<PAGE>
======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. 0-22058
DECEMBER 31, 1996
MERCHANTS NEW YORK BANCORP, INC.
(Exact name of registrant as specified in charter)
DELAWARE 13-3650812
(State or other jurisdiction of (IRS employer
incorporation or organization) identification No.)
275 MADISON AVENUE, NEW YORK, N.Y. 10016
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 973-6600
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class:
COMMON SHARES, $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing 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 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 [ ].
As of March 17, 1997, the aggregate market value of the voting stock
held by non-affiliates was approximately $137,862,612.
As of March 17, 1997, 4,960,226 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Specified portions of the 1996 Annual Report of Merchants New York
Bancorp, Inc. are incorporated by reference in Part I, Part II and Part IV.
(2) Specified portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders, dated March 28, 1997 of Merchants New York
Bancorp, Inc. are incorporated by reference in Part III.
==========================================================================
<PAGE>
MERCHANTS NEW YORK BANCORP, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
ITEM 1. BUSINESS.................................................................................. 1
ITEM 2. PROPERTIES................................................................................ 20
ITEM 3. LEGAL PROCEEDINGS......................................................................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 20
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................................... 21
ITEM 6. SELECTED FINANCIAL DATA................................................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................... 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................... 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................... 22
ITEM 11. EXECUTIVE COMPENSATION.................................................................... 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................................................ 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................ 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND \
REPORTS ON FORM 8-K....................................................................... 23
SIGNATURES .......................................................................................... 24
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Merchants New York Bancorp, Inc. (the "Company") is a bank holding
company that was organized under the laws of the State of Delaware on February
27, 1992 for the purpose of acquiring all of the issued and outstanding capital
stock of The Merchants Bank of New York (the "Bank"), a banking corporation
organized under the laws of the State of New York. The sole subsidiary of the
Company is the Bank. The principal business of the Company is the operation of
the Bank.
The Bank is a commercial bank, servicing the communities in which its
branches are located. It is authorized to receive both demand and time deposits,
to make loans of various types, to engage in trust services and other fiduciary
funds, to issue letters of credit, to accept and pay drafts, to rent safety
deposit boxes, and to engage in similar activities.
The Bank was founded in 1874 as Markel Brothers Private Bankers. A New
York City branch was established in 1881. In 1926, a charter was obtained from
the Banking Department of the State of New York. The name and style of the Bank
was changed to The Merchants Bank, and at the same time the Bank became publicly
held. The Bank's name was changed to The Merchants Bank of New York in 1937.
Cash dividends were commenced in 1932 and since then have been paid
consecutively every quarter for the ensuing 64 years.
The Bank operates seven branches, all in Manhattan, which are
strategically located to serve its middle market customers. The executive
offices of the Company are located at 275 Madison Avenue, New York, New York
10016. The telephone number is (212) 973-6600.
BANKING SERVICES
The Bank offers conventional banking services consisting of retail
banking, commercial banking, international banking and trust services to
small and medium size businesses and to individuals. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC").
The Bank provides a full range of retail banking services that include
Regular and Special Checking Accounts, NOW (Negotiable Orders of Withdrawal) and
Super NOW Accounts, Money Market Accounts, Savings Accounts plus Keogh and IRA
Accounts and Lease Security Accounts for landlords and Attorney Escrow Accounts.
The Bank issues VISA(R) and MASTERCARD(R) credit cards offered through an
intermediary affinity program with all credit risk assumed by the third party.
The complete process, including credit checks and eligibility, is
1
<PAGE>
being handled by the third party. 24-hour automated teller machine (ATM) cards
with access to NYCE(R), The Exchange(R) and CIRRUS(R) systems are available
for use on non-Bank owned ATMs. The Bank does not have any ATMs at any of its
branches and does not anticipate installing any in the near future.
The Bank furnishes lending and depository services to small and medium
size commercial and industrial customers and to individuals. Loan facilities to
these customers include short term loans, revolving credit arrangements, term
loans, personal installment loans, and auto loans. Most of the Bank's business
loans are short term. Lending is limited to the New York metropolitan area which
includes the five boroughs, Westchester, Long Island, and Northern New Jersey.
No single borrower or group of related borrowers is indebted to the Bank in the
aggregate for an amount in excess of $7.7 million. The Bank's legal lending
limit was in excess of $15 million at December 31, 1996.
The Bank's International Banking Department offers financial services
to its customers through its network of correspondent banks around the world.
The Bank provides Letters of Credit and foreign collection services to finance
import and export transactions. It also issues Standby Letters of Credit for
domestic use. The Bank maintains active correspondent relationships with leading
financial institutions, both domestic and world wide.
COMPETITION
The Bank faces significant competition for both the loans it makes and
the deposits it accepts. The Bank's market area has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Company, and all of which are
competitors of the Bank to varying degrees. The Company and its competitors are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Bank's competition for loans comes principally from other
commercial banks. The Bank competes successfully for loans primarily by
emphasizing the quality of its loan services and by charging loan fees and
interest rates that are generally competitive in its market area. Its most
direct competition for deposits has historically come from commercial banks,
savings banks, credit unions, and savings and loan associations. Additionally,
the Bank faces competition for deposits from money market funds, stock and bond
mutual funds, brokerage companies and insurance companies. The Bank competes for
deposits by offering a variety of customer services and deposit accounts at
generally competitive interest rates.
Management considers the Bank's reputation for financial strength and
customer service as its major competitive advantage in attracting customers in
its market area. The Bank also believes it benefits from its community bank
orientation as well as its relatively high percentage of core deposits.
2
<PAGE>
POTENTIAL IMPACT OF CHANGES IN GOVERNMENT MONETARY POLICIES AND INTEREST RATES
The earnings of the Company and the Bank are affected by legislative
changes and policies of various governmental authorities such as the New York
State Banking Department, the Board of Governors of the Federal Reserve System
(the "FRB") and the FDIC. The FRB controls interest rates, which in turn may
affect the cost of funds and the return on earning assets. The changing economic
conditions and changes in the money markets make it impossible to predict future
changes in interest rates, loan demand, or their effects on the Bank's business
and earnings.
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest on interest-earning assets, such as loans and
securities, and its interest expense on interest-bearing liabilities, such as
deposits. When the amount of interest-earning assets differs from the amount of
interest-bearing liabilities expected to mature or reprice in a given period, a
significant change in market rates of interest will affect net interest income.
The Bank manages its interest rate risk primarily by structuring its balance
sheet to emphasize holding adjustable rate loans in its portfolio, maintaining a
large portion of its investments in mortgage-backed securities which produce
monthly cash flow for reinvestment, and maintaining a large base of core
deposits.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended primarily to
protect depositors and not stockholders. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
Any change in the applicable law or regulation may have a material effect on the
business and prospects of the Company and the Bank.
The Company is a registered bank holding company subject to the
regulation and examination by the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Company is required to file
with the FRB quarterly and annual reports and any additional information that
may be required under the Act. The Act also requires every bank holding company
to obtain the prior approval of the FRB before (i) acquiring all or
substantially all of the assets of or direct or indirect ownership or control of
more than 5% of the outstanding voting stock of any bank which is not already
majority owned, or (ii) acquiring, or merging or consolidating with, any other
bank holding company. The FRB will not approve any acquisition, merger, or
consolidation that would have a substantially anti-competitive effect, unless
the anti-competitive impact of the proposed transaction is clearly outweighed by
a greater public interest in meeting the convenience and needs of the community
to be served. The FRB also considers capital adequacy and other financial and
managerial resources and future prospects of the companies and the banks
concerned, together with the convenience and needs of the community to be
served, when reviewing acquisitions, mergers or consolidations.
3
<PAGE>
Prior to September 29, 1995, the Act prohibited the FRB from approving
any such acquisition of control of any bank operating outside the bank holding
company's principal state of operations, unless such action was specifically
authorized by the statutes of the state in which the bank to be acquired was
located. On September 29, 1994, the President of the United States signed into
law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal Act"). Beginning September 29, 1995, an adequately capitalized and
managed bank holding company may (with FRB approval) acquire control of banks
outside its principal state of operations, without regard to whether such
acquisitions are permissible under state law. States may, however, limit the
eligibility of banks to be acquired by an out-of-state bank holding company to
banks in existence for a minimum period of time (not in excess of five years).
No bank holding company may make an acquisition outside its principal state of
operations which would result in it controlling more than 10% of the total
amount of deposits of all insured depository institutions in the United States,
or 30% or more of the total deposits of insured depository institutions in any
state (unless such limit is waived, or a more restrictive or permissive limit is
established, by a particular state). The Riegle-Neal Act also provides that,
beginning June 1, 1997, banks may branch across state lines either by merging
with banks in other states or by establishing new branches in other states. The
date relating to interstate branching through mergers may be accelerated by any
state, and such mergers may be prohibited by any state. The provision relating
to establishing new branches in another state requires a state's specific
approval. In response to the Riegle-Neal Act, New York has amended its banking
laws, effective February 6, 1996, to delete the reciprocity requirement formerly
imposed on the acquisition of New York banks by out-of-state bank holding
companies, and to add the requirement that a New York bank chartered less than
five years which is acquired by an out-of-state bank holding company generally
may not be merged with other banks owned by that bank holding company. These
amendments to the New York banking laws also permit an out-of-state bank to
branch into the state by merging with an existing New York bank or by acquiring
one or more branches of an existing New York bank, subject in either case (until
June 1, 1997) to a reciprocity requirement. The amendments do not contain the
specific approval that would permit an out-of-state bank to open new branches in
the state. The Company is unable to predict the ultimate impact of interstate
banking on it or its competition.
Additionally, the Act prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
4
<PAGE>
The FRB has adopted risk-based capital guidelines for bank holding
companies. The risk-based capital guidelines are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Under these guidelines, assets
and off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. Failure to
meet the capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities.
Bank holding companies currently are required to maintain a minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) of 8%. At least half of the
total capital is required to be "Tier 1 capital," consisting of common equity,
retained earnings, less certain goodwill items and intangible assets. The
remainder ("Tier 2 capital") may consist of (a) the allowance for loan losses of
up to 1.25% of risk-weighted risk assets, (b) excess of qualifying perpetual
preferred stock, (c) hybrid capital instruments, (d) perpetual debt, (e)
mandatory convertible debt securities, and (f) a limited amount of subordinated
debt and intermediate-term preferred stock up to 50% of Tier 1 capital. The
maximum amount of supplementary capital elements that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital net of goodwill and certain other
intangible assets. Total capital is the sum of Tier 1 and Tier 2 capital less
reciprocal holdings of other banking organizations' capital instruments,
investments in unconsolidated subsidiaries and any other deductions as
determined by the FRB (determined on a case by case basis or as a matter of
policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans will be assigned to the 100% risk category,
except for performing first mortgage loans fully secured by certain residential
property, which carry a 50% risk rating. Most investment securities (including,
primarily, general obligation claims on states or other political subdivisions
of the United States) will be assigned to the 20% category, except for municipal
or state revenue bonds, which have a 50% risk-weight, and direct obligations of
the U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance-sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations, are given a 100% conversion factor.
Transaction related contingencies such as bid bonds, standby letters of credit
backing non-financial obligations and commitments (including commercial credit
lines) with an initial maturity or more than one year have a 50% conversion
factor. Short-term commercial letters of credit are converted at 20% and certain
short-term or unconditionally cancelable commitments have a 0% factor.
The Company's management believes that the risk-weighting of assets
under these guidelines does not and will not have a material impact on the
Company's operations or on the
5
<PAGE>
operations of the Bank. In addition to the risk-based capital
guidelines, the FRB has adopted a minimum Tier 1 capitalleverage ratio,
under which a bank holding company must maintain a minimum level
of Tier 1 capital to average total consolidated assets of at least 3% in the
case of a bank holding company that has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a leverage ratio of at least 1.0% to
2.0% above the stated minimum, The leverage capital ratio assists in the
assessment of the capital adequacy of bank holding companies. Its principal
objective is to place a constraint on the maximum degree to which a banking
organization can leverage its equity capital base, even if it invests primarily
in assets with low risk-weights.
At December 31, 1996, the capital ratios of the Company and the Bank
exceeded the FRB's minimum regulatory capital guidelines as follows:
<TABLE>
<CAPTION>
MERCHANTS NEW YORK BANCORP, INC.
RISKED-BASED CAPITAL
LEVERAGE CAPITAL(1) TIER 1 TOTAL(2)
---------------------------- ------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------- ---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actual $95,432 8.65% $95,432 20.41% $101,049 21.62%
Minimum
requirement 44,130 4.00 18,703 4.00 37,391 8.00
============ ============= ============= ============ ============== ============
Excess $51,302 4.65% $76,729 16.41% $63,658 13.62%
============ ============= ============= ============ ============== ============
THE MERCHANTS BANK OF NEW YORK
RISKED-BASED CAPITAL
LEVERAGE CAPITAL(1) TIER 1 TOTAL(2)
---------------------------- ------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------- ---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
Actual $95,017 8.62% $95,017 20.33% $100,634 21.53%
Minimum
requirement 44,091 4.00 18,695 4.00 37,393 8.00
============ ============= ============= ============= ============== ===========
Excess $50,926 4.62% $76,322 16.33% $63,241 13.53%
============ ============= ============= ============= ============== ===========
<FN>
(1) The leverage capital requirement is generally between 4.0% and 5.0% for all but the most highly-rated
companies.
(2) The Company's Tier 1 capital includes stockholders' equity, net of
intangible asset, and gross of unrealized securities valuation accounts.
Tier 2 capital includes Tier 1 capital plus the loan loss reserves.
</TABLE>
Effective September 1, 1995, the federal bank regulatory agencies
amended their capital adequacy guidelines to provide explicitly for
consideration of interest rate risk in their overall evaluation of a bank's
capital adequacy. The amendments are intended to ensure that banking
institutions effectively measure and monitor their interest rate risk, and that
they maintain
6
<PAGE>
adequate capital for the risk. Under the amendments, banking institutions
deemed by the federal bank regulatory agencies to have excessive
interest rate risk may be required to maintain additional capital. The Company
does not believe that the amendments will have a material adverse effect on the
Company.
The Bank is a state-chartered bank subject to supervision, regulation
and examination by the New York State Banking Department and by the FRB.
Deposits, reserves, investments, loans, consumer law compliance, issuance of
securities, payment of dividends, establishing and closing of branches, mergers
and consolidations, changes in control, electronic funds transfer, community
reinvestment, management practices and other aspects of operations are subject
to regulation by the appropriate Federal and state regulatory agencies. The Bank
is also subject to various regulatory requirements of the FRB including
disclosure requirements in connection with personal and mortgage loans, interest
on deposits and reserve requirements. In addition, the Bank is subject to
numerous federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and discrimination in
credit transactions.
Federal regulatory agencies have broad powers to take prompt corrective
action to resolve problems at banking institutions, including (in certain cases)
the appointment of a conservator or receiver. The extent of these powers is
generally influenced by the level of capital at the institution. Management does
not anticipate that the Bank will become subject to these prompt corrective
action provisions.
Only a well capitalized depository institution may accept brokered
deposits without prior regulatory approval. Under FDIC regulations, an
institution is generally considered "well capitalized" if it has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, and a Tier 1 capital (leverage) ratio of at least 5%. The Company
and the Bank meet the guidelines to be considered a "well capitalized"
institution. Federal law generally requires full-scope on-site annual
examinations of all insured depository institutions by the appropriate federal
bank regulatory agency although the examination may occur at longer intervals
for small well-capitalized or state-chartered banks.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Act on any extension of credit to the bank holding
company or any of its subsidiaries, or investments in the stock or other
securities of the bank holding company or its subsidiaries, and in the taking of
such stock or securities as collateral for loans to any borrower. A bank holding
company and its subsidiaries are prohibited from engaging in certain "tie-in"
arrangements in connection with the extension of credit or provision of any
property or services.
Various restrictions limit the extent to which the Bank can supply
funds to the Company. The FRB limits the Bank from the payment of dividends,
without prior approval, to an amount not to exceed the net profits for that year
plus retained earnings for the preceding two calendar years, less any required
transfer to surplus. Further restrictions prevent the Company from borrowing
from a bank subsidiary unless the loans are secured in specified amounts.
Without the
7
<PAGE>
prior approval of the FRB, secured loans, other transactions and
investments by any bank subsidiary are generally limited in amount to 10% of the
bank's capital and surplus. Federal law also requires that transactions between
a bank subsidiary and the Company, including extension of credit, sales of
securities or assets and the provision of services, be conducted on terms at
least as favorable to the bank subsidiary as those that apply or that would
apply to comparable transactions with unaffiliated parties.
As a consequence of the extensive regulation of the commercial banking
business in the United States, the business of the Company and the Bank are
particularly susceptible to changes in federal and state legislation and
regulations which may increase the cost of doing business.
LENDING ACTIVITIES AND CREDIT RISK MANAGEMENT
The Bank's commercial and industrial loan portfolio represents
approximately 95% of gross loans. Loans in this category are typically made to
small and medium sized businesses with an average range between $100,000 and $3
million, although larger loans are made as the Bank's legal lending limit is in
excess of $15 million. Loan proceeds are generally used for working capital and
are seasonal in nature. In addition, the Bank supports the financing of the
importation of merchandise through letters of credit and direct loans. The
primary source of repayment is from the borrowers' conversion cycle of inventory
and accounts receivable as well as profits and cash flows.
The Bank's mortgage loan portfolio represents approximately 4% of gross
loans and is secured by mortgages on real property located in the New York
metropolitan area. Mortgage loans are made on an accommodation basis to current,
well established customers or are on occasion made to a business for property
which it is occupying. In the latter instance, full credit evaluation of the
borrowers' financial status is done and the Bank does not rely solely on the
property.
The Bank's lending is subject to its written underwriting standards and
to loan origination procedures prescribed by management. Detailed information is
obtained to assist in determining the borrower's ability to repay including
credit reports, financial statements and confirmations. The Bank's commercial
and industrial loans are underwritten based on the cash flow and financial
condition of the borrowing business and applicable collateral when appropriate.
Such loans may be secured in whole or in part by collateral such as liquid
assets, accounts receivable, inventory, equipment or real property. The majority
of the loans are personally guaranteed by the principals of the business and may
be further collateralized by the assets of those principals. The interest rates
on commercial and industrial loans are primarily variable rates that change with
market conditions and are priced in relation to the "prime rate."
Intrinsic to the lending process is the possibility of loss. In times
of economic slowdown, the risk inherent in the Bank's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which in turn
depends on
8
<PAGE>
current and expected economic conditions, the financial conditions of
borrowers and the credit management process.
As of December 31, 1996, the Bank's loans of $297 million , net of
unearned discounts, represented 26% of total assets. The Bank has no foreign
loans outstanding. The following table sets forth the composition of the Bank's
loan portfolio net of unearned discounts at the end of each of the most recent
five fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial and industrial........ $283,341 $256,620 $254,098 $272,664 $283,671
Real estate - mortgage........... 10,941 11,276 11,205 7,694 7,882
Installment loans................ 2,855 3,067 2,894 2,518 2,892
------------ ----------- ------------ ------------ -------------
Gross loans...................... 297,137 270,963 268,197 282,876 294,445
Less: unearned discounts...... (56) (59) (80) (262) (644)
------------ ----------- ------------ ------------ -------------
Total (net of unearned
discounts)..................... $297,081 $270,904 $268,117 $282,614 $293,801
============ =========== ============ ============ =============
</TABLE>
Approximately 45% of the current loan portfolio is outstanding to
companies in the diamond, jewelry, furs and apparel industries. This includes
loans to various types of companies such as wholesalers, retailers,
manufacturers and casters. The Bank's portfolio is sensitive to downturns in the
economy, since these items are purchased with disposable income. As of December
31, 1996, there are no categories of loans exceeding 10% of total loans except
as shown in the above table. Substantially all of the Bank's loans are to
borrowers in the New York metropolitan area.
The following table sets forth the maturities of selected loans in the
Bank's gross loan portfolio at December 31, 1996:
<TABLE>
<CAPTION>
DUE ONE DUE ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS FIVE YEARS TOTAL
------------------ ------------------ ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial........ $250,403 $27,814 $5,124 $283,341
Real estate - mortgage........... 1,721 6,603 2,617 10,941
------------------ ------------------ ---------------- ----------------
Total............................ $252,124 $34,417 $7,741 $294,282
================== ================== ================ ================
Loans included in the above
which are due after one year,
which have:
Fixed interest rates............. $3,055 $4,004 $7,059
Adjustable interest rates........ 31,362 3,737 35,099
------------------ ---------------- ----------------
Total............................ $34,417 $7,741 $42,158
================== ================ ================
</TABLE>
9
<PAGE>
ASSET AND LIABILITY MANAGEMENT
The Bank's net interest income is an important component of its
operating results. The stability of net interest income in changing interest
rate environments depends on the Bank's ability to manage effectively the
interest rate sensitivity and maturity of its assets and liabilities. The Bank's
Asset and Liability Management Committee develops and implements risk management
strategies, and uses various risk measurement tools to evaluate the impact of
changes in interest rates on the Bank's asset/liability structure and net
interest income.
The Bank's asset/liability management goal is to maintain an acceptable
level of interest rate risk to produce relatively stable net interest income in
changing interest rate environments. Management's plan has been to maximize the
amount of loans with interest rates that move with prime rate changes
(approximately 90% of the loan portfolio) and to invest a major portion of the
investment portfolio in mortgage-backed securities which have a five to seven
year average life and a constant cash flow return of principal which can be
reinvested on a monthly basis (currently $10 million to $12 million per month).
In addition, the investment portfolio has been substantially classified in the
available-for-sale category to allow for sales to be made, when appropriate, to
take advantage of interest rate arbitrage to improve future interest returns. As
economic conditions change, management will modify the plan as necessary.
One measure of the Bank's interest rate sensitivity is its interest
sensitivity gap, or the difference between interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within a specified
time frame. Shorter gaps are a measure of exposure to changes in interest rates
for shorter intervals and longer gaps measure sensitivity over a longer
interval. At December 31, 1996, the Bank had a negative one-year gap of (32%) of
total interest-earning assets; that is, it had more interest-bearing liabilities
than interest-earning assets maturing or repricing within one year. A negative
gap may enhance earnings in periods of declining interest rates in that, during
such periods, the interest expense paid on liabilities may decrease more rapidly
than the decrease in interest income earned on assets. Conversely, in an
increasing interest rate environment, a negative gap may result in an increase
in the interest expense paid on liabilities that is more rapid than the increase
in interest income earned on assets. While a negative gap indicates the amount
of interest-earning liabilities which will mature before interest-bearing
assets, it does not indicate the extent to which they reprice. Therefore, at
times, a negative gap may not increase earnings in a declining interest rate
environment.
10
<PAGE>
The following table summarizes the Bank's interest rate sensitive
assets and liabilities at December 31, 1996 according to the time periods in
which they are expected to reprice, and the resulting gap for each time period:
<TABLE>
<CAPTION>
LESS THAN THREE TO ONE TO
THREE TWELVE FIVE OVER
MONTHS MONTHS YEARS FIVE YEARS TOTAL
-------------- ------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold.................... $26,000 $-- $-- $-- $26,000
U.S. government and
agency obligations................ 32,639 208,134 391,693 5,794 638,260
Obligations of states and political
subdivisions...................... 965 7,810 34,126 24,165 67,066
Other securities...................... -- 63 25 9,357 9,445
Commercial and industrial loans:
Fixed rate........................ 20,124 2,187 170 2,631 25,112
Adjustable rate................... 258,173 -- -- -- 258,173
Real estate loans:
Fixed rate........................ 120 311 2,885 1,373 4,689
Adjustable rate................... 6,252 -- -- -- 6,252
Installment loans..................... 400 1,067 1,388 -- 2,855
Other................................. -- 350 -- -- 350
-------------- ------------- -------------- -------------- ---------------
Total interest-earning assets..... $344,673 $219,922 $430,287 $43,320 $1,038,202
-------------- ------------- -------------- -------------- ---------------
Interest-bearing liabilities:
Savings accounts.................... $ 24,763 -- -- -- 24,763
NOW accounts........................ 44,431 -- -- -- 44,431
Money market accounts............... 146,169 -- -- -- 146,169
Time deposits....................... 173,016 211,901 21,718 -- 406,635
Securities sold under repurchase
agreements........................ 120,000 -- -- -- 120,000
Demand Notes to U. S. Treasury........ 7,199 -- -- -- 7,199
-------------- ------------- -------------- -------------- --------------
Total interest-bearing liabilities. $515,578 $211,901 $21,718 $0 $749,197
-------------- ------------- -------------- -------------- --------------
Net interest sensitivity gap.......... (170,905) 8,021 408,569 43,320 289,005
Cumulative gap position............... (170,905) (162,884) 245,685 289,005
Cumulative gap/total
interest-earning assets........... (16.46%) (15.69%) 23.66% 27.84%
============== ============= ============== ==============
</TABLE>
Mortgage backed securities have been adjusted for weighted average
maturity dates and prepayments. All securities are disclosed at book value.
Prepayments and scheduled payments have been estimated for the loan portfolio
based on the Bank's historical experience. Non-accrual loans are included in the
table at their original contractual maturities. Savings account and NOW account
repricings are based on the Bank's historical repricing experience and
management's belief that these accounts are not highly sensitive to changes in
interest rates.
11
<PAGE>
ASSET QUALITY
Management continually reviews delinquent loans to adequately assess
problem situations and to quickly and efficiently remedy these problems whenever
possible. When a loan becomes past due (when it is past due 90 days) and doubt
exists as to the ultimate collection of principal or interest, the accrual of
interest is discontinued. Any accrued but unpaid interest on such loans is
charged against current earnings. Non-accrual loans at December 31, 1996 were
$1.1 million or 0.37% of total loans, while at December 31, 1995 and 1994, they
were $2.2 and $1.3 million, respectively. Loans which are current as of December
31, 1996 but for which there are serious doubts as to the ability of the
borrowers to comply with the present loan repayment terms are not material in
amount.
The following table sets forth the aggregate amount of domestic
non-accrual, past due and restructured loans at the end of each of the most
recent five fiscal years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans....................... $1,109 2,169 1,311 1,837 1,848
Past due 90 days or more
(other than above).................... 687 281 308 308 468
Restructured............................ -- -- -- -- --
------ ------ ------ ------ ------
Total................................... $1,796 2,450 1,619 2,145 2,316
Interest income that would
have been earned on
non-accrual and reduced
rate loans outstanding................ 288 201 94 110 118
Interest income included in
net income for the above
loans................................. 39 -- -- -- 27
Non-accrual, past due and
restructured loans as a
percentage of total gross
loans................................. .60% .90 .60 .76 .79
</TABLE>
The provision for loan losses is a charge against income which
increases the allowance for loan losses. The adequacy of the allowance for loan
losses is evaluated periodically and is determined based on management's
judgment concerning the amount of risk and potential for loss inherent in the
portfolio. Management's judgment is based upon a number of factors including a
review of non-performing and other classified loans, the value of collateral for
such loans, historical loan loss experience, changes in the nature and volume of
the loan portfolio, and current and prospective economic conditions. While
management uses the best information available in establishing the allowance for
loan losses, future adjustments may be necessary based on changes in economic
conditions and in the credit risk inherent in the loan portfolio. As of December
31, 1996, there were no potential problem loans of which management was aware
that in management's opinion would materially impact financial results.
12
<PAGE>
The Bank's allowance for loan losses at December 31, 1996 was $5.62
million or 1.9% of total loans compared to $6.5 million at December 31, 1995 or
2.4% of total loans. At December 31, 1994 it was $6.2 million or 2.3% of total
loans. Of the allowance for loan losses, non-accrual loans represented 19.74%,
33.4% and 21.2% respectively.
As in all banks, in addition to non-accrual loans, the Bank has other
loans which reflect a higher degree of risk because of general economic
conditions or specific deterioration because of circumstances for a particular
borrower. These loans are reflected in the criticized and/or classified
categories by the Bank's loan review process. In establishing the allowance for
loan losses, the Bank must consider these categories, and additions to the
allowance are made with this in mind. Although actual non-accrual loans at
December 31 (those on which interest is no longer being accrued) were on average
$1.65 million for each of the past five years, the Bank's actual charge-offs for
the past five years averaged $4.9 million. In the same period, the average
provision for additions to the allowance was $4.9 million, with 1996 accounting
for $2.6 million.
The following table sets forth certain information with respect to the
Bank's loan loss experience for each of the most recent five fiscal years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses balance at
beginning of year................... $6,484 6,188 6,960 4,359 3,209
Provision for loan losses........... 2,580 2,080 1,850 9,785 8,394
Charge offs:
Commercial and industrial........ (4,345) (2,315) (2,918) (7,343) (7,636)
Installment...................... (60) (33) (--) (8) (20)
--------- --------- --------- --------- ---------
Total charge offs................... (4,405) (2,348) (2,918) (7,351) (7,656)
Recoveries
Commercial and industrial........ 952 563 294 166 407
Installment...................... 6 1 2 1 5
--------- --------- --------- --------- ---------
Total recoveries.................... 958 564 296 167 412
Net charge offs..................... (3,447) (1,784) (2,622) (7,184) (7,244)
--------- --------- --------- --------- ---------
Balance at end of year.............. $5,617 6,484 6,188 6,960 4,359
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of net charge offs to average
loans outstanding, net of unearned
discounts........................... 1.23% .65 .96 2.34 2.48
</TABLE>
13
<PAGE>
The following table sets forth an approximate breakdown of the
allowance for loan losses by major categories of loans for each of the most
recent five fiscal years:1
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995 1994 1993 1992
-------------- -------------- ------------- ------------- -------------
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
IN EA. IN EA. IN EA. IN EA. IN EA.
CATEG. CATEG. CATEG. CATEG. CATEG.
LOAN TO LOAN TO LOAN TO LOAN TO LOAN TO
LOSS TOTAL LOSS TOTAL LOSS TOTAL LOSS TOTAL LOSS TOTAL
ALLOW LOANS ALLOW LOANS ALLOW LOANS ALLOW LOANS ALLOW LOANS
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & industrial.. $ 555 95.36 1,085 94.71 656 94.74 919 96.39 924 96.34
Real estate.............. -- 3.68 -- 4.16 -- 4.18 -- 2.72 -- 2.68
Installment.............. 24 .96 23 1.13 20 1.08 26 .89 29 .98
Unallocated.............. 5,038 -- 5,376 -- 5,512 -- 6,015 -- 3,406 --
----- ----- ----- ----- -----
Total.................... $5,617 6,484 6,188 6,960 4,359
====== ===== ===== ===== =====
</TABLE>
SECURITIES AND INVESTMENT POLICY OBJECTIVES
The Bank invests in U.S. Government obligations, U.S. Agency
mortgage-backed securities and high quality state and municipal securities, high
grade bonds and money market instruments. The Bank's investment portfolio
represents a significant share of its assets and exerts an important and
stabilizing influence upon the Bank's earnings.
The Bank's investment policy is designed to promote three objectives.
The primary objective is to provide liquidity necessary to meet day to day,
cyclical and long term changes in the mix of the Bank's assets and liabilities.
The secondary objective is to provide a stable flow of dependable earnings while
maintaining liquidity through absorbing funds when loan demand decreases due to
seasonal trends and to supply funds when loan demand increases toward its annual
peak. The third objective is to provide a balance of quality and diversification
to the Bank's assets. There is minimal exposure to trading losses, since the
Bank invests but does not trade. Only high grade short term instruments and top
rated bonds with an average life of approximately five years or less are
acquired with staggered maturities for liquidity.
Current money and security market conditions are evaluated by the
Bank's Investment Committee on a monthly basis. The Investment Committee
includes Messrs. Witty, Hertz, Lawrence and Cardew. The Committee's strategy and
investment program for the month ahead, created in accordance with the Bank's
investment policy, is presented for Board approval.
- --------------------------
1 The allocation of loan loss allowance is calculated on the basis of 50%
of the non-accruing commercial and industrial loans and a 5 year average
of losses on installment loans. Such allocation is not necessarily
indicative of the amounts in which future charge-offs may be taken or of
future loss trends.
14
<PAGE>
As of December 31, 1996, there were no securities, in the name of any
one issuer, exceeding 10% of stockholders' equity, except for securities issued
by the United States and its political subdivisions and agencies.
The following table sets forth for the most recent three fiscal years
the book values and estimated market values of the Company's investment
securities:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1996 1995 1994
---- ---- ----
Available for sale securities: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. government and agency
obligations......................................... $518,908 $540,024 $529,242
Obligations of states and political
subdivisions........................................ 19,848 22,500 --
Other securities....................................... 9,107 3,698 3,698
------------ ------------- -------------
Total - available for sale (book value)................ $547,863 $566,222 $532,940
============ ============= =============
Estimated market value................................. $561,601 $584,378 $521,204
============ ============= =============
Held to maturity securities:
U.S. government and agency
obligations......................................... 119,351 -- 12,847
Obligations of states and political
subdivisions........................................ 47,219 44,929 72,029
Other securities....................................... 338 506 383
------------ ------------- -------------
Total - held to maturity (book value).................. $166,908 $45,435 $85,259
============ ============= =============
Estimated market value................................. $169,340 $47,759 $85,378
============ ============= =============
</TABLE>
15
<PAGE>
The following tables sets forth the book values, range of maturities
and average yields for each category at December 31, 1996.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE (MARKET VALUE)
--------------------------------------------
ONE TO FIVE TO OVER TOTAL AVERAGE
ONE YEAR FIVE TEN TEN MARKET YIELD TO
OR LESS YEARS YEARS YEARS VALUE MATURITY
------------ ------------ ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations(1)(2)............ $104,553 $115,845 $-- $-- $220,398 7.68%
U. S. agency obligations..... 125,499 179,942 5,658 -- 311,099 7.06%
Obligation of state and
political subdivisions(2).... 3,142 11,296 2,903 3,626 20,967 7.11%
Other securities............. -- -- -- 9,137 9,137 7.75%
------------ ------------ ---------- ---------- ------------ ------------
Total available for sale..... $233,194 $307,083 $8,561 $12,763 $561,601 7.32%
============ ============ ========== ========== ============ ============
Average yield to maturity.... 7.41% 7.23 6.03 6.45
<CAPTION>
SECURITIES HELD TO MATURITY (BOOK VALUE)
----------------------------------------
ONE TO FIVE TO OVER TOTAL AVERAGE
ONE YEAR FIVE TEN TEN MARKET YIELD TO
OR LESS YEARS YEARS YEARS VALUE MATURITY
------------ ------------ ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations (1)(2)........... $453 $51,077 $-- $-- $51,530 7.06%
U.S. agency obligations...... -- 67,821 -- -- 67,821 7.26%
Obligations of New York
state(2)..................... $ 5,683 23,550 5,852 12,134 47,219 5.66%
Other securities............. 63 25 250 -- 338 6.92%
============ =========== ============ ========== ============ ============
Total held to maturity....... $ 6,199 $142,473 $6,102 $12,134 $166,908 6.74%
============ =========== ============ ========== ============ ============
Average yield to maturity.... 5.85% 6.93 5.70 5.42
Total investments............ $239,393 $449,556 $14,663 $24,897 $728,509 7.19%
============ =========== ============ ========== ============ ============
<FN>
- ---------------
(1) Consisting mainly of Government guaranteed GNMA investments with an average life of five years.
(2) Above yield is not computed on tax-equivalent basis. The average
tax-equivalent yield to maturity on obligations of states and political
subdivisions are as follows: securities available for sale - 10.77% and
securities held to maturity - 8.57%. The total tax equivalent yield on
the entire investment securities portfolio is 7.48%.
</TABLE>
DEPOSITS
Deposits are the Bank's principal source of funds. The Bank attracts
deposits from the general public and small businesses by offering a variety of
deposit accounts at competitive rates. The Bank's deposit accounts include
savings accounts, personal and commercial checking accounts, money market
accounts, NOW accounts, and certificates of deposit ("time deposits").
16
<PAGE>
The Bank also offers tax deferred retirement savings accounts (IRAs), savings
and certificates of deposit accounts of $100,000 or more ("jumbo certificates").
Management believes that a significant portion of maturing deposits will be
retained by the Bank. There are no material amounts of foreign deposits in
domestic offices.
At December 31, 1996, the Bank had $271.2 million in jumbo
certificates, compared to $218.0 million at December 31, 1995 and $206.0 million
at December 31, 1994. At December 31, 1996, the dollar amount of jumbo
certificates by remaining maturity dates and the average interest rates were as
follows:
<TABLE>
<CAPTION>
REMAINING MATURITY AMOUNT AVERAGE RATE
------------------ ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
3 months or less............................. $128,773 6.32%
More than 3 through 6 months................. 65,015 5.44
More than 6 months through 12 months......... 71,501 5.79
More than 12 months.......................... 5,875 6.10
--------------- ---------------
Total.................................... $271,164 5.91%
=============== ===============
</TABLE>
Deposit inflows and outflows are generally dependent on market
conditions, interest rates, the general economic environment in the Bank's
market area and other competitive factors. The variety of accounts offered by
the Bank has enabled it to be more competitive in obtaining funds and to respond
with more flexibility to changes in the interest rate environment. Management's
policy is to review deposit interest rates at least weekly and to adjust
appropriately based on the need for funds, competition and the effect on the net
interest margin. The Bank's interest costs on time and savings deposits may
continue to trend upward in a higher interest rate environment.
Fixed rate, fixed term certificates of deposit accounts ("CD's") are
generally a significant source of funds for the Company. At December 31, 1996,
CD's amounted to $406.6 million or 65.4% of total interest-bearing deposits,
compared to $380.9 million or 67.5% at December 31, 1995 and $414.0 million or
68.6% at December 31, 1994. CD's offered by the Company have maturities of seven
days or more, impose a minimum balance requirement of $2,000, and pay simple
interest.
Savings deposit accounts amounted to $24.7 million or 4% of the
Company's total interest-bearing deposits at December 31, 1996, compared to
$27.2 million or 4.8% at December 31, 1995 and $30 million or 5% at December 31,
1994. Savings deposits consist of passbook savings accounts and statement
savings accounts. Savings accounts offered by the Bank pay interest monthly,
compounded and credited on a quarterly basis, to accounts with a minimum average
daily balance of $100.
The Bank offers NOW accounts with unlimited check writing privileges.
The minimum initial deposit required is $2,500. There is a service charge
incurred if the daily average balance for the month falls below $2,500. Interest
is compounded monthly. Interest is credited at the end of the month, at the
current rate determined by the Bank. NOW accounts amounted to $44.4 million, or
7.1% of the Bank's total interest-bearing deposits at December 31, 1996,
17
<PAGE>
compared to $39.5 million, or 7%, at December 31, 1995 and $42.9 million, or
7.1%, at December 31, 1994.
The Bank also offers a money market account with limited check writing
privileges. Such accounts have a minimum balance requirement of $2,000 and earn
interest at the Company's money market rate if the account maintains a minimum
average balance of $2,000 for the month. There is a service charge incurred if
the daily average balance falls below $2,000. Interest on all money market
accounts is compounded monthly and credited monthly. Money market accounts
amounted to $146.2 million, or 23.5% of the Bank's total interest-bearing
deposits, at December 31, 1996, compared to $116.3 million, or 20.6%, at
December 31, 1995 and $116.5 million, or 19.3%, at December 31, 1994.
The following table sets forth the average deposits and average rates
paid for each of the most recent three fiscal years for the classifications of
deposits listed:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 RATE(%) 1995 RATE(%) 1994 RATE(%)
---- ------- ---- ------- ---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand.................... $209,828 -- $194,571 -- $200,475 --
NOW....................... 38,219 2.28 38,235 2.29 45,190 2.50
Savings................... 25,485 2.99 28,146 2.96 36,934 2.94
Money market.............. 131,974 3.37 116,179 3.30 138,316 2.62
Other time ............... 384,033 5.30 389,747 5.51 400,746 4.20
-------- ---- ------- ---- ------- ----
Total.......................... $789,539 $766,878 $821,661
======== ======= =======
</TABLE>
Management believes the variety of deposit accounts offered by the Bank
allows it to compete for funds effectively. However, these sources of funds
generally are interest rate sensitive and therefore can be more costly in a high
interest rate environment. Although the Bank will continue to carefully monitor
deposit flows, the ability of the Bank to control deposit flows will continue to
be significantly affected by the general market rate environment and economic
conditions.
Additional sources of funds are interest and principal payments on
loans and securities, and positive cash flows generated from operations.
Interest and principal payments on loans are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general market interest rates, economic conditions and competitive factors. In
the event that the Bank is not able to generate sufficient funds from these
sources, it has availability of $86 million of overnight federal funds lines of
credit from other financial institutions as well as the ability to obtain
substantial funds through repurchase agreements against its investment
portfolio. In addition, during 1996, the Bank became a member of the Federal
Home Loan Bank of New York where it has availability of $108 million of funds,
of which $50 million may be used in overnight funds. Furthermore, the Bank has
access to the discount window of the Federal Reserve Bank. There were no
borrowings under these arrangements in 1996, 1995 or 1994.
18
<PAGE>
SHORT TERM BORROWINGS
The following table represents the Bank's material short term
borrowings for the fiscal years ending December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at year end........................................... $127,199 105,065 70,000
Weighted average interest rate on balances at end of year..... 5.41% 5.81% 5.85%
Maximum amount of borrowing at any month end.................. $170,000 110,731 80,000
Approximate average amounts outstanding during period......... 119,661 67,991 43,422
Approximate weighted average interest rate during period...... 5.51% 5.97% 4.90%
</TABLE>
EMPLOYEES
At December 31, 1996, the Company and the Bank had 245 employees,
consisting of 72 officers and 173 supervisory and clerical employees. The Bank
considers its relations with its employees to be good.
19
<PAGE>
SELECTED STATISTICAL INFORMATION
In addition to the statistical information that is presented in this
Form 10-K, the following information is included in the Company's 1996 Annual
Report to Shareholders (the "Annual Report") and is hereby incorporated herein
by reference:
<TABLE>
<CAPTION>
DESCRIPTION OF STATISTICAL INFORMATION ANNUAL REPORT CAPTION PAGE
- -------------------------------------- --------------------- ----
<S> <C> <C>
Average Balance Sheets Average Assets, Liabilities and
Stockholders' Equity 31
Analysis of Net Interest Earnings Analysis of Net Interest Earnings 8
Volume and Rate Variance Change in Interest Income and Expense 9
Return on Equity and Assets Selected Financial Data 6 - 7
</TABLE>
ITEM 2. PROPERTIES
The Bank owns the nine story office building at 434 Broadway, New York,
New York where one of its branch offices is located. The Bank occupies five of
the nine floors, the mezzanine and basement; four floors are presently rented to
others. In addition, the Bank owns the commercial condominium located at 62 West
47th Street, New York, New York, which houses the Bank's midtown branch office,
consisting of a main floor, mezzanine, and basement.
In addition to the above two offices, the Bank maintains five branch
offices at 93 Canal Street, 1040 Sixth Avenue, 295 Fifth Avenue, 145 Fifth
Avenue, and its corporate headquarters at 275 Madison Avenue, New York, New
York, where the Bank's main branch office is located.
ITEM 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which the
Company or the Bank is a party. In the opinion of management, the aggregate
liabilities, if any, arising from such actions are not expected to have a
material adverse effect on the financial position of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, there were no matters submitted to a
vote of the Company's stockholders.
20
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The market for the Company's common equity is not an exchange but is
established by the National Association of Securities Dealers' Automated
Quotation System. At December 31, 1996 the total number of holders of record of
the Company's common equity was approximately 1,529. The information appearing
on page 12 of the Annual Report under the caption "Price Range of Common Stock"
is incorporated herein by reference.
Cash dividends have been declared in each quarter of 1996 and 1995
aggregating annually $6.5 million and $5.47 million, respectively, or $1.30 per
share in 1996 and $1.10 per share in 1995, after adjusting for the two-for-one
stock split which occurred during 1995.
As a depository institution whose deposits are insured by the FDIC, the
Bank may not pay dividends or distribute any of its capital assets while it
remains in default on any assessment due the FDIC. The Bank currently is not in
default under any of its obligations to the FDIC. The Company and the Bank, in
declaring and paying dividends, are also limited insofar as minimum capital
requirements of regulatory authorities must be maintained. The Company and the
Bank comply with such capital requirements.
Under the Federal Reserve Act, the approval of the FRB is required for
dividends declared by a state member bank which in any year exceed the net
profits of such bank for that year, as defined, combined with retained net
profits for the two preceding years. Additionally, under Federal law, a bank is
prohibited from paying dividends in amounts greater than undivided profits then
on hand, as defined, after deducting bad debts.
During 1986, the stockholders approved the Employee Stock Option Plan
of the Bank (the "Option Plan"). Due to the Bank's becoming the wholly-owned
subsidiary of the Company on July 1, 1993, the Company adopted a substantially
identical stock option plan as successor to the Option Plan and all stock
options have become options to purchase the Company's Common Stock rather than
shares of the Bank's stock. No stock options were granted under the Option Plan
during 1996. A total of 6,223 shares of Common Stock of the Company were issued
upon the exercise of options previously granted under the Option Plan. The
weighted average exercise price of such options was $19.84 per share. Such
transactions were exempt from the registration requirements of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 30 (Note 16) and pages 6 and 7,
respectively, of the Annual Report under the captions "Selected Quarterly
Financial Data" and "Selected Financial Data" is incorporated herein by
reference.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information appearing on pages 8 through 12 of the Annual Report
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, related notes and Independent
Auditors' Report which appear on pages 13 through 30 of the Annual Report are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing on pages 4 through 7 of the Company's Proxy
Statement prepared in connection with the 1996 Annual Meeting of Stockholders
(the "Proxy Statement") under the caption "Election of Directors" is
incorporated herein by reference.
All executive officers are designated annually by the Board of
Directors and serve at the pleasure of the Board.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing on pages 9 through 11 of the Proxy Statement
under the caption "Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing on pages 7 and 8 of the Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing on page 11 of the Proxy Statement under the
caption "Compensation and Option Committee Interlocks and Insider Participation;
Certain Relationships and Related Transactions" is incorporated herein by
reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements. The financial statements, related notes and the
Report of Independent Auditors, KPMG Peat Marwick LLP, dated February 7, 1997
appear on pages 13 through 30 of the Annual Report and are incorporated herein
by reference.
(a)2. Financial Statements Schedules.
(a)3. Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Item Description
---- -----------
(11) Computation of Earnings Per Share Earnings
(13) 1996 Annual Report to Shareholders
(b) Reports on Form 8-K. None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERCHANTS NEW YORK BANCORP, INC.
(Registrant)
By: /s/ Spencer B. Witty
Spencer B. Witty
Chairman of the Board
Dated March 18, 1997
By: /s/ James G. Lawrence
James G. Lawrence
President, Chief Executive Officer and
Director (Principal Executive Officer)
Dated March 18, 1997
By: /s/ William J. Cardew
William J. Cardew
Vice Chairman of the Board,
Chief Operating Officer and Director
(Principal Financial Officer)
Dated March 18, 1997
By: /s/ Nancy J. Ostermann
Nancy J. Ostermann
Vice President and Comptroller
(Principal Accounting Officer)
Dated March 18, 1997
24
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles J. Baum Director March 18, 1997
- -------------------------------------
Charles J. Baum
/s/ William J. Cardew Vice Chairman of the Board, Chief March 18, 1997
- -------------------------------------
William J. Cardew Operating Officer and Director
/s/ Rudolf H. Hertz Vice Chairman of the Board and Director March 18, 1997
- -------------------------------------
Rudolf H. Hertz
/s/ Isidore Karten Director March 18, 1997
- -------------------------------------
Isidore Karten
/s/ James G. Lawrence President, Chief Executive Officer and March 18, 1997
- -------------------------------------
James G. Lawrence Director
/s/ Robinson Markel Director March 18, 1997
- -------------------------------------
Robinson Markel
/s/ Paul Meyrowitz Director March 18, 1997
- -------------------------------------
Paul Meyrowitz
/s/ Alan Mirken Director March 18, 1997
- -------------------------------------
Alan Mirken
/s/ Mitchell J. Nelson Director March 18, 1997
- -------------------------------------
Mitchell J. Nelson
/s/ Leonard Schlussel Director March 18, 1997
- -------------------------------------
Leonard Schlussel
/s/ Charles I. Silberman Vice Chairman of the Board March 18, 1997
- -------------------------------------
Charles I. Silberman
/s/ Spencer B. Witty Chairman of the Board and Director March 18, 1997
- -------------------------------------
Spencer B. Witty
25
</TABLE>
<PAGE>
EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
The computation of earnings per share for each period presented is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income....................................... $12,670,771 11,465,430 10,709,341
Average weighted shares outstanding.............. 5,030,772 5,015,504 4,967,202
Earnings per share............................... 2.52 2.28 2.16
</TABLE>
26
<PAGE>
MERCHANTS NEW YORK BANCORP
BANKING SINCE 1881
1996
ANNUAL REPORT
27
<PAGE>
TABLE OF CONTENTS
1 Financial Highlights
2 To Our Stockholders
4 Middle Market Lending
5 International Department
6 Selected Financial Data
8 Management's Discussion and Analysis of
Financial Condition and Results of Operations
13 Consolidated Statements of Condition
14 Consolidated Statements of Income
15 Consolidated Statements of Changes in Stockholders' Equity
16 Consolidated Statements of Cash Flows
17 Notes to Consolidated Financial Statements
30 Independent Auditors' Report
31 Average Assets, Liabilities and Stockholders' Equity
32 Board of Directors
The Company's annual report, on Form 10-K, as filed with the Securities &
Exchange Commission, will be made available to stockholders upon request in
writing, at no cost. If interested, please contact: Karen L. Deitz, Corporate
Secretary, Merchants New York Bancorp, 275 Madison Avenue, New York, NY
10016-1011 *
28
<PAGE>
Merchants New York Bancorp
FINANCIAL HIGHLIGHTS
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------
Financial Condition Data
Total assets $1,137,798,701 $1,027,191,423
Total investment securities 728,508,783 629,812,160
Net loans 291,463,754 264,420,306
Total deposits 875,693,410 792,397,688
Total liabilities 1,034,263,069 927,036,820
Total stockholders' equity 103,535,632 100,154,603
Selected Operating Data
Total interest income 73,094,985 69,569,606
Total interest expense 33,455,196 31,907,403
Net interest income 39,639,789 37,662,203
Net interest income after
provision for loan losses 37,059,789 35,582,203
Income before income taxes 20,081,295 18,004,619
Income tax expense 7,410,524 6,539,189
Net income 12,670,771 11,465,430
Net income per average share $2.52 $2.28
Net Interest Income
(In Dollars)
31,044,281 35,280,429 36,237,944 37,662,203 39,639,789
'92 '93 '94 '95 '96
Net Income
(In Dollars)
6,519,650 7,884,433 10,709,341 11,465,430 12,670,771
'92 '93 '94 '95 '96
Stockholders' Equity
(In Dollars)
73,859,619 77,794,712 77,734,334 100,154,603 103,535,632
'92 '93 '94 '95 '96
1
<PAGE>
TO OUR STOCKHOLDERS
AND FRIENDS:
With pride we report to you that Merchants New York Bancorp enjoyed another
record year in 1996. This was our fourth record year in a row and we have
achieved seventeen consecutive quarters of earnings gains, all of which
distinguish "The Good Old Bank" as a reliable profit-making institution, as well
as reinforcing our reputation as one of the nation's strongest and most stable
commercial banks.
Despite uncertainties over the economy in 1996 that have carried over into
1997, and in the face of unpredictable interest rate patterns, as well as
periods when taxes were higher, the bank set all-time highs for earnings.
Total interest income in 1996 was $73,094,985 compared to $69,569,606 in
1995. Income before income taxes reached $20,081,295 in 1996 versus $18,004,619
in 1995. Our net income for 1996 climbed to $12,670,771, or $2.52 per share, up
from 1995's $11,465,430, or $2.28 per share.
Our core businesses, lending activities and investments, had excellent
performances and contributed the bulk of our bottom-line gains. The overall
growth may be attributed to favorable interest rate spreads, effective control
of costs, prudent deployment of assets and the Bank's unswerving focus on
lending to mid-market firms.
It should be noted that our headquarters banking facility at Madison Avenue
and 40th Street completed its first full year of operation. The results
significantly exceeded our expectations and major contributions were made in
both the loan and deposit areas. For example, in the demand deposit category,
Madison Avenue contributed 30% of this year's increase which helped us to
achieve a bank record of $254 million at year-end.
Consistent with our tradition of sharing our growth with stockholders, in
September we increased our dividend by nearly 17%, from $1.20 to $1.40 per share
annually. This increase marked the 44th time since 1950 that the payout was
raised, and followed a similar dividend increase in 1995. The December dividend
payment was the Bank's 254th consecutive quarterly cash dividend. Since 1932,
when dividends commenced, our Bank has never skipped or cut its dividend.
Since the Bank's founding in 1874, our institution has never had a losing
year. As previously stated, 1996 was another record year and once again we added
to capital, through earnings, and, increased the book value of our shares.
Our debt-free fortress balance sheet offers depositors and stockholders
paramount levels of safety and soundness. Our risk-based capital ratio at
year-end was
[PHOTO CAPTION]
Left to Right: William J. Cardew, Vice Chairman and Chief Operating Officer;
Spencer B. Witty, Chairman; James G. Lawrence, President and Chief Executive
Officer and Rudolf H. Hertz, Vice Chairman.
2
<PAGE>
21.62%, which is more than two-and-one-half times regulatory requirements.
This ratio is among the highest of all commercial banks in the nation.
It is noted that the Bank announced a common stock buy-back program in 1996,
its first-ever, with a plan to purchase up to 5% of the stock on the open
market. The repurchase represents an opportunity to invest in the Bank's
future growth, especially in light of the Bank's record performance.
The consolidation trend in the banking industry has accelerated, and, myriad
mergers and acquisitions have afforded our "eager to lend" institution
unprecedented opportunities. Our system of loan gathering and our policy of
officers' visiting established and prospective borrowers was successful. The
size of our loan portfolio at year-end was $297,080,725, up 10% from 1995's
$270,904,241.
New products were also added during the course of 1996. We became an official
lender, licensed by the United States Small Business Administration, for loans
that are majority guaranteed by the Federal Government. MasterCard and Visa
credit cards, and our own ATM worldwide access cards were made available to help
us better serve our clients.
Our branches are strategically located in various communities where there are
clusters of specialty firms in select industries, particularly small- and
mid-sized businesses. We support those communities, as well as marketing to the
Greater Metropolitan Area as a whole. In addition, we continually enhance our
technological capabilities where it makes sense or is necessary for competitive
purposes. Most important, we concentrate on what we know and do best and remain
focused on our original business: commercial banking -- serving the middle
market which continues to play a major role in the growth for the U.S. economy.
Our Bank relies on many individuals in a number of areas, as we feel the
"people" resource is the most important of all. In this context, we wish to
sincerely thank our stockholders for their loyalty and support, our Board of
Directors for their wise counsel and valuable assistance and, last but not
least, our profession-al team of officers and fine staff, who make it all
possible.
We remain confident about the future and we renew our dedication to keeping
"The Good Old Bank" safe and strong, while positioning ourselves for additional
gains. Our motto remains, "The Depositors Come First -- Earnings Will Inevitably
Follow."
Spencer B. Witty
Chairman of the Board
James G. Lawrence
President and Chief Executive Officer
[CALL OUT]
Our core businesses, lending activities and investments, had excellent
performances and contributed the bulk of our bottom-line gains.
3
<PAGE>
MIDDLE MARKET LENDING
Our core lending business personifies Merchants and the success the Bank has
enjoyed for generations. Growth has continued because we have kept to the policy
- -- proven over and over again on which we were founded: to be the bank for
medium-size and small business, with emphasis on traditional banking and
personal service.
A bank's earnings from its lending operations depends primarily on interest
rates, and the "art" of forecasting the direction, magnitude, and timing of rate
changes. We try, and we usually succeed, to earn a favorable spread. Our
liquidity, risk-averse policy, lending standards and relationships are vital to
our financial well-being and sustained earnings power. We make what we believe
to be are prudent loans, and, we do not venture into the more speculative,
higher-risk areas where the promise of higher returns can sometimes cloud
fundamental judgment.
Our loans are to customers whose sales range from $1 million to $200 million
a year. We have been called a community bank because in a number of respects we
may be likened to a small-town bank. The fact that we are located in Manhattan,
in the city known as the world's financial capital, home to global megabanks,
makes this characterization all the more distinctive. As we know, there have
been many bank mergers and even more bank acquisitions in recent years. As a
consequence, many business owners, having dealt with small- or medium-sized
banks for years, are confused about where to go for money or advice. Their
longtime lender has linked up with another institution three-times the size, and
the familiar faces are no longer there to serve them, all of which gives our
bank additional opportunities. At Merchants, small business owners can go
directly to one lending officer to get counsel or information on an array of
topics. They are not shunted from one person to another, nor do they have to
deal with strangers or relatively inexperienced personnel. Our clientele include
third- and fourth-generation customers of businesses we originally loaned money
to.
Our business continues to come from referrals from satisfied customers,
accountants, attorneys and investment bankers, and we sincerely appreciate these
referrals.
Our credo is: "The better you understand a client's business, the better the
banker you will be for them. The numbers are important, but it is the people
that pay you back." We respond quickly, and we have no bureaucracy with which to
burden our clients and prospects. The same officers treat customers, large and
small, with the care and service they deserve, and we value each of our
relationships.
Our ambition is not to become the largest bank, but rather to be the
strongest and safest in traditional banking. We recognize that strong
capitalization and prudent lending pay off for our depositors, shareholders and
customers.
[PHOTO CAPTION]
Seated left to right: Lester Nadel, Janet Markel, Leonard Levine and Joseph
Wynne. Standing left to right: Brian Cardew, Stephen Barrow and Kenneth
Satchwill.
[CALLOUT]
At Merchants, small business owners can go directly to one lending officer
to get counsel or information on an array of topics.
4
INTERNATIONAL
DEPARTMENT
The roots of Merchants Bank of New York go back to the days of sailing ships.
By 1874, Jacob Markel, the founder and his family were involved in ocean-going
commerce. It was not unusual for a sea captain to come to the Markels seeking
financing of a clipper ship voyage to the Far East to buy silks and spices or to
other parts of the world for a myriad of products to be brought back to America.
At the turn of the century nearly 100 years ago, bank letters of credit began
to be the financial currency for international trade. Our Bank gained its
expertise then and our hand has never lost its skill.
Today, as from the beginning, our letters of credit are accepted around
the world. Importers of all kinds of merchandise, even for goods from remote
corners of the globe, depend on "The Good Old Bank" and take advantage of our
well-known expertise, personal service and state of the art technical
capabilities. Merchants Bank has a network of correspondent banks around
the globe; needed documents speed through the International Department;
processing of letters of credit is routinely accomplished in 24 hours.
We provide similar services for exporters, collecting worldwide letters of
credit, foreign drafts, money transfers and other items at the touch of a
computer key.
Merchants is not weighed down with excessive layers of staff. Our Bank's
clients deal directly with experienced international operations specialists, a
major selling point for our account officers.
We are a member of SWIFT (Society Worldwide Interbank Financial
Telecommunications), the leading payment system for member banks' international
financial transactions.
Our expert personnel in the management of our International Department
have been with the Bank an average of 25 years or more.
The efficiency and personal touch of our operation have resulted in highly
satisfied customers. In fact, many have been using our services through
successive generations. The Department is a major selling point for the Bank.
[CALLOUT]
Merchants Bank has a network of correspondent banks around the globe; needed
documents speed through the International Department; processing of letters of
credit is routinely accomplished in 24 hours.
[PHOTO CAPTION]
Left to right: Mary Jane Lerias, Babulal Kapadia, Joseph Cestone and Estaban
Espiritu.
5
<PAGE>
Merchants New York Bancorp
SELECTED FINANCIAL DATA
This consolidated selected financial information for the Company is not intended
to be complete and is qualified in its entirety by more detailed financial
information and the financial statements contained elsewhere herein.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994 1993(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 73,094,985 $ 69,569,606 $ 61,345,230 $ 60,300,689
Net interest income 39,639,789 37,662,203 36,237,944 35,280,429
Provision for loan losses 2,580,000 2,080,000 1,850,000 9,784,953
Net income 12,670,771 11,465,430 10,709,341 7,884,433
Net income per share (2) 2.52 2.28 2.16 1.59
Cash dividends declared
per share (2) 1.30 1.10 0.90 0.80
Total assets 1,137,798,701 1,027,191,423 1,001,386,488 1,006,348,297
Book value per share (2 and 3)
Without security valuation 19.34 18.14 16.93 15.67
With security valuation 20.83 20.11 15.65 --
Financial Ratios:
Return on average assets 1.21% 1.19% 1.10% 0.78%
Return on average equity (3) 12.53 12.59 13.30 10.36
Average equity to average assets (3) 9.66 9.43 8.35 7.54
Dividend payout ratio 51.10 47.71 41.74 50.38
Net charge-offs to average loans 1.23 0.65 0.96 2.34
Loan loss reserves to total loans 1.89 2.39 2.31 2.46
Loan loss reserves to
non-performing loans 506.49 298.94 472.01 378.88
Risk-Based Capital Ratio: (4)
Tier I 20.41 21.61 19.81 18.59
Total 21.62 22.86 21.06 19.84
<FN>
(1) Holding Corporation effective 7-1-93. All prior years are for the
Merchants Bank of New York only.
(2) Based upon retroactive adjustments for 6-for-5 stock split paid April 15,
1987, 5-for-4 stock split paid July 20, 1988, 3-for-2 stock split
paid May 30, 1990, and 2-for-1 stock split paid October 2, 1995.
</TABLE>
6
<PAGE>
Merchants New York Bancorp
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 49,199,423 $ 53,278,892 $ 56,586,853 $ 58,088,587 $ 49,025,855 $ 40,424,728
31,044,281 29,088,709 27,442,030 27,423,939 25,838,601 21,962,246
8,394,307 7,392,306 2,153,728 665,184 307,632 47,389
6,519,650 6,502,124 8,053,758 10,463,744 10,352,390 9,235,757
1.31 1.31 1.63 2.11 2.09 1.87
0.80 0.80 0.75 1.08 0.53 0.50
1,085,954,606 713,605,827 671,384,472 667,521,290 668,006,542 564,571,767
14.88 14.37 13.85 12.91 11.52 9.74
-- -- -- -- -- --
0.89% 1.00% 1.25% 1.64% 1.76% 1.77%
8.91 9.17 11.98 17.13 19.64 21.00
9.93 10.75 10.44 9.60 8.96 8.43
60.91 61.06 42.10 33.99 15.17 13.72
2.48 2.70 0.47 0.02 (0.13) (0.08)
1.48 1.12 1.34 1.11 1.04 1.01
235.88 180.18 142.57 133.79 254.69 233.18
16.82 -- -- -- -- --
17.82 -- -- -- -- --
<FN>
(3) Per FASB Statement No. 115, effective in 1994, a valuation account for
unrealized gains (losses) on investments available for sale are
included in equity.
(4) The Federal Reserve Board capital guidelines for bank holding companies
require minimum risk-based ratios of Tier 1 and total capital
to risk-weighted assets to be 4.0% and 8%, respectively, and a minimum
leveraged-based ratio of Tier 1 capital to total average quarterly
assets generally of at least 4.0%. The ratios above were calculated using
the guidelines in effect at each reporting date.
</TABLE>
7
<PAGE>
Merchants New York Bancorp
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1996 and 1995 Overview
1996 net income increased by more than 10% to $12.7 million, over 1995's
earnings of $11.5 million. Net income per share continued to increase, up $0.24
to $2.52 per share versus $2.28 per share in 1995.
Interest Income
Total interest income generated in 1996 was $73.1 million, up 5% from the
1995 total of $69.6 million. The largest component of interest in 1996 was
contributed by the investment portfolio, with $47.5 million versus $42.8 million
in 1995. This is principally the result of an increased investment portfolio,
which on average increased by $64.1 million to $673.8 million from $609.7
million in 1995. The additional funding to support this was achieved through
increased deposits and repurchase agreements. On average, approximately $10
million per month of principal repayments received from mortgage backed
securities were reinvested. In addition, there was a slight increase in non tax
adjusted interest return to 7.05% from 7.02%.
Loan interest income decreased $1.3 million to $25.3 million in 1996 versus
$26.6 million in 1995. While the average balance for loans actually increased to
$280 million in 1996 from $276.6 million in 1995, the decrease was caused by the
lower average prime rate of 8.28% in 1996, down from 8.83% in 1995.
In maximizing cash management, the average federal funds sold in 1996
increased to $6 million versus $3 million in 1995. This contributed $320,000 to
interest income, up $138,000 from the $182,000 earned in 1995.
Interest Expense
Total interest expense increased 5%, or $1.6 million to $33.5 million from
$31.9 million in 1995. While the average cost of interest-bearing liabilities
declined to 4.73% in 1996, from 4.88% in 1995, there was a $54 million increase
in average total interest-bearing funds available to $707 million from $653
million in 1995. The principal contributor to this was $47 million greater use
of securities sold under repurchase agreements which increased to an average of
$115 million versus $68 million to support the higher volume in the investment
portfolio. Average interest-bearing deposits increased to $579.7 million in 1996
from $572.3 million in 1995, with the average rate paid declining approximately
15 basis points to 4.56% in 1996 from 4.71% in 1995.
Other interest expense was $636,000 in 1996, versus $812,000 in 1995.
Composed of federal funds purchased and demand notes to the U. S. Treasury
(excess funds which are acquired from the Treasury), the average balances
decreased $1.6 million in 1996 from 1995.
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST EARNINGS
(In Thousands)
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
Federal funds sold $ 6,128 $ 320 5.22% $ 3,115 $ 182 5.84% $ 7,019 $ 299 4.26%
Securities purchased under
agreement to resell -- -- -- -- -- -- 538 22 4.09
Investment securities
(book value):
Taxable 603,188 43,158 7.15 537,976 38,154 7.09 545,412 33,850 6.21
Tax-exempt* 70,600 4,316 6.11 71,728 4,629 6.45 74,993 4,974 6.63
- --------------------------------------------------------------------------------------------------------------------------
Total 673,788 47,474 7.05 609,704 42,783 7.02 620,405 38,824 6.26
Loans (net of
unearned discounts) 280,361 25,288 9.02 276,649 26,604 9.62 273,946 22,200 8.10
Other 268 13 4.85 -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total $960,545 $73,095 7.61% $889,468 $69,569 7.82% $901,908 $61,345 6.80%
- --------------------------------------------------------------------------------------------------------------------------
Interest-bearing Liabilities
NOW $ 38,219 871 2.28% $ 38,235 $ 876 2.29% $ 45,190 $ 1,128 2.50%
Savings accounts 25,485 761 2.99 28,146 833 2.96 36,934 1,087 2.94
Money market accounts 131,974 4,443 3.37 116,179 3,835 3.30 138,316 3,619 2.62
Time certificates
of deposit 384,033 20,363 5.30 389,747 21,489 5.51 400,746 16,824 4.20
Securities sold under
repurchase agreements 115,601 6,381 5.52 67,991 4,062 5.97 43,106 2,126 4.93
Federal funds purchased 7,661 424 5.53 13,247 812 6.13 6,936 321 4.63
Demand notes to the U.S.
Treasury and other 4,060 211 5.20 -- -- -- -- 2 --
- --------------------------------------------------------------------------------------------------------------------------
Total $707,033 $33,454 4.73% $653,545 $31,907 4.88% $671,228 $25,107 3.74%
- --------------------------------------------------------------------------------------------------------------------------
Net interest
earning assets 253,512 235,923 230,680
- --------------------------------------------------------------------------------------------------------------------------
Net yield on interest
earning assets $960,545 $39,641 4.13% $889,468 $37,662 4.23% $901,908 $36,238 4.02%
- --------------------------------------------------------------------------------------------------------------------------
<FN>
Non accrual loans are included in Interest-earning Assets.
*Yields are not computed on a tax equivalent basis.
</TABLE>
8
<PAGE>
Merchants New York Bancorp
Net Interest Income
Net interest income increased to $39.6 million in 1996 from $37.7 million in
1995. This is the amount by which interest income on interest-earning assets
exceeds interest expense on interest-bearing liabilities and is the most
significant component of the Bank's earnings. Net interest income is a function
of several factors including changes in the volume and mix of earning assets and
funding sources and market interest rates. While management policies influence
these factors, they are also influenced by external forces including customer
needs and demands, competition, the economic policies of the federal government
and monetary policies of the Federal Reserve Board.
The following table provides further analysis of the increase in net interest
income during 1996, 1995 and 1994 and indicates that the increases were
primarily due to higher amounts of interest earned on interest-earning assets
than was paid on interest-bearing liabilities over the same time period. The
changes in interest income and interest expense have been allocated to rate and
volume changes in proportion to the absolute dollar amounts of the change in
each.
<TABLE>
<CAPTION>
CHANGES IN INTEREST INCOME AND EXPENSE
(In Thousands)
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
- ----------------------------------------------------------------------------------------------------------------------
Volume Rate Change Volume Rate Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans (net of unearned discounts) $ 378 $(1,682) $(1,304) $ 221 $4,183 $4,404
Investment securities (book value):
Taxable 4,658 346 5,004 (467) 4,771 4,304
Tax-exempt (73) (240) (313) (213) (132) (345)
- ----------------------------------------------------------------------------------------------------------------------
Total investments 4,585 106 4,691 (680) 4,639 3,959
Interest on Federal funds sold 159 (21) 138 (203) 86 (117)
Securities purchased under
agreements to resell -- -- -- (22) -- (22)
- ----------------------------------------------------------------------------------------------------------------------
Total interest income 5,122 (1,597) 3,525 (684) 8,908 8,224
- ----------------------------------------------------------------------------------------------------------------------
Interest Expense
Savings and time deposits:
NOW -- (5) (5) (164) (88) (252)
Savings accounts (79) 7 (72) (260) 6 (254)
Money market accounts 530 78 608 (637) 853 216
Time certificates of deposit (312) (813) (1,125) (473) 5,138 4,665
- ----------------------------------------------------------------------------------------------------------------------
Total 139 (733) (594) (1,534) 5,909 4,375
- ----------------------------------------------------------------------------------------------------------------------
Borrowings:
Securities sold under
repurchase agreements 2,649 (330) 2,319 1,417 519 1,936
Federal funds purchased (315) (73) (388) 363 126 489
Other 211 -- 211 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 2,684 (1,136) 1,548 246 6,554 6,800
- ----------------------------------------------------------------------------------------------------------------------
Net interest income $2,438 $ (461) $ 1,977 $ (930) $2,354 $1,424
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Income, Other Expenses, Provision for Loan Losses and Taxes
Other income increased $132,000, due principally to the increase in gains on
sales of securities in 1996 of $372,000 versus $128,000 in 1995. Additionally,
$97,000 was generated by other fee income, based on increased volume. These
increases were offset by a decrease due to lower volume, of $219,000 in
International Department fees between 1996 and 1995.
Other expenses decreased $467,000, or 2%, in 1996 versus 1995. This is a
direct result of a reduction of over $900,000 in our FDIC fees, due to the
change in the amount charged by the FDIC for Well Capitalized banks. There was
also a reduction of $200,000 in operations losses, due to a write down in 1995
for the impending sale of Other Real Estate Owned. The decreases were offset by
normal increases in salaries of $134,000, $114,000 in benefits, due to pensions,
and almost $200,000 in net occupancy costs due to the Madison Avenue branch and
corporate headquarters.
The provision for loan losses increased by $500,000 in 1996 to $2,580,000
versus $2,080,00 in 1995 reflecting the slightly higher average loans in 1996.
The provision for income taxes increased by $871,000 in 1996 versus 1995 due
to increased profitability.
Liquidity and Asset/Liability Management
Liquidity measures the Bank's ability to satisfy current and future
obligations and commitments as they become due. Funds to meet liquidity needs
are raised through the sale or maturity of an asset or through increased
deposits or borrowing.
Asset and liability management insures that the Bank has the ability to
satisfy current and future obligations, that commitments will be met at a
reasonable cost and that a net interest spread will be maintained to produce
earnings.
For the year ended December 31, 1996, average cash and short-term investments
totaled $53.1 million, and $46.6 million in 1995, accounting for 5% and 4.8% of
the Bank's total average assets, respectively. Through principal repayments and
redemptions, the investment portfolio generated $149.3 million in 1996 and $94.4
million in 1995 for reinvestment and/or liquidity. Furthermore, $61 million in
1996 and $48 million in 1995 was the result of investment sales to take
advantage of interest rate arbitrage. Also, having 95% of the loan
portfolio priced to float with prime allows immediate adjustments upon an
interest rate change, which impacts the interest rate gap.
9
<PAGE>
Merchants New York Bancorp
On the liability side, the primary source of funds available to meet
liquidity needs is the Bank's core deposit base. The Bank continues to retain a
substantial proportion of its average deposits in the form of
non-interest-bearing funds, with 27%, or $209.8 million, in 1996 and 25%, or
$195 million, in 1995. The average balance of total deposits increased to $789.5
million in 1996, from $766.9 million in 1995. Interest-bearing liabilities are
priced competitively, with a slight premium paid for time certificates of
deposit, 42%, or $169.5 million, of which are in the 0 to 3 month maturity range
and 53%, or $214 million, are in the 3 to 12 month range. While we include
savings accounts and NOW accounts in the 0 to 3 months category on the Interest
Rate Sensitivity Gap table, the actual repricing on these is at our discretion.
Taking this into consideration, the reflected liability sensitivity of $171
million would be mitigated by $69.2 million of combined NOW and savings accounts
balances included there and which would not change at the same rate as other
interest-bearing deposits. As a balance between our assets and the deposit
liabilities, our average investment portfolio of $687 million in 1996 and $615
million in 1995, can be used as collateral for repurchase agreements, of which
we used, an average of $116 million in 1996 and $68 million in 1995.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAP ANALYSIS
As of December 31, 1996
(In Thousands)
Less Than 3 to 12 1 to 5 Over
Interest-Earning Assets 3 Months Months Years 5 Years Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 26,000 $ -- $ -- $ -- $ 26,000
Securities available for sale* 28,265 195,707 302,811 21,080 547,863
Securities held to maturity* 5,339 20,300 123,033 18,236 166,908
Loans 285,069 3,565 4,443 4,004 297,081
Other -- 350 -- -- 350
- ------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 344,673 $ 219,922 $430,287 $ 43,320 $1,038,202
- ------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Interest-bearing deposits 388,379 211,901 21,718 -- 621,998
Securities sold under
repurchase agreements 120,000 -- -- -- 120,000
Demand notes to the U.S. Treasury 7,199 -- -- -- 7,199
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 515,578 $ 211,901 $ 21,718 $ -- $ 749,197
- ------------------------------------------------------------------------------------------------------------------------
Net interest rate sensitivity gap (170,905) 8,021 408,569 43,320 289,055
Cumulative gap position (170,905) (162,884) 245,685 289,005 --
Cumulative gap/total earning assets:
At December 31, 1996 (16.46)% (15.69)% 23.66% 27.84% --
At December 31, 1995 (15.81)% (8.19)% 23.73% 28.42% --
<FN>
*Adjusted for weighted average maturity dates and prepayments for mortgage back
securities. All securities are disclosed at book value.
</TABLE>
Capital
The capital base of a bank is a significant measure of the strength of a
financial institution. The Bank has seen a steady capital growth over the past
several years, with our risk-based ratios in excess of the required "Well
Capitalized" level of 10%. The Bank was also in excess of the required leverage
ratio of 4%, with 8.65% and 9.02% for the years ended December 31, 1996 and
1995, respectively.
The primary source of capital growth is through retention of earnings.
Retained profits increased to $72.9 million at December 31, 1996 as compared to
$66.7 million as of December 31, 1995, resulting from the retention of $6.2
million of earnings after paying dividends of $6.5 million. The Bank's Board of
Directors declared a dividend of $0.30 for the first and second quarters of
1996, with an increase to $0.35 for the third and fourth quarters. We continue
to believe that cash dividends are an important component of shareholder value
and that at its current level of performance, this quarter's 254th consecutive
dividend payment will continue into the future. The overall increase of $3.4
million in stockholders' equity was impacted by a change in the market value of
the investment portfolio on December 31, 1996 versus December 31, 1995 of $2.4
million, net of tax effect. The market valuation of the securities reflects only
one point in time and can only be realized upon their sale. With our strong
liquidity and excellent basic capital strength, we need only sell for strategic
business reasons.
In August 1996, the Board of Directors approved for the first time in the
Bank's history, a buy back program of the Company's common stock. Up to 5% of
the outstanding shares (or approximately 250,000 shares) have been approved for
this program. As of December 31, 1996, 17,890 shares have been repurchased, at a
cost of $553,000, which was a reduction of shareholders' equity.
<TABLE>
<CAPTION>
December 31, December 31,
Required 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I Capital Ratio 4.00% 20.41% 21.61%
Tier II Capital Ratio 8.00 21.62 22.86
Leverage Ratio 4.00 8.65 9.02
</TABLE>
10
<PAGE>
Merchants New York Bancorp
Comparison of the years ended December 31, 1995 and 1994
Overview
Net income increased to $11.5 million, a 7% increase, or $756,000, over the
$10.7 million achieved in 1994. Net income per share, adjusted for the
two-for-one stock split in October 1995, increased by $0.12 to $2.28 per share
versus $2.16 in 1994.
Interest Income
Interest income increased a total of $8.2 million, or 13.4%. Of this, $4.4
million resulted from higher loan interest of $26.6 million in 1995 versus $22.2
million in 1994 (up 20%) as average rates improved 152 basis points to 9.62%
from 8.10%, reflecting market conditions. Average loan volume increased to
$276.6 million from $273.9 million in 1994. The balance of the increase in
interest income came from the investment portfolio. Interest from this grew by
$4 million to $42.8 million in 1995 from $38.8 million in 1994. Average
investments declined by $4 million to $615.2 million from $619.3 million in
1994; however, the non-tax equivalent interest return increased by 76 basis
points to 7.02% from 6.26% in 1994. The higher return was achieved in part by
the December 1994 repositioning of $40 million by selling Treasury notes and
converting to higher yielding U. S. Government insured mortgage-backed
securities. In addition, there was an average of $6 million per month of
principal repayments received from mortgage backed securities which was
reinvested.
Interest Expense
Interest expense on interest-bearing deposits increased $4.4 million, to $27
million in 1995 from $22.6 million in 1994. In 1995, $5.3 million is
attributable to higher interest rates, which stemmed from the overall rise in
the interest rate environment. This was offset by the decrease of $1.5 million
from lower volume due to a decrease in average interest-bearing deposits of
$48.9 million to $572.3 million in 1995 from $621.2 million in 1994. The lower
average deposits are due primarily to disintermediation, as customers continued
to seek non-bank interest returns. Interest on securities sold under repurchase
agreements increased $1.9 million to $4 million in 1995 from $2.1 million in
1994. This was due to higher average repurchase agreements balances of $67.9
million in 1995 versus $43.1 million in 1994. Other interest expense was from
Federal funds purchased, which increased $489,000. Average Federal funds
purchased increased in 1995 over 1994 by $6.3 million. The higher utilization of
both repurchase agreements and Federal funds purchased were to compensate for
the lower deposits, so as to generally retain our level of investments and
loans, while earning a positive spread of interest return.
Net Interest Income
Net interest income, the amount by which interest income on interest-earning
assets exceeds interest expense on interest-bearing liabilities, is the most
significant component of the Bank's earnings. Net interest income is a function
of several factors including changes in the volume and mix of earning assets,
funding sources and market interest rates. While management policies influence
these factors, they are also influenced by external forces including customer
needs and demands, competition, the economic policies of the federal government
and the monetary policies of the Federal Reserve Board.
Other Income, Other Expenses, Provision for Loan Losses and Taxes
Other income increased $1.8 million, due principally to the gains on sales of
securities in 1995 of $128,000 versus losses of $1.8 million in 1994. The sales
in 1995 and 1994 were made from the available for sale investment portfolio,
with the purpose of repositioning the yields upward.
Other expense increased $727,000, due to normal increases in salaries and
benefits of $521,000, a $300,000 adjustment to the carrying value of Other Real
Estate Owned based on a pending sale and $323,000 in net occupancy costs due to
the relocation of a branch and corporate headquarters this year. This was offset
by a reduction of $902,000 in our FDIC fees, due to a significant decrease in
the insurance premium charged by the FDIC for well-capitalized banks.
The provision for loan losses increased by $230,000 in 1995 to $2,080,000
versus $1,850,00 in 1994, reflecting the slightly higher average loans in 1995.
The provision for income taxes increased $1.5 million in 1995 versus 1994
primarily due to the increased profitability and the reduced benefit from actual
net loan charge-offs of $1.8 million versus $2.6 million in 1994.
Liquidity and Asset/Liability Management
Asset and liability management insures that the Bank has the ability to
satisfy current and future obligations, that commitments will be met at a
reasonable cost and that a net interest spread will be maintained to produce
earnings. Liquidity measures the Bank's ability to satisfy current and future
obligations and commitments as they become due. Funds to meet liquidity needs
are raised through the liquidation or maturity of an asset or through increased
deposits or borrowing.
11
<PAGE>
For the year ended December 31, 1995, average cash and short-term investments
totaled $46.6 million, with $53.5 million in 1994 and accounted for 4.7% and
5.6% of the Bank's total average assets, respectively. Through principal
repayments, the investment portfolio generated $94.4 million in 1995 and $110.6
million in 1994 for reinvestment and/or liquidity. Furthermore, $47.6 million in
1995 and $38.5 million in 1994 was derived from investment sales to take
advantage of interest rate arbitrage. A further advantage is having 95% of the
loan portfolio priced to prime, with immediate adjustments upon an interest rate
change.
On the liability side, the primary source of funds available to meet
liquidity needs is the Bank's core deposit base. The average balance of total
deposits decreased to $766.9 million in 1995, from $821.6 million in 1994. The
Bank continues to retain a substantial proportion of its average deposits in the
form of non-interest-bearing funds, with 25% in 1995 ($195 million) and 24%
($200 million) in 1994. Interest-bearing liabilities are priced competitively,
with a slight premium paid for time certificates of deposit, 56%, or $193
million, of which are in the 0 to 3 month maturity range and 44%, or $155
million, are in the 3 to 12 month range. While we include savings accounts and
NOW accounts in the 0 to 3 months category on the Gap analysis table, the actual
repricing on these is at the discretion of the Bank. Taking this into
consideration the reflected liability sensitivity of $147.8 million would be
mitigated by $66 million of combined NOW and savings accounts balances included
therein and which would not change at the same pace as other interest-bearing
deposits. As a balance between the Bank's assets and the deposit liabilities,
the Bank's average investment portfolio of $615 million in 1995 and $619 million
in 1994, can be used as collateral for repurchase agreements, of which the Bank
used an average $68 million in 1995 and $43 million in 1994.
Capital
The capital base of a bank is a significant measure of the strength of a
financial institution. The Bank has seen a steady capital growth over the past
several years, with our risk-based ratios in excess of the required "Well
Capitalized" level of 10%. The Bank was also in excess of the required leverage
ratio of 4%, with 9.02% and 7.72% for the years ended December 31, 1995 and
1994, respectively.
The primary source of capital growth is through retention of earnings.
Undivided profits increased to $66.7 million at December 31, 1995 as compared to
$60.7 million as of December 31, 1994, resulting from the retention of $6
million of earnings after paying dividends of $5.5 million. The Bank's Board of
Directors declared a dividend of $0.25 for the first and second quarters of
1995, with an increase to $0.30 for both the third and fourth quarters. The
accompanying financial statements have been restated to fully reflect the effect
of the 2-for-1 stock split. We continue to believe that cash dividends are an
important component of shareholder value and that at its current level of
performance, this quarter's 250th consecutive dividend payment will continue
into the future. The overall increase of $22.4 million in stockholders' equity
included the $6 million in retained earnings and was further impacted by a
change in the market value of the investment portfolio on December 31, 1995
versus December 31, 1994 of $16.1 million, net of tax effect. However, it must
be emphasized that the increased market value of the securities reflects only
one point in time and can only be realized upon their sale. With the Bank's
strong liquidity and excellent basic capital strength, we need only sell for
strategic business reasons.
PRICE RANGE OF THE COMPANY'S
COMMON STOCK
The Company's common stock is traded on the over-the-counter NASDAQ National
market. The Company's symbol is "MBNY." The high and low bid prices for each
quarterly period during the past two years were as follows:
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
1996 1995
- ------------------------------------------------------------------------------------------------------------------
HIGH LOW HIGH LOW
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $31 $29 $25 1/2 $25 1/4
Second Quarter 29 1/2 29 25 3/4 25 1/2
Third Quarter 30 26 30 25 1/2
Fourth Quarter 32 1/2 30 31 29 3/4
</TABLE>
On March 17, 1997, the closing bid and asked prices reported for the common
stock were $34.875 and $36, respectively. These quotations reflect inter-dealer
prices without retail mark up, mark down or commission and may not represent
actual transactions.
12
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (note 2) $ 57,840,059 $ 50,919,219
Federal funds sold 26,000,000 52,000,000
Investment securities (note 1):
Securities available for sale at market value (note 3) 561,600,523 584,377,564
Investment securities (market value $169,340,000 in 1996
and $47,759,000 in 1995) (note 4) 166,908,260 45,434,596
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 728,508,783 629,812,160
- ----------------------------------------------------------------------------------------------------------------------------
Loans (net of unearned discounts of $56,030
and $59,068 in 1996 and 1995, respectively) (note 5) 297,080,725 270,904,241
Less allowance for loan losses 5,616,971 6,483,935
- ----------------------------------------------------------------------------------------------------------------------------
Total loans, net 291,463,754 264,420,306
- ----------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment (note 6) 6,767,568 6,645,543
Customers' liability on acceptances 13,806,691 10,591,829
Other assets 13,411,846 12,802,366
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $1,137,798,701 $1,027,191,423
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits (note 7):
Demand (non-interest-bearing) $ 253,695,143 $ 228,471,451
NOW 44,431,219 39,473,117
Savings 24,763,303 27,249,627
Money market 146,168,644 116,305,147
Time 406,635,101 380,898,346
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 875,693,410 792,397,688
- ----------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements (notes 3, 4 and 8) 120,000,000 105,065,000
Acceptances outstanding 13,806,691 10,591,829
Demand notes issued to the U.S. Treasury 7,199,039 --
Other liabilities 17,563,929 18,982,303
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,034,263,069 927,036,820
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (notes 1, 3 and 11)
Capital stock -- $.001 par value; 10,000,000 shares authorized; 4,987,561 and
4,981,338 shares issued and outstanding in
1996 and 1995, respectively 4,988 4,982
Surplus 23,749,629 23,626,181
Undivided profits 72,915,689 66,719,678
Treasury stock at cost (17,890 shares in 1996) (552,910) --
Net unrealized appreciation on securities
available for sale, net of tax effect 7,418,236 9,803,762
Commitments and contingent liabilities (note 12)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 103,535,632 100,154,603
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,137,798,701 $1,027,191,423
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans $25,300,755 $26,604,396 $22,200,289
Interest and dividends on investment securities:
U.S. Government obligations 43,022,459 38,153,806 33,710,511
Other investments 4,451,474 4,628,811 5,113,226
Interest on Federal funds sold 320,297 182,593 321,204
- ----------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 73,094,985 69,569,606 61,345,230
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits (note 7) 26,438,521 27,032,507 22,657,858
Interest on securities sold under
repurchase agreements 6,380,930 4,062,368 2,125,942
Other interest expense 635,745 812,528 323,486
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 33,455,196 31,907,403 25,107,286
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 39,639,789 37,662,203 36,237,944
Provision for loan losses (note 5) 2,580,000 2,080,000 1,850,000
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 37,059,789 35,582,203 34,387,944
- ----------------------------------------------------------------------------------------------------------------------------
Other income:
Service fees 1,350,387 1,341,407 1,427,245
International department fees 2,429,711 2,648,337 2,752,073
Investment securities gains (losses) on sales (note 3) 372,396 127,697 (1,847,334)
Other 1,133,659 1,036,520 984,385
- ----------------------------------------------------------------------------------------------------------------------------
Total other income 5,286,153 5,153,961 3,316,369
- ----------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries 10,622,376 10,488,017 10,056,297
Employee benefits (note 10) 2,530,256 2,416,369 2,326,811
Occupancy (note 12) 2,520,459 2,321,271 1,997,587
Equipment and data processing 1,468,405 1,247,313 1,078,196
Other 5,123,151 6,258,575 6,545,358
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses 22,264,647 22,731,545 22,004,249
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 20,081,295 18,004,619 15,700,064
Income tax expense (note 9) 7,410,524 6,539,189 4,990,723
- ----------------------------------------------------------------------------------------------------------------------------
Net income $12,670,771 $11,465,430 $10,709,341
- ----------------------------------------------------------------------------------------------------------------------------
Net income per average share (note 1) $2.52 $2.28 $2.16
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock:
Balance at beginning of year $ 4,982 $ 2,484 $ 2,483
Adjustment due to stock split (note 1) -- 2,484 --
Shares issued through exercise of Employee Stock
Options: 6,223 shares, 14,136 shares and 1,802
shares in 1996, 1995 and 1994, respectively (note 11) 6 14 1
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 4,988 4,982 2,484
- --------------------------------------------------------------------------------------------------------------------------
Surplus:
Balance at beginning of year 23,626,181 23,344,444 23,306,655
Adjustment due to stock split (note 1) -- (2,484) --
Excess over par value on shares issued through the
exercise of Employee Stock Options (note 11) 123,448 284,221 37,789
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 23,749,629 23,626,181 23,344,444
- --------------------------------------------------------------------------------------------------------------------------
Undivided profits:
Balance at beginning of year 66,719,678 60,724,767 54,485,574
Net income 12,670,771 11,465,430 10,709,341
Cash dividends paid (note 11) (6,474,760) (5,470,519) (4,470,148)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 72,915,689 66,719,678 60,724,767
- --------------------------------------------------------------------------------------------------------------------------
Treasury stock:
Balance at beginning of year -- -- --
Repurchase of 17,890 shares of common stock (552,910) -- --
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year (552,910) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on securities available for sale, net
of tax effect (note 3):
Balance at beginning of year 9,803,762 (6,337,361) --
Impact of adoption of accounting change -- -- 10,539,760
Changes during the year (2,385,526) 16,141,123 (16,877,121)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 7,418,236 9,803,762 (6,337,361)
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Balance at beginning of year 100,154,603 77,734,334 77,794,712
Changes during the year, net 3,381,029 22,420,269 (60,378)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year $103,535,632 $100,154,603 $ 77,734,334
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,670,771 $ 11,465,430 $ 10,709,341
- --------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 938,577 697,047 511,418
Amortization of premium, net of discounts 4,584,407 4,588,485 5,788,061
Provision for loan losses 2,580,000 2,080,000 1,850,000
(Gains) losses on sales of investments (372,396) (127,697) 1,847,334
Loss on disposal of fixed assets -- 68,691 --
Discounted rental on leases (41,435) (24,171) --
Decrease in unearned discounts (3,037) (20,829) (181,906)
(Decrease) increase in taxes payable (384,776) 926,443 262,587
(Increase) decrease in interest receivable (239,615) 198,277 169,778
Increase in interest payable 670,487 1,379,426 1,460,288
Increase in accrued expenses 389,508 421,394 1,024,554
Increase in other asset (484,152) (31,253) (1,692,231)
(Decrease) increase in other liabilities (20,044) (1,879,683) 846,496
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,288,295 19,741,560 22,595,720
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in Federal funds sold 26,000,000 (5,000,000) (24,000,000)
Net decrease in securities purchased
under agreements to resell -- -- 40,000,000
Proceeds from redemptions of
securities available for sale 126,299,677 93,027,263 104,220,247
Proceeds from sales of securities available for sale 61,013,830 47,559,688 38,466,250
Purchase of securities available for sale (189,230,745) (134,424,407) (163,576,433)
Proceeds from redemptions of investment securities 22,961,868 1,397,591 6,337,870
Purchase of investment securities (128,370,905) (5,478,972) (10,824,571)
Net (increase) decrease in customer loans (29,620,410) (4,550,367) 12,057,012
Net increase in bank premises and equipment (946,315) (2,759,219) (521,437)
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided
by investing activities (111,893,000) (10,228,423) 2,158,938
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
NOW, savings and money market accounts 57,558,967 (6,129,692) (24,688,704)
Net increase (decrease) in certificates of deposit 25,736,755 (33,064,372) 9,917,249
Net increase in securities sold under
repurchase agreements 14,935,000 35,065,000 7,437,500
Net increase in demand notes to U.S. Treasury 7,199,039 -- --
Proceeds from issuance of common stock 123,454 284,235 37,790
Purchase of Treasury stock (552,910) -- --
Dividends paid (6,474,760) (5,470,519) (4,470,148)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 98,525,545 (9,315,348) (11,766,313)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,920,840 197,789 12,988,345
Cash and cash equivalents at beginning of the period 50,919,219 50,721,430 37,733,085
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 57,840,059 $ 50,919,219 $ 50,721,430
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 32,784,709 $ 30,527,977 $ 23,646,998
Taxes paid 7,795,300 5,823,086 4,728,135
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
Merchants New York Bancorp
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial reporting and accounting policies of Merchants New York Bancorp
(the "Company") conform to generally accepted accounting principles. The
following is a summary of the significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, The Merchants Bank of New York (the "Bank"). The
Company is a bank holding company, organized under the laws of the state of
Delaware. On July 1, 1993, the Company acquired all of the outstanding capital
stock of the Bank. All material intercompany accounts and transactions have been
eliminated in consolidation.
The Bank's principal business consists of attracting deposits from the general
public and employing these deposits by originating commercial loans. Together
with these funds and funds from ongoing operations and borrowings, the Bank also
invests in U.S. Government and agency obligations and other investment
securities. The Bank, which is the wholly-owned subsidiary of the Company,
operates as a commercial bank.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investment Securities
Securities are classified as available for sale or held to maturity. The Bank
does not maintain a trading account classification. Securities for which the
Bank has the ability and intent to hold to maturity are so classified. All other
securities are classified as available for sale.
Securities classified as held to maturity are carried at cost adjusted for
amortization of premium or accretion of discount. Securities classified as
available for sale are reported at estimated current market prices with the
difference between market value and amortized cost reflected in the equity
section of the statement of condition as an unrealized gain or loss, net of
applicable taxes, until such time as they are sold.
Actual gains and losses from the sale of securities are computed on a specific
identified basis and are included in other income.
Loans
Effective January 1, 1995, the Bank prospectively adopted SFASNo. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
Under SFAS No. 114, a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
principal or interest due according to the contractual terms of the loan.
Impaired loans are measured and reported based on one of three methods: the
present value of the expected future cash flows discounted at the loan's
effective interest rate; the loan's observable market price; or the fair value
of the collateral if the loan is collateral dependent. If the measure is less
than the impaired loan's recorded investment, an impairment loss is recognized
as part of the allowance for loan losses. The adoption of SFAS No. 114 did not
affect the Bank's overall allowance for loan losses.
The allowance for loan losses is increased by provisions charged to operations
and decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's historical
loan loss experience, a review of non-performing loans and related collateral
values, an estimate of the possibility of loss in view of industry
concentrations and other portfolio risk characteristics, the present financial
condition of borrowers and current economic conditions. While management uses
the best information available to estimate loan losses, future adjustments to
the allowance may be necessary based on changes in economic conditions, further
information obtained regarding known problem loans, the identification of
additional problem loans and other factors.
Interest on Loans
Interest on loans is accrued to income monthly based on outstanding principal
balances. When manage ment considers the collection of previously accrued but
unpaid interest to be doubtful, such interest is reversed by charging
interest income in the current period. Interest payments received on
non-accrual loans (including impaired loans under SFAS No. 114) are
recognized as interest income unless future collections are doubtful. A
loan remains on non-accrual status until the factors that indicated doubtful
collectibility no longer exist or until a loan is determined to be
uncollectible and is charged off against the allowance for loan losses.
17
<PAGE>
Merchants New York Bancorp
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the shorter
of the estimated useful lives of the related assets or the lease term.
Maintenance and repair costs are expensed as incurred.
Income Taxes
The Bank utilizes the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
realization of deferred tax assets are assessed and a valuation allowance
provided for the portion of the asset that is unlikely to be realized.
Earnings Per Share
The Company's Board of Directors declared a 2-for-1 stock split for all shares
held by shareholders of record as of September 12, 1995, effective on October 2,
1995. All shares and per share amounts in prior years have been restated in
these financial statements to reflect the split. Earnings per share is computed
by dividing net income by the weighted average number of shares of common stock
and common stock equivalents outstanding. The weighted average number of shares
of common stock and common stock equivalents used in the computation of earnings
per share for the years ended December 31, 1996, 1995 and 1994 were 5,030,772
shares, 5,015,504 and 4,967,202 shares, respectively.
Retirement Plan
The Bank has a pension plan covering substantially all employees who have
attained minimum service requirements. The Bank's policy is to contribute
annually the amount necessary to satisfy the Internal Revenue Service's minimum
funding standards.
Stock Options
The Bank accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation expense is recognized only if the fair
value of the underlying stock at the grant date exceeds the exercise price of
the option. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages
entities to recognize the fair value of all stock-based awards on the date of
grant as an expense over the vesting period. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB No. 25 and provide pro forma
disclosure of net income and net income per share as if the fair value based
method defined in SFAS No. 123 had been applied to employee stock options
granted in 1995 and later years. The Bank has elected to continue to apply
provisions of APB Opinion No. 25.
Statement of Cash Flows
For purposes of reporting cash flows, management has redefined in 1994 "cash and
cash equivalents." Cash will include cash and due from banks only. Cash
equivalents (highly liquid investments with maturities of less than 90 days)
will no longer be classified with cash, but will now be classified as either an
investment or a financing activity. Investing activities will now include
Federal funds sold and securities purchased under agreements to resell, while
financing activities will include Federal funds purchased and securities sold
under agreements to repurchase.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
NOTE 2 -- CASH AND DUE FROM BANKS
The Bank is required to maintain average reserves on deposit with the Federal
Reserve Bank of New York against outstanding domestic deposit liabilities. The
required reserves, which are reported in cash and due from banks, were
approximately $18,298,000 and $16,819,000 at December 31, 1996 and 1995,
respectively. Average required reserves during 1996 and 1995 were approximately
$18,169,000 and $16,730,000, respectively. Average balances (in the form of
non-interest-bearing deposits with banks) of approximately $5,925,000 and
$5,013,000 were maintained as compensating balances for services provided
by correspondent banks for the years ended December 31, 1996 and 1995,
respectively.
18
<PAGE>
Merchants New York Bancorp
NOTE 3 -- SECURITIES AVAILABLE FOR SALE
The book values and estimated market values for investment securities available
for sale at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1996 Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $212,927 $ 7,507 $ (37) $220,397
U.S. Agency obligations 305,981 5,340 (222) 311,099
Obligations of State and
Political subdivisions 19,848 1,132 (12) 20,968
Equity securities 9,107 30 -- 9,137
- ------------------------------------------------------------------------------------------------------------------
Total $547,863 $14,009 $(271) $561,601
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1995 Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $289,349 $10,897 $ (71) $300,175
U.S. Agency obligations 250,675 5,790 (284) 256,181
Obligations of State and
Political subdivisions 22,500 1,732 (13) 24,219
Equity securities 3,698 105 -- 3,803
- ------------------------------------------------------------------------------------------------------------------
Total $566,222 $18,524 $(368) $584,378
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
In November 1995, the FASB issued a special report on SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which permitted a
one-time opportunity for institutions to reassess the appropriateness of the
classification of all securities held to maturity. As allowed by this
clarification to SFAS No. 115, institutions were permitted to transfer held to
maturity securities into the available for sale category before December 31,
1995, without calling into question their intent to hold other debt securities
to maturity. The Bank took this opportunity to reposition into the available for
sale category as of December 8, 1995, securities with a book value of
$35,280,534, and an estimated market value of $36,756,042.
Proceeds from sales of available for sale investment securities during 1996 were
$61,013,830 with a gross gain of $404,933 and a gross loss of $32,537. 1995
sales proceeds were $47,559,688 with a gross gain of $127,697.
The amortized cost and estimated market value of the Bank's available for sale
investment securities at December 31, 1996 and 1995 are presented in the
following table, based upon their maturity dates. The aging of mortgage backed
U.S. Agency securities is based on their weighted average maturities. The
expected maturities can differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------
Estimated Average Estimated Average
Book Market Weighted Book Market Weighted
Value Value Yield* Value Value Yield*
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $223,972 $233,194 7.41% $240,104 $250,294 6.84%
Due after one year through five years 302,809 307,083 7.23 301,174 308,412 7.25
Due after five years through ten years 8,432 8,561 6.03 19,037 19,537 7.12
Due after ten years 12,650 12,763 6.45 5,907 6,135 6.99
- ----------------------------------------------------------------------------------------------------------------
Total $547,863 $561,601 7.32% $566,222 $584,378 7.07%
- ----------------------------------------------------------------------------------------------------------------
<FN>
*Average weighted yield not tax adjusted.
</TABLE>
Available for sale investment securities with a market value of $140,777,701 at
December 31, 1996 and $118,931,647 at December 31, 1995 were pledged to secure
securities sold under agreements to repurchase and for other purposes required
or permitted by law.
19
<PAGE>
Merchants New York Bancorp
NOTE 4 -- INVESTMENT SECURITIES HELD TO MATURITY
The book values and estimated market values of investment securities held to
maturity at December 31, 1996 and 1995 are listed below.
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1996 Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $ 51,530 $ 235 $ (60) $ 51,705
U.S. Agency obligations 67,821 509 (27) 68,303
Obligations of State and
Political subdivisions 47,219 1,810 (26) 49,003
Other 338 -- (9) 329
- ------------------------------------------------------------------------------------------------------------------
Total $166,908 $2,554 $(122) $169,340
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1995 Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Obligations of State and
Political subdivisions $44,929 $2,347 $(13) $47,263
Other 506 1 (11) 496
- ------------------------------------------------------------------------------------------------------------------
Total $45,435 $2,348 $(24) $47,759
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of the Bank's investment
securities at December 31, 1996 and 1995 are presented in the following table
based upon their maturity dates. The aging of mortgage backed U.S. Agency
securities is based on their weighted average maturities. The expected
maturities can differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------
Estimated Average Estimated Average
Book Market Weighted Book Market Weighted
Value Value Yield* Value Value Yield*
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 6,199 $ 6,286 5.85% $ 2,671 $ 2,699 5.82%
Due after one year through five years 142,473 144,138 6.93 25,368 26,660 5.78
Due after five years through ten years 6,102 6,433 5.70 8,371 8,920 5.71
Due after ten years 12,134 12,483 5.42 9,025 9,480 5.50
- ----------------------------------------------------------------------------------------------------------------
Total $166,908 $169,340 6.74% $45,435 $47,759 5.72%
- ----------------------------------------------------------------------------------------------------------------
<FN>
*Average weighted yield not tax adjusted.
</TABLE>
Held to maturity investment securities with a book value of $21,086,682 and
$1,533,256 at December 31, 1996 and 1995 respectively, were pledged to secure
securities sold under agreements to repurchase and for other purposes required
or permitted by law.
NOTE 5 -- LOANS
Loans at December 31, 1996 and 1995 are comprised of the following:
1996 1995
- -----------------------------------------------------------------------
Commercial loans $283,341,205 $256,620,128
Mortgage loans 10,941,095 11,276,225
Installment loans 2,854,455 3,066,956
- -----------------------------------------------------------------------
297,136,755 270,963,309
Unearned discounts (56,030) (59,068)
- -----------------------------------------------------------------------
297,080,725 270,904,241
Allowance for loan losses (5,616,971) (6,483,935)
- -----------------------------------------------------------------------
Total, net $291,463,754 $264,420,306
- -----------------------------------------------------------------------
20
<PAGE>
Merchants New York Bancorp
The changes in the allowance for loan losses for 1996, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $6,483,935 $ 6,187,574 $ 6,959,595
Provision for loan losses 2,580,000 2,080,000 1,850,000
Charge-offs (4,405,497) (2,348,531) (2,918,090)
Recoveries 958,533 564,892 296,069
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year $5,616,971 $ 6,483,935 $ 6,187,574
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
As discussed in Note 1, the Bank adopted SFAS No. 114 during the year ended
December 31, 1996. SFAS No. 114 applies to loans that are individually evaluated
for collectibility in accordance with the Bank's ongoing loan review procedures.
Upon adoption of SFAS No. 114, the Bank did not change its method of
recognizing interest income on impaired loans.
Information concerning unpaid loans as defined by SFAS No. 114 is presented
below:
<TABLE>
<CAPTION>
As of and for the years ended December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Recorded investment in impaired loans at year end:
Non-accrual loans $ 1,109,000 $ 2,169,000
Restructured loans -- --
Other -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 1,109,000 $ 2,169,000
- -------------------------------------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans $ 2,706,000 $ 1,836,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank's impaired loans are only those identified as in a nonaccrual status
for 90 days or more. Impaired is defined as "when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement." The amount of
interest income recognized on impaired loans was $288,000 for 1996 and $201,000
for 1995. The amount of interest income on impaired loans for both years is not
considered significant. The reserve for loan losses contains an additional
amount deemed necessary to maintain it at levels considered adequate by
management. It is the Bank's policy to keep loans on nonaccrual status until the
principal and interest is current or they are charged off. At December 31, 1996,
the recorded investment in impaired loans totalled $1,109,000, for which an
allowance for loan impairment was not required under SFAS No. 114, primarily due
to the sufficiency of collateral values.
Loans to officers and directors of the Bank or for the benefit of corporations
in which they have a beneficial interest are made in the ordinary course of the
Bank's business and on substantially the same terms as those prevailing at the
time for comparable transactions with members of the general public, including
interest rates and collateral. Such loans did not involve more than the normal
risk of collectibility or present other unfavorable features. The following
schedule sets forth information with respect to such loans:
<TABLE>
<CAPTION>
Balance at Balance at
Name of Beginning Amounts End of
Borrower of Year Additions Collected Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Directors (4) $ 9,039,000 $ 9,528,000 $13,846,000 $ 4,721,000
1995 Directors (6) $10,652,000 $32,868,000 $34,481,000 $ 9,039,000
1994 Directors (7) $ 8,756,000 $16,423,000 $14,527,000 $10,652,000
</TABLE>
There were no charge-offs of loans made to officers and directors in each of the
years in the three-year period ended December 31, 1996. Loans at December 31,
1996 bear interest at rates of 6.25% to 8.50% and are partially secured. The
maturities applicable to outstanding loans at December 31, 1996 are $2,717,000
within 90 days, $1,648,000 in 1997 over 90 days and $356,000 in 1998.
21
<PAGE>
Merchants New York Bancorp
The following is a summary of the major industry concentrations of the Bank's
commercial loan portfolio as of December 31, 1996:
Wholesale jewelry 23%
Jewelry manufacturing 12
Apparel & furs 10
Non-durable goods 6
Miscellaneous manufacturing 6
Real Estate 6
Miscellaneous wholesalers 5
Business & professional services 5
Home furnishings 5
Textiles 4
Private households 4
All others 14
-------------------------------------------------------------
Total 100%
-------------------------------------------------------------
Substantially all of the Bank's loans are to borrowers located in the New York
metropolitan area.
NOTE 6 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1996 and 1995 are comprised of the
following:
1996 1995
- ---------------------------------------------------------------------
Bank premises and leasehold improvements
(including land of $673,086) $ 8,915,674 $ 8,520,655
Equipment 4,434,131 3,963,661
- ---------------------------------------------------------------------
13,349,805 12,484,316
Less accumulated depreciation (6,582,237) (5,838,773)
- ---------------------------------------------------------------------
Total, net $ 6,767,568 $ 6,645,543
- ---------------------------------------------------------------------
NOTE 7 -- DEPOSITS
The aggregate amount of certificates of deposit and other time deposits in
denominations of $100,000 or more amounted to $271,163,680 at December 31, 1996
and $217,866,449 at December 31, 1995. Interest expense related to certificates
of deposit and other time deposits in denominations of $100,000 or more was
$12,366,412, $11,628,982 and $6,676,289 in 1996, 1995 and 1994, respectively.
NOTE 8 -- SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The Bank enters into sales of U.S. Agency, GNMA and Treasury securities under
repurchase agreements. Repurchase agreements are treated as financing
arrangements and the obligations to repurchase securities sold are reflected as
a liability on the consolidated statements of condition. The carrying value of
the investment securities underlying the agreements remains in the asset
account. All of the repurchase agreements were agreements to repurchase
substantially identical securities. The investment securities underlying the
agreements were transferred to Merrill Lynch, the dealer who arranged the
transactions. The dealer may have sold, loaned or otherwise disposed of such
securities to other parties in the normal course of its operations, and has
agreed to resell to the Bank substantially identical securities at the
maturities of the agreements in January 1997. Information concerning securities
sold under agreements to repurchase is presented below:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum amount of outstanding agreements at any month end 150,000,000 110,731,250
Average agreements outstanding during the year 115,600,969 67,990,952
Weighted average interest rates for the year 5.52% 5.97%
</TABLE>
22
<PAGE>
Merchants New York Bancorp
NOTE 9 -- INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31,
1996, 1995 and 1994 are as follow:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,054,417 $3,709,828 $2,613,393
State and local 3,420,462 3,124,437 2,428,811
- --------------------------------------------------------------------------------------------------------------------------
Total current 7,474,879 6,834,265 5,042,204
- --------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 18,679 (231,794) (26,893)
State and local (83,034) (63,282) (24,588)
- --------------------------------------------------------------------------------------------------------------------------
Total deferred (64,355) (295,076) (51,481)
- --------------------------------------------------------------------------------------------------------------------------
Total tax expense $7,410,524 $6,539,189 $4,990,723
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation between the "expected" Federal income tax
computed at the statutory rate and actual tax expense reflected in the financial
statements.
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax computed
at statutory rate $7,028,454 35.0% $6,301,616 35.0% $ 5,495,022 35.0%
State and city income taxes, net
of Federal income tax benefit 2,169,328 10.8 2,030,884 11.3 1,578,727 10.0
Federal income tax benefit
resulting from interest
on tax-exempt obligations (1,432,908) (7.1) (1,496,765) (8.3) (1,605,229) (10.2)
Other adjustments
affecting income taxes (354,350) (1.8) (296,546) (1.7) (477,797) (3.0)
- ----------------------------------------------------------------------------------------------------------------------------
Total tax/effective rate $7,410,524 36.9% $6,539,189 36.3% $ 4,990,723 31.8%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 2,584 $ 2,918
Other 248 217
- --------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 2,832 3,135
Less: valuation reserve (2,584) (2,918)
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax asset 248 217
- --------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (123) (130)
Unamortized bond premium (57) (84)
Unrealized gain on investments available for sale (6,319) (8,351)
- --------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (6,499) (8,565)
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $(6,251) $(8,348)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Given the subjective nature of recoverability of the deferred tax asset and the
Bank's conservative nature, a 100% valuation allowance for the deferred tax
asset related to the allowance for loan losses was established relative to this
item in 1996 and 1995. The decrease in the valuation reserve of $334,000 in 1996
and $134,000 for 1995 is due to the decrease in the deferred tax asset, which is
related to the allowance for possible loan losses.
23
<PAGE>
Merchants New York Bancorp
NOTE 10 -- EMPLOYEE BENEFIT PLAN
Pension Plan
The Bank's retirement plan (the "Plan") covers all employees who have attained
the age of 21 and have completed one year of service with the Bank. The Bank
contributed $454,400, $477,845 and $281,840 to the Plan in 1996, 1995 and 1994,
respectively.
The following table sets forth the Plan's funded status and amounts recognized
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation $(8,336,791) $(8,008,850)
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (9,215,405) (9,066,605)
Market value of plan assets, primarily
in corporate notes and U.S. Agency bonds 8,387,000 8,005,579
- -------------------------------------------------------------------------------------------------------------------------
Funded status (828,405) (1,061,026)
Unrecognized transition asset (1,370,101) (1,461,441)
Unrecognized prior service cost (28,354) (30,352)
Unrecognized net loss 2,336,695 2,538,608
- -------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 109,835 $ (14,211)
- -------------------------------------------------------------------------------------------------------------------------
Actuarial Assumptions:
Discount Rate 7.50% 7.00%
Salary Increases 4.00% 5.00%
</TABLE>
Net periodic Plan costs for the years ended December 31, 1996, 1995 and 1994 is
comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 478,381 $ 350,670 $ 379,107
Interest cost 613,505 583,073 523,352
Actual return on assets (185,371) (877,356) (41,172)
Amortization of transition asset (91,340) (91,340) (91,340)
Amortization of unrecognized net loss 74,540 22,148 62,729
Amortization of prior service cost (1,998) (1,998) (1,998)
Deferral of asset (loss) gain (557,363) 224,299 (573,281)
- -----------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 330,354 $ 209,496 $ 257,397
- -----------------------------------------------------------------------------------------------------------------------
Actuarial Assumptions:
Discount rate 7.00% 8.25% 7.25%
Salary increases 4.00% 5.00% 5.00%
Expected long-term rate of return 9.00% 9.00% 9.00%
</TABLE>
Stock Option Plan
During 1986, the stockholders approved the Employees Stock Option Plan of The
Merchants Bank of New York (the "Option Plan"). The purpose of the Option Plan
is to give an incentive for performance and to encourage the continued
employment of existing key employees. The Bank reserves common stock for the
future exercise of the options granted. The options expire ten years after the
date of grant and are immediately exercisable.
Due to the Bank's becoming the wholly-owned subsidiary of the Company on July 1,
1993, the Company adopted a substantially identical stock option plan as
successor to the Plan and all stock options have become options to purchase the
Company's stock rather than shares of the Bank's stock.
The shares of stock authorized for the Option Plan to be granted as stock
options were 45,000 shares in 1986, 187,500 shares in 1987 and 200,000 shares in
1993. There were no options authorized or granted in 1994, 1995 and 1996. The
basis used to establish the exercise price for the options granted under the
Option Plan was the price of the Company's stock on NASDAQ for the date of issue
of the options.
The Bank implemented SFAS No. 123 during 1996. As discussed in Note 1, the Bank
will retain its current accounting method for its stock-based employee
compensation plan. This statement will only result in additional disclosures
for the Bank when additional options are granted, and as such, its adoption did
not, nor is it expected to have, a material impact on the Bank's financial
condition or its results of operations.
24
<PAGE>
Merchants New York Bancorp
Where applicable, all shares and prices in this footnote have been adjusted for
the following stock splits: 6:5 in 1987, 5:4 in 1988, 3:2 in 1990 and 2:1 in
1995.
The following chart summarizes information concerning options outstanding and
exercisable at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
- ------------------------------------------------------------------------------------------------------
Number of Shares Remaining Life
Exercise Price Outstanding (in years)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
$19.75 131,263 5
$21.75 36,050 5
- ------------------------------------------------------------------------------------------------------
Total 167,313
- ------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the total options granted and outstanding to be
exercised:
<TABLE>
<CAPTION>
Shares Subject Weighted Average
To Option Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993 198,670
Granted --
Exercised (1,802) $20.97
Forfeited (2,868) 20.59
- ------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 194,000
Granted --
Exercised (14,136) $20.11
Forfeited -- --
- ------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 179,864
Granted --
Exercised (6,223) $19.84
Forfeited (6,328) 20.89
- ------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 167,313
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11 -- STOCKHOLDERS' EQUITY
Regulatory Capital Requirements
FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1
capital to total adjusted assets of 4.0% and minimum ratios of Tier 1 and total
capital to risk weighted assets of 4.0% and 8.0%, respectively.
The FDIC is required to take certain supervisory actions with respect to an
under capitalized bank. These actions could have a direct material effect on a
bank's financial statements. The regulations establish a framework for the
classification of banks into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Generally, a bank is considered well capitalized if it has a
leverage capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at
least 6.0% and a total risk-based capital ratio of at least 10%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgements by the FDIC about capital components, risk
weightings and other factors.
Management believes that as of December 31, 1996, the Bank meets all capital
adequacy requirements to which it is subject. Furthermore, the most recent FDIC
notification categorized the Bank as a well capitalized institution. There have
been no conditions or events since that notification that management believes
have changed the Bank's capital classification.
25
<PAGE>
Merchants New York Bancorp
The following is a summary of the Bank's capital amounts and ratios as of
December 31, 1996 and 1995, compared to the FDIC minimum capital adequacy
requirements and the FDIC requirements for classification as a well capitalized
institution:
<TABLE>
<CAPTION>
FDIC Requirements
- ---------------------------------------------------------------------------------------------------------------------
Minimum Capital For Classification
Actual Adequacy As Well Capitalized
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Leverage Capital $ 95,432 8.7% $44,130 4.0% $55,163 5.0%
Risk-Based Capital:
Tier 1 95,432 20.4 18,703 4.0 28,054 6.0
Total 101,049 21.6 37,391 8.0 47,739 10.0
December 31, 1995
Leverage Capital $ 89,551 9.0% $39,712 4.0% $49,640 5.0%
Risk-Based Capital:
Tier 1 89,551 21.6 16,576 4.0 24,864 6.0
Total 94,732 22.9 33,152 8.0 41,440 10.0
</TABLE>
Treasury Stock
On August 21, 1996, the Board authorized the repurchase of up to 5% of the
Bank's common stock, or approximately 250,000 shares. The Company has purchased
17,890 during 1996, with an additional 15,000 shares settling in January 1997.
This action reflects the Company's strong capital position and has allowed the
Company to effectively manage its overall capital position in the best interest
of its shareholders.
Dividends
Dividends paid to common stockholders totaled $6,474,760, or $1.30 per share, an
18% increase over 1995. This represented a 51% payout of net income for 1996.
NOTE 12 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various commitments and contingent
liabilities, which are properly not recorded on the balance sheet. Management
does not anticipate that losses, if any, as a result of these commitments and
contingent transactions would materially affect the liquidity, operating results
or financial condition of the Bank.
Unused variable rate loan commitments, substantially all of which have an
original maturity of one year or less, were approximately $10,292,000 and
$4,727,000 for the years ended 1996 and 1995, respectively. These commitments
are agreements to lend up to a certain amount to a customer as long as the
conditions established in the contract are met. Commitments generally have fixed
expiration dates or termination clauses and may require payment of a fee. The
total commitments do not necessarily represent future cash requirements because
some of the commitments are expected to expire without being drawn upon. The
Bank evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the bank upon extension of
credit is based on management's risk evaluation of the borrower. Collateral
held, if any, may include cash, U.S. Treasury and other marketable securities,
accounts receivable, inventory and property, plant and equipment.
The Bank also issues conditional commitments to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is essentially the same as that in extending loan facilities to customers. For
commercial letters of credit, approximately 95% expire in less than one year,
usually in 60 to 90 days. Standby letters of credit are approximately 80%
collateralized with cash, cash equivalents or marketable securities. 95% expire
within one year, with the balance generally within two years. About 45% are
automatically renewable for one year. The Bank also purchases and sells foreign
currency as an accommodation for customers. It is not traded for speculative
purposes. The Bank's credit risk for foreign currency would arise from the
possibility of a significant change in a country's currency and the failure of a
counter party to perform.
26
<PAGE>
Merchants New York Bancorp
Outstanding letters of credit, standby letters of credit, letters of guarantee
and foreign exchange contracts and their balances for the years ended 1996 and
1995 are:
1996 1995
- ---------------------------------------------------------------------------
Standby letters of credit $18,316,065 $19,438,927
Commercial letters of credit 28,555,273 29,438,680
Steamship and air guarantees 2,581,875 1,466,082
Foreign exchange:
Forward contracts purchased 747,441 1,491,864
Forward contracts sold 746,459 1,431,235
Spot transactions 105,892 24,960
As of December 31, 1996, the Bank was obligated under six operating leases for
premises. During 1995, the Bank received regulatory approval to relocate a
branch along with corporate headquarters to 275 Madison Avenue. This lease,
which was effective in March 1995, is a twenty-year lease.
Rentals under the six leases aggregated $1,251,238 for 1996, $971,225 for 1995
and $774,457 for 1994. The minimum annual rent under such leases for each of the
years ending December 31, 1997 through the year 2001 and thereafter is as
follows:
1997 $ 1,293,225
1998 1,358,919
1999 1,397,490
2000 1,069,211
2001 1,124,718
Thereafter 25,315,551
- -------------------------------------------------------------------------------
Total $31,559,114
- -------------------------------------------------------------------------------
There are various claims pending against the Bank. In the opinion of management,
after discussion with counsel, liabilities, if any, arising from such claims
will not have a material effect on the Bank's liquidity, operating results or
financial condition.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying values and estimated fair value of
the Company's financial instruments:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
As of December 31, Value Fair Value Value Fair Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 57,840,059 $ 57,840,059 $ 50,919,219 $ 50,919,219
Federal funds sold 26,000,000 26,000,000 52,000,000 52,000,000
Securities available for sale 547,863,049 561,600,523 566,222,449 584,378,564
Investment securities 166,908,260 169,340,000 45,435,596 47,759,000
Loans, net of allowance 291,463,754 291,463,754 264,420,306 264,420,306
Financial liabilities:
Demand, NOW, savings and
money market deposits 469,058,309 469,058,309 411,499,342 411,499,342
Time deposits 406,635,101 406,885,801 380,898,346 381,510,000
Repurchase agreements 120,000,000 120,000,000 105,065,000 105,065,000
Demand notes to the U.S. Treasury $ 7,199,039 $ 7,199,039 $ -- $ --
</TABLE>
SFAS No. 107 requires disclosures about the fair values of financial
instruments for which it is practicable to estimate fair value.
Fair value is defined in SFAS No. 107 as the amount at which
a financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Quoted market
prices are used to estimate fair values when those prices are available.
However, active markets do not exist for many types of financial instruments.
Consequently, fair value for these instruments must be estimated by management
using techniques such as discounted cash flow analysis and comparison to similar
instruments. These estimates are highly subjective and require judgements
regarding significant matters such as the amount and timing of future cash flows
and the selection of discount rates that appropriately reflect market and credit
risks. Changes in these judgments often have a material impact on the fair value
estimates. In addition, since these estimates are made as of a specific point in
time, they are susceptible to material near-term changes. Fair values disclosed
in accordance with SFAS No. 107 do not reflect any premium or discount that
could result from the sale of a large volume of a particular financial
instrument, nor do they reflect possible tax ramifications or estimated
transaction cost.
27
<PAGE>
Merchants New York Bancorp
The following is a description of the principal valuation methods used by the
Company to estimate the fair value of its financial instruments.
Securities Available for Sale and Investment Securities
The fair value of securities available for sale and investment securities are
based on quoted market prices.
Loans
Substantially all loans are either: (i) variable rate loans, where the interest
rate changes are consistent with changes in the prime rate; or (ii) working
capital notes with maturities of less than six months. Accordingly, after
consideration of the allowance for loan loss, net loans are considered to have a
fair value equivalent to their carrying value.
Deposit Liabilities
In accordance with SFAS No. 107, the fair value of deposit liabilities with no
stated maturity (demand, NOW, savings and money market accounts) are equal to
the carrying amounts payable on demand. The fair values of time deposits
represent contractual cash flows discounted using interest rates currently
offered on deposits with similar characteristics and remaining maturities.
As required by SFAS No. 107, these estimated fair values do not include the
intangible value of core deposit relationships which comprise a significant
portion of the Company's deposit base. Management believes that the Company's
core deposit relationships provide a relatively stable, low-cost funding source
which has a substantial intangible value separate from the deposit balances.
Other Financial Assets and Liabilities
Cash and due from banks, Federal funds sold, repurchase agreements and demand
notes to the U.S. Treasury have fair values which approximate the respective
carrying values because the instruments are payable on demand or have short-term
maturities and present relatively low credit risk and interest rate risk.
NOTE 14 -- RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
provides guidelines for recognition of impairment losses related to long-lived
assets and certain intangibles and related goodwill for both assets to be held
and assets to be disposed of. Entities are required to review assets for
possible impairment when events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Also, they are required to
apply this Statement to assets which management has committed to a plan to
dispose of the asset, by sale or abandonment. The adoption of this statement in
the current year did not have a material effect on the Bank's liquidating,
operating results or financial condition.
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Transactions
within the scope of SFAS No. 125 include transfers of partial interests,
servicing of financial assets, securitization, transfers of sales-type and
direct financing lease receivables, securities lending transactions, repurchase
agreements, loan participations, transfers of receivable with recourse and
extinguishments of liabilities. SFAS No. 125 establishes an accounting framework
for these transactions based on consistent application of a financial components
approach that focuses on control. Under this approach, an entity, subsequent to
a transfer of financial assets, must (i) recognize the financial and servicing
asset it controls and the liabilities it has incurred, (ii) derecognize
financial assets when control has been surrendered, and (iii) derecognize
liabilities when extinguished.
Standards for distinguishing transfers of financial assets that are sales from
those that are secured borrowings are provided in SFAS No. 125. If the
transferor has surrendered control over the transferred assets, the transaction
is accounted for as a sale. Under SFAS No. 125, control is considered to have
been surrendered only if (i) the assets are isolated from the transferor, (ii)
the transferee has the right to pledge or exchange the assets or is a qualifying
special-purpose entity, and (iii) the transferor does not maintain effective
control over the assets through an agreement to repurchase or redeem the assets
prior to maturity or to repurchase or redeem transferred assets that are not
readily obtainable. A transfer not meeting the criteria for a sale must be
accounted for as a secured borrowing with the pledge of collateral.
SFAS No. 125 requires that servicing assets and other retained interests in
transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and the retained interests, if any, based on
their relative fair values at the date of transfer. Servicing assets and
liabilities are subsequently amortized in proportion to and over the period of
estimated net servicing income or loss and assessed for asset impairment, or
increased obligation, based on their fair value.
28
<PAGE>
Other provisions of SFAS No. 125 include (i) liabilities and derivatives
incurred or obtained by transferors at fair value and (ii) loans and other
assets that can be prepaid or otherwise settled in such a way that the holder
would not recover substantially all of its recorded investment which shall be
subsequently measured like debt securities classified as available for sale or
trading under SFAS No. 115.
SFAS No. 125 is generally effective for transactions occurring after December
31, 1996 and is to be applied prospectively. Accounting policies which
management believes will not be affected by SFAS No. 125 include (i) accounting
for mortgage loan sales and the related servicing assets, (ii) accounting for
sales of securities under repurchase agreements as secured borrowings, and (iii)
accounting for transfers of securitized credit card receivable as sales.
Management believes that the initial adoption of SFAS No. 125 will not have a
significant effect on the Company's 1997 consolidated financial statements.
NOTE 15 -- PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Parent Company Only
CONDENSED STATEMENTS OF CONDITION
December 31, 1996 and 1995
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 415,038 $ 844,494
Investment in subsidiary 103,120,594 99,310,109
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 103,535,632 100,154,603
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Total liabilities -- --
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Total stockholders' equity 103,535,632 100,154,603
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $103,535,632 $100,154,603
- ---------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Income:
Dividends received from subsidiary $ 6,474,760 $ 5,470,519
Equity in undistributed net income of subsidiary 6,196,011 5,994,911
Management fees 509,527 389,455
- ---------------------------------------------------------------------------------------------------------------------------
Total income 13,180,298 11,854,885
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Expenses 509,527 389,455
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 12,670,771 $ 11,465,430
- ---------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 12,670,771 $ 11,465,430
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of subsidiary 6,196,011 5,994,911
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 6,196,011 5,994,911
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,474,760 5,470,519
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net cash used in investing activities -- --
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 123,454 284,236
Purchases of treasury stock (552,910) --
Dividends paid (6,474,760) (5,470,519)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,904,216) (5,186,283)
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (429,456) 284,236
Cash and cash equivalents at beginning of the period 844,494 560,258
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 415,038 $ 844,494
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
The Merchants Bank of New York (the "Bank") became the wholly-owned subsidiary
of Merchants New York Bancorp Inc, (the "Company"), a Delaware holding company
on July 1, 1993. Each Bank stockholder became a stockholder of the Company,
which has authorized 10,000,000 shares of stock at a par value of $.001 per
share. Of the authorized shares, 4,987,561 shares have been issued and are
outstanding as of December 31, 1996, with 4,981,338 shares outstanding as of
December 31, 1995.
The earnings of the Bank are recognized by the Company using the equity method
of accounting. Accordingly, earnings of the Bank are recorded as increases in
the Company's investment in the Bank, with any dividends reducing this
investment.
NOTE 16 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is presented below for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $16,936,240 $17,520,198 $18,986,904 $19,651,643 $73,094,985
Net interest income 9,412,779 9,592,878 10,040,248 10,593,884 39,639,789
Provision for loan losses 100,000 100,000 400,000 1,980,000 2,580,000
Income before income tax 5,237,321 5,589,956 5,896,072 3,357,946 20,081,295
Net income 3,089,595 3,224,184 3,778,243 2,578,749 12,670,771
Net income per average share $0.61 $0.64 $0.75 $0.52 $2.52
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $16,677,477 $17,118,333 $17,441,644 $18,332,152 $69,569,606
Net interest income 9,497,556 9,057,085 9,218,698 9,888,864 37,662,203
Provision for loan losses 250,000 250,000 100,000 1,480,000 2,080,000
Income before income tax 4,967,238 4,905,535 5,235,353 2,896,493 18,004,619
Net income 3,042,025 2,972,471 3,143,777 2,307,157 11,465,430
Net income per average share $0.60 $0.59 $0.63 $0.46 $2.28
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Merchants New York Bancorp:
We have audited the accompanying consolidated statements of condition of
Merchants New York Bancorp and subsidiary (the "Bank") as of December 31, 1996
and 1995, and the related statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Merchants New York
Bancorp as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
KPMG, PEAT MARWICK LLP
New York, New York
February 7, 1997
30
<PAGE>
<TABLE>
<CAPTION>
Merchants New York Bancorp
AVERAGE ASSETS, LIABILITIES AND
STOCKHOLDERS' EQUITY
(Dollars In Thousands)
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance % Balance % Balance %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 46,993 4.49% $ 43,522 4.51% $ 46,507 4.78%
Federal funds sold 6,128 0.59 3,115 0.32 7,019 0.72
Securities purchased under
agreements to resell -- -- -- -- 538 0.05
Investment securities*:
Available for sale 553,343 52.85 585,047 60.63 536,232 55.12
Held to maturity 133,239 12.73 30,116 3.12 83,117 8.55
- ---------------------------------------------------------------------------------------------------------------------
Total 686,582 65.58 615,163 63.75 619,349 63.67
Loans (net of unearned discounts) 280,361 -- 276,649 -- 273,946 --
Allowance for loan losses 6,454 -- 6,601 -- 7,069 --
- ---------------------------------------------------------------------------------------------------------------------
Net loans 273,907 26.17 270,048 27.98 266,877 27.44
Bank premises and equipment 6,909 0.66 4,802 0.50 4,704 0.48
Customers' liability on acceptances 11,924 1.14 12,702 1.32 13,269 1.36
Accrued interest receivable 7,911 0.76 8,539 0.88 8,480 0.87
Other assets 6,429 0.61 7,128 0.74 6,172 0.63
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,046,783 100% $965,019 100% $972,915 100%
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits:
Demand $ 209,828 20.05% $194,571 20.16% $200,475 20.61%
NOW 38,219 3.65 38,235 3.96 45,190 4.65
Savings 25,485 2.43 28,146 2.92 36,934 3.80
Money market 131,974 12.61 116,179 12.04 138,316 14.22
Time certificates of deposit 384,033 36.68 389,747 40.38 400,746 41.19
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 789,539 -- 766,878 -- 821,661 --
Federal funds purchased 7,661 0.73 13,247 1.37 6,936 0.71
Securities sold under
repurchase agreements 115,601 11.04 67,991 7.05 43,106 4.43
Demand notes to the U.S. Treasury 4,060 0.39 -- -- -- --
Acceptances outstanding 11,924 1.14 12,702 1.32 11,913 1.22
Other liabilities 16,846 1.61 13,160 1.36 8,054 0.83
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 945,631 -- 873,978 -- 891,670 --
Capital stock 5 -- 3 -- 2 --
Surplus 23,674 2.26 23,430 2.43 23,334 2.39
Undivided profits 70,652 6.75 64,660 6.70 58,395 6.00
Treasury stock (89) -- -- -- -- --
Net unrealized appreciation
(depreciation) on investments 6,910 0.66 2,948 0.31 (486) (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 101,152 -- 91,041 -- 81,245 --
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,046,783 100% $ 965,019 100% $972,915 100%
- ---------------------------------------------------------------------------------------------------------------------
<FN>
*The averages for available for sale securities are disclosed at estimated
market value, with securities held to maturity at book value.
</TABLE>
31
<PAGE>
MERCHANTS NEW YORK BANCORP
AND
THE MERCHANTS BANK OF NEW YORK
Spencer B. Witty
Chairman of the Board
James G. Lawrence
President and Chief Executive Officer
Rudolf H. Hertz William J. Cardew Charles I. Silberman*
Vice Chairman Vice Chairman and Vice Chairman
Chief Operating Officer
Nancy J. Ostermann
Vice President and Comptroller
Eric W. Gould
Treasurer
Karen L. Deitz
Corporate Secretary
BOARD OF DIRECTORS
Charles J. Baum President, Baum Bros. Imports, Inc., importers of
porcelain dinnerware
William J. Cardew Vice Chairman and Chief Operating Officer
Rudolf H. Hertz Vice Chairman
Isidore Karten President, I. Karten, Inc., d/b/a Bermaha Textile Co.,
exporters of textiles
James G. Lawrence President and Chief Executive Officer
Robinson Markel Attorney -- member of the law firm of Piper & Marbury L.L.P.
Paul Meyrowitz Attorney -- senior member of the law firm of Simon,
Meyrowitz, Meyrowitz & Schlussel
Alan Mirken President -- Aaron Publishing Group, Inc., book publishers
Mitchell J. Nelson Attorney -- of counsel to the law firm of Christy &
Viener; President, Atlas Real Estate Funds
Leonard Schlussel President, Wellbilt Equipment Corp., builders of
restaurants; Partner, Keybro Enterprises, finance
Charles I. Silberman President and Chairman of the Board, S. Parker
Hardware Mfg. Corp., importer and manufacturer of
builders' hardware; Vice Chairman of the Holding Company
Spencer B. Witty Chairman of the Board of the Bank and Holding Company
Counsel-- Paul Meyrowitz Attorney-- Simon, Meyrowitz, Meyrowitz & Schlussel
Transfer Agent-- American Stock Transfer and Trust Co. 40 Wall Street,
New York, NY 10005
Auditors-- KPMG Peat Marwick LLP 345 Park Avenue, New York, NY 10154
*Officer of Bancorp.
32
<PAGE>
THE MERCHANTS BANK OF NEW YORK
LENDING DIVISION
Senior Vice Presidents and Division Heads
Stephen A. Barrow
Leonard S. Levine
Group Managers
Michael D. Altman
Senior Vice President
Brian M. Cardew
Vice President
Janet L. Markel
Vice President
Lester Nadel
Vice President
Kenneth J. Satchwill
Vice President
Joseph J. Wynne
Vice President
Vice Presidents
Gerald H. Attanasio
Andrew S. Baron
Martin Carbotti
Leonard Katcher
Joseph J. Nicolosi
Elliot Reiner
Donald F. Ritchie
Assistant Vice Presidents
Roseann Manos
Judith Rahilly
Brian T. Schiffino
Chad E. Stewart
Assistant Cashiers
John J. Cronin
Paul L. Hamner
Scott A. Obeck
Joseph Radice
Eugene P. Schreiner
INTERNATIONAL DIVISION
Senior Vice President and Division Head
Joseph M. Cestone
Assistant Vice President
Mary Jane G. Lerias
Assistant Cashiers
Esteban A. Espiritu
Babulal Kapadia
BANK OPERATIONS
Vice President and
Division Head
Rosemarie A. Calabro
Assistant Vice President
Thomas J. Stackhouse
Assistant Cashiers
Philip S. Cameron
Inmaculada Marquez
Kenneth Renga
Patricia A. Revell
BRANCH DIVISION
Senior Vice President and
Division Head
Eugene J. Venier
Assistant Vice President
Harry Woods
275 MADISON AVENUE
Vice President and
Branch Manager
Dennis J. Sheridan
Assistant Cashiers
James T. Kung
M. Carolina Nolasco
295 FIFTH AVENUE
Vice President and
Branch Manager
Simeon Kovacic
Assistant Vice Presidents
Barbara Green
William A. Matos
145 FIFTH AVENUE
Vice President and
Branch Manager
Michael M. Hassani
Assistant Vice President
Joseph J. Casale
1040 SIXTH AVENUE
Assistant Vice President
and Branch Manager
Raymond F. Tornabene
Assistant Vice President
Javier R. Carrera
62 WEST 47TH STREET
Vice President and
Branch Manager
John U. Doekker
Vice President
Ralph Salvaggio
Assistant Vice President
David S. Kaplan
Assistant Cashier
Frances Nardella
434 BROADWAY
Vice President and
Branch Manager
Joseph R. Criscione
Assistant Vice President
Ronald Mattioli
Assistant Cashiers
Fontaine Firenze
Charles E. Nigro
Elaine P. Sacks
93 CANAL STREET
Assistant Vice President and
Branch Manager
Lawrence I. Kohn
Assistant Cashier
Orlando Acevedo
COMPTROLLER
Vice President and
Department Head
Nancy J. Ostermann
Assistant Vice President
M. Nasette Espiritu
Assistant Comptrollers
Salvatore Balsamo
Perrie H. McCloud
Joanna Robinson
TREASURER
Eric W. Gould
AUDIT
Auditor and Department Head
Mary J. Scarpelli
Assistant Auditor
Allan Trowbridge
HUMAN RESOURCES
Vice President and
Department Head
Ruth T. Aimetti
REAL ESTATE &
ADMINISTRATIVE SERVICES
Vice President
T. John Santoro
CORPORATE SECRETARY
Karen L. Deitz
<PAGE>
[LOGO]
MERCHANTS NEW YORK BANCORP
275 MADISON AVENUE
434 BROADWAY 62 WEST 47TH STREET
1040 SIXTH AVENUE 295 FIFTH AVENUE
145 FIFTH AVENUE 93 CANAL STREET
NEW YORK, NEW YORK
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule is a compilation of information appearing in the financial
statements that are included in the Annual Report on Form 10-K of
Merchants New York Bancorp for the year ended December 31, 1996. It is
qualified in its entirety by reference to those financial statements.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 57,488,091 50,919,219
<INT-BEARING-DEPOSITS> 351,968 0
<FED-FUNDS-SOLD> 26,000,000 52,000,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 561,600,523 584,377,564
<INVESTMENTS-CARRYING> 166,908,260 45,434,596
<INVESTMENTS-MARKET> 169,340,000 47,758,971
<LOANS> 297,081,725 270,904,241
<ALLOWANCE> 5,616,971 6,483,935
<TOTAL-ASSETS> 1,137,798,701 1,027,191,423
<DEPOSITS> 875,693,410 792,397,688
<SHORT-TERM> 127,199,039 105,065,000
<LIABILITIES-OTHER> 31,370,620 29,574,132
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 4,988 4,982
<OTHER-SE> 103,530,644 100,149,621
<TOTAL-LIABILITIES-AND-EQUITY> 1,137,798,701 1,027,191,423
<INTEREST-LOAN> 25,300,755 26,604,396
<INTEREST-INVEST> 47,473,933 42,782,617
<INTEREST-OTHER> 320,297 182,593
<INTEREST-TOTAL> 73,094,985 69,569,606
<INTEREST-DEPOSIT> 26,438,521 27,032,507
<INTEREST-EXPENSE> 33,455,196 31,907,403
<INTEREST-INCOME-NET> 39,639,789 37,662,203
<LOAN-LOSSES> 2,580,000 2,080,000
<SECURITIES-GAINS> 372,396 127,697
<EXPENSE-OTHER> 22,264,647 22,731,545
<INCOME-PRETAX> 20,081,295 18,004,619
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,670,771 11,465,430
<EPS-PRIMARY> 2.52 2.28
<EPS-DILUTED> 2.52 2.28
<YIELD-ACTUAL> 4.41 4.55
<LOANS-NON> 1,109,000 2,169,000
<LOANS-PAST> 687,000 281,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 6,484,000 6,188,000
<CHARGE-OFFS> 4,405,000 2,348,000
<RECOVERIES> 958,000 564,000
<ALLOWANCE-CLOSE> 5,617,000 6,483,935
<ALLOWANCE-DOMESTIC> 579,000 1,108,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 5,038,000 5,376,000
</TABLE>
