
         Wallkill, New York 10940.....................      Owned                 1998                  N/A

         1425 Route 300
         Newburgh, New York 12550.....................   Land Leased              1999                12/06/29

Loan Production Offices:

         263 NYS Route 17K
         Newburgh, New York...........................      Leased                1998                9/20/01

         Taconic Plaza Shopping Center, Store #10
         Route 52
         East Fishkill, New York......................      Leased                1997                1/31/01
</TABLE>


                                                     -39-


<PAGE>



<TABLE>
<CAPTION>
                                                            LEASED                DATE
                                                              OR                LEASED OR         LEASE EXPIRATION
                                                            OWNED               ACQUIRED                DATE
                                                            -----               --------                ----
<S>                                                        <C>                  <C>               <C>
         151 South Main Street, Suite 104
         New City, New York...........................      Leased                1997                  N/A

Miscellaneous:
                                                            Leased                1999                9/20/01
         799 Franklin Avenue
         Franklin Lakes, New Jersey...................


TOWNE CENTER
------------

         15 Washington Street
         Lodi, New Jersey 07644......................      Leased                 1999                3/31/02

         55 Moonachie Avenue
         Moonachie, New Jersey.......................      Leased                 2000                4/30/05
                                                           Leased                 2000                9/30/12
         2 Arnot Street
         Lodi, New Jersey 07644
         (future branch location)....................
</TABLE>


ITEM 3.           LEGAL PROCEEDINGS

         The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which in
the aggregate involve amounts which management believes to be immaterial to the
financial condition and results of operations of the Company.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


                                     PART II

ITEM 5.           MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
                  STOCKHOLDERS' MATTERS

         The Company's common stock commenced trading on December 23, 1997. The
table below shows the high and low sales prices of the common stock for the
periods indicated, as reported on the National Market System of The Nasdaq Stock
Market, as well as the dividends paid during such periods.


<TABLE>
<CAPTION>
         YEAR                 QUARTER ENDING             HIGH                    LOW               DIVIDENDS PAID
         ----                 --------------             ----                    ---               --------------
<S>                           <C>                       <C>                    <C>                 <C>
         1999                    March 31               $16.13                 $13.25                  $0.0450
                                 June 30                $13.75                 $12.13                  $0.0475
                                 September 30           $12.75                 $ 9.75                  $0.0500
                                 December 31            $11.06                 $10.00                  $0.0525

         2000                    March 31               $11.13                 $ 9.31                  $0.0650
                                 June 30                $12.38                 $ 9.63                  $0.0675
                                 September 30           $15.18                 $11.13                  $0.0700
                                 December 31            $15.00                 $12.00                  $0.0725
</TABLE>


                                      -40-


<PAGE>



         As of March 1, 2001, there were 5,227,576 shares of the Company's
common stock outstanding and approximately 1,400 holders of record. The holders
of record include banks and brokers who act as nominees, each of whom may
represent more than one stockholder.

         The Board of Directors of the Company declared four quarterly cash
dividends during each of the years ended December 31, 2000 and 1999, as shown in
the table above. The Board will review the dividend regularly and hopes to
maintain a regular quarterly dividend in the future, based on the Company's
earnings, financial condition and other factors.




                                      -41-


<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA


                                                               AT DECEMBER 31,
                                                               ---------------
                                  2000             1999             1998           1997(7)          1996(7)
                                  ----             ----             ----           -------          -------
                                                               (IN THOUSANDS)
<S>                            <C>              <C>              <C>             <C>              <C>
SELECTED FINANCIAL DATA:
         Total assets......    $ 637,799        $ 597,714        $ 445,139       $ 340,809        $ 287,363
         Loans receivable,
           net (1).........      432,198          349,321          261,463         179,954          129,681
         Investment
           securities......      149,513          186,490          155,490         127,563          138,526
         Real estate
           owned, net......        1,268              415              371             322              106
         Deposits..........      348,131          283,072          246,886         213,513          217,221
         FHLBNY advances...      188,800          201,675           79,480           5,250           13,400
         Securities sold
           under repurchase
           agreements......       16,845           37,375           25,310           22,755           23,300
         Stockholders'
           equity..........       72,581           66,572           84,238           86,190           27,304
</TABLE>


<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                       --------------------------------
                                          2000         1999          1998        1997(7)       1996(7)
                                          ----         ----          ----        -------       -------
                                                                (IN THOUSANDS)
<S>                                     <C>          <C>           <C>          <C>           <C>
 SELECTED OPERATING DATA:

         Interest income.............   $ 45,630     $ 35,562      $ 28,408     $ 21,386      $ 19,596
         Interest expense............     26,226       16,951        11,939        9,539         8,811
                                        --------     --------      --------     --------      --------
         Net interest income.........     19,404       18,611        16,469       11,847        10,785
         Provision for loan losses...        900          500           500          454            60
                                        --------     --------      --------     --------      --------
         Net interest income after
          provision for loan losses..     18,504       18,111        15,969       11,393        10,725
         Non-interest income
         Service and fee income......      3,540        2,914         2,336        2,034         2,001
         Gain(loss) on securities
           transactions..............       (878)         524         1,109          326           828
         Loan transactions...........        600          109           168          128           190
         Other income (loss).........      2,106          258            74          199           (82)
                                        --------     --------      --------     --------      --------
             Total non-interest
               income, net...........      5,368        3,805         3,687        2,687         2,937
                                        --------     --------      --------     --------      --------
         Non-interest expense
         Salaries and employee
           benefits..................     10,109        9,536         7,795        6,359         5,159
         FDIC insurance..............         62           31            28           28             2
         Occupancy and equipment.....      1,889        1,452         1,160        1,213         1,120
         Data processing.............      1,063          974           796          636           600
         Advertising.................        182          500           336          175           124
         Professional fees...........      1,192        1,006           920          339           264
         Contribution to The Warwick
             Savings Foundation......         --           --            --        1,924            --
         Other operating expenses....      2,807        3,208         2,470        1,849         1,915
                                        --------     --------      --------     --------      --------
             Total non-interest
               expenses..............     17,305       16,707        13,505       12,523         9,184
         Income before income tax
           expense...................      6,567        5,209         6,151        1,557         4,478
         Income tax expense..........      2,157        2,066         2,530          658         2,031
                                        --------     --------      --------     --------      --------
             Net income..............   $  4,410     $  3,143      $  3,621     $   899       $  2,447
                                        ========     ========      ========     ========      ========
</TABLE>


                                                     -42-

<PAGE>

<TABLE>
<CAPTION>
                                                                  AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                                  --------------------------------------
                                                         2000        1999        1998       1997(7)      1996(7)
                                                         ----        ----        ----       -------      -------
<S>                                                      <C>         <C>         <C>          <C>         <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA (2):

Performance Ratios:..........................
     Return on average assets................            0.70%       0.62%       0.90%        0.31%       0.89%
     Return on average equity................            6.61        4.15        4.21         3.08        9.75
     Average equity to average assets........           10.51       14.83       21.37         9.96        9.18
     Equity to total assets..................           11.38       11.14       18.92        25.29        9.50
     Core deposits to total deposits (3).....           64.70       68.48       71.24        64.44       64.07
     Net interest spread (4).................            2.74        3.14        3.32         3.67        3.95
     Net interest margin (5).................            3.29        3.87        4.36         4.32        4.21
     Operating expense to average assets.....            2.73        3.27        3.36         4.28        3.36
     Average interest-earning assets to
         average interest-bearing liabilities          112.54      120.87      132.76       118.70      107.63
     Efficiency ratio (6)....................           72.68       76.70       71.53        88.94       72.29
     Book Value (8)..........................           14.96       13.18       12.75          N/A         N/A

REGULATORY CAPITAL RATIOS:

Warwick Savings:
     Tier 1 capital to assets................            8.68        9.38       11.99        16.15        9.29
     Tier 1 capital to risk-weighted assets..           16.33       17.60       22.82        29.86       19.87
     Total capital to risk-weighted assets...           17.16       18.34       23.90        30.63       20.76
Towne Center:
     Tier 1 capital to assets................           36.35       87.72         N/A          N/A         N/A
     Tier 1 capital to risk-weighted assets..           50.83      211.83         N/A          N/A         N/A
     Total capital to risk-weighted assets...           51.72      211.83         N/A          N/A         N/A
Company:
     Tier 1 capital to assets................           11.76       12.67       18.87          N/A         N/A
     Tier 1 capital to risk-weighted assets..           20.81       23.94       35.88          N/A         N/A
     Total capital to risk-weighted assets...           21.63       24.58       36.94          N/A         N/A

ASSET QUALITY RATIOS:

Non-performing loans to total loans..........            0.28        0.58        0.81         0.84        1.28
Non-performing loans to total assets.........            0.19        0.34        0.47         0.45        0.58
Non-performing assets to total assets........            0.39        0.41        0.55         0.61        0.73
Allowance for loan losses to total loans.....            0.63        0.55        0.67         0.76        0.90
Allowance for loan losses to non-performing
loans........................................          219.69       95.33       82.95        89.79       71.35

OTHER DATA:

Branch Offices...............................               7           6           4            4           4
</TABLE>

----------------------

(1)  Loans receivable, net, represents total loans less net deferred loan fees
     and the allowance for loan losses.

(2)  Regulatory Capital Ratios and Asset Quality Ratios are end of period
     ratios. With the exception of period-end ratios, all ratios are based on
     average monthly balances during the periods indicated.

(3)  The Company considers the following to be core deposits: checking accounts,
     passbook accounts, NOW accounts and money market accounts.

(4)  The interest rate spread represents the difference between the weighted
     average yield on interest-earning assets and the weighted average cost of
     interest-bearing liabilities.

(5)  The net interest margin represents net interest income as a percentage of
     average interest-earning assets.

(6)  The efficiency ratio represents non-interest expense as a percentage of the
     sum of net interest income and non-interest income excluding any gains or
     losses on sales of assets.

(7)  The selected financial data of the Company at or for the years ended
     December 31, 1997 and 1996 are not derived from audited financial
     statements.

(8)  Book Value represents total stockholders' equity divided by the shares
     outstanding for the period, net of unearned shares held by the ESOP and
     RRP.


                                      -43-


<PAGE>



ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

General
-------

         The primary business of the Company is the operation of its wholly
owned subsidiaries, Warwick Savings and Towne Center. Presently, the only
significant assets of the Company are the capital stock of Warwick Savings and
Towne Center, the note evidencing the loan the Company made to the Warwick
Community Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") to allow the ESOP
to purchase 8% of the Company's common stock issued in the Company's initial
public offering and the investment of the net proceeds of the offering retained
by the Company. While the following discussion of financial condition and
results of operations includes the collective results of the Company, Warwick
Savings and Towne Center, this discussion reflects primarily Warwick Savings'
activities. Unless otherwise disclosed, the information presented herein
reflects the financial condition and results of operations of the Company,
Warwick Savings and Towne Center on a consolidated basis, and as used herein the
term "Company" refers to the Company and its subsidiaries collectively.

         Warwick Savings' results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowed
funds. Warwick Savings also generates other income, such as service charges and
other fees. Other expenses primarily consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, net costs of
real estate owned, data processing fees and other operating expenses. Warwick
Savings' results of operations are also significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards and actions of
regulatory agencies.

Management Strategy
-------------------

         Warwick Savings has historically employed an operating strategy that
emphasizes the origination of one- to four-family residential mortgage loans in
its market area with both fixed and variable rates and, to an increasing degree
over the past 10 years, its commercial lending business, with mostly prime
rate-based loans secured by real estate located mainly in Orange County, New
York. Due in part to this strategy, Warwick Savings historically has had
profitable operations, resulting in a strong regulatory capital position.
Warwick Savings' goal of maintaining this position has led to an overall
strategy of managed growth in both deposits and assets. The major elements of
Warwick Savings' operating strategy are to: (i) grow and diversify Warwick
Savings' loan portfolio by continuing to originate owner-occupied, residential
mortgage loans, commercial business and commercial real estate loans,
construction loans and consumer loans in its market area; (ii) complement
Warwick Savings' mortgage lending activities by investing in mortgage-backed and
other securities; (iii) maintain Warwick Savings' relatively low cost of funds
and (iv) manage Warwick Savings' level of interest rate risk. From time to time,
Warwick Savings employs a leveraging strategy, whereby borrowings are used to
fund specific investments in order to provide for a reasonable net margin of
return. Warwick Savings also seeks to attract and retain customers through
extended office hours, low turnover of employees and prompt, flexible and
personalized production of a variety of loan products. In addition, it is a goal
of Warwick Savings to increase its market share in the communities it serves
through the acquisition or establishment of branch offices and, if appropriate,
the acquisition of smaller financial institutions. Additionally, it is a goal of
the Company to expand into new markets. For this reason, the Company has
expanded its operations and lending into New Jersey, which is one of the reasons
the Company formed Towne Center, which is headquartered in Bergen County, New
Jersey. In February 2001, the Company has also acquired Hardenburgh Abstract
Company of Orange County, Inc., a title insurance agency subsidiary, which
operates in Goshen, New York. In addition, Warwick Savings is currently in the
process of acquiring the Carmel, New York banking office of Country Bank, which
will allow Warwick Savings to expand into Putnam County, New York.

                                      -44-


<PAGE>



Management of Interest Rate Risk
--------------------------------

         The principal objectives of Warwick Savings' interest rate risk
management activities are to: (i) evaluate the interest rate risk included in
certain balance sheet accounts, (ii) determine the level of risk appropriate
given Warwick Savings' business focus, operating environment, capital and
liquidity requirements and performance objectives, (iii) establish prudent asset
concentration guidelines and (iv) manage the risk consistent with Board approved
policies and guidelines. Through such management, Warwick Savings seeks to
reduce the vulnerability of its operating results to changes in interest rates
and to manage the ratio of interest rate sensitive assets to interest rate
sensitive liabilities within specified maturities or repricing dates. Warwick
Savings closely monitors its interest rate risk as such risk relates to its
operating strategies. The extent of the movement of interest rates, higher or
lower, is an uncertainty that could have a negative impact on the earnings of
Warwick Savings.

         Historically, Warwick Savings has been a traditional thrift lender, but
differentiated itself from other thrifts by also focusing on commercial lending
since the late 1980's and commission-based mortgage banking operations since
1995. Warwick Savings also adopted a more competitive pricing policy, more
efficient lock-in policies to close loans faster and more streamlined FNMA
approved processing and underwriting procedures. Additionally, Warwick Savings'
array of products has expanded to include FHA, VA and SONYMA loans. As a result,
Warwick Savings has invested a relatively large amount of its earning assets in
fixed-rate loans and fixed-rate mortgage-backed securities with contractual
maturities of up to 30 years.
At December 31, 2000, an aggregate of $293.6 million, or 50.38% of total earning
assets, were invested in such assets. Based upon the assumptions used in the
following table, at December 31, 2000, the Company's total interest-bearing
liabilities maturing or repricing within one year exceeded its total
interest-earning assets maturing or repricing in the same time period by $126.5
million, representing a one-year cumulative "gap," as defined below, as a
percentage of total assets of negative 19.84%. Accordingly, management views the
Company as having a manageable gap position, but still slightly vulnerable to a
rising interest rate environment.

         Warwick Savings has taken several actions, under various market
conditions, designed to manage its level of interest rate risk. These actions
have included: (i) increasing the percentage of the loan portfolio consisting of
adjustable-rate mortgage loans and prime rate-based commercial loans through
originations, as market conditions permit, (ii) selling fixed-rate loans, (iii)
purchasing shorter-term investment securities and (iv) seeking to increase the
percentage of checking accounts in its deposit base. Additionally, in the normal
course of business, Warwick Savings uses off-balance sheet financial instruments
primarily as part of mortgage banking hedging strategies. Such instruments
generally include put options purchased and forward commitments to sell mortgage
loans. As a result of interest rate fluctuations, these financial instruments
will develop unrealized gains or losses that mitigate changes in the underlying
hedged portion of the balance sheet. When effectively used, these instruments
are designed to moderate the impact on earnings as interest rates move up or
down.

         GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets or liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap."
An asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, therefore, a negative gap would tend to
adversely affect net interest income. Conversely, during a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income.

         The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 2000, which are
anticipated by Warwick Savings, based upon certain

                                      -45-


<PAGE>



assumptions, to reprice or mature in each of the future time periods shown.
Except as stated below, the amount of assets and liabilities shown which reprice
or mature during a particular period were determined based on the earlier of
term to repricing or the term to repayment of the asset or liability. The table
is intended to provide an approximation of the projected repricing of assets and
liabilities at December 31, 2000 on the basis of contractual maturities,
anticipated prepayments and scheduled rate adjustments within a three- month
period and subsequent selected time intervals. The loan amounts in the table
reflect principal balances expected to be reinvested and/or repriced as a result
of contractual amortization and anticipated early payoffs of adjustable-rate
loans and fixed-rate loans, and as a result of contractual rate adjustments on
adjustable-rate loans. For loans on one- to four-family residential properties
and mortgage-backed securities, assumed average annual prepayment rates of
10.23% and 11.45%, respectively, were utilized.


<TABLE>
<CAPTION>
                                                             AT DECEMBER 31, 2000
                                                             --------------------
                                      MORE THAN
                                        THREE
                            THREE      MONTHS TO    MORE THAN     MORE THAN     MORE THAN
                           MONTHS       TWELVE     ONE YEAR TO   THREE YEARS  FIVE YEARS TO  MORE THAN
                           OR LESS      MONTHS     THREE YEARS  TO FIVE YEARS   TEN YEARS    TEN YEARS       TOTAL
                           -------      ------     -----------  -------------   ---------    ---------       -----
                                                            (DOLLARS IN THOUSANDS)
<S>                      <C>         <C>          <C>          <C>           <C>              <C>          <C>
Interest-earning assets:
  Mortgage loans (1)(5). $ 34,215    $  23,428    $  27,572    $  31,706     $   1,372        $190,980     $309,272
  Other loans (1)(2)....   29,650        9,605       26,988       31,417        26,852           1,454      125,966
  Mortgage-backed
    securities,
    fixed (5)...........    2,181        6,199           --           26         8,661          45,317       62,384
  Mortgage-backed
    securities,
    variable (5)........       --        2,210           --           --            --              --        2,210
  Mutual funds, common
    and preferred
    stock...............       --        5,592           --           --            --           1,147        6,739
  Investment securities:
    held-to-maturity....       --        2,369           --           --            --             326        3,695
  Investment securities:
    available-for-sale..    3,640           --        1,754           --            --          69,090       74,484
                         --------    ---------    ---------    ---------     ---------        --------     --------
      Total interest-
        earning assets..   69,685       49,403       57,314       63,149        36,885         308,314      584,750
Net deferred loan fees
  and costs (3).........      (24)         (26)         (42)         (49)          (21)           (156)        (317)
                         --------    ---------    ---------    ---------     ---------        --------     --------
  Net interest-
    earning assets......   69,663       49,376       57,272       63,101        36,864         308,158      584,433
                         --------    ---------    ---------    ---------     ---------        --------     --------
Interest-bearing
  liabilities:
  Passbook accounts (4).       --       18,252           --           --            --          73,006       91,258
  Escrow accounts.......       --           --           --           --            --           2,107        2,107
  NOW accounts..........       --           --           --           --            --          31,439       31,439
  Money market accounts.   63,156                                                   --              --       63,156
  Certificates of
    deposit.............   42,262       45,264       15,087       20,278            --              --      122,891
  Borrowed funds........   43,300       33,345       40,000       34,000        55,000              --      205,645
                         --------    ---------    ---------    ---------     ---------        --------     --------
    Total interest-
      bearing
      liabilities.......  148,718       96,861       55,087       54,278        55,000         106,552      516,496
                         --------    ---------    ---------    ---------     ---------        --------     --------
  Interest rate
    sensitivity gap..... $(79,055)   $ (47,484)   $   2,185    $   8,823     $ (18,136)       $201,605     $ 67,937
                         ========    =========    =========    =========     =========        ========     ========
  Cumulative interest
    rate sensitivity
    gap................. $(79,055)   $(126,539)   $(124,354)   $(115,532)    $(133,668)       $ 67,937
                         ========    =========    =========    =========     =========        ========
   Cumulative interest
     rate sensitivity
     gap as a percentage
     of total assets....   (12.40)%     (19.84)%     (19.50)%     (18.11)%      (20.96)%         10.65%
   Cumulative net
     interest-earning
     assets as a
     percentage of
     cumulative
     interest-bearing
     liabilities........    46.84%       48.47%       58.64%       67.45%        67.39%         113.15%
</TABLE>

----------------------

(1)      For purposes of the gap analysis, mortgage and other loans are not
         reduced for the allowance for loan losses and non-performing loans.
(2)      For purposes of the gap analysis, second mortgage loans are included in
         the "Other Loans" category.
(3)      For purposes of the gap analysis, unearned fees and deferred loan
         origination costs are prorated.
(4)      For purposes of the gap analysis, based upon the Company's historical
         experience, management traditionally slots 20% of total savings account
         balances into the twelve-month time horizon.  The remaining 80% are
         viewed as long-term deposits.

                                              (FOOTNOTES CONTINUED ON NEXT PAGE)

                                      -46-


<PAGE>



(5)      For loans on residential properties an average annual prepayment rate
         of 10.23% is utilized. Mortgage-backed securities are assumed to prepay
         at an average annual rate of 11.45%.


         Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, have features which restrict changes in interest rates both on a
short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, prepayments and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to make scheduled
payments on their adjustable-rate loans may decrease in the event of an interest
rate increase.

         The Company's interest rate sensitivity is also monitored by management
through the use of a model which internally generates estimates of the change in
net portfolio value ("NPV") over a range of interest rate change scenarios. NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. For purposes of the NPV table, prepayment speeds similar to those
used in the "gap" table were used, reinvestment rates were those in effect for
similar products being offered and rates on core deposits were modified to
reflect recent trends. The following table sets forth the Company's NPV as of
December 31, 2000, as calculated by the Company.


<TABLE>
<CAPTION>
                                           NET PORTFOLIO VALUE                      PORTFOLIO VALUE OF ASSETS
                                           -------------------                      -------------------------
                                                              (DOLLARS IN THOUSANDS)
   RATE IN BASIS POINTS
       (RATE SHOCK)            $ AMOUNT             $ CHANGE     % CHANGE         NPV RATIO        % CHANGE (1)
       ------------            --------             --------     --------         ---------        ------------
<S>                            <C>                 <C>           <C>              <C>              <C>
           200                  $48,061            $ (23,847)       (32)%            8.02             (3.13)%
           100                   61,685              (10,223)       (14)             9.93             (1.22)
          Static                 71,908                   --         --             11.15                --
          (100)                  71,267                 (641)        (1)            10.87             (0.28)
          (200)                  70,833               (1,075)        (1)            10.58             (0.57)
</TABLE>

----------------------

(1)      Based upon the portfolio value of the Company's assets assuming no
         change in interest rates.


         As in the case with the "gap" table, certain shortcomings are inherent
in the methodology used in the above interest rate risk measurements. Modeling
changes in NPV requires the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in actual
market interest rates. In this regard, the NPV model presented assumes that the
composition of the Company's interest rate sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV measurements and net interest income models provide an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results.

Analysis of Net Interest Income
-------------------------------

         Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.


                                      -47-


<PAGE>



         AVERAGE BALANCE SHEETS. The table on the following page sets forth
certain information relating to the Company for the years ended December 31,
2000, 1999 and 1998. The yields and costs were derived by dividing interest
income or expense by the average balance of assets or liabilities, respectively,
for the periods shown. Average balances were computed based on average daily
balances. The yields include deferred fees and discounts which are considered
yield adjustments.


<TABLE>
<CAPTION>
                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                        --------------------------------
                                     2000                            1999                           1998
                                     ----                            ----                           ----
                                              AVERAGE                         AVERAGE                         AVERAGE
                          AVERAGE              YIELD/    AVERAGE               YIELD/    AVERAGE               YIELD/
                          BALANCE   INTEREST    COST     BALANCE   INTEREST    COST      BALANCE   INTEREST    COST
                          -------   --------    ----     -------   --------    ----      -------   --------    ----
<S>                      <C>        <C>       <C>       <C>         <C>        <C>      <C>        <C>         <C>
ASSETS:
Interest-earning assets:
  Mortgage loans,
    net(1).............. $311,234   $23,605     7.58%   $231,444    $17,077    7.38%    $169,035   $12,693     7.51%
  Consumer and
    other loans,
    net(1)..............   86,690     7,849     9.05      63,508      5,431    8.55       46,649     4,264     9.14
  Mortgage-backed
    securities..........   88,895     6,296     7.08      87,804      6,145    7.00       83,271     5,953     7.15
  Federal funds sold....      272        13     4.78         379         14    3.69        1,286        70     5.44
  Interest earning
    accounts at banks...      810        51     6.30         462         23    4.98          597        35     5.86
  Investment
    securities..........  101,956     7,816     7.67      96,932      6,872    7.09       77,292     5,393     6.98
                         --------   -------             --------    -------             --------   -------
        Total interest-
        earning assets..  589,857    45,630     7.74     480,529     35,562    7.40      378,130    28,408     7.51
                                    -------                         -------                        -------
Non-interest earning
  assets................   44,301                         30,065                          24,027
                         --------                       --------                        --------
       Total assets..... $634,158                       $510,594                        $402,157
                         ========                       ========                        ========

LIABILITIES AND STOCKHOLDERS'
  EQUITY:
Interest-bearing liabilities:
  Passbook accounts..... $ 91,888   $ 2,581     2.81%   $ 85,379    $ 2,251    2.64%    $ 79,404   $ 2,323     2.93%
    Escrow deposits.....    6,800       136     2.00       5,600        112    2.00        4,700        94     2.00
    NOW accounts........   25,473       367     1.44      22,676        346    1.53       17,272       277     1.60
    Money market
      accounts..........   53,772     2,502     4.65      43,002      1,673    3.89       29,986     1,078     3.60
    Certificate
      accounts..........  107,462     6,041     5.62      73,755      3,467    4.70       71,344     3,540     4.96
                         --------   -------             --------    -------             --------   -------
     Total deposits.....  285,395    11,627     4.07     230,412      7,849    3.41      202,706     7,312     3.61
    Borrowed funds......  238,741    14,599     6.11     167,157      9,102    5.45       82,110     4,627     5.64
                         --------   -------             --------    -------             --------   -------
     Total interest-
       bearing
       liabilities......  524,136    26,226     5.00     397,569     16,951    4.26      284,816    11,939     4.19
                                    -------                         -------                        -------
Non-interest bearing
  liabilities...........   43,350                         37,286                          31,413
                         --------                       --------                        --------
    Total liabilities...  567,486                        434,855                         316,229
Stockholders' Equity....   66,672                         75,739                          85,928
                         --------                       --------                        --------
    Total liabilities
       and stockholders'
       equity........... $634,158                       $510,594                        $402,157
                         ========                       ========                        ========
Net interest income/
  interest rate
  spread(2).............            $19,404     2.74%               $18,611    3.14%               $16,469     3.32%
                                    =======   ======                =======  ======                =======   ======
Net interest-earning
  assets/net interest
  margin(3)............. $ 65,721               3.29%   $ 82,960               3.87%    $ 93,314               4.36%
                         ========             ======    ========             ======     ========             ======
Ratio of interest-
  earning assets to
  interest-bearing
  liabilities...........                      112.54%                        120.87%                         137.76%
                                              ======                         ======                          ======
</TABLE>

----------------------

(1)      In computing the average balance of loans, non-accrual loans have been
         included.
(2)      Interest rate spread represents the difference between the average
         yield on interest-earning assets and the average cost of
         interest-bearing liabilities.
(3)      Net interest margin on interest-bearing assets represents net interest
         income as a percentage of average-earning assets.


                                      -48-

<PAGE>

         RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.


<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31, 2000                 YEAR ENDED DECEMBER 31, 1999
                                                  COMPARED TO                                  COMPARED TO
                                          YEAR ENDED DECEMBER 31, 1999                 YEAR ENDED DECEMBER 31, 1998
                                          ----------------------------                 ----------------------------
                                              INCREASE (DECREASE)                          INCREASE (DECREASE)
                                             IN NET INTEREST INCOME                       IN NET INTEREST INCOME
                                                     DUE TO                                       DUE TO
                                                     ------                                       ------
                                     VOLUME          RATE            NET          VOLUME          RATE            NET
                                     ------          ----            ---          ------          ----            ---
                                                                       (IN THOUSANDS)
<S>                                  <C>           <C>            <C>            <C>             <C>            <C>
Interest-earning assets:
Mortgage loans, net..............    $5,887        $   641        $ 6,528        $ 4,686         $(302)         $4,384
    Consumer and other loans,
      net........................     1,982            436          2,418          1,541          (374)          1,167
    Mortgage-backed securities...        76             75            151            324          (132)            192
    Federal funds sold...........        (4)             3             (1)           (49)           (7)            (56)
    Interest earning accounts at
      banks......................        17             11             28             (8)           (4)            (12)
    Investment securities........       356            588            944          1,370           109           1,479
                                     ------        -------        -------        -------         -----          ------
                 Total...........     8,314          1,754         10,068          7,864          (710)          7,154
                                     ------        -------        -------        -------         -----          ------
 Interest-bearing liabilities:
    Passbook accounts............       172            158            330            175          (247)            (72)
    Escrow accounts..............        24             --             24             18            --              18
    NOW accounts.................        43            (22)            21             87           (18)             69
    Money market accounts........       419            410            829            468           127             595
    Certificates of deposits.....     1,584            990          2,574            120          (193)            (73)
    Borrowed funds...............     3,898          1,599          5,497          4,793          (318)          4,475
                                     ------        -------        -------        -------         -----          ------
                 Total...........     6,140          3,135          9,275          5,661          (649)          5,012
                                     ------        -------        -------        -------         -----          ------
 Net change in net interest
   income........................    $2,174        $(1,381)       $   793        $ 2,203         $ (61)         $2,142
                                     ======        =======        =======        =======         =====          ======
</TABLE>


Asset Quality
-------------

         NON-PERFORMING LOANS. Warwick Savings' and Towne Center's management
and Boards of Directors perform a monthly review of delinquent loans. The
actions taken by Warwick Savings and Towne Center with respect to the
delinquencies vary depending on the nature of the loan and period of
delinquency. Warwick Savings' policies on residential mortgage loans provide
that delinquent mortgage loans be reviewed and that a late charge notice be
mailed no later than the 15th day of delinquency, with the delinquency charge
assessed on the 16th day. Warwick Savings' collection policies on residential
mortgage loans essentially mirror those shown in the FNMA servicing agreements.
On other loans, telephone contact and various delinquency notices at different
intervals are the methods used to collect past due loans.

         It is the Company's general policy to discontinue accruing interest on
all loans when management has determined that the borrower will be unable to
meet contractual obligations or when interest or principal payments are 90 days
past due. When a loan is classified as non-accrual, the recognition of interest
income ceases. Interest previously accrued and remaining unpaid is reversed
against income. Cash payments received are applied to principal, and interest
income is not recognized unless management determines that the financial
condition and payment record of the borrower warrant the recognition of income.
If a foreclosure action is commenced and the loan is not brought current, paid
in full or an acceptable workout arrangement is not agreed upon before the
foreclosure sale, the real property securing the loan is generally sold at
foreclosure. Property acquired by the Company as a result of foreclosure on a
mortgage loan or

                                      -49-


<PAGE>



commercial loan is classified as "other real estate owned" ("OREO") and is
recorded at the lower of the unpaid balance or fair value less costs to sell at
the date of acquisition and thereafter. Upon foreclosure, it is the Company's
policy to generally require an appraisal of the property and, thereafter,
appraise the property on an as-needed basis.

         OTHER REAL ESTATE OWNED. At December 31, 2000, the Company's OREO, net,
which consisted of one commercial property and one single-family residential
property, totaled $1.3 million and was held directly by the Company.

         The following table sets forth information regarding non-accrual loans,
other past due loans and OREO. There were no troubled debt restructurings within
the meaning of Statement of Financial Accounting Standards ("SFAS") No. 15 at
any of the dates presented below.



<TABLE>
<CAPTION>
                                                                         AT DECEMBER 31
                                                                         --------------
                                             2000            1999            1998             1997           1996
                                             ----            ----            ----             ----           ----
<S>                                        <C>             <C>              <C>              <C>            <C>
Non-accrual mortgage loans delinquent
   more than 90 days....................   $  416          $  693           $  631           $1,165         $1,247
Non-accrual other loans delinquent
   more than 90 days....................      542             521               88              246             28
   Total non-accrual loans..............      958           1,214              719            1,411          1,275
   Total 90 days or more delinquent
     and still accruing.................      281             822            1,363              114            383
                                           ------          ------           ------           ------         ------
   Total non-performing loans...........    1,239           2,036            2,082            1,525          1,658
   Total foreclosed real estate, net....    1,268             415              371              562            433
                                           ------          ------           ------           ------         ------
   Total non-performing assets..........   $2,507          $2,451           $2,453           $2,087         $2,091
                                           ------          ------           ------           ------         ------
Non-performing loans to total loans.....     0.28%           0.58%            0.81%            0.84%          1.28%
Non-performing assets to total assets...     0.39%           0.41%            0.55%            0.61%          0.73%
</TABLE>


Comparison of Financial Condition at December 31, 2000 and December 31, 1999
----------------------------------------------------------------------------

         Total assets increased $40.1 million to $637.8 million at December 31,
2000 from $597.7 million at December 31, 1999, reflecting the Company's ongoing
strategy of managed growth. This increase in total assets was primarily the
result of a 23.7% increase in the Company's loan portfolio. The Company's asset
growth was primarily funded through deposit growth, which increased $65.1
million to $348.1 million at December 31, 2000. The increase in deposits was
primarily attributable to a $33.7 million increase in certificates of deposit,
an $18.7 million increase in money market accounts, a $7.1 million increase in
savings accounts and a $6.5 million increase in NOW accounts and was only
partially offset by the $845 thousand decrease in non-interest bearing deposits.
Included in the $33.7 million increase in certificates of deposits at December
31, 2000 were brokered deposits in the amount of $20.0 million. In conjunction
with these brokered deposits, the Company entered into a hedging strategy with
interest rate swaps to limit its interest rate risk. Under the terms of the
agreement, the Company agreed to pay interest at a variable rate determined by
an independent index, for terms ranging from one to five years, and to receive
interest at a fixed rate of 7.50% over the same terms.

         The increased level of deposits also enabled the Company to reduce its
borrowings from $33.4 million at December 31, 1999 to $205.6 million at December
31, 2000. At December 31, 2000, the Company had $16.8 million in securities sold
under repurchase agreements and $188.8 million in term loans from the FHLBNY, as
compared to $37.4 million and $201.7 million, respectively, as of December 31,
1999.

         Asset growth was concentrated in mortgage loans, net, which increased
$60.8 million to $331.5 million at December 31, 2000 from $270.7 million at
December 31, 1999. Other loans, net, increased $24.3 million to $98.7 million at
December 31, 2000 from $74.5 million at December 31, 1999. Total securities

                                      -50-


<PAGE>



were $149.5 million at December 31, 2000 compared to $186.5 million at December
31, 1999. Securities held-to-maturity at December 31, 2000 totaled $3.7 million
as compared to $1.4 million at December 31, 1999, a decrease of $37.0 million.
Securities available-for-sale at December 31, 2000 totaled $145.8 million as
compared to $185.1 million at December 31, 1999. The decrease in securities
available-for-sale was primarily the result of the Company's sale of
approximately $21.0 million of lower-yielding investment securities and the fact
that $10.0 million of the Company's high-yielding callable instruments were
called, which helped reduce the Company's level of wholesale funding at December
31, 2000.

          The FHLBNY stock portfolio increased by $1.5 million in conjunction
with both the Company's larger asset size and the utilization of wholesale
leveraging transactions during the first half of 2000. In January 2000, the
Company obtained bank owned life insurance policies with a value of $10.6
million. Other assets decreased $2.1 million due to the decrease in deferred
taxes recognized on the unrealized gain on available for sale securities.

         Total stockholders' equity increased $6.0 million to $72.6 million at
December 31, 2000 from $66.6 million at December 31, 1999. This increase was
primarily attributable to net income of $4.4 million, the $4.3 million reduction
in accumulated other comprehensive loss, net, and a valuation adjustment of the
deferred tax asset resulting from the Company's previous contribution of 192,423
shares of its stock to The Warwick Savings Foundation resulting in an increase
of $415 thousand in stockholders' equity. The increase in stockholders' equity
was partially offset by the $3.4 million in open market purchases of 306,214
shares of the Company's outstanding common stock in conjunction with the
Company's stock repurchase programs.
Total stockholders' equity was further reduced by the payment of quarterly cash
dividends to shareholders amounting to $1.5 million.

Comparison of Operating Results for the Years Ended December 31, 2000 and 1999
------------------------------------------------------------------------------

         GENERAL. Net income for the year ended December 31, 2000 totaled $4.4
million, or $0.91 per share, as compared to a net income of $3.1 million, or
$0.57 per share, for the comparable period in 1999. The increase was primarily
attributable to the increase of 41.1% in non-interest income and 4.3% in net
interest income, and was partially offset by the 3.6% increase in non-interest
expenses.

         NET INTEREST INCOME. Net interest income for the year ended December
31, 2000 increased $793 thousand, or 4.3%, to $19.4 million, from $18.6 million
for the year ended December 31, 1999.

         Net interest margin is net interest income expressed as a percentage of
total average earnings assets. For the year ended December 31, 2000, the net
interest margin was 3.29% as compared to 3.87% for the year ended December 31,
1999. This decrease was primarily attributable to the 74 basis point increase in
the average rate paid on interest-bearing liabilities and was partially offset
by the 34 basis point increase in the average yield earned on interest-earning
assets. The increase in the average rate paid on interest-bearing liabilities
was primarily attributable to a 92 basis point increase in the average rate paid
on certificates of deposit, a 76 basis point increase in the average rate paid
on money market accounts and a 66 basis point increase in the average rate paid
on borrowed funds, as compared to the year ended December 31, 1999. Average
interest-earning assets increased $109.3 million from $480.5 million for the
year ended December 31, 1999 to $589.9 million for the year ended December 31,
2000, while average interest-bearing liabilities increased $126.6 million from
$397.6 million to $524.1 million for the same period. In addition to the
increase in average interest-bearing liabilities, average non-interest bearing
liabilities increased $6.1 million from $37.3 million for the year ended
December 31, 1999 to $43.4 million for the year ended December 31, 2000.

         INTEREST INCOME. For the year ended December 31, 2000, interest income
totaled $45.6 million, as compared to $35.6 million for the year ended December
31, 1999. The $10.1 million, or 28.3%, increase was primarily attributable to a
$6.5 million, or 38.2%, increase in the amount of interest earned on the
mortgage loan portfolio, which resulted primarily from an increase in the
average balance of mortgage loans from $231.4 million for the year ended
December 31, 1999 to $311.2 million for the year ended December 31,

                                      -51-


<PAGE>



2000. The increase in interest income was also attributable, to a lesser extent,
to growth in the commercial and consumer loan portfolios. Interest earned on
other loans during the year ended December 31, 2000 increased by $2.4 million,
compared to the year ended December 31, 1999. The increase in interest income on
other loans was the result of the increase in the average balance of consumer
and other loans of $23.2 million, or 36.5%, coupled with an increase in the
average yield of such portfolio to 9.05% from 8.55%. Interest earned on
mortgage-backed and investment securities increased by $1.1 million over the
same period, and resulted largely from the Company's utilization of additional
wholesale leveraging transactions in order to enhance earnings. Total interest
income was further bolstered by increases in interest and dividends earned on
securities, which were derived mainly from such wholesale leveraging
transactions.

         The average yield on interest-earning assets increased to 7.74% for the
year ended December 31, 2000, as compared to 7.40% for the year ended December
31, 1999. This was primarily due to the higher yields earned on the loan and
investment securities portfolios due to higher long-term interest rates during
the year ended December 31, 2000.

         INTEREST EXPENSE. Interest expense for the year ended December 31, 2000
was $26.2 million, compared to $17.0 million for the year ended December 31,
1999. This increase was due primarily to an increase of $71.6 million in the
average balance of borrowed funds, an increase of $33.7 million in the average
balance of certificates of deposits and an increase of $21.3 million in the
average balance of other interest-bearing deposits, coupled with the 66 basis
point increase in the rates paid on average borrowed funds.

         PROVISION FOR LOAN LOSSES. The provision for loan losses for the years
ended December 31, 2000 and 1999 was $900 thousand and $500 thousand,
respectively. The increase in the provision is a result of management's
assessment of the growth in the loan portfolio, the level of the Company's
allowance for possible loan losses and its assessment of the local economy and
market conditions. At December 31, 2000, the allowance for possible loan losses
totaled $2.7 million, and the ratio of such allowance to non-performing loans
was 219.69%.

         NON-INTEREST INCOME. Non-interest income, consisting primarily of
service and fee income and gains and losses on securities and loan transactions,
increased by $1.6 million, or 41.1%, to $5.4 million for the year ended December
31, 2000, as compared to $3.8 million for the year ended December 31, 1999. This
increase was primarily attributable to increases in sale of mortgage servicing
rights and other income, service and fee income and income on loan transactions
of $1.8 million, $626 thousand and $491 thousand, respectively, and was
partially offset by the $1.4 million decrease in income from securities
transactions. The increase in other income resulted from the $1.2 million gain
on the sale of the Company's serviced-for- others mortgage loan portfolio, as
well as an increase of $638 thousand in the cash surrender value of the bank
owned life insurance that was purchased by the Company. The increase in service
and fee income was primarily from deposit and loan growth, growth in the amount
of income generated from the sales of mutual funds and tax-deferred annuities
and fee income associated with Warwick Savings' debit card. The increase in
income earned from loan transactions was attributable to an increase in the
number of originated mortgage loans that were sold with servicing released in
conjunction with the Company's decision to exit the mortgage loan servicing
business. The decrease in income from securities transactions resulted from the
sale of $21.0 million of lower-yielding securities as management restructured
the Company's balance sheet, which resulted in a loss of $878 thousand.

         NON-INTEREST EXPENSE. Non-interest expense increased by $597 thousand,
or 3.6%, to $17.3 million for the year ended December 31, 2000, as compared to
$16.7 million for the year ended December 31, 1999.
This increase resulted primarily from an increase in salaries and employee
benefits of $572 thousand attributable to additions to staff necessary to
attract and service a growing number of loan account and deposit account
customers, and to hiring new staff members for Towne Center and Warwick Savings'
fifth full-service branch, which is located in the town of Newburgh. Also
reflected in salaries and employee benefits is the one-time charge of $165
thousand for staff reduction costs associated with the elimination of positions
due to the Company exiting the mortgage loan servicing business. Occupancy
expense and data

                                      -52-


<PAGE>



processing expense increased $437 thousand and $89 thousand, respectively, due
primarily to Towne Center and Warwick Savings' new full-service branch.
Professional fees increased $187 thousand due to legal expenses associated with
the Company's exploration of entering into a business combination with another
financial institution. Partially offsetting these increases were decreases in
other expense and advertising expense of $402 thousand and $317 thousand,
respectively. The decrease in other expense was attributable primarily to
non-recurring expenses in 1999 for the formation of Towne Center and opening of
the Newburgh branch.

         During the quarter ended December 31, 2000, several of the Company's
directors and senior officers agreed to adjust the vesting of their outstanding
RRP awards to provide for vesting over a longer period of time. This will defer
certain benefit expenses and improve the Company's efficiency ratio.

         PROVISION FOR INCOME TAXES. The provision for income taxes increased
from $2.1 million for the year ended December 31, 1999 to $2.2 million for the
year ended December 31, 2000. This increase was attributable to the increase in
pre-tax income and was partially offset by the implementation of a tax planning
strategy during the latter part of 1999.

Comparison of Financial Condition at December 31, 1999 and December 31, 1998
----------------------------------------------------------------------------

         Total assets increased $152.6 million to $597.7 million at December 31,
1999 from $445.1 million at December 31, 1998, reflecting the Company's ongoing
strategy of managed growth. This increase in total assets was primarily the
result of increases in interest-earning assets, as the Company grew both its
loan and investment securities portfolios. The asset growth was also funded
through borrowings, which increased $134.3 million to $239.1 million at December
31, 1999. At December 31, 1999, the Company had $37.4 million in securities sold
under repurchase agreements and $201.7 million in term loans from the FHLBNY.
Deposit liabilities increased by $36.2 million to $283.1 million at December 31,
1999 from $246.9 million at December 31, 1998, primarily due to increases in
time certificates, demand checking accounts, money market accounts and NOW
accounts.

         Asset growth was concentrated in mortgage loans, net, which increased
$76.1 million to $270.7 million at December 31, 1999 from $194.6 million at
December 31, 1998. Other loans, net, showed an increase of $21.4 million to
$74.5 million at December 21, 1999 from $53.1 million at December 31, 1998.
Total securities were $186.5 million at December 31, 1999 compared to $155.5
million at December 31, 1998. Securities held-to-maturity at December 31, 1999
totaled $1.4 million as compared to $6.0 million at December 31, 1998.
Securities available-for-sale at December 31, 1999 totaled $185.1 million as
compared to $149.5 million at December 31, 1998. This increase is primarily the
result of the Company's utilization of additional wholesale leveraging
transactions.

         Bank premises and equipment, net, increased $1.6 million, or 26.2%,
from $6.2 million at December 31, 1998 to $7.8 million at December 31, 1999.
This increase was primarily the result of costs associated with the opening of
Warwick Savings' new branch in Newburgh and the formation of Towne Center. The
FHLBNY stock portfolio increased by $7.1 million in conjunction with the
increased FHLBNY advances obtained to effect the utilization of wholesale
leveraging transactions.

         Total stockholders' equity decreased $17.7 million to $66.6 million at
December 31, 1999 from $84.2 million at December 31, 1998. This decrease was
primarily attributable to the $12.3 million in open market purchases of 967,258
shares, or 14.64%, of the Company's outstanding common stock in conjunction with
the Company's stock repurchase programs and the decline in accumulated other
comprehensive income of $8.6 million. Also contributing to the decrease in
stockholders' equity was the payment of quarterly cash dividends to shareholders
amounting to $1.2 million. The decrease in stockholders' equity was partially
offset by net income of $3.1 million.


                                      -53-


<PAGE>



Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
------------------------------------------------------------------------------

         GENERAL. Net income for the year ended December 31, 1999 totaled $3.1
million, or $0.57 per share, as compared to net income of $3.6 million, or $0.60
per share, for the comparable period in 1998. This decrease was primarily
attributable to the increase of 23.7% in non-interest expenses, which was
partially offset by the 13.0% increase in net interest income.

         NET INTEREST INCOME. Net interest income for the year ended December
31, 1999 increased $2.1 million, or 13.0%, to $18.6 million, from $16.5 million
for the year ended December 31, 1998.

         For the year ended December 31, 1999, the net interest margin was
3.87%, as compared to 4.36% for the year ended December 31, 1998. This decrease
was primarily attributable to an 11 basis point decrease in the average yield
earned on interest-earning assets coupled with a 6 basis point increase in the
average rate paid on interest-bearing liabilities. The increase in the rate paid
on interest-bearing liabilities was primarily attributable to a 29 basis point
increase in the average rate paid on money market accounts, as compared to the
year ended December 31, 1998. Excluding money market accounts, the rates paid on
other interest- bearing liabilities decreased. Average interest-earning assets
increased $102.4 million from $378.1 million for the year ended December 31,
1998 to $480.5 million for the year ended December 31, 1999, while average
interest-bearing liabilities increased $112.1 million from $281.9 million to
$394.0 million for the same period. In addition to the increase in average
interest-bearing liabilities, average non-interest bearing liabilities increased
$6.6 million from $34.3 million for the year ended December 31, 1998 to $40.9
million for the year ended December 31, 1999.

         INTEREST INCOME. For the year ended December 31, 1999, interest income
totaled $35.6 million, as compared to $28.4 million for the year ended December
31, 1998. The $7.2 million, or 25.2%, increase was primarily attributable to a
$4.4 million, or 34.5%, increase in the amount of interest earned on the
mortgage loan portfolio, which resulted primarily from an increase in the
average balance of mortgage loans from $169.0 million for the year ended
December 31, 1998 to $231.4 million for the year ended December 31, 1999 as home
purchasers capitalized on the opportunities afforded by relatively low mortgage
loan interest rates throughout much of the year. The increase in interest income
was also attributable, to a lesser extent, to growth in the commercial and
consumer loan portfolios. Interest earned on other loans during the year ended
December 31, 1999 increased by $1.2 million, compared to the year ended December
31, 1998. The growth experienced resulted from strong loan demand as discussed
above. Interest earned on mortgage- backed securities and investment securities
increased by $1.7 million over the same period and resulted largely from the
Company's utilization of additional wholesale leveraging transactions in order
to enhance earnings. Total interest income was further bolstered by increases in
interest and dividends earned on securities, which were derived mainly from such
wholesale leveraging transactions.

         The average yield on interest-earning assets decreased to 7.40% for the
year ended December 31, 1999, as compared to 7.51% for the year ended December
31, 1998. This was primarily due to lower yields earned on the loan and
mortgage-backed securities portfolios due to lower long-term interest rates
during the year ended December 31, 1999.

         INTEREST EXPENSE. Interest expense for the year ended December 31, 1999
was $17.0 million, compared to $11.9 million for the year ended December 31,
1998. This increase was due primarily to an increase of $85.0 million in the
average balance of borrowed funds, a $6.0 million increase in the average
balance of passbook accounts, a 29 basis point increase in the average rate paid
on money market accounts, and a $13.0 million increase in the average balance of
money market accounts. These increases were partially offset by a 29 basis point
decrease in the average rate paid on passbook accounts, a 26 basis point
decrease in the average rate paid on certificate accounts and a 19 basis point
decrease in the average rate paid on borrowed funds. The increase in interest
expense is also attributable to an increase of $4.5 million in the interest paid
on borrowings associated with the aforementioned wholesale leveraging
transactions.


                                      -54-


<PAGE>



         PROVISION FOR LOAN LOSSES. The provision for loan losses for the years
ended December 31, 1999 and 1998 was $500 thousand. This provision is a result
of management's assessment of the growth in the loan portfolio, the level of the
Company's allowance for possible loan losses and its assessment of the local
economy and market conditions. At December 31, 1999, the allowance for possible
loan losses totaled $1.9 million, and the ratio of such allowance to
non-performing loans was 95.33%.

         NON-INTEREST INCOME. Non-interest income, consisting primarily of
service and fee income and gains and losses on securities and loan transactions,
increased by $118 thousand, or 3.2%, to $3.8 million for the year ended December
31, 1999, as compared to $3.7 million for the year ended December 31, 1998. This
increase was primarily attributable to an increase of $578 thousand in service
and fee income due to deposit and loan growth, growth in the amount of mortgage
loans serviced and the new fee income associated with Warwick Savings' debit
card and a $184 thousand increase in other income due to the absence of non-
recurring expenses attributable to Warwick Savings' town of Wallkill branch
relocation incurred one year earlier. These increases were offset by a $585
thousand decrease in gains on securities transactions and a $59 thousand
decrease in net gains on loan sales as the Company elected to restructure
approximately $10.0 million of the Company's lower yielding investments into
higher yielding assets and entered into fewer mortgage banking transactions.

         NON-INTEREST EXPENSE. Non-interest expense increased by $3.2 million,
or 23.7%, to $16.7 million for the year ended December 31, 1999, as compared to
$13.5 million for the year ended December 31, 1998. This increase resulted
primarily from an increase in salaries and employee benefits of $1.7 million
attributable to additions to staff necessary to attract and service a growing
number of loan account and deposit account customers, and to hiring new staff
members for Towne Center and Warwick Savings' new branch. Occupancy expense and
data processing expense increased $292 thousand and $179 thousand, respectively,
due primarily to the formation of Towne Center and Warwick Savings' new branch.
Other expense for the year ended December 31, 1999 increased by $739 thousand
primarily due to start-up expenses associated with the formation of Towne Center
and the new branch. Professional fees increased $86 thousand due to legal
expenses and consulting fees associated with the Company's implementation of a
tax planning strategy to reduce its effective marginal tax rate. Advertising
expense increased by $164 thousand for the year ended December 31, 1999 in order
to support Warwick Savings' new branch and the expansion into New Jersey with
the opening of Towne Center, as well as to promote the Company's name in the
highly competitive mortgage loan and commercial loan arenas.

         PROVISION FOR INCOME TAXES. The provision for income taxes decreased
from $2.5 million for the year ended December 31, 1998 to $2.1 million for the
year ended December 31, 1999. This decrease was attributable to the decrease in
pre-tax income and the Company's implementation of a tax planning strategy.

Liquidity and Capital Resources
-------------------------------

         Following the completion of Warwick Savings' conversion to stock form
and the Company's initial public offering in December 1997, the Company's
principal business was that of its subsidiary, Warwick Savings. The Company
invested 50% of the net proceeds from the initial public offering in Warwick
Savings and retained the remaining net proceeds. The remaining net proceeds were
initially invested primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities, equity securities and a loan
to the trustee of the ESOP. Warwick Savings and Towne Center can pay dividends
to the Company, to the extent such dividends are permitted by law, which serves
as an additional source of liquidity for the Company.

         The Company's liquidity is available to, among other things, support
future expansion of operations or diversification into other banking related
businesses, pay dividends or repurchase its common stock. In March 2000, the
Company's Board of Directors authorized its fifth stock repurchase program
covering the repurchase of up to 283,215 shares (5%) of the Company's
outstanding common stock, and in February 2001, the Company's Board of Directors
authorized its sixth stock repurchase program covering the repurchase of up to
533,307 shares (10%) of the Company's outstanding common stock. During 2000, the
Company used

                                      -55-


<PAGE>



its liquidity to repurchase a total of 306,214 shares of the Company's
outstanding common stock at a total cost of $3.4 million. During 2000, the
Company's Board of Directors declared and paid four quarterly cash dividends
aggregating $0.275 per share, or a total of $1.5 million.

         Restrictions on the amount of dividends the Company, Warwick Savings
and Towne Center may declare can affect the Company's liquidity and cash flow
needs. Dividend payments by the Company must be within certain guidelines of the
Federal Reserve Board. In addition, under Delaware law, the Company may
generally only pay dividends from its capital surplus, or if no such surplus
exists, from its net profits for the current and preceding year.

         Warwick Savings' primary sources of funds are retail deposits,
wholesale funding from FHLBNY or other bank borrowings, securities sold under
repurchase agreements, principal and interest payments on loans and securities
and, to a lesser extent, proceeds from the sale of securities. While maturities
and scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, changes in interest rates, economic conditions
and competition strongly influence mortgage prepayment rates and deposit flows,
reducing the predictability of the timing of sources of funds.

         Warwick Savings adheres to a Liquidity and Funds Management Policy
approved by its Board of Directors, which sets minimum internal guidelines for
liquidity purposes. As a member of the FHLBNY, Warwick Savings has the
availability of two lines of credit for borrowings in the amounts of $54.6
million and $34.6 million, one on an overnight basis and the other on a 30-day
term basis. In accordance with the FHLBNY's credit policy, Warwick Savings now
has total credit facilities available of nearly $296.6 million, inclusive of the
aforementioned amounts, before the delivery of qualifying collateral is
required. Additionally, Warwick Savings has other sources of liquidity if the
need arises. One source is to borrow up to $5 million from a commercial bank on
an unsecured basis and the other is the ability to sell securities under
repurchase agreements in an amount up to $10 million from a securities
investment company.

         The primary investing activities of Warwick Savings are the origination
of one- to four-family residential mortgage loans, commercial real estate and
commercial business loans, a variety of consumer loans, and the purchase of
mortgage-backed securities and debt and equity securities. During the years
ended December 31, 2000, 1999 and 1998, Warwick Savings' disbursements for loan
originations totaled $210.5 million, $214.4 million and $218.3 million,
respectively. Purchases of mortgage-backed securities totaled $4.6 million,
$79.6 million and $110.4 million for the years ended December 31, 2000, 1999 and
1998, respectively. Other debt and equity securities purchased during the years
ended December 31, 2000, 1999 and 1998 were $9.1 million, $50.5 million and
$57.6 million, respectively. Warwick Savings' investing activities are funded
primarily by borrowings, net deposit inflows, sales of loans and securities and
principal repayments on loans and securities. During 2000, Warwick Savings
decreased borrowings by $33.4 million with the proceeds of the above mentioned
sale of investment securities. Warwick Savings increased borrowings at December
31, 1999 by $134.3 million to fund its investment growth.

         At December 31, 2000, the Company's total approved loan origination
commitments outstanding totaled $65.4 million and the unadvanced/unused portion
of commercial lines of credit totaled $13.7 million.
Management of the Company believes it will have sufficient funds available to
meet its current originations and other lending commitments. Certificates of
deposit scheduled to mature in one year or less from December 31, 2000 totaled
$87.5 million. Based on historical experience and pricing strategy, management
believes that a significant portion of such deposits will remain with the
Company.

         At December 31, 2000, the Company had cash and due from banks of $15.2
million and securities available for sale of $145.8 million. Management believes
these amounts, together with Warwick Savings' borrowing capabilities, to be more
than adequate to meet its short-term cash needs.

         Warwick Savings' ability to pay dividends to the Company is also
subject to certain restrictions. Under the New York State Banking Law, dividends
may generally be paid only from the net profits of Warwick Savings. The approval
of the Superintendent of Banks of the State of New York (the

                                      -56-


<PAGE>



"Superintendent") is required if the total of all dividends declared in any
calendar year will exceed the net profits for that year plus the retained net
profits of the preceding two years, less any required transfers. In addition, no
dividends may be declared, credited or paid if the effect thereof would cause
Warwick Savings' capital to be reduced below the amount required by the
Superintendent or the FDIC. During 2000, the Board of Directors of Warwick
Savings declared and paid dividends to the Company on March 8, 2000 and April
21, 2000, totaling $5.2 million. During 2000, the Company's Board of Directors
approved a $4.0 million capital infusion to Towne Center, which was paid on
December 27, 2000.

Regulatory Capital Position
---------------------------

         Warwick Savings and Towne Center are subject to minimum regulatory
capital requirements imposed by the FDIC which vary according to an
institution's capital level and the composition of its assets. An insured
institution is required to maintain Tier I capital of not less than 3.00% of
total assets plus an additional amount of at least 100 to 200 basis points
("leverage capital ratio"). An insured institution must also maintain a ratio of
total capital to risk-based assets of at least 8.00%. Although the minimum
leverage capital ratio is 3.00%, FDICIA stipulates that an institution with less
than a 4.00% leverage capital ratio is deemed to be an undercapitalized
institution, which results in the imposition of regulatory restrictions. Warwick
Savings' and Towne Center's capital ratios qualify them to be deemed well
capitalized under FDICIA. In addition, the Company's capital ratios exceed the
minimum regulatory capital requirements imposed by the Federal Reserve Board,
which are substantially similar to the requirements of the FDIC. See Note 13 to
the Notes to Consolidated Financial Statements for Warwick Savings', Towne
Center's and the Company's regulatory capital position as of December 31, 2000
and 1999.

Impact of Inflation and Changing Prices
---------------------------------------

         The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike industrial companies, nearly
all of the assets and liabilities of the Company are monetary in nature. As a
result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.

Impact of New Accounting Standards
----------------------------------

         See Note 1 to Notes to the Consolidated Financial Statements.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information required by this item appears under the caption
"Management of Interest Rate Risk" under Item 7 above.




                                      -57-


<PAGE>



ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


<TABLE>
<CAPTION>
                                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


                                                      DECEMBER 31,            DECEMBER 31,
                  ASSETS                                  2000                    1999
                                                          ----                    ----
<S>                                                  <C>                      <C>
ASSETS:
    Cash on hand and in banks..................      $ 15,236,254             $ 22,209,297
    Federal funds sold.........................                --                7,665,000
    Securities-
      Available-for-sale, at fair value........       145,817,579              185,072,068
    Held-to-maturity, at amortized cost (fair
      value of $3,715,381 in 2000 and
      $1,410,220 in 1999)......................         3,695,389                1,417,621
                 Total securities..............       149,512,968              186,489,689
                                                     ------------             ------------

    Mortgage loans, net........................       331,518,703              270,688,069
    Mortgage loans held-for-sale...............         1,953,911                4,162,583
    Other loans, net...........................        98,725,828               74,470,059
    Mortgage servicing rights..................                --                2,018,990
    Accrued interest receivable................         3,358,974                3,216,362
    Federal Home Loan Bank stock...............        13,252,300               11,752,000
    Bank premises and equipment, net...........         7,620,267                7,789,021
    Other real estate owned, net...............         1,268,304                  414,840
    Bank owned life insurance..................        10,637,710                       --
    Other assets...............................         4,713,696                6,837,797
                                                     ------------             ------------
                 Total assets..................      $637,798,915             $597,713,707
                                                     ============             ============

     LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
    Deposits...................................      $348,130,627             $283,072,381
    Mortgage escrow funds......................         2,452,443                1,487,761
    Securities sold under agreements to
      repurchase...............................        16,845,000               37,375,000
    Federal Home Loan Bank advances............       188,800,000              201,675,000
    Accrued expenses and other liabilities.....         8,990,321                7,531,500
                                                     ------------             ------------
                 Total liabilities.............       565,218,391              531,141,642
                                                     ------------             ------------
COMMITMENTS AND CONTINGENCIES (NOTE 14)

STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value;
       5,000,000 shares authorized; none
       issued..................................                --                       --
     Common stock, $.01 par value; 15,000,000
       shares authorized; 6,606,548 shares
       issued; 5,333,076 and 5,639,290 shares
       outstanding in 2000 and 1999,
       respectively............................            66,065                   66,065
    Additional paid-in capital.................        63,039,085               62,977,982
    Retained earnings - subject to restrictions        35,773,721               32,429,671
    Accumulated other comprehensive loss, net..        (2,508,500)              (6,831,889)
      Less- Unallocated common stock held by
        ESOP...................................        (5,720,340)              (6,515,035)
      Less- Unearned common stock held by RRP..        (2,370,865)              (3,262,607)
      Treasury stock (1,273,472 and 967,258
        shares)................................       (15,698,642)             (12,292,122)
                                                     ------------             ------------
                 Total stockholders' equity....        72,580,524               66,572,065
                                                     ------------             ------------
                 Total liabilities and
                   stockholders' equity........      $637,798,915             $597,713,707
                                                     ============             ============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


                                      -58-

<PAGE>

<TABLE>
<CAPTION>
                                         CONSOLIDATED STATEMENTS OF INCOME




                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                      --------------------------------
                                                  2000             1999              1998
                                                  ----             ----              ----
<S>                                          <C>               <C>               <C>
INTEREST INCOME:
    Interest on mortgage loans.............  $23,605,104       $17,077,323       $12,693,436
    Interest on other loans................    7,848,369         5,430,705         4,264,370
    Interest on securities.................   14,112,074        13,016,925        11,345,519
    Interest on federal funds sold.........       13,395            14,253            69,621
    Interest on short-term money market
      instruments..........................       50,673            22,878            35,258
                                             -----------       -----------       -----------
         Total interest income.............   45,629,615        35,562,084        28,408,204
                                             -----------       -----------       -----------
 INTEREST EXPENSE:
    Time deposits..........................    6,040,913         3,467,065         3,540,030
    Money market deposits..................    2,502,378         1,672,908         1,078,337
    Savings deposits.......................    2,948,015         2,596,974         2,600,034
    Mortgagors' escrow funds...............      136,356           111,953            93,907
    Borrowed funds ........................   14,597,927         9,101,753         4,627,338
                                             -----------       -----------       -----------
        Total interest expense.............   26,225,589        16,950,653        11,939,646
                                             -----------       -----------       -----------
        Net interest income................   19,404,026        18,611,431        16,468,558
PROVISION FOR LOAN LOSSES..................      900,000           499,800           500,000
                                             -----------       -----------       -----------
         Net interest income after
           provision for loan losses.......   18,504,026        18,111,631        15,968,558
 NON-INTEREST INCOME:
    Service and fee income.................    3,540,306         2,914,268         2,335,893
    Gain (loss) on securities transactions.     (877,691)          523,563         1,108,931
    Net gain on sale of loans..............      600,397           109,426           168,090
    Gain on sale of mortgage servicing
      rights...............................    1,238,991                --                --
    Other income...........................      866,162           257,686            74,087
                                             -----------       -----------       -----------
         Total non-interest income, net....    5,368,165         3,804,943         3,687,001
                                             -----------       -----------       -----------
 NON-INTEREST EXPENSE:
    Salaries and employee benefits.........   10,108,593         9,536,265         7,795,269
    FDIC insurance.........................       62,377            30,678            28,457
    Occupancy..............................    1,889,087         1,451,646         1,159,551
    Data processing........................    1,063,209           974,551           795,554
    Advertising............................      182,387           499,791           335,954
    Professional fees......................    1,192,364         1,005,801           919,673
    Other..................................    2,807,346         3,209,147         2,469,796
                                             -----------       -----------       -----------
         Total non-interest expense........   17,305,363        16,707,879        13,504,254
                                             -----------       -----------       -----------
         Income before provision for
           income taxes....................    6,566,828         5,208,695         6,151,305
PROVISION FOR INCOME TAXES.................    2,156,575         2,066,009         2,529,870
                                             -----------       -----------       -----------
         Net Income........................    4,410,253         3,142,686         3,621,435
                                             ===========       ===========       ===========
WEIGHTED AVERAGE:
    Common shares..........................    4,872,499         5,476,926         6,013,978
    Dilutive stock instruments.............           --                --                --
                                               4,872,499         5,476,926         6,013,978
                                             ===========       ===========       ===========
Earnings per Share:
    Basic..................................  $      0.91       $      0.57       $      0.60
                                             ===========       ===========       ===========
    Diluted ...............................  $      0.91       $      0.57       $      0.60
                                             ===========       ===========       ===========
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


                                      -59-

<PAGE>

<TABLE>
<CAPTION>
                            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY



                                                                  ACCUMULATED
                                                                     OTHER      UNALLOCATED   UNEARNED
                                                                 COMPREHENSIVE     ESOP          RRP
                             COMMON    ADDITIONAL     RETAINED   INCOME (LOSS),  COMMON        COMMON        TREASURY  COMPREHENSIVE
                             STOCK   PAID IN CAPITAL  EARNINGS        NET         STOCK        STOOCK         STOCK       INCOME
                             -----   ---------------  --------        ---         -----        ------         -----       ------
<S>                         <C>      <C>             <C>          <C>          <C>           <C>           <C>         <C>
BALANCE, December 31, 1997  $66,065    $63,366,492   $27,382,129  $ 1,634,103  $(6,258,735)  $        --   $         --
   Net income...........         --             --     3,621,435           --           --            --             -- $ 3,621,435
   Unrealized
    appreciation on
    securities
    available-for-sale,
    net.................         --             --          --         92,815           --            --             --      92,815
                                                                                                                        -----------
   Comprehensive
    income..............                                                                                                $ 3,714,250
                                                                                                                        ===========
    Purchase of common
     stock by ESOP......         --             --          --             --   (1,430,618)           --             --
    Allocation of ESOP
     stock..............                     7,595                                 481,452
   Cash dividends paid..                              (545,041)
   Purchase of common
    stock by RRP........                                                                      (4,635,038)
   Earned portion of
    RRP.................                                                                         455,127
                            -------    -----------   -----------  -----------  -----------   -----------   ------------
BALANCE, December 31, 1998   66,065     63,374,087    30,458,523    1,726,918   (7,207,901)   (4,179,911)            --
   Net income...........                               3,142,686                                                          3,142,686
   Unrealized
    depreciation on
    securities
    available-for-sale,
    net.................                                           (8,558,807)                                           (8,558,807)
                                                                                                                        -----------
   Comprehensive income.                                                                                                $(5,416,121)
   Allocation of ESOP                                                                                                   ===========
    stock...............                  (155,746)                                692,866
   Cash dividends paid..         --             --    (1,171,538)          --           --            --
   Earned portion of
    RRP.................         --       (240,359)           --           --           --       917,304
   Purchase of treasury
    stock...............         --             --            --           --           --            --    (12,292,122)
                            -------    -----------   -----------  -----------  -----------   -----------   ------------
BALANCE, December 31, 1999   66,065     62,977,982    32,429,671   (6,831,889)  (6,515,035)   (3,262,607)   (12,292,122)
   Net income...........         --             --     4,410,253                        --            --                $ 4,410,253
   Unrealized
    appreciation on
    securities
    available-for-sale,
    net.................         --             --            --    4,323,389           --            --                  4,323,389
                                                                                                                        -----------
    Comprehensive income                        --            --           --           --            --                $ 8,733,642
                                       -----------                             -----------   -----------                ===========
   Allocation of ESOP
    stock...............         --         33,825            --           --      794,695           --
   Cash dividends paid..         --             --    (1,480,836)          --           --           --
   Earned portion of
    RRP.................         --         27,278            --           --           --      891,742
   Valuation adjustment
    related to net
    increase in deferred
    tax benefit.........                                 414,633
   Purchase of treasury
    stock...............         --             --            --           --           --           --      (3,406,520)
                            -------    -----------   -----------  -----------  -----------   -----------   ------------
BALANCE, DECEMBER 31, 2000  $66,065    $63,039,085   $35,773,721  $(2,508,500) $(5,720,340)  $(2,370,865)  $(15,698,642)
                            =======    ===========   ===========  ===========  ===========   ===========   ============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


                                      -60-

<PAGE>

<TABLE>
<CAPTION>
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                          2000           1999           1998
                                                          ----           ----           ----
<S>                                                   <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..........................................  $ 4,410,253    $ 3,142,686    $ 3,621,435
    Adjustments to reconcile net income to net cash
      provided by operating activities-
        Depreciation................................      851,891        668,012        491,756
        Accretion of discount on investment
          securities, net...........................   (2,291,465)    (1,533,934)      (627,131)
        Net increase in accrued interest
          receivable................................     (142,612)      (710,386)      (345,061)
        Net increase in mortgage servicing rights,
          BOLI and other assets.....................   (6,494,619)    (4,865,451)      (657,081)
        Provision for loan losses...................      900,000        499,800        500,000
        Net gain on sale of mortgage servicing
          rights....................................   (1,238,991)            --             --
        Net gain on sales of loans..................     (600,397)      (109,426)      (168,090)
        Net (gain)loss on sale of securities........      877,691       (523,563)    (1,108,931)
        Net increase (decrease) in accrued interest
          payable...................................     (122,387)       838,685      1,366,126
        Net increase (decrease) in accrued expenses
            and other liabilities...................    1,581,208       (566,409)    (5,677,688)
                                                      -----------    -----------    -----------
                 Net cash used in operating
                  activities........................   (2,269,428)    (3,159,986)    (2,604,665)
                                                      -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities....   13,650,000     23,999,619     24,888,132
    Purchases of securities.........................  (13,615,940)  (130,133,268)  (168,037,295)
    Proceeds from sales of securities
     available-for-sale.............................   34,913,186     41,680,350     90,520,153
    Principal repayments from mortgage-backed
     securities.....................................   11,523,699     20,722,448     25,468,015
    Purchases of Federal Home Loan Bank stock.......   (1,500,300)    (7,119,200)    (2,901,500)
    Net increase in loans...........................  (86,113,535)   (83,665,284)   (82,586,456)
    Purchases of banking premises and equipment,
     net............................................     (642,734)    (1,076,815)    (1,697,921)
                                                      -----------    -----------    -----------
                 Net cash used in investing
                  activities........................  (41,785,624)  (135,592,150)  (114,346,872)
                                                      -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits........................   65,058,246     36,185,999     33,372,925
    Net increase (decrease) in mortgage escrow
     funds..........................................      964,682       (477,505)       436,444
    Net increase (decrease) in borrowed funds.......  (33,405,000)   134,260,000     76,785,000
    Cash dividends paid on common stock.............   (1,480,836)    (1,171,538)      (545,041)
    Purchase of treasury stock......................   (3,406,520)   (12,292,122)            --
    Purchase of common stock by ESOP ...............           --             --      (1,430,618)
    ESOP allocation.................................      794,695        692,866        481,452
    Purchase of common stock by RRP.................           --             --     (4,635,038)
    Earned portion of RRP...........................      891,742        917,304        455,127
                                                      -----------    -----------    -----------
                 Net cash provided by financing
                  activities........................   29,417,009    158,115,004    104,920,251
                                                      -----------    -----------    -----------
                 Increase(decrease) in cash and
                  cash equivalents.................   (14,638,043)    19,362,868    (12,031,286)
    Cash and Cash Equivalents, beginning of year...    29,874,297     10,511,429     22,542,715
                                                      -----------    -----------    -----------
 Cash and Cash Equivalents, end of year.............  $15,236,254    $29,874,297    $10,511,429
                                                      ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for-
            Interest on deposits and borrowed
             funds..................................  $26,347,975    $17,788,653    $10,573,520
            Income taxes............................    1,802,750      1,826,375      2,803,896
</TABLE>


 The accompanying notes are an integral part of these consolidated statements.


                                      -61-


<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The following is a description of the significant accounting and
reporting policies followed by Warwick Community Bancorp, Inc. ("Parent
Company") and subsidiaries (together the "Company") which conform to generally
accepted accounting principles and reporting practices followed by the banking
industry. The more significant policies are described below.

         BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the accounts of the Parent Company, its savings bank
subsidiary, The Warwick Savings Bank ("Warwick Savings"), and its commercial
bank subsidiary, The Towne Center Bank ("Towne Center"). All significant
intercompany balances and transactions are eliminated in consolidation. Warwick
Savings completed its conversion from a mutual savings bank to a stock savings
bank on December 23, 1997. Concurrent with Warwick Savings' conversion, the
Parent Company completed its initial public offering of common stock and
purchased all of the outstanding common stock of Warwick Savings.

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported assets and liabilities as of
the date of the consolidated statements of financial condition. The same is true
of revenues and expenses reported for the period. Actual results could differ
from those estimates.

         CASH AND CASH EQUIVALENTS. The Company generally considers short-term
instruments, with original maturities of three months or less, measured from
their acquisition date, and highly liquid instruments readily convertible to
known amounts of cash to be cash equivalents. For purposes of reporting cash
flows, cash and cash equivalents include cash on hand, amounts due from banks
and federal funds sold. Generally, federal funds sold are sold for one-day
periods.

         SECURITIES. The Company classifies its securities as trading
securities, available-for-sale securities, or held-to-maturity securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities." Trading
securities are debt and equity securities that are bought principally for the
purpose of selling them in the near term, and securities classified as
held-to-maturity consist of debt securities which the Company has the positive
intent and ability to hold to maturity and are carried at amortized cost.
Securities considered neither trading nor held-to- maturity are classified as
available-for-sale securities and are carried at fair value with unrealized
gains and losses excluded from earnings and reported as a separate component of
stockholders' equity (net of related deferred taxes). Trading securities are
carried at fair value with unrealized gains and losses included in earnings.

         Federal Home Loan Bank stock is considered restricted stock under SFAS
No. 115 and, accordingly, is carried at cost.

         LOANS. Loans are stated at the principal amount outstanding, net of
unearned income. Loans are placed on non-accrual status when management has
determined that the borrower will be unable to meet contractual principal or
interest obligations or when unsecured interest or principal payments are 90
days past due. When a loan is classified as non-accrual, the recognition of
interest income ceases. Interest previously accrued and remaining unpaid is
reversed against income. Cash payments received are applied to principal and
interest income is not recognized unless management determines that the
financial condition and payment record of the borrower warrant the recognition
of income.

         ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a
significant estimate based upon management's periodic evaluation of the loan
portfolio under current economic conditions, considering factors such as the
Company's past loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, and the
estimated value of the underlying collateral.

                                      -62-


<PAGE>



Establishing the allowance for loan losses involves significant management
judgment, utilizing the best available information at the time of review. Those
judgments are subject to further review by various sources, including Warwick
Savings' and Towne Center's regulators. While management estimates loan losses
using the best available information, future adjustments to the allowance may be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, the identification
of additional problem loans, and other factors.

         SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
defines an impaired loan as a loan for which it is probable, based on current
information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement. The Company applies the impairment
criteria to all loans, except for large groups of smaller balance homogenous
loans that are collectively evaluated for impairment, such as residential
mortgage and consumer installment loans. At December 31, 2000 and 1999, in
addition to the non-accrual loans discussed in Notes 4 and 5, there were
$601,000 and $359,109, respectively, of loans identified by the Company as
impaired, as defined under SFAS No. 114, with no specific reserves for losses.

         MORTGAGE LOANS HELD-FOR-SALE. Mortgage loans originated and intended
for sale in the secondary market are carried at the lower of cost or estimated
fair value in the aggregate, with net unrealized losses (if any) reported in
earnings. Realized gains and losses on sales of loans are based on the cost of
the specific loans sold.

         LOAN ORIGINATION FEES AND RELATED COSTS. Loan fees and certain direct
loan origination costs are deferred, and the net fee or cost is recognized in
income using the level-yield method over the contractual life of the loans.
Unamortized fees and costs on loans sold or prepaid prior to contractual
maturity are recognized as an adjustment to income in the year such loans are
sold or prepaid.

         MORTGAGE SERVICING RIGHTS. The cost of mortgage servicing rights
(purchased or originated rights with related loans sold) is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. For purposes of measuring impairment, the servicing rights are
stratified based on the following predominant risk characteristics of the
underlying loans: (a) loan type and (b) origination or securitization date.

         BANK PREMISES AND EQUIPMENT. Bank premises and equipment are carried at
cost less accumulated depreciation and amortization. Depreciation is computed on
the straight-line method over the estimated useful lives of the related assets.
Equipment under capital leases is amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. Repairs and
maintenance, as well as renewals and replacements of a routine nature, are
expensed while costs incurred to improve or extend the life of existing assets
are capitalized.

         OTHER REAL ESTATE OWNED. Other real estate owned ("OREO") represents
properties acquired through legal foreclosure. Prior to transferring a real
estate loan to OREO, the loan is written down to the lower of the recorded
investment in the loan or the fair value of the property and charged to the
allowance for loan losses. Thereafter, the property is carried at the lower of
cost or fair value less costs to sell, with any adjustments recorded as a charge
to operations.

         INTEREST INCOME. Interest income includes interest income on loans and
investment securities and dividend income received on investment securities. The
operations of the Company are substantially dependent on its net interest
income, which is the difference between the interest income earned on its
interest-earning assets and the interest expense paid on its interest-bearing
liabilities. Like most savings institutions, the Company's earnings are affected
by changes in market interest rates and the economic factors beyond its control.
Decreases in the Company's average interest rate spread could adversely affect
the Company's net interest income.

         INCOME TAXES. Deferred tax assets and liabilities are recognized for
the future tax effects attributable to "temporary differences" (differences
between the financial statement carrying amounts of existing assets

                                      -63-


<PAGE>



and liabilities and their respective tax bases) and tax loss and tax credit
carry forwards. Deferred tax assets are reduced by a valuation allowance if,
based on an analysis of available evidence, management determines that it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax laws or rates is
recognized in income in the period that includes the enactment date of the
change.

         EMPLOYEE BENEFIT COSTS. The Company maintains a noncontributory
retirement pension plan covering substantially all employees as well as a
benefit restoration plan covering certain executives. The costs of these plans,
based on actuarial computations of current and future benefits for employees,
are charged to current operating expenses. The Company also provides certain
postretirement medical and life insurance benefits to substantially all
employees and retirees, as well as dental benefits to a closed group of
retirees. The cost of postretirement benefits other than pensions is recognized
on an accrual basis as employees perform services to earn benefits.

         TREASURY STOCK. Repurchases of common stock are recorded as treasury
stock at cost.

         BANK OWNED LIFE INSURANCE (BOLI). In January 2000, Warwick Savings
invested in BOLI policies to fund employee benefit costs. Warwick Savings'
investment totaled approximately $10 million and Warwick Savings is the
beneficiary of these policies. The cash surrender value of the BOLI policies is
recorded on the Company's balance sheet as other assets and the change in the
cash surrender value is recorded as other income.

         EMPLOYEE STOCK OWNERSHIP PLAN. The Company follows American Institute
for Certified Public Accountants ("AICPA") Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"), to
account for the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
("ESOP"). SOP 93-6 requires that compensation expense be recognized for shares
committed to be released to directly compensate employees equal to the fair
value of the shares committed.
In addition, SOP 93-6 requires that leveraged ESOP debt and related interest
expense be reflected in the employer's financial statements. The application of
SOP 93-6 will result in fluctuations in compensation expense as a result of
changes in the fair value of the Company's common stock; however, any such
compensation expense fluctuations will result in an offsetting adjustment to
paid-in capital. Therefore, total capital will not be affected.

         STOCK OPTIONS. The Company follows SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 applies to all transactions in which an
entity acquires goods or services by issuing equity instruments or by incurring
liabilities where the payment amounts are based on the entity's common stock
price, except for employee stock ownership plans. SFAS No. 123 established a
fair value-based method of accounting for stock-based compensation arrangements
with employees, rather than the intrinsic value-based method that is contained
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). SFAS No. 123 does not require an entity to adopt the
new fair value-based method for purposes of preparing its basic financial
statements; an entity is allowed to continue to use the APB No. 25 method for
preparing its basic financial statements. The Company has chosen to continue to
use the APB No. 25 method; however, SFAS No. 123 requires presentation of pro
forma net income and earnings per share information, in the notes to the
financial statements, as if the fair value-based method had been adopted.

         RECOGNITION AND RETENTION PLAN. The Company's Recognition and Retention
Plan ("RRP") is also accounted for in accordance with APB Opinion No. 25. The
fair value of the shares awarded, measured at the grant date, is recognized as
unearned compensation (a component of stockholders' equity) and allocated to
compensation expense as the shares become vested.


                                      -64-


<PAGE>



         EARNINGS PER SHARE. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding for the
period, adjusted for the unallocated portion of the shares held by the ESOP and
unearned shares held by the RRP. Diluted earnings per share, which reflects the
potential dilution that could occur if outstanding stock options were exercised
and resulted in the issuance of common stock that then shared in the earnings of
the Company, is computed by dividing net income by the weighted average number
of common shares and dilutive instruments.

         COMPREHENSIVE INCOME. Comprehensive income includes net income and all
other changes in equity during a period except those resulting from investment
by owners and distributions to owners. Other comprehensive income includes
revenues, expenses, gains, and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net income.
Comprehensive income and accumulated other comprehensive income are reported net
of related income taxes. Accumulated other comprehensive income for the Company
consists solely of unrealized holding gains or losses on available-for-sale
securities.

         NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial condition and
measure those instruments at fair value. The accounting for changes in fair
value of a derivative (that is, unrealized gains and losses) depends on the
intended use of the derivative and the resulting designation. SFAS No 133, as
later amended by SFAS Nos. 137 and 138, is effective for the Company on January
1, 2001. The Company has determined that the implementation of SFAS No. 133 will
not have a material impact on its financial condition or results of operations.

         In September 2000, the FASB approved Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. SFAS No. 140 replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions. SFAS No. 140
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. This Statement will not have a material
impact on the Company's financial statements.

         RECLASSIFICATIONS. Certain reclassifications have been made to the
prior year's financial statements to conform to current year's presentation.

(2)      SHAREHOLDER RIGHTS PLAN

         On October 17, 2000, the Board of Directors of the Company adopted a
Shareholder Rights Plan and declared a dividend of one preferred share purchase
right ("Right") for each outstanding share of the Company's common stock. The
dividend of the Rights was paid on November 1, 2000 to shareholders of record on
that date.

         Each Right, if made exercisable by certain events, entitles the holder
to acquire one one-hundredth of a share of a new series preferred stock for $50.
The Rights expire in 2010 if they are not redeemed before then. The Shareholder
Rights Plan protects shareholders from possible, unsolicited attempts to acquire
the Company. In the event of the acquisition by any potential acquirer of 10
percent of the outstanding stock, the Rights then entitle the holder to
purchase, at the then-current exercise price, a number of shares of common stock
of the Company having a market value equal to twice the exercise price of the
Right. Additionally, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at the
then-current exercise price, a number of shares of common stock of the acquiring
company having a market value at that time equal to twice the exercise price of
the Right.

                                      -65-


<PAGE>

(3)      SECURITIES

         A summary of securities at December 31, 2000 and 1999 follows:



<TABLE>
<CAPTION>
                                                                      DECEMBER 31, 2000
                                                                      -----------------
                                            AMORTIZED             GROSS               GROSS             ESTIMATED
                                               COST         UNREALIZED GAINS    UNREALIZED LOSSES      FAIR VALUE
                                               ----         ----------------    -----------------      ----------
<S>                                       <C>               <C>                 <C>                   <C>
Securities available-for-sale:
  Debt securities-
    U.S. Government and agency
      obligations...................      $ 51,496,651        $    3,900          $ (3,048,053)       $ 48,452,498
    Obligations of state and
      political subdivisions........         4,965,797                --              (115,797)          4,850,000
    Industrial and financial........        14,158,295             1,875            (1,456,925)         12,703,245
    Collateralized mortgage
      obligations...................        13,625,219                --              (141,705)         13,483,514
    Mortgage-backed securities......        59,575,476           398,860              (385,590)         59,588,746
                                          ------------        ----------          ------------        ------------
        Total debt securities.......       143,821,438           404,635            (5,148,070)        139,078,003
  Common stock......................           192,438                --                (1,202)            191,236
  Preferred stock...................         1,101,654                --              (145,654)            956,000
  Mutual fund shares................         4,885,653           706,687                    --           5,592,340
                                          ------------        ----------          -------------       ------------
        Total securities available-
          for-sale..................      $150,001,183        $1,111,322          $  (5,294,926)      $145,817,579
                                          ------------        ----------          -------------       ------------
 Securities held-to-maturity:
   U.S. Government and agency
     obligations....................         2,400,572            17,420                 (1,062)         2,416,930
   Obligations of state and
     political subdivisions.........         1,294,817            4,124                    (490)         1,298,451
                                          ------------        ----------          -------------       ------------
        Total securities held-to
          maturity..................         3,695,389           21,544                  (1,552)         3,715,381
                                          ------------        ----------          -------------       ------------
        Total securities............      $153,696,572        $1,132,866          $  (5,296,478)      $149,532,960
                                          ============        ==========          =============       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                      DECEMBER 31, 1999
                                                                      -----------------
                                            AMORTIZED             GROSS               GROSS             ESTIMATED
                                               COST         UNREALIZED GAINS    UNREALIZED LOSSES      FAIR VALUE
                                               ----         ----------------    -----------------      ----------
<S>                                       <C>               <C>                 <C>                   <C>
Securities available-for-sale:
  Debt securities-
    U.S. Government and agency
      obligations...................      $ 59,344,411        $   37,025          $  (5,104,545)      $ 54,276,891
    Obligations of state and
      political subdivisions........         4,963,279                --               (213,279)         4,750,000
    Industrial and financial........        14,180,416             2,348             (1,286,986)        12,895,778
    Collateralized mortgage
      obligations...................        16,466,112                --               (857,734)        15,608,378
    Mortgage-backed securities......        93,568,297            72 215             (4,065,250)        89,575,262
                                          ------------        ----------          -------------       ------------
        Total debt securities.......       188,522,515           111,588            (11,527,794)       177,106,309
  Common stock......................         2,851,447                --               (684,011)         2,167,436
  Preferred stock...................         1,111,654                --               (160,904)           950,750
  Mutual fund shares................         3,972,934           874,639                     --          4,847,573
                                          ------------        ----------          -------------       ------------
        Total securities available-
          for-sale..................       196,458,550           986,227            (12,372,709)       185,072,068
                                          ------------        ----------          -------------       ------------
 Securities held-to-maturity:
   U.S. Government and agency
     obligations....................         1,344,652                --                 (7,096)         1,337,556
   Obligations of state and
     political subdivisions.........            72,969                --                   (305)            72,664
                                          ------------        ----------          -------------       ------------
        Total securities held-to
          maturity..................         1,417,621                --                (7,401)          1,410,220
                                          ------------        ----------          -------------       ------------
        Total securities............      $197,876,171        $  986,227          $ (12,380,110)      $186,482,288
                                          ============        ==========          =============       ============
</TABLE>


                                      -66-

<PAGE>

         A summary of the carrying value of debt securities at December 31, 2000
by contractual maturity is shown below. Actual maturities may differ from
contractual maturities because certain security issuers may have the right to
call or prepay their obligations.


<TABLE>
<CAPTION>
                                                     AFTER ONE        AFTER FIVE
                                    ONE YEAR          THROUGH           THROUGH          AFTER TEN
                                    OR LESS          FIVE YEARS        TEN YEARS           YEARS             TOTAL
                                    -------          ----------        ---------           -----             -----
<S>                                <C>               <C>              <C>               <C>               <C>
 Securities available-for-sale-
    U.S. Government and
        agency obligations.....    $       --        $1,002,200       $1,001,700        $ 46,448,598      $ 48,452,498
   Obligations of state and
         political
         subdivisions..........            --                --               --           4,850,000         4,850,000
    Industrial and financial...            --                --          751,875          11,951,370        12,703,245
    Collateralized mortgage
        obligations............            --                --               --          13,483,514        13,483,514
    Mortgage-backed
        securities.............           255            25,663        2,408,231          57,154,597        59,588,746
                                   ----------        ----------       ----------        ------------      ------------
        Total securities
          available-for-sale...    $      255        $1,027,863       $4,161,806        $133,888,079      $139,078,003
                                   ==========        ==========       ==========        ============      ============
Securities held-to-maturity-
    U.S. Government and
        agency obligations.....    $1,000,528        $1,400,044       $       --        $         --      $  2,400,572
    Obligations of state and
        political
        subdivisions...........       968,894                --               --             325,923      $  1,294,817
                                   ----------        ----------       ----------        ------------      ------------
        Total securities held-
          to-maturity..........    $1,969,422        $1,400,044       $       --        $    325,923      $  3,695,389
                                   ==========        ==========       ==========        ============      ============
        Total debt securities..    $1,969,677        $2,427,907       $4,161,806        $134,214,002      $142,773,392
                                   ==========        ==========       ==========        ============      ============
</TABLE>


         Proceeds from sales of securities (trading and available-for-sale) are
summarized as follows:


<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                               ------------------------
                                      2000                1999               1998
                                      ----                ----               ----
<S>                               <C>                  <C>                 <C>
Proceeds from sales.............. $34,913,186          $41,680,350         $90,520,153
                                  ===========          ===========         ===========
Gross gains on sales............. $   550,621          $ 1,044,267         $ 1,338,245
                                  ===========          ===========         ===========
Gross losses on sales............ $ 1,428,312          $   520,704         $   229,314
                                  ===========          ===========         ===========
</TABLE>

         No securities held-to-maturity were sold during the three years ended
December 31, 2000. Pledged securities as of December 31, 2000 were $106,789,000.

(4)      MORTGAGE LOANS

         A summary of mortgage loans at December 31, 2000 and December 31, 1999
follows:


<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   ------------
                                                             2000                 1999
                                                             ----                 ----
<S>                                                      <C>                   <C>
Conventional 1-4 family residential loans
  originated........................................     $296,928,247          $237,993,164
Conventional 1-4 family residential loans
  purchased.........................................               --             1,528,995
Loans partially guaranteed by VA or insured by FHA..           266,023              213,060
Home equity loans...................................        25,593,947           22,316,567
Construction loans..................................        15,522,079           18,221,793
                                                         -------------         ------------
                                                           338,310,296          280,273,579
Undisbursed portion of construction loans...........        (5,398,270)          (8,399,122)
Net deferred loan fees..............................          (776,416)            (807,658)
Allowance for loan losses                                     (616,907)            (378,730)
                                                         -------------         ------------
                                                          $331,518,703         $270,688,069
                                                         =============         ============
</TABLE>

         Mortgage loans on non-accrual status at December 31, 2000 and 1999 were
approximately $416,000 and $693,000, respectively. Interest income that would
have been recorded if the loans had been performing


                                      -67-

<PAGE>

in accordance with their original terms aggregated approximately $80,000 and
$72,000 during the years ended December 31, 2000 and 1999, respectively.

(5)      OTHER LOANS

         A summary of other loans at December 31, 2000 and 1999 follows:


                                                         DECEMBER 31,
                                                         ------------
                                             2000                       1999
                                             ----                       ----
Commercial..........................     $69,993,323                $45,553,015
Automobile..........................      27,674,787                 26,993,795
Student.............................         158,578                    195,014
Credit card.........................         965,354                  1,195,944
Other consumer loans................       1,580,461                  1,747,027
                                         -----------                -----------
                                         100,372,503                 75,684,795
Net deferred loan costs.............         458,692                    347,691
Allowance for loan losses...........      (2,105,367)                (1,562,427)
                                         -----------                -----------
                                          98,725,828                 74,470,059
                                         ===========                ===========


         Commercial loans on non-accrual status at December 31, 2000 and 1999
were approximately $424,000 and $418,000, respectively. Consumer loans in
arrears three months or more were approximately $117,000 and $103,000 at
December 31, 2000 and 1999, respectively. Interest income that would have been
recorded if the loans had been performing in accordance with their original
terms was $19,000 and $65,000 during the years ended December 31, 2000 and 1999.

         Certain directors and executive officers of the Company were customers
of and had other transactions with the Company in the ordinary course of
business. Loans to these parties were made under normal credit terms, including
interest rate and collateralization. The aggregate of these loans was less than
1% of total stockholders' equity at December 31, 2000 and 1999.

(6)      ALLOWANCE FOR LOAN LOSSES

         The activity in the allowance for loan losses is as follows:


<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      ------------------------
                                             20000              1999               1998
                                             -----              ----               ----
<S>                                       <C>                <C>                <C>
Balance at beginning of period........    $1,941,157         $1,727,052         $1,371,963
Provision for loan losses.............       900,000            499,800            500,000
Charge-offs...........................      (156,190)          (372,151)          (175,372)
Recoveries............................        37,307             86,456             30,461
                                          ----------         ----------         ----------
Balance at end of period..............    $2,722,274         $1,941,157         $1,727,052
                                          ==========         ==========         ==========
</TABLE>


(7)      MORTGAGE SERVICING RIGHTS

         Mortgage servicing rights as of December 31, 2000 and 1999 consist of
the following:


<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                      2000                    1999
                                                      ----                    ----
<S>                                               <C>                     <C>
Mortgage Servicing Rights..................       $ 2,067,692             $ 2,189,955
Less-Mortgage servicing rights sold........        (1,955,816)                     --
Less-Accumulated amortization..............          (111,876)               (170,965)
                                                  -----------             -----------
                                                  $        --             $ 2,018,990
                                                  -----------             -----------
</TABLE>


                                      -68-


<PAGE>



         Warwick Savings capitalized originated mortgage servicing rights of
$48,702 and $726,452 for the years ended December 31, 2000 and 1999,
respectively. In September 2000, Warwick Savings made a strategic decision to
exit the mortgage loan servicing business by contracting to sell all of its
rights to service mortgage loans held for other investors and by transferring
the servicing of its own mortgage portfolio loans to an outside vendor. The gain
realized from this sale was $1,238,991.

(8)      BANK PREMISES AND EQUIPMENT

         A summary of bank premises and equipment at December 31, 2000 and 1999
follows:


<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                     2000                       1999
                                                     ----                       ----
<S>                                              <C>                        <C>
Land.....................................        $ 2,019,952                $ 2,017,296
Buildings and improvements...............          5,512,445                  5,194,862
Equipment................................          3,631,886                  4,270,043
Furniture and fixtures...................            903,386                    998,578
                                                  ----------                 ----------
                                                  12,067,669                 12,480,779
Less-Accumulated depreciation............         (4,447,402)                (4,691,758)
                                                 -----------                -----------
                                                 $ 7,620,267                $ 7,789,021
                                                 ===========                ===========
</TABLE>


(9)      DEPOSITOR ACCOUNTS

         Deposit account balances and stated interest rates at December 31, 2000
and 1999 are summarized as follows:


<TABLE>
<CAPTION>
                                            DECEMBER 31, 2000          DECEMBER 31, 1999
                                            -----------------          -----------------
                                          STATED        ACCOUNT       STATED      ACCOUNT
                                           RATES       BALANCES       RATES       BALANCES
                                           -----       --------       -----       --------
<S>                                     <C>          <C>            <C>         <C>
Demand checking accounts...............        --%   $ 38,877,265          --%  $ 39,722,555
Negotiable order of withdrawal accounts
     (NOW)............................. 1.00-5.51      31,438,621   1.00-2.00     24,975,864
Savings accounts....................... 1.70-5.53      91,768,056   2.00-3.25     84,671,559
Money market accounts.................. 1.75-6.32      63,155,889   1.75-5.22     44,478,964
Time certificates...................... 4.60-6.80     102,925,796   4.18-6.25     89,223,439
Brokered certificates of deposit.......      7.50      19,965,000                         --
                                                     ------------               ------------
Total deposits.........................              $348,130,627               $283,072,381
                                                     ============               ============
</TABLE>


         Time certificate balances at December 31, 2000 and 1999 are summarized
by remaining period to contractual maturity as follows:


<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                    ------------
                                                             2000                 1999
                                                             ----                 ----
<S>                                                      <C>                  <C>
Under one year......................................     $ 87,525,830         $ 74,926,774
One year to under three years.......................       15,088,399           12,734,402
Three years and over................................       20,276,567            1,562,263
                                                         ------------         ------------
                                                         122,890,796            89,223,439
                                                         ============         ============
</TABLE>

         The aggregate amount of time certificates in denominations of $100,000
or more was approximately $20,524,500 and $11,546,000 at December 31, 2000 and
1999, respectively.


                                      -69-


<PAGE>



(10)     INCOME TAXES

         Provision for income taxes is comprised of the following:


<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                     ------------------------
                                           2000                1999                1998
                                           ----                ----                ----
<S>                                   <C>                 <C>                 <C>
Current:
     Federal.......................   $  2,056,108        $  1,643,306        $  1,942,208
     State.........................        311,190             429,423             781,612
                                      ------------        ------------        ------------
                                         2,367,298           2,072,729           2,723,820
                                      ------------        ------------        ------------
Deferred:
     Federal.......................       (190,922)             (9,721)             87,431
     State.........................        (19,801)              3,001            (281,381)
                                      ------------        ------------        ------------
                                          (210,723)             (6,720)           (193,950)
                                      ------------        ------------        ------------
                                      $  2,156,575        $  2,066,009        $  2,529,870
                                      ============        ============        ============
</TABLE>

         The tax effects of temporary differences that give rise to Warwick
Savings' deferred tax assets and deferred tax liabilities, on a combined basis,
for federal and state tax purposes at December 31, 2000 and 1999, are as
follows:


<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                      ------------
                                                                2000               1999
                                                                ----               ----
                                                                     (000'S OMITTED)
<S>                                                            <C>               <C>
Deferred tax assets:
                Charitable contribution benefit..........      $  381            $  228
                Allowance for loan losses................       1,084               796
                State net operating loss.................          98                36
                Accrued post-retirement benefits.........         774               727
                Net unrealized loss on securities
                  available-for-sale.....................       1,673             4,671
                Other deductible temporary differences...         251               290
                                                               ------            ------
                      Total gross deferred tax assets....       4,261             6,748
                                                               ------            ------
 Deferred tax liabilities:
                Bad debt reserves for income tax
purposes in excess of the
                     base-year reserves..................         178                82
                Other taxable temporary differences               205                89
                                                               ------            ------
                      Total gross deferred tax
                        liabilities......................         383               171
                                                               ------            ------
                      Deferred tax asset valuation
                        reserve..........................          98                36
                                                               ------            ------
                      Net deferred tax asset (included in
                        other assets) after valuation
                        reserve...........................     $3,780            $6,541
                                                               ======            ======
</TABLE>


         The provision for income taxes differs from that computed at the
federal statutory rate as follows:


<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                       2000             1999             1998
                                                       ----             ----             ----
<S>                                                <C>               <C>              <C>
Tax at federal statutory rate...................   $2,232,721        $1,770,956       $2,091,444
State taxes, net of federal income tax benefit..      192,317           285,400          330,152
Other...........................................     (268,463)            9,653          108,274
                                                   ----------        ----------       ----------
                  Total income tax expense......   $2,156,575        $2,066,009       $2,529,870
                                                   ==========        ==========       ==========
Effective rate..................................        32.84%            39.66%           41.13%
</TABLE>


         As a thrift institution, Warwick Savings is subject to special
provisions in the federal and New York State tax laws regarding its allowable
tax bad debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss experience or a
percentage of

                                      -70-


<PAGE>



taxable income. Tax bad debt reserves are maintained for qualifying real
property loans and for non- qualifying loans in amounts equal to the excess of
allowable deductions over actual bad debt losses and other reserve reductions. A
supplemental reserve is also maintained. The qualifying and non-qualifying loan
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109, "Accounting for Income
Taxes," requires recognition of deferred tax liabilities with respect to such
excess reserves, as well as any portion of the base-year amount or the
supplemental reserve which is expected to become taxable (or "recaptured") in
the foreseeable future.

         Certain amendments to the federal tax bad debt provisions were enacted
in July 1996. The federal amendments include elimination of the
percentage-of-taxable-income method for tax years beginning after December 31,
1995 and imposition of a requirement to recapture into taxable income (over a
six-year period) the qualifying and non-qualifying loan reserves in excess of
the base-year amounts. However, such recapture requirements were suspended for
each of the two successive taxable years beginning January 1, 1996 in which
Warwick Savings originates a minimum amount of certain residential loans during
such years that is not less than the average of the principal amounts of such
loans made by Warwick Savings during its six taxable years preceding January 1,
1996. Warwick Savings previously established, and will continue to maintain, a
deferred tax liability with respect to such excess federal reserves.

         In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the base-year and supplemental reserves, since
Warwick Savings does not expect that these amounts will become taxable in the
foreseeable future. Under the tax laws as amended, events that would result in
taxation of these reserves include: (i) reductions in the reserves for purposes
other than tax bad debt losses, (ii) failure of Warwick Savings to maintain a
specified qualifying-assets ratio or meet other thrift definition tests for New
York State tax purposes and (iii) certain stock redemptions, partial or complete
liquidation or distribution in excess of post-1951 earnings and profits. The
reserve balance of $4,713,000 at December 31, 1987 has not been subject to
deferred taxes.

(11)     BENEFIT PLANS

         PENSION PLAN. All eligible employees of the Company are included in a
noncontributory defined benefit pension plan ("Pension Plan") administered by
Actuarial Pension Analysts, Inc. Under the terms of the Pension Plan,
participants vest 100% upon completion of five years of service as defined in
the plan document. Warwick Savings' policy is to fund the consulting actuary's
recommended contribution. Assets of the Pension Plan are invested in various
debt and equity securities.

         The following table sets forth the Pension Plan's change in benefit
obligation:


<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                         ------------
                                                                  2000                  1999
                                                                  ----                  ----
<S>                                                            <C>                  <C>
Benefit obligation at beginning of period.................     $5,417,962           $5,620,387
Service cost..............................................        347,379              387,796
Interest cost.............................................        411,688              360,132
Increase/(decrease) due to change in assumptions..........        710,031             (802,859)
Benefits paid.............................................       (144,550)            (147,494)
                                                               ----------           ----------
Benefit obligation at end of period.......................     $6,742,510           $5,417,962
                                                               ==========           ==========
</TABLE>


                                      -71-

<PAGE>



         The following table sets forth the Pension Plan's change in plan
assets:


<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                          ------------
                                                                   2000                  1999
                                                                   ----                  ----
<S>                                                            <C>                   <C>
Fair value of plan assets at beginning of period..........     $7,082,981            $5,487,147
Actual return on plan assets..............................      1,469,594             1,640,672
Benefits paid.............................................       (168,980)             (147,494)
Actual contributions......................................             --               102,656
                                                               ----------            ----------
Fair value of plan assets at end of period................     $8,383,595            $7,082,981
                                                               ==========            ==========

Funded status.............................................     $1,641,086            $  862,160
Unrecognized prior service cost...........................        (23,691)              (30,225)
Unrecognized actuarial (gain) loss........................     (1,839,618)             (935,582)
                                                               ----------            ----------
Prepaid/(accrued) cost....................................     $ (222,223)           $ (103,647)
                                                               ==========            ==========
</TABLE>


<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                            -------------------------------------------------------
                                                   2000              1999              1998
                                                   ----              ----              ----
<S>                                             <C>               <C>                <C>
Net pension cost includes the following
components:
           Service costs-- benefits earned
             during the
               period......................     $347,379          $387,796           $356,616
           Interest cost on projected
               benefit obligation..........      411,688           360,132            319,892
           Actual return on assets.........     (560,375)         (432,580)          (430,886)
           Amortization of unrecognized
             (gain)........................      (73,582)               --                 --
           Amortization of transition
             assets........................           --                --            (12,743)
           Amortization of prior service
             cost..........................       (6,534)           (6,534)           (6,534)
                                                --------          --------           -------
               Net pension cost............      118,576           308,814           226,345
                                                ========          ========           =======

Major assumptions utilized as follows:
           Discount rate...................         7.00%             6.50%             6.50%
           Rate of increase in
             compensation levels...........         5.50              5.50              5.50
           Expected long-term rate of
             return on plan assets.........         8.00              8.00              8.00
</TABLE>


         POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. Warwick Savings also
provides postretirement health care (medical and dental) benefits and life
insurance benefits to certain retirees if they meet certain age and length of
service requirements prior to retirement. For retirees who retired after April
24, 1996, the continuation of such benefits is conditioned upon the retiree
contributing a portion of the cost of such benefits. For retirees who have
retired before April 25, 1996, such benefits are not conditioned upon retiree
contributions.


                                      -72-

<PAGE>

         At December 31, 2000 and 1999, the actuarial and accrued liabilities
for postretirement health care and life insurance benefits were as follows:


<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                           ------------
                                                                     2000               1999
                                                                     ----               ----
<S>                                                              <C>                <C>
Accumulated Postretirement Benefit Obligation (APBO):
APBO at beginning of period..................................    $1,402,359         $1,486,197
               Service cost..................................       116,373             88,845
               Interest cost.................................       123,293            104,546
               Actuarial loss/(gain).........................       228,207           (275,935)
               Benefits paid.................................       (32,366)            (1,294)
                                                                 ----------         ----------
               APBO at end of period.........................    $1,837,866         $1,402,359
                                                                 ==========         ==========

Funded status:
               Funded status.................................    $1,837,866         $1,402,359
               Unrecognized net actuarial loss...............       114,790            370,512
               Accrued postretirement benefit cost...........    $1,952,656         $1,772,871
                                                                 ==========         ==========
               Effect of 1% increase in health care cost
               trend rate--accumulated postretirement
               benefit obligation............................       275,059            223,546
                                                                 ==========         ==========
               Effect of 1% decrease in health care cost
               trend rate--accumulated postretirement
               benefit obligation............................       211,514            170,223
                                                                 ==========         ==========
</TABLE>

         Net periodic postretirement benefit cost is included in the following
components:


<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                  ------------------------
                                                            2000            1999               1998
                                                            ----            ----               ----
<S>                                                       <C>             <C>              <C>
Service cost-- benefits attributed to service during
period...............................................     $116,373        $ 88,845         $ 63,209
Interest cost on APBO................................      123,293         104,546           91,391
Amortization of prior service cost...................           --              --          (35,240)
Amortization of (gains) losses.......................      (11,984)        (11,952)           4,904
                                                          --------        --------         --------
Net periodic postretirement benefit cost.............     $227,682        $181,439         $124,264
                                                          ========        ========         ========
</TABLE>


         The accumulated postretirement benefit obligation was determined using
the projected unit cost method, as required by SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pension," and a discount rate
of 7.26% in 2000 and 7.71% in 1999. The assumed rate of increase in future
health care costs was 8.00% in 2000 and 8.50% in 1999, gradually decreasing to
5.0% in the year 2006 and remaining at that level thereafter.

         401(K) PLAN. The Company has a 401(k) plan (the "401(k) Plan") covering
full-time employees who satisfy the eligibility requirements and elect to
participate in the 401(k) Plan. The 401(k) Plan provides for employer matching
contributions subject to a specified maximum. Amounts charged to operations for
the years ended December 31, 2000, 1999 and 1998 were $116,689, $105,411 and
$80,648, respectively.

         BENEFIT RESTORATION PLAN. Warwick Savings adopted the Benefit
Restoration Plan of The Warwick Savings Bank ("BRP") to provide certain
designated employees with the benefits that would be due to such employees under
the Pension Plan, the 401(k) Plan and the ESOP if such benefits were not limited
under the Internal Revenue Code. Expense related to the BRP included in the
consolidated statements of income is $107,303, $168,255 and $168,601 for the
years ended December 31, 2000, 1999 and 1998, respectively.


                                      -73-


<PAGE>



         EMPLOYEE STOCK OWNERSHIP PLAN. The Company has established an ESOP for
eligible employees. Generally, full-time employees of the Company or Warwick
Savings who have been credited with at least 1,000 hours during a twelve-month
period are eligible to participate.

         The ESOP borrowed $8,509,774 at an interest rate of 8.00% from the
Company and used the funds to purchase 528,523 shares of the Company's common
stock in connection with Warwick Savings' conversion to stock form. Generally,
the loan is repaid principally from Warwick Savings' discretionary contributions
to the ESOP over a 10-year period. At December 31, 2000 and 1999 the loan had an
outstanding balance of $5,619,940 and $6,445,135, respectively. Shares purchased
with the loan proceeds are held in a suspense account for allocation among
participants as the loan is paid. Contributions to the ESOP and shares released
from the loan collateral in an amount proportional to the repayment of the ESOP
loan are allocated among participants on the basis of compensation, as described
in the plan, in the year of allocation. Benefits generally become 100% vested
after seven years of vesting service and are immediately vested on death,
retirement or disability. In addition, in the event of a change in control, as
defined in the plan, any unvested portion of benefits shall vest immediately.
Forfeitures are used to reduce employer contributions. Benefits are payable upon
death, retirement, disability, or separation from service based on vesting
status and share allocations made.

         As of December 31, 2000 and 1999, 51,195 and 52,852 shares,
respectively, were allocated to participants and none were committed to be
released. As shares are released from collateral, the shares become outstanding
for earnings per share computations. As of December 31, 2000, the fair market
value of the 348,825 unearned shares in the ESOP was $4,621,931.

         RECOGNITION AND RETENTION PLAN. The Company maintains the RRP. The RRP
acquired an aggregate of 264,261 shares of the Company's common stock in open
market purchases, which have been awarded to eligible directors, directors
emeritus, officers and employees of the Company. Such awards represent deferred
compensation and have been accounted for as a reduction of stockholders' equity.
Awards generally vest at a rate of 20% per year, commencing one year from the
date of award. Awards become 100% vested upon termination of service due to
death or disability, or retirement or upon a change of control of the Company.

         The Company recorded expense for the ESOP and RRP of $1,228,753,
$1,179,232 and $807,636, respectively, for the years ended December 31, 2000,
1999 and 1998, which is included in salary and employee benefits in the
consolidated statements of income.

         STOCK OPTION PLAN. The Company maintains the Stock Option Plan and
under the Stock Option Plan, stock options (which generally expire ten years
from the date of grant) have been granted to eligible employees, directors and
officers of the Company and Warwick Savings. Each option entitles the holder to
purchase one share of the Company's common stock at an exercise price equal to
the fair market value of the stock at the date of grant. Options generally
become exercisable at a rate of 20% per year, commencing one year from the date
of grant. However, all options become 100% exercisable upon termination of
service due to death, disability or retirement or upon a change of control of
the Company.

                                      -74-


<PAGE>



         The following table presents options granted, exercised or expired:


<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                                 ------------------------
                                               2000                         1999                        1998
                                               ----                         ----                        ----
                                                  OPTION PRICE                 OPTION PRICE               OPTION PRICE
                                      SHARES       PER SHARE        SHARES       PER SHARE      SHARES      PER SHARE
                                      ------       ---------        ------       ---------      ------      ---------
<S>                                  <C>          <C>               <C>        <C>              <C>       <C>
Balance, beginning of year.........  561,552       $       17.00    561,552     $    17.00         --             --
Options granted....................   62,664               10.13         --             --      561,552       $ 17.00
Options exercised..................       --                  --         --             --           --            --
Options expired or terminated......    1,000               17.00         --             --           --            --
                                     -------       -------------   --------     ----------      -------       -------
Balance, at end of year............  623,216       $10.13-$17.00    561,552     $    17.00      561,552       $ 17.00
                                     -------       -------------   --------     ----------      -------       -------
</TABLE>


         223,621 options are currently exercisable. The fair value of each
option was estimated on the date granted using the Black-Scholes option pricing
model. The fair value of the options granted in 2000 and 1998 was estimated to
be $3.80 and $6.96, respectively. The following weighted-average assumptions
were used for grants in 2000 and 1998: risk free interest rate of 6.32% and
5.59%; expected dividend yield of 2.0% and $.08; expected life of seven years;
and expected volatility of 29.05% and 25.68%.

         The Company accounts for the Stock Option Plan under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation cost
for the Stock Option Plan been determined consistent with FASB Statement No.
123, the Company's net income and earnings per share would have been reduced to
the following pro forma amounts:


<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                  ------------------------
                                                          2000              1999              1998
                                                          ----              ----              ----
<S>                                                  <C>                 <C>              <C>
Net Income:    As Reported................           $ 4,410,253         $3,142,686       $3,621,435
               Pro Forma:.................             4,097,581          2,830,014        3,308,763
Basic EPS:     As Reported................                  0.91               0.57             0.60
               Pro Forma..................                  0.84               0.51             0.55
</TABLE>


(12)     BORROWED FUNDS AND REPURCHASE AGREEMENTS

         The Company enters into repurchase agreements with a major securities
firm and the FHLBNY. The agreements to repurchase assets correspond with the
sale of the Company's securities which are treated as financings for financial
statement purposes. The securities subject to repurchase agreements are
segregated from the portfolio of securities maintained by a third party until
maturity of the agreements.

         Information relating to borrowings under repurchase agreements is
summarized as follows:


<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                                    ------------------------
                                                     2000                     1999                     1998
                                                     ----                     ----                     ----
<S>                                             <C>                      <C>                      <C>
Average balance during the year...........      $   47,189,107           $   26,779,427           $   25,764,219
Average interest rates during the year....                6.18%                    5.56%                    5.87%
Maximum month-end balance during the year.      $   67,112,000           $   37,375,000           $   27,500,000
Securities underlying agreement at
year-end:
     Amortized cost.......................          21,112,081               34,234,968               35,638,720
     Estimated market value...............          20,741,684               33,238,935               35,925,935
</TABLE>


                                      -75-


<PAGE>



         FHLBNY advances are as follows at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                             AVAILABLE          OUTSTANDING           RATE             MATURITY
                                             ---------          -----------           ----             --------
<S>                                         <C>                <C>                    <C>              <C>
DECEMBER 31, 2000:
Short term-
       Revolving line of credit.........    $54,575,950        $21,600,000            6.60%             Daily
       Repricing line of credit.........     34,575,950                 --              --              Monthly
Long term-
</TABLE>


Scheduled repayment of FHLBNY term
loans as of December 31, 2000 are                                  WEIGHTED
as follows:                                      AMOUNT           AVERAGE RATE
                                                 ------           ------------
       Maturing 1 year or less..........     $ 38,200,000            6.24%
       After 1 through 5 years..........       74,000,000            6.27%
       After 5 through 10 years.........       55,000,000            5.61%
                                             ------------            ----
                                             $167,200,000            6.04%
                                             ============



<TABLE>
<CAPTION>
                                             AVAILABLE          OUTSTANDING           RATE             MATURITY
                                             ---------          -----------           ----             --------
<S>                                         <C>                <C>                    <C>              <C>
DECEMBER 31, 1999:
Short term-
       Revolving line of credit.........   $  38,978,000       $ 30,725,000          5.10%               Daily
       Repricing line of credit.........      21,978,000         14,000,000          5.10                02/07/00
       Repricing line of credit.........                          7,000,000          5.10                02/14/00
Long term-
</TABLE>


Scheduled repayment of FHLBNY term
loans as of December 31, 1999 are                                  WEIGHTED
as follows:                                      AMOUNT           AVERAGE RATE
                                                 ------           ------------
      Maturing 1 year or less...........     $ 54,750,000            5.99%
      After 1 through 5 years...........       30,200,000            5.64%
      After 5 through 10 years..........       65,000,000            5.32%
                                             ------------            ----
                                             $149,950,000            5.63%
                                             ============

         FHLBNY advances are made at fixed rates and are collateralized by all
FHLBNY stock owned by Warwick Savings in addition to a blanket pledge of
eligible assets in an amount required to be maintained so that the estimated
fair value of such eligible assets exceeds, at all times, 110% of the
outstanding advances.

         As a member of the FHLBNY, Warwick Savings has the availability of two
lines of credit for borrowings in the amounts of $54.6 million and $34.6
million, one on an overnight basis and the other on a 30-day term basis. In
accordance with the FHLBNY's credit policy , Warwick Savings now has total
credit facilities available of nearly $296.6 million, inclusive of the
aforementioned amounts, before the delivery of qualifying collateral is
required. Additionally, Warwick Savings has other sources of liquidity if the
need arises. One source is to borrow up to $5 million from a commercial bank on
an unsecured basis and the other is the ability to sell securities under
repurchase agreements in an amount up to $10 million from a securities
investment company.

(13)     REGULATORY CAPITAL REQUIREMENTS

         The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can result in the initiation of certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance sheet
items calculated

                                      -76-


<PAGE>



under regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
adequacy require the Company, Warwick Savings and Towne Center to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1
capital (as defined in the regulations) to risk weighted assets (as defined) and
of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2000, that the Company, Warwick Savings and Towne
Center meet all capital adequacy requirements to which it is subject.

         The most recent notification from the FDIC categorized Warwick Savings
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, Warwick Savings must maintain minimum
total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the institution's category.

         Warwick Savings' actual capital amounts and ratios are presented in the
following table:


<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>          <C>         <C>           <C>        <C>          <C>
 AS OF DECEMBER 31, 2000:
Total Capital
  (to risk weighted assets)....    $58,923      17.16%      $27,471       >8.0%      $34,338      >10.0%
Tier 1 Capital
  (to risk weighted assets)....     56,067      16.33        13,735       >4.0        20,603       >6.0
Tier 1 Capital
  (to average assets)..........     56,067       8.68        25,848       >4.0        32,310       >5.0
</TABLE>


<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>          <C>         <C>           <C>        <C>          <C>
 AS OF DECEMBER 31, 1999:
Total Capital
  (to risk weighted assets)....    $56,933      18.34%      $24,837       >8.0%      $31,046      >10.0%
Tier 1 Capital
  (to risk weighted assets)....     54,629      17.60        12,418       >4.0        18,628       >6.0
Tier 1 Capital
  (to average assets)..........     54,629       9.38        23,291       >4.0        29,114       >5.0
</TABLE>

         Towne Center's actual capital amounts and ratios are presented in the
following table:


<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>          <C>         <C>           <C>        <C>          <C>
 AS OF DECEMBER 31, 2000:
Total Capital
  (to risk weighted assets)....    $ 9,185      51.72%      $ 1,421       >8.0%      $ 1,776      >10.0%
Tier 1 Capital
  (to risk weighted assets)....      9,026      50.83           710       >4.0         1,065       >6.0
Tier 1 Capital
  (to average assets)..........      9,026      36.35           993       >4.0         1,242       >5.0
</TABLE>


                                      -77-

<PAGE>

<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>         <C>         <C>            <C>        <C>          <C>
 AS OF DECEMBER 31, 1999:
Total Capital
  (to risk weighted assets)....    $ 5,728     211.83%      $   216       >8.0%      $   270      >10.0%
Tier 1 Capital
  (to risk weighted assets)....      5,728     211.83           108       >4.0           162       >6.0
Tier 1 Capital
  (to average assets)..........      5,728      87.72           261       >4.0           327       >5.0
</TABLE>

         The Company's actual capital amounts and ratios are presented in the
following table:



<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>          <C>         <C>           <C>        <C>          <C>
 AS OF DECEMBER 31, 2000:
Total Capital
  (to risk weighted assets)....    $78,187      21.63%      $28,912       >8.0%      $36,140      >10.0%
Tier 1 Capital
  (to risk weighted assets)....     75,213      20.81        14,456       >4.0        21,684       >6.0
Tier 1 Capital
  (to average assets).........      75,213      11.76        25,592       >4.0        31,990       >5.0
</TABLE>



<TABLE>
<CAPTION>
                                                                                   TO BE WELL CAPITALIZED
                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                 ----------------------  -----------------------   -----------------------
                                                               (000'S OMITTED)
                                   AMOUNT       RATIO       AMOUNT        RATIO      AMOUNT       RATIO
                                 ----------  ----------  ------------  ---------   ----------  -----------
<S>                                <C>          <C>         <C>           <C>        <C>          <C>
 AS OF DECEMBER 31, 1999:
Total Capital
  (to risk weighted assets)....    $75,168      24.58%      $24,462       >8.0%      $30,578      >10.0%
Tier 1 Capital
  (to risk weighted assets)....     73,214      23.94        12,231       >4.0        18,347       >6.0
Tier 1 Capital
  (to average assets)..........     73,214      12.67        23,122       >4.0        28,902       >5.0
</TABLE>


(14)     COMMITMENTS AND CONTINGENCIES

         LEASE COMMITMENTS. Rental expense included in the statements of income
was approximately $340,000, $149,000, and $219,000 for the years ended December
31, 2000, 1999 and 1998, respectively. In 1993, Warwick Savings entered into an
agreement with a company to provide data processing services.
Such agreement expires in April 2005. The commitment for future payments
fluctuates with the level of service provided. The costs incurred in connection
with this agreement are included in data processing expenses in the accompanying
statements of income.

         In 1999, Towne Center entered into an agreement with a company to
provide data processing services. Such agreement expires in December 2004. The
commitment for future payments fluctuates with the level of services provided.
The costs incurred in connection with this agreement are included in data
processing expenses in the accompanying statement of income.

         The Company leases certain branches and equipment under various
noncancelable operating leases. The future minimum payments by years and the
aggregate under all significant noncancelable operating leases with initial or
remaining terms of one year or more are as follows:

                                      -78-


<PAGE>





                 YEAR ENDING DECEMBER 31:

                        2001......................     $1,030,048
                        2002......................        930,473
                        2003......................        895,430
                        2004......................        900,151
                        2005 and thereafter.......      2,034,531
                                                       ----------
                        Total.....................     $5,790,633
                                                       ==========

         LOAN COMMITMENTS. Loan commitments and unused lines of credit as of
December 31, 2000 are as follows (with comparative totals as of December 31,
1999):


<TABLE>
<CAPTION>
                                                COMMITMENTS TO               UNUSED
                                               ORIGINATE LOANS          LINES OF CREDIT               TOTAL
                                               ---------------          ---------------               -----
<S>                                            <C>                      <C>                        <C>
Mortgage loans............................       $ 27,139,278             $         --             $ 27,139,278
Construction loans........................         15,901,908                       --               15,901,908
Commercial loans..........................         11,746,342               13,715,483               25,461,825
Other loans...............................         10,654,442                       --               10,654,442
                                                 ------------             ------------             ------------
Total as of December 31, 2000.............       $ 65,441,970             $ 13,715,483             $ 79,157,453
                                                 ============             ============             ============
Total as of December 31, 1999.............       $ 70,862,749             $  9,182,202             $ 80,044,951
                                                 ============             ============             ============
</TABLE>

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since commitments may expire, the total
commitment amounts do not necessarily represent future cash requirements.

         Warwick Savings' exposure to credit loss in the event of nonperformance
by the other party to the loan commitments is represented by their contractual
amount. Warwick Savings controls the credit risk of loan commitments through
credit approvals, limits and monitoring procedures. The amount of collateral
obtained, if deemed necessary, is based on management's credit evaluation of the
borrower.

         CONCENTRATION OF CREDIT RISK. Warwick Savings grants residential
mortgage loans, construction loans, commercial loans and consumer loans to
customers located primarily in Orange County, New York and the surrounding
counties of Rockland and Dutchess in New York. Towne Center grants commercial
loans and consumer loans to customers located primarily in Bergen County and
Essex County, New Jersey. The borrowers' ability to repay loan principal and
accrued interest is dependent upon, among other things, the economic conditions
prevailing in Warwick Savings and Towne Center's lending area.

         HEDGING. In the normal course of business, Warwick Savings uses
off-balance sheet financial instruments primarily as part of mortgage banking
hedging strategies. Such instruments generally include put options purchased and
forward commitments to sell mortgage loans. As a result of interest rate
fluctuations, these off-balance sheet financial instruments will develop
unrealized gains or losses that mitigate changes in the underlying hedged
portion of the balance sheet. When effectively used, these off- balance sheet
financial instruments are designed to moderate the impact on earnings as
interest rates move up or down.

         LITIGATION. Warwick Savings and Towne Center are involved in legal
proceedings incurred in the normal course of business. In the opinion of
management, none of these proceedings are expected to have a material effect on
the consolidated financial position or results of operations of Warwick Savings
or Towne Center.


                                      -79-


<PAGE>



(15)     DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

         CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD. For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.

         ACCRUED INTEREST AND FHLBNY STOCK. The carrying amount is a reasonable
estimate of fair value.

         SECURITIES. Fair values for securities are based on quoted market
prices or dealer quotes. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.

         LOANS, NET. For certain homogeneous categories of loans, such as some
residential mortgages and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. For other loan types, fair value is based
on the credit and interest rate characteristics of individual loans. These loans
are stratified by type, maturity, interest rate, underlying collateral where
applicable, and credit quality ratings. Fair value is estimated by discounting
scheduled cash flows through estimated maturities using discount rates which in
management's opinion best reflect current market interest rates that would be
charged on loans with similar characteristics and credit quality. Credit risk
concerns are reflected by adjusting cash flow forecasts, by adjusting the
discount rate or by adjusting both.

         DEPOSITOR ACCOUNTS. The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.

         BORROWED FUNDS. The estimated fair value of FHLBNY advances and
borrowings under repurchase agreements is based on the discounted value of their
contractual cash flows. The discount rate used in the present value computation
is estimated by comparison to the current interest rates charged by the FHLBNY
and other major securities firms for borrowings of similar remaining maturities.

         MORTGAGE ESCROW FUNDS. The carrying amount is a reasonable estimate of
fair value.


                                      -80-


<PAGE>



         The following is a summary of the carrying values and estimated fair
values of the Company's financial assets and liabilities at December 31, 2000
and 1999:


<TABLE>
<CAPTION>
                                              DECEMBER 31, 2000                DECEMBER 31, 1999
                                              -----------------                -----------------
                                         CARRYING                          CARRYING
                                           VALUE        FAIR VALUE           VALUE         FAIR VALUE
                                           -----        ----------           -----         ----------
                                                                 (000'S OMITTED)
<S>                                      <C>            <C>                <C>             <C>
Financial assets:
Cash on hand and in banks.............   $ 15,236        $ 15,236          $ 22,209         $ 22,209
Federal funds sold....................         --              --             7,665            7,665
Securities............................    149,513         149,533           186,490          186,482
Loans, net............................    432,198         436,540           349,321          329,849
Accrued interest receivable...........      3,359           3,359             3,216            3,216
Federal Home Loan Bank stock..........     13,252          13,252            11,752           11,752

Financial liabilities:
Demand, NOW, statement savings and
passbook, and money market accounts...   $225,240        $225,240          $193,849         $193,849
Time certificate accounts.............    122,891         123,221            89,223           89,325
Mortgage escrow funds.................      2,452           2,452             1,488            1,488
Borrowed funds........................    205,645         205,631           239,050          235,531
Accrued interest payable..............      1,452           1,452             1,574            1,574
</TABLE>




                                      -81-


<PAGE>



(16)     WARWICK COMMUNITY BANCORP, INC. -- PARENT COMPANY ONLY FINANCIAL
         STATEMENTS

         The following statements of financial condition as of December 31, 2000
and 1999, and the related statements of income and cash flows for each of the
years in the three year period ended December 31, 2000 and 1999, reflect the
Company's investment in Warwick Savings and Towne Center, using the equity
method of accounting.

<TABLE>
<CAPTION>
                                         STATEMENTS OF FINANCIAL CONDITION


                                                                            DECEMBER 31,
                                                                            ------------
                                                                    2000                    1999
                                                                    ----                    ----
                                                                (000'S OMITTED EXCEPT SHARE AMOUNTS)
                          ASSETS
<S>                                                             <C>                     <C>
Assets:
     Cash and cash equivalents.............................     $   2,370               $   1,514
     Investment securities available-for-sale..............         1,748                   3,622
     Accrued interest receivable...........................            13                      13
Fixed assets...............................................             3                      --
Other assets...............................................         1,095                     894
     ESOP loan to the trustee of the ESOP..................         5,620                   6,445
     Investment in subsidiaries............................        62,516                  54,182
                                                                ---------              ----------
         Total assets......................................     $  73,365              $   66,670
                                                                =========              ==========

           LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Other liabilities.....................................     $     134              $       42
     Income taxes payable..................................           650                      56
                                                                ---------              ----------
         Total liabilities.................................           784                      98
                                                                ---------              ----------
 Stockholders' equity:
     Preferred stock, $.01 par value;
         5,000,000 shares authorized; none issued..........            --                      --
     Common stock, $.01 par value; 15,000,000 shares
          authorized, 6,606,548 shares issued; 5,333,076
          and 5,639,290 shares outstanding in 2000 and
          1999, respectively...............................            66                      66
     Additional paid-in capital............................        63,039                  62,978
     Retained earnings - subject to restrictions...........        35,774                  32,430
     Accumulated other comprehensive income (loss), net....        (2,508)                 (6,832)
     Less - Unallocated common stock held by ESOP..........        (5,720)                 (6,515)
     Less - Unearned common stock held by RRP..............        (2,371)                 (3,263)
     Treasury stock (1,273,472 and 967,258 shares).........       (15,699)                (12,292)
                                                                ---------              ----------
         Total stockholders' equity........................        72,581                  66,572
                                                                ---------              ----------
         Total liabilities and stockholders' equity........     $  73,365              $   66,670
                                                                =========              ==========
</TABLE>


                                      -82-


<PAGE>

<TABLE>
<CAPTION>
                                               STATEMENTS OF INCOME


                                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                                          --------------------------------
                                                                       2000              1999             1998
                                                                       ----              ----             ----
                                                                                   (000'S OMITTED)
<S>                                                                <C>               <C>              <C>
Interest income:
   ESOP loan to the trustee of the ESOP........................    $      519        $      584       $      641
   Investment securities.......................................           114               152              187
                                                                   ----------        ----------       ----------
          Total interest income................................           633               736              828
   Interest expense............................................            --                --               --
                                                                   ----------        ----------       ----------
        Net interest income before provision for loan losses...           633               736              828
                                                                   ----------        ----------       ----------
   Provision for loan losses...................................            --                --               --
                                                                   ----------        ----------       ----------
        Net interest income after provision for loan losses....           633               736              828
                                                                   ----------        ----------       ----------


   Non-interest income:
        Gain on sale of investment securities..................           579               137              28
         Other income..........................................           --                  8              --
                                                                   ----------        ----------       ----------
                                                                          579               145              28
                                                                   ----------        ----------       ---------
   Non-interest expense........................................           494               695              255
                                                                   -----------       ----------       ----------
   Income before provision for income taxes and
           undistributed earnings of subsidiary banks..........           718               186              601

   Equity in undistributed earnings of subsidiary banks........         4,027             3,093            3,339
   Income tax expense .........................................           335               136              319
                                                                   ----------        ----------       ----------
          Net income...........................................    $    4,410        $    3,143       $    3,621
                                                                   ==========        ==========       ==========
</TABLE>



                                      -83-


<PAGE>



<TABLE>
<CAPTION>
                                             STATEMENTS OF CASH FLOWS


                                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                                          --------------------------------
                                                                      2000              1999              1998
                                                                      ----              ----              ----
                                                                                   (000'S OMITTED)
<S>                                                               <C>               <C>               <C>
Cash flows from operating activities:
   Net income.................................................    $   4,410         $   3,143         $   3,621
   Adjustments to reconcile net income to net cash
      provided by operating activities--
       Undistributed earnings of subsidiary banks.............       (4,027)           (3,093)           (3,339)
       Gain on sale of securities.............................         (579)             (137)              (28)
(Increase) decrease in assets--
       Accrued interest receivable ...........................           --                --               (13)
       Other assets...........................................         (201)              (50)              (51)
Increase (decrease) in liabilities--
       Other liabilities......................................           92                42                --
       Income taxes payable...................................          594              (191)              247
                                                                  ---------         ---------         ---------
          Net cash provided by (used in) operating activities.          289               286               437
                                                                  ---------         ---------         ---------

Cash flows from investing activities:
   Investment in 99.8% of the outstanding stock of Towne
Center, net...................................................           --            (5,747)               --
   Dividend from Warwick Savings..............................        5,200             1,000                --
   Capital contribution to Towne Center.......................       (3,770)               --                --
   Purchases of securities available-for-sale.................         (281)             (641)           (6,321)
   Proceeds from sale of securities available-for-sale........        3,483               992             1,782
   Purchase of fixed assets, net..............................           (2)               --                --
                                                                  ---------         ---------         ---------
          Net cash used in investing activities...............        4,630            (4,396)           (4,539)
                                                                  ---------         ---------         ---------

Cash flows from financing activities:
   (Increase) decrease in ESOP loan receivable................          825               719              (793)
   Purchase of treasury stock.................................       (3,407)          (12,292)               --
   Dividends paid on common stock.............................       (1,481)           (1,172)             (545)
                                                                  ---------         ---------         ---------
          Net cash used in financing activities...............       (4,063)          (12,745)           (1,338)
                                                                  ---------         ---------         ---------
          Net decrease in cash and cash equivalents...........          856           (17,427)           (5,440)
Cash and cash equivalents, beginning of year..................        1,514            18,941            24,381
                                                                  ---------         ---------         ---------
Cash and cash equivalents, end of year........................    $   2,370         $   1,514         $  18,941
                                                                  =========         =========         =========
</TABLE>


                                      -84-


<PAGE>



(17)     QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The following is a summary of the quarterly results of operations for
the years ended December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                         ------------------
                                                                           (000'S OMITTED)
                                                    DECEMBER 31,        SEPTEMBER 30,      JUNE 30,      MARCH 31,
                                                        2000                2000             2000           2001,
                                                        ----                ----             ----           -----
<S>                                                 <C>                 <C>               <C>            <C>
Total interest income...........................     $ 11,913            $ 11,771         $ 11,318        $ 10,628
Total interest expense..........................        6,785               7,041            6,543           5,857
Net interest income.............................        5,128               4,730            4,775           4,771
Provision for loan losses.......................          285                 225              205             185
Non-interest income.............................        1,318               1,841            1,092           1,117
Non-interest expense and provision for income
     taxes......................................        5,170               4,973            4,678           4,641
Net income......................................          991               1,373              984           1,062
Basic earnings per common share.................         0.21               0.28              0.21            0.21
Diluted earnings per common share...............         0.21               0.28              0.21            0.21
</TABLE>


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                         ------------------
                                                                           (000'S OMITTED)
                                                    DECEMBER 31,        SEPTEMBER 30,      JUNE 30,      MARCH 31,
                                                        1999                1999             1999           2001,
                                                        ----                ----             ----           -----
<S>                                                 <C>                 <C>               <C>            <C>
Total interest income...........................      $ 10,605             $ 9,212         $ 8,161        $ 7,584
Total interest expense..........................         5,307               4,435           3,772          3,437
Net interest income.............................         5,298               4,777           4,389          4,147
Provision for loan losses.......................           125                 125             125            125
Non-interest income.............................           439               1,210             799          1,357
Non-interest expense and provision for income
     taxes......................................         4,924               4,926           4,543          4,380
Net income......................................           688                 936             520            999
Basic earnings per common share.................          0.13                0.17            0.10           0.17
Diluted earnings per common share...............          0.13                0.17            0.10           0.17
</TABLE>





                                      -85-

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors & Stockholders of
Warwick Community Bancorp, Inc:

         We have audited the accompanying consolidated statements of financial
condition of Warwick Community Bancorp, Inc. and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31,2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Warwick Community
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.


                                               /s/ Arthur Andersen LLP

New York, New York
February 3, 2001







                                      -86-

<PAGE>

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         None.


                                    PART III

ITEM 10.          DIRECTORS AND OFFICERS OF THE COMPANY

         The information required by this item appears under the caption
"Election of Directors" on pages 5 through 12, inclusive, and under the caption
"Compliance with Section 16(a) of the Exchange Act" on pages 24 and 25,
inclusive, of the Company's Proxy Statement ("Proxy Statement") for its 2000
Annual Meeting of Shareholders to be held on April 17, 2001 and is incorporated
herein by reference.


ITEM 11.          EXECUTIVE COMPENSATION

         The information required by this item appears on pages 16 through 24,
inclusive, of the Company's Proxy Statement and is incorporated herein by
reference.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item appears under the captions "Stock
Ownership of Certain Beneficial Owners" on page 3 and "Stock Ownership of
Management" on pages 4 and 5, inclusive, of the Company's Proxy Statement and is
incorporated herein by reference.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item appears under the caption
"Transactions with Certain Related Persons" on page 24 of the Company's Proxy
Statement and is incorporated herein by reference.


                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                  8-K

(a)       1.      The following consolidated financial statements of the Company
                  and its subsidiaries, and the independent auditors' report
                  thereon, are filed as part of this report:

                           Consolidated Statements of Financial Condition as of
                           December 31, 2000 and December 31, 1999;

                           Consolidated Statements of Income for Each of the
                           Years in the Three-Year Period Ended December 31,
                           2000;


                                      -87-


<PAGE>



                           Consolidated Statements of Changes in Stockholders'
                           Equity for Each of the Years in the Three-Year Period
                           Ended December 31, 2000;

                           Consolidated Statements of Cash Flows for Each of the
                           Years in the Three-Year Period Ended December 31,
                           2000;

                           Notes to Consolidated Financial Statements

         2.       All schedules are omitted because they are not required or
                  applicable, or the required information is shown in the
                  consolidated financial statements or the notes thereto.

         3.       The following exhibits are filed as part of this report,
                  except as otherwise indicated.

                  3.1      Certificate of Incorporation of Warwick Community
                           Bancorp, Inc. (1)

                  3.2      Bylaws of Warwick Community Bancorp, Inc., as amended

                  3.3      Purchase and Assumption Agreement, dated December 22,
                           2000, between The Warwick Savings Bank and Country
                           Bank

                  4.1      Certificate of Incorporation of Warwick Community
                           Bancorp, Inc. (See Exhibit 3.1 hereto)

                  4.2      Bylaws of Warwick Community Bancorp, Inc., as amended
                           (See Exhibit 3.2 hereto)

                  4.3      Restated Organization Certificate of The Warwick
                           Savings Bank (1)

                  4.4      Bylaws of The Warwick Savings Bank, as amended (1)

                  4.5      Stock Certificate of Warwick Community Bancorp, Inc.
                           (1)

                  4.6      Rights Agreement between Warwick Community Bancorp,
                           Inc. and Registrar and Transfer Company dated as of
                           October 17, 2000 (7)

                  4.7      Form of Rights Certificate

                  4.8      Certificate of Designations, Preferences and Rights
                           of Series A Junior Participating Preferred Stock of
                           Warwick Community Bancorp, Inc.

                  10.1     Employment Agreement by and between Warwick Community
                           Bancorp, Inc. and Timothy A. Dempsey (2)

                  10.2     Employment Agreement by and between Warwick Community
                           Bancorp, Inc. and Ronald J. Gentile (2)

                  10.3     Employment Agreement by and between Warwick Community
                           Bancorp, Inc. and Arthur W. Budich (2)


                                      -88-


<PAGE>



                  10.4     Employment Agreement by and between Warwick Community
                           Bancorp, Inc. and Nancy L. Sobotor-Littell (2)

                  10.5     Employee Retention Agreement by and between The
                           Warwick Savings Bank and Donna M. Lyons (2)

                  10.6     Employee Retention Agreement by and between The
                           Warwick Savings Bank and Barbara A. Rudy (2)

                  10.7     Employee Retention Agreement by and between The
                           Warwick Savings Bank and Arthur S. Anderson (2)

                  10.8     Recognition and Retention Plan of Warwick Community
                           Bancorp, Inc. (3)

                  10.9     Trust Agreement between Warwick Community Bancorp,
                           Inc. and Orange County Trust Company for the
                           Recognition and Retention Plan of Warwick Community
                           Bancorp, Inc. (2)

                  10.10    Stock Option Plan of Warwick Community Bancorp, Inc.
                           (3)

                  10.11    Warwick Community Bancorp, Inc. Employee Stock
                           Ownership Plan (1)

                  10.12    Trust Agreement between Warwick Community Bancorp,
                           Inc. and Marine Midland Bank for the Warwick
                           Community Bancorp, Inc. Employee Stock Ownership Plan
                           (2)

                  10.13    Loan Agreement by and between the Warwick Community
                           Bancorp, Inc. Employee Stock Ownership Trust and
                           Warwick Community Bancorp, Inc. (2)

                  10.14    Benefit Restoration Plan of The Warwick Savings Bank
                           (1)

                  10.15    Grantor Trust Agreement by and between The Warwick
                           Savings Bank and Marine Midland Bank for the Benefit
                           Restoration Plan of The Warwick Savings Bank (2)

                  10.16    The Warwick Savings Bank 401(k) Savings Plan (1)

                  10.17    Trust Agreement between The Warwick Savings Bank and
                           Marine Midland Bank for The Warwick Savings Bank
                           401(k) Savings Plan Employer Stock Fund (2)

                  10.18    First Amendment to Employment Agreement by and
                           between Warwick Community Bancorp, Inc. and Timothy
                           A. Dempsey (4)

                  10.19    First Amendment to Employment Agreement by and
                           between Warwick Community Bancorp, Inc. and Ronald J.
                           Gentile (4)

                  10.20    First Amendment to Employment Agreement by and
                           between Warwick Community Bancorp, Inc. and Arthur W.
                           Budich (4)

                  10.21    First Amendment to Employment Agreement by and
                           between Warwick Community Bancorp, Inc. and Nancy L.
                           Sobotor-Littell (4)

                                      -89-


<PAGE>



                  10.22    First Amendment to the Stock Option Plan of Warwick
                           Community Bancorp, Inc. (5)

                  10.23    First Amendment to the Recognition and Retention Plan
                           of Warwick Community Bancorp, Inc. (5)

                  10.24    Employment Agreement by and among Warwick Community
                           Bancorp, Inc., The Towne Center Bank and Fred G.
                           Kowal (6)

                  10.25    Employment Agreement by and among Warwick Community
                           Bancorp, Inc., The Towne Center Bank and Lawrence D.
                           Haggerty (6)

                  11.1     Statement re: Computation of per share earnings

                  21.1     Subsidiaries of the Company

                  99.1     Proxy Statement for the 2001 Annual Meeting of
                           Shareholders

---------------------------


(1)      Incorporated herein by reference to the Exhibits to the Company's
         Registration Statement on Form S-1, filed on September 19, 1997,
         Registration No. 333-36021.

(2)      Incorporated herein by reference to the Exhibits to the Company's
         Annual Report on Form 10-K for the fiscal year ended May 31, 1998.

(3)      Incorporated herein by reference to the Company's definitive Proxy
         Statement for the Special Meeting of Shareholders held on June 24,
         1998.

(4)      Incorporated herein by reference to the Exhibits to the Company's
         Annual Report on Form 10-K for the transition period from June 1, 1998
         to December 31, 1998.

(5)      Incorporated herein by reference to the Company's definitive Proxy
         Statement for the Annual Meeting of Shareholders held on April 20,
         1999.

(6)      Incorporated herein by reference to the Exhibits to the Company's
         Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

(7)      Incorporated herein by reference to the Exhibits to the Company's
         Current Report on Form 8-K dated October 17, 2000 and filed on October
         18, 2000.


(b)      The Company filed the following reports on Form 8-K during the period
         covered by this report:

         1.       Form 8-K, dated October 18, 2000, announcing the adoption of a
                  shareholder rights plan and the declaration of a dividend of
                  one preferred share purchase right for each share of the
                  Company's common stock.

         2.       Form 8-K, dated February 13, 2001, filing a copy of the
                  Company's presentation made at The New York Society of
                  Security Analysts, Inc. on that date.



                                      -90-


<PAGE>



         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     WARWICK COMMUNITY BANCORP, INC.



Dated: March 7, 2001                 BY: /s/ Timothy A. Dempsey
                                       -----------------------
                                              Timothy A. Dempsey
                                              Chairman of the Board and
                                              Chief Executive Officer




                                     BY: /s/ Arthur W. Budich
                                       -----------------------
                                              Arthur W. Budich
                                              Senior Vice President, Treasurer
                                              and Chief Financial Officer

                                      -91-


<PAGE>


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.


<TABLE>
<CAPTION>
Signature                                       Title                                          Date


<S>                                             <C>                                            <C>
 /s/ Timothy A. Dempsey                         Chairman of the Board and Chief                March 7, 2001
----------------------------------------------- Executive Officer and Director
Timothy A. Dempsey


 /s/ Ronald J. Gentile                          President and Chief Operating Officer          March 7, 2001
----------------------------------------------- and Director
Ronald J. Gentile


 /s/ Frances M. Gorish                          Director                                       March 7, 2001
-----------------------------------------------
Frances M. Gorish


 /s/ R. Michael Kennedy                         Director                                       March 7, 2001
-----------------------------------------------
R. Michael Kennedy


 /s/ Fred M. Knipp                              Director                                       March 7, 2001
-----------------------------------------------
Fred M. Knipp

                                                Director                                       March 7, 2001
-----------------------------------------------
Emil R. Krahulik


 /s/ Thomas F. Lawrence, Jr.                    Director                                       March 7, 2001
-----------------------------------------------
Thomas F. Lawrence, Jr.


 /s/ John J. Mcdermott III                      Director                                       March 7, 2001
-----------------------------------------------
John J. McDermott III


 /s/ Henry L. Nielsen, Jr.                      Director                                       March 7, 2001
-----------------------------------------------
Henry L. Nielsen, Jr.

                                                Director                                       March 7, 2001
-----------------------------------------------
John W. Sanford III


 /s/ Robert N. Smith                            Director                                       March 7, 2001
-----------------------------------------------
Robert N. Smith
</TABLE>


                                      -92-