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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchanges Act of 1934
For the quarter ended Commission File No. 0-22058
June 30, 1998
MERCHANTS NEW YORK BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3650812
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
275 Madison Avenue, New York, N.Y. 10016-0001
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)973-6600
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 _____
As of July 31, 1998, there were 9,744,509 shares of common stock
outstanding, the Registrant's only class of stock.
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<PAGE>
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Merchants New York Bancorp
Table of Contents
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statements of Changes in Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
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<PAGE>
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Merchants New York Bancorp
Consolidated Balance Sheets
June 30, December 31,
1998 1997
-------------- --------------
Assets
Cash and due from banks $ 31,104,582 51,209,936
Federal funds sold 5,000,000 67,000,000
Securities available for sale,
at market value 604,510,673 541,634,211
Investment securities (market value
of $226,313,077 in 1998
and $219,901,903 in 1997) 222,012,857 215,170,777
Loans, net of unearned discounts 342,978,388 331,807,721
Less allowance for loan losses 7,083,361 6,167,157
-------------- --------------
Total loans, net 335,895,027 325,640,564
Bank premises and equipment 6,725,152 6,937,748
Customers' liability on acceptances 18,983,296 14,374,602
Other assets 13,725,156 13,774,397
-------------- --------------
Total Assets $1,237,956,743 1,235,742,235
-------------- --------------
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand $ 256,016,798 267,561,571
NOW 40,945,887 47,295,963
Savings 25,858,969 24,736,235
Money market 145,326,284 145,336,114
Time 402,799,072 419,157,042
-------------- --------------
Total deposits 870,947,010 904,086,925
Securities sold under
repurchase agreements 155,000,000 160,000,000
Other short-term borrowings 65,028,882 32,179,723
Acceptances outstanding 18,983,296 14,374,602
Other liabilities 18,442,982 18,906,588
-------------- --------------
Total Liabilities 1,128,402,170 1,129,547,838
Stockholders' Equity
Capital stock $.001 par
value per share;
40,000,000 and 10,000,000
authorized shares in 1998
and 1997, respectively;
9,989,332 issued & outstanding 9,989 9,989
Surplus 23,889,352 23,889,352
Undivided profits 82,893,191 80,016,764
Less: Treasury stock at cost
(237,323 and 317,549 shares
in 1998 and 1997, respectively) 5,649,369 6,665,520
Accumulated other comprehensive
income, net of tax:
Unrealized appreciation on
securities available for sale 8,411,410 8,943,812
-------------- --------------
Total Stockholders' Equity 109,554,573 106,194,397
-------------- --------------
-------------- --------------
Total Liabilities and
Stockholders' Equity $1,237,956,743 1,235,742,235
-------------- --------------
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See accompanying notes to consolidated financial statements.
1
<PAGE>
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Merchants New York Bancorp
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Interest on loans $ 7,505,462 $ 7,036,144 $14,647,208 $13,240,024
Interest and dividends on
investment securities:
Taxable 11,833,413 12,234,716 23,780,893 24,405,945
Non-taxable 1,135,878 1,087,369 2,257,360 2,175,948
Other interest income 168,127 58,080 535,677 172,102
----------- ----------- ----------- -----------
Total interest and
dividend income $20,642,880 $20,416,309 $41,221,138 $39,994,019
----------- ----------- ----------- -----------
Interest Expense
Interest on deposits 6,958,130 7,326,778 14,068,282 14,477,806
Interest on securities sold
under repurchase agreements 2,158,333 2,282,442 4,145,937 3,692,634
Interest on other short-term
borrowings 711,412 299,469 1,114,313 604,995
----------- ----------- ----------- -----------
Total interest expense $ 9,827,875 $ 9,908,689 $19,328,532 $18,775,435
----------- ----------- ----------- -----------
Net Interest Income $10,815,005 $10,507,620 $21,892,606 $21,218,584
Provision for possible loan losses 200,000 250,000 600,000 500,000
----------- ----------- ----------- -----------
Net int. inc. after provision
for loan losses $10,615,005 $10,257,620 $21,292,606 $20,718,584
----------- ----------- ----------- -----------
Non Interest Income
Service fee and other charges 327,627 326,850 630,746 648,926
International department services 693,764 682,546 1,390,371 1,302,205
Fee income 356,418 265,821 616,829 513,698
Other income 0 0 3,136 0
Investment sales - net gains 0 21,901 0 21,901
----------- ----------- ----------- -----------
Total non interest income $ 1,377,809 $ 1,297,118 $ 2,641,082 $ 2,486,730
----------- ----------- ----------- -----------
Non Interest Expenses
Salaries and employee benefits 3,173,947 2,939,668 6,763,901 6,302,301
Net occupancy 629,780 651,637 1,266,234 1,305,997
Equipment 211,126 198,604 417,917 371,978
Other expenses 1,659,085 1,798,193 3,436,625 3,265,787
----------- ----------- ----------- -----------
Total non interest expenses $ 5,673,938 $ 5,588,102 $11,884,677 $11,246,063
----------- ----------- ----------- -----------
Income before income taxes $ 6,318,876 $ 5,966,636 $12,049,011 $11,959,251
Provision for income taxes 2,093,358 2,090,848 4,136,039 4,692,380
----------- ----------- ----------- -----------
Net Income $ 4,225,518 $ 3,875,788 $ 7,912,972 $ 7,266,871
----------- ----------- ----------- -----------
Earnings per share:
Basic $0.43 $0.39 $0.81 $0.73
Diluted $0.43 $0.39 $0.80 $0.72
Average number of common shares
Basic 9,698,633 9,871,925 9,720,869 9,880,073
Diluted 9,832,181 10,023,715 9,872,613 10,024,303
----------- ----------- ----------- -----------
Dividends per common share $0.20 $0.175 $0.40 $0.35
----------- ----------- ----------- -----------
</TABLE>
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See accompanying notes to consolidated financial statements.
2
<PAGE>
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Merchants New York Bancorp
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 4,225,518 $ 3,875,788 $ 7,912,972 $ 7,266,871
Other comprehensive income, net of tax:
Unrealized appreciation (depreciation)
on securities available
for sale during the period 116,279 2,892,641 (532,402) 259,982
----------- ----------- ----------- -----------
Comprehensive income $ 4,341,797 $ 6,768,429 $ 7,380,570 $ 7,526,853
=========== =========== =========== ===========
</TABLE>
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See accompanying notes to consolidated financial statements.
3
<PAGE>
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Merchants New York Bancorp
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended June 30,
1998 1997
------------- --------------
Capital stock:
Balance at beginning of year $ 9,989 $ 4,988
Shares issued through exercise
of Employee Stock Options:
7,105 shares in 1997* 0 6
------------- -------------
Balance at end of period 9,989 4,994
============= =============
Surplus:
Balance at beginning of year 23,889,352 23,749,629
Excess over par value on
shares issued through the
exercise of Employee Stock Option 0 157,161
------------- -------------
Balance at end of period 23,889,352 23,906,790
============= =============
Undivided profits:
Balance at beginning of year 80,016,764 72,915,689
Net income 7,912,972 7,266,871
Cash dividends paid (3,885,857) (3,463,592)
Common stock issued from
treasury stock (1,150,688) 0
------------- -------------
Balance at end of period 82,893,191 76,718,968
============= =============
Treasury stock:
Balance at beginning of year (6,665,520) (552,910)
Repurchase of 30,900 and
86,050 shares of common stock
in 1998 and 1997, respectively (1,235,913) (1,478,818)
Issuance of 111,126 and 5,268
shares of common stock in
1998 and 1997, respectively 2,252,064 40,178
------------- -------------
Balance at end of period (5,649,369) (1,991,550)
============= =============
Accumulated other comprehensive
income:
Net unrealized appreciation on
securities available for sale,
net of tax effect
Balance at beginning of year 8,943,812 7,418,236
Changes during the period,
net of tax (532,402) 259,982
------------- -------------
Balance at end of period 8,411,410 7,678,218
============= =============
Total stockholders' equity
Balance at beginning of year 106,194,397 103,535,632
Changes during the period, net 3,360,176 2,781,788
------------- -------------
Total ending balance $ 109,554,573 $ 106,317,420
============= =============
* 1997 numbers and shares do not reflect the 2:1 stock split in October 1997.
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See accompanying notes to consolidated financial statements.
4
<PAGE>
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Merchants New York Bancorp
Consolidated Statements of Cash Flows
For the periods ended June 30, 1998, and 1997
1998 1997
------------- -------------
Cash flows from operating activities:
Net income $ 7,912,972 $ 7,266,871
------------- -------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 552,252 486,353
Amortization of premium,
net of discounts 4,153,612 2,776,740
Provision for loan losses 600,000 500,000
Gains on sales 0 (21,901)
(Decrease) increase in
unearned discounts (53,982) 29,364
Increase in taxes payable 613,068 117,382
Increase in interest
receivable (760,629) (308,446)
(Decrease) increase in
interest payable (42,363) 1,605,222
Decrease in accrued expenses (449,702) (531,159)
Decrease (increase) in
other assets 752,727 (128,800)
(Decrease) increase in
other liabilities (300,575) 369,734
------------- -------------
Net cash provided by
operating activities 12,977,380 12,161,360
------------- -------------
Cash flows from investing
activities:
Net decrease in federal funds
sold 62,000,000 26,000,000
Proceeds from redemptions of
securities available for sale 81,963,352 58,565,112
Proceeds from sales of securities
available for sale 0 10,175,000
Purchase of securities available
for sale (179,054,759) (140,348,023)
Proceeds from redemptions of
investment securities 27,575,023 14,097,480
Purchase of investment securities (5,172,204) (13,505,601)
Net increase in customer loans (10,800,482) (26,611,313)
Net increase in bank premises
and equipment (282,513) (355,806)
------------- -------------
Net cash used in investing
activities (23,771,583) (71,983,151)
------------- -------------
Cash flows from financing activities:
Net decrease in demand deposits,
NOW, savings and money
market accounts (16,781,944) (38,068,395)
Net (decrease) increase in
certificates of deposits (16,357,970) 1,535,183
Net (decrease) increase in
securities sold under
repurchase agreements (5,000,000) 50,000,000
Net increase in other short-term
borrowings 32,849,158 51,800,961
Proceeds from issuance of
common stock 1,101,375 157,167
Purchases of treasury stock (1,235,913) (1,438,640)
Dividends paid (3,885,857) (3,463,592)
------------- -------------
Net cash (used in) provided
by financing activities (9,311,151) 60,522,684
------------- -------------
Net (decrease) increase in
cash and cash equivalents (20,105,354) 700,893
Cash and cash equivalents at
beginning of the period 51,209,936 57,840,059
------------- -------------
Cash and cash equivalents at
end of the period $ 31,104,582 $ 58,540,952
============= =============
Supplemental disclosure of
cash flow information:
Interest paid 19,370,895 17,211,037
Taxes paid 3,522,971 4,574,998
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See accompanying notes to consolidated financial statements.
5
<PAGE>
MERCHANTS NEW YORK BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I - Item 1
1. The consolidated financial statements include the accounts of Merchants New
York Bancorp (Bancorp) and its wholly owned subsidiary, The Merchants Bank of
New York (the Bank). All material intercompany accounts and transactions have
been eliminated in consolidation. The consolidated financial statements as of
and for the interim periods of June 30, 1998 and 1997 are unaudited. All
adjustments, which consist of normal accruals necessary for the fair
presentation of such periods have been made. Certain reclassifications have been
made to the 1997 financial statements to conform to the current presentation.
The interim financial statement should be read in conjunction with Bancorp's
Annual Report on Form 10 - K for the year ended December 31, 1997.
2. Earnings Per Share - In compliance with the disclosure requirements of SFAS
No. 128, "Earnings Per Share," presented below is the calculation of basic and
diluted earnings per share ( EPS ) for Bancorp as of June 30, 1998 and 1997.
First Second Year
1998 Quarter Quarter To Date
- ---- ------- ------- -------
Net Income $ 3,687,454 $ 4,225,518 $ 7,912,972
Less: minority interest 1,856 1,856 3,712
----------- ----------- -----------
Net income available to common
shareholders $ 3,685,598 $ 4,223,662 $ 7,909,260
Weighted average shares outstanding 9,678,634 9,698,633 9,720,869
Plus: effect of stock options as
dilutive securities 206,331 133,548 151,743
----------- ----------- -----------
Adjusted weighted average shares
assuming dilution 9,884,965 9,832,181 9,872,613
EPS - Basic $ 0.38 $ 0.43 $ 0.81
EPS - Diluted $ 0.37 $ 0.43 $ 0.80
================================================================================
1997
- ----
Net Income $ 3,391,083 $ 3,875,788 $ 7,266,871
Less: minority interest 0 0 0
----------- ----------- -----------
Net income available to common
shareholders $ 3,391,083 $ 3,875,788 $ 7,266,871
Weighted average shares outstanding 9,901,545 9,871,925 9,880,073
Plus: effect of stock options as
dilutive securities 121,547 151,790 144,230
----------- ----------- -----------
Adjusted weighted average shares
assuming dilution 10,023,092 10,023,715 10,024,303
EPS - Basic $ 0.34 $ 0.39 $ 0.73
EPS - Diluted $ 0.34 $ 0.39 $ 0.72
----------- ----------- -----------
================================================================================
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I - Item 2 (Continued)
3. Accumulated Other Comprehensive Income- SFAS No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income represents net income and certain amounts reported directly in equity,
such as the net unrealized appreciation or depreciation on available-for-sale
securities. Other Comprehensive Income is shown on the Balance Sheet net of tax.
Below are the before tax and tax expense numbers applicable as of June 30, 1998
and December 31, 1997.
Before Tax Tax Net-of-Tax
Amount Expense Amount
------ ------- ------
Other Comprehensive Income:
Unrealized appreciation, as
of June 30, 1998, changes
arising during period $13,485,468 $5,074,058 $8,411,410
----------- ---------- ----------
Unrealized appreciation, as
of December 31, 1997, changes
arising during period $14,301,903 $5,358,091 $8,943,812
----------- ---------- ----------
4. Accounting for the Disclosure about Segments of an Enterprise and Related
Information - In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Among other things, SFAS No.
131 requires public companies to report (i) certain financial and descriptive
information about their reportable operating segments (as defined), and (ii)
certain enterprise-wide financial information about products and services,
geographic areas and major customers. The required segment financial disclosures
include a measure of profit or loss, certain specific revenue and expense items,
and total assets. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Company in its fiscal
year ending December 31, 1998.
5. Accounting for Employer's Disclosures about Pensions and Other Postretirement
Benefits - In February 1998, the FASB issued SFAS No. 132, "Employer's
Disclosure about Pensions and Other Postretirement Benefits". SFAS No. 132
standardizes the disclosure requirements for pension and other postretirement
benefits to the extent practicable. SFAS No. 132 provides information that
assists users in (a) evaluating the employer's obligation under pension and
other postretirement benefit plans and the effects on the employer's prospects
for future cash flows, (b) analyzing the quality of currently reported net
income, and ( c ) estimating future reported net income. SFAS No. 132 addresses
disclosure only. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Company in its fiscal
year ending December 31, 1998.
7
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 (Continued)
Comparison for the three months ended June 30, 1998 and June 30, 1997
Interest income on investments decreased $353,000 to $12.9 million as compared
to $13.3 million for the same period in 1997. The decrease was a result of
$501,000 from lower interest rates, offset by an increase in higher volume of
$148,000. The average balance for the investment portfolio increased to $787.8
million , up from $776.3 million in 1997.
Interest income on loans increased to $7.5 million, up $469,000 compared to $7.0
million for the same period in 1997. $509,000 was from higher volume, offset by
a reduction from interest rates of $40,000. The prime rate remained the same at
8.50% for both periods. The average loan balance for the quarter increased to
$328.5 million, up $22.3 million from $306.2 million in 1997.
Non interest income increased slightly to $1,378,000, up $81,000 from the prior
year of $1,297,000. This was primarily the result of an increase in higher
volume from the International Department operations, and fee income.
Interest expense on interest bearing deposits decreased $366,000 to $6.9
million, down from $7.3 million for the same period in 1997. The decrease was
caused by $291,000 from lower volume, and $75,000 from lower interest rates.
Average interest bearing deposits decreased $21.5 million to $611.2 million,
when compared to $632.7 million in 1997.
Interest expense on repurchase agreements decreased to $2.2 million, a reduction
of $124,000, when compared to $2.3 million for the same period in 1997. The
decrease was the result of $103,000 from lower volume, and $21,000 from lower
interest rates. The average balance for repurchase agreements outstanding
decreased by $7.2 million for the quarter to $152.1 million, down from $159.3
million in 1997.
Interest expense from other borrowings consisting of federal funds purchased, US
Treasury demand notes, and FHLB advances increased by $412,000 to $711,000, up
from $299,000 for the same period in 1997. This was the result of $397,000 from
higher volume and $15,000 from higher interest rates. Average outstanding
balances for other borrowings increased to $44.7 million in 1998, up $32.3
million from $12.4 million in 1997. These funds were employed to reduce
outstanding repurchase agreements, and to fund the increases in the loan and
investment portfolios.
8
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Non-interest expenses increased slightly to $5.7 million, up from $5.6 million
in 1997, as an increase in salaries and benefits of $234,000 was offset by a
decrease of $139,000 in other operating expenses.
Income tax expense remained relatively the same at $2 million for both periods
ending June 30, 1998, and 1997.
LOAN LOSSES
An addition of $200,000 was made to the Provision for Loan Losses for the second
quarter in 1998, compared to $250,000 in 1997.
The loan loss provision is based on maintaining a loan loss reserve to cover all
non - accrual and higher risk loans. At June 30, 1998, our level of reserve
follows industry standards, as demonstrated in other commercial banks, with the
provision rising and falling to reflect the status of our loan portfolio risk.
The bank's allowance for loan losses at June 30, 1998 was 2.16 % of average
loans outstanding , compared to 2.07 % at June 30, 1997. In addition to non -
accrual loans, we consider loans classified by management as having higher than
normal credit risk but where a loss is not currently anticipated.
Quarter Ending
Allowance for loan losses 6/30/98 6/30/97
- ----------------------------------------------------------------------
(In thousands)
Balance at beginning of quarter $6,817 $6,000
Provision for loan losses............... 200 250
Recoveries
Commercial........................... 62 82
Installment.......................... 4 0
-------------------------
Total................................... $7,083 $6,332
=========================
9
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Comparison for the six months ended June 30, 1998 and June 30, 1997
Interest income on investments decreased $544,000 to $26 million as compared to
$26.6 million for the same period in 1997. The decrease resulted from $807,000
caused by lower interest rates, offset by an increase of $263,000 from higher
volume. The average balance for the investment portfolio increased to $773
million up from $762.2 million in 1997.
Interest income on loans increased to $14.6 million in 1998, up $1.4 million
compared to $13.2 million for the same period in 1997. Higher volume resulted in
$1.3 million, and an increase in interest rates contributed $93,000, as the
prime rate rose by 12 basis points from 8.38% in 1997 to 8.50% for 1998. The
average loan balance for the period increased to $321.3 million, up $28.8
million from $292.5 million in 1997.
Non interest income increased slightly to $2.6 million, up $154,000 from the
prior year of $2.5 million. This was primarily the result of an increase in
higher volume from the International Department operations , and other fee
income.
Interest expenses on interest bearing deposits decreased $406,000 to $14
million, down from $14.5 million for the same period in 1997. The decrease was
caused by $371,000 from lower deposits, and $35,000 from lower interest rates.
Average interest bearing deposits decreased $13 million to $619.6 million in
1998, when compared to $632.6 million in 1997.
Interest expense on repurchase agreements increased to $4.1 million, up
$453,000, when compared to $3.7 million for the same period in 1997. The
increase was the result of $373,000 from higher volume plus $80,000 from higher
interest rates. The average balance for repurchase agreements outstanding
increased by $13.1 million to $145.1 million, up from $132 million in 1997.
Interest expense from other borrowings consisting of federal funds purchased, US
Treasury demand notes, and FHLB advances, increased by $509,000 to $1.1 million,
up from $605,000 for the same period in 1997. This was the result of $472,000
from higher volume and $37,000 from higher interest rates. Average outstanding
balances for other borrowings increased to $39.6 million in 1998, up $16.8
million from 1997. These funds were employed to support the increases in both
the loan and investment portfolios.
10
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Non interest expense increased to $11.8 million, up from $11.2 million in 1997.
This was principally the result of a $462,000 increase in salaries and benefits,
and $161,000 in other expenses.
LOAN LOSSES AND NON PERFORMING ASSETS
Loans are generally placed on non-accrual status when principal or interest
becomes 90 days or more delinquent. Loans past due 90 days or more and are still
accruing are either secured or are in the process of collection. Loans remain on
non-accrual status until principal and interest payments are current or charged
off.
The following table sets forth certain information with respect to the loan loss
experience for the year to date June 30, 1998 and 1997.
Year To Date
Allowance for loan losses 6/30/98 6/30/97
- ----------------------------------------------------------------------
(In thousands)
Balance at beginning of period $6,167 $5,617
Provision for loan losses.................. 600 500
Recoveries
Commercial.............................. 310 211
Installment............................. 6 4
------------------------
Total...................................... $7,083 $ 6,332
========================
The following table sets forth the aggregate amount of domestic non-accrual and
past due loans which are 90 days or more past due as to principal or interest
payments on the date indicated.
As of
Non accrual & Past due loans 6/30/98 6/30/97
- --------------------------------------------------------------------
(Dollars in thousands)
Non - accrual loans........................ $ 152 $1,307
Loans past due more than 90 days
& still accruing........................ 1,726 2,655
----------------------
Total................................... $1,878 $3,962
======================
Non - accrual loans as a % of reserve 2.1% 20.6%
Non - accrual loans as a % of total
average loans..................... .05 .4
Interest income that would have
been earned on non- accrual loans ...... $ 3 $ 54
11
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Liquidity
Liquidity measures the Bank's ability to satisfy current and future obligations
and commitments as they become due. Maintaining an adequate liquidity level
through proper asset/liability management insures that these needs will be met
at a reasonable cost. Funds to meet liquidity needs are raised through the
liquidation or maturity of an asset or through increased deposits or borrowing.
At June 30, 1998, average cash and short term investments totaled $65 million
and accounted for 5.40% of the Bank's total average assets, as compared with
$56.4 million or 4.9% as of June 30, 1997.
Scheduled loan payments and payments of principal and interest from the
investment portfolio provide additional liquidity. There were no sales of
securities during the six months ended June 30, 1998, as compared to $10.2
million in the same period for 1997. $109.5 million was received for the six
months of 1998 from maturities and principal pay downs of investments, net of
amortization, which $72.6 million was recorded during the same period in 1997.
In 1998, purchases of investments totaled $184.2 million, compared to $153.8
million in 1997.
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 was
$873.4 million during the six months ending June 30, 1998, compared to $860.7
million for the six months ending June 30, 1997. The bank continues to retain a
substantial portion of its average total deposits in the form of non interest
bearing funds, which were 29% and 26% of total deposits at June 30, 1998 and
1997, respectively.
Bancorp's cash needs consist primarily of dividends, which were $1,950,439 and
$1,935,418 in the second and first quarters of 1998, respectively. Dividends
paid in 1997 for the same periods were $1,736,079 and $1,727,513, respectively.
Capital
The primary source of capital growth is through retention of earnings. Undivided
profits increased to $82.9 million as of June 30, 1998 as compared to $76.7
million as of June 30, 1997. The Bank's Board of Directors declared and paid a
dividend of $.20 per share of common stock for the first and second quarters of
1998, as compared to $.175 for the same period in 1997, which reflects a 14%
increase, and a 2 for 1 stock split which occurred in October of 1997.
12
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
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 the risk based ratios in excess of the required "Well
Capitalized" level, as shown below. The Bank was also in excess of the required
leverage ratio of 4%, with 8.41% for the second quarter of 1998, and 8.38% for
the same period in 1997.
There was an overall increase of $3.2 million in capital from June 30, 1997 to
June 30, 1998. Of this change, there was an increase in retained earnings of
$6.1 million, an increase in the change in market value of the available for
sale securities (net of tax effect) of $700,000, and a reduction of $3.6 million
for Treasury stock purchases.
Required MNY Bancorp
-------- -----------
Well
Minimum Capitalized 6/30/98 6/30/97
------- ----------- ------- -------
Tier I Capital Ratio........... 4.00% 6.00% 17.02% 19.25%
Total Capital Ratio............ 8.00 10.00 18.22 20.50
Leverage Ratio................. 4.00 5.00 8.41 8.38
13
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3
Market Risk Management
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates / prices such as interest rates, foreign currency
exchanges rates, commodity prices and equity prices. The Bank's primary market
risk exposure is interest rate risk, with foreign exchange, commodity and equity
price risk not arising in the ordinary course of business. The ongoing
monitoring and management of this risk is an important component of the Bank's
asset / liability process which is governed by policies, established by its
Board of Directors, that are reviewed and approved annually. The Board of
Directors delegates responsibility for carrying out the asset/liability
management policies to the Asset/Liability Committee (ALCO). In this capacity,
ALCO develops guidelines and strategies impacting the Banks asset/liability
management related activity based upon estimated market risk sensitivity, policy
limit and overall market interest rate levels/trends.
The objective of the Bank's interest rate risk management activities are to
define an acceptable level of risk based on the Bank's business focus, capital
and liquidity requirements and to manage interest rate risk and maintain net
interest margins in a changing rate environment. Management seeks to reduce the
vulnerability of the Bank's operating results to changes in interest rates and
to manage the ratio of interest rate sensitive assets to interest rate sensitive
liabilities within specified maturities or repricing periods. The Bank does not
currently engage in trading activities or use of off balance sheet derivative
instruments to control interest rate risk. The Board of Directors have
authorized management to use derivatives if management deems it beneficial to
the Bank.
Even with the Bank's active role in managing interest rate risk, the potential
for changing interest rates is an uncertainty that could have an adverse affect
on the earnings of the Bank. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market interest rates could adversely affect net interest income.
Conversely, in a falling interest rate environment, these same interest-bearing
liabilities reprice more quickly than earning assets, producing a beneficial
effect on our net interest income.
In addition, management seeks to reduce the vulnerability of the Bank's
operating results to changes in interest rates and to manage the ratio of
interest rate sensitive assets to interest sensitive liabilities within
specified maturities or repricing periods, as set forth in the following
interest rate sensitivity gap analysis.
14
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3 (Continued)
Interest Rate Sensitivity Gap Analysis
As of June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Less Than 3 to 12 1 to 5 Over
3 Months Months Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest - Earning Assets
- -----------------------------------------------------------------------------------------------------------------------
Federal funds sold $ 5,000 -- -- -- $ 5,000
Securities available for sale* 47,862 143,591 360,771 38,801 591,025
Securities held to maturity* 14,928 44,791 126,980 35,314 222,013
Loans 330,467 4,558 6,482 1,471 342,978
- -----------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 398,257 $ 192,940 $ 494,233 $ 75,586 $1,161,016
=======================================================================================================================
Interest-Bearing Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits $ 467,101 $ 125,369 $ 22,460 -- $ 614,930
Securities sold under
repurchase agreements 120,000 35,000 -- -- 155,000
FHLB advances 20,000 25,000 -- -- 45,000
Other short-term borrowings 20,000 -- -- -- 20,000
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 627,101 $ 185,369 $ 22,460 $ -- $ 834,930
=======================================================================================================================
Net interest rate sensitivity gap (228,844) 7,571 471,773 75,586 326,086
Cumulative gap position (228,844) (221,273) 250,500 326,086
Cumulative gap/total earning assets:
At June 30, 1998 (19.71)% (19.06)% 21.58% 28.09%
At June 30, 1997 (23.60)% (33.61)% 18.92% 22.56%
</TABLE>
* Adjusted for weighted average maturity dates and prepayments for mortgage back
securities. All securities are disclosed at book value.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3 (Continued)
In managing the Bank's asset/liability position, management attempts to minimize
interest rate risk while enhancing net interest margins. Management continues to
believe that the increased net interest income resulting from a mismatch in
maturity of the Bank's assets and liability portfolio can, during periods of
declining or stable interest rates and periods in which there is a substantial
positive difference between long - and short-term interest rates, provide high
enough returns to justify the increased exposure to sudden and unexpected
increases in interest rates. During the second quarter of 1998, the Bank
increased utilization of short-term borrowings to fund loans and the investment
portfolio. As a result, the Bank's results of operations and net portfolio
values remain vulnerable to increases in interest rates and to fluctuations in
the difference between long-and short-term interest rates.
Consistent with its asset/liability management philosophy, the Bank has taken
several steps to manage its interest rate risk. First, the Bank's loan
portfolio, as of June 30, 1998 totaled $343 million, which were virtually all
adjustable rate loans. Second, a majority of the Bank's securities are U.S.
Government and Agency mortgaged-backed securities, with $664 million of these
securities having expected weighted average maturities of approximately five
years or less. Third, the Bank has a significant amount of deposits which are
non-interest bearing or are only minimally sensitive to interest rate
fluctuations, including $254 million in average demand deposits and $215 million
in average money market, NOW and savings accounts.
One approach used by management to quantify interest rate risk is the net
portfolio value (NPV) analysis. In essence, this approach calculates the
difference between the present value of the liabilities and the present value of
expected cash flows from assets and off balance sheet contracts. The following
table sets forth, as of June 30, 1998, an analysis of the Bank's interest rate
risk as measured by the estimated changes in NPV resulting from instantaneous
and sustained parallel shifts in the yield curve (+200 basis points measured in
100 basis point increments). For comparative purposes, the table also shows the
estimated percentage increase (decrease) in NPV at June 30, 1997.
16
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3 (Continued)
NET PORTFOLIO VALUE ANALYSIS FOR INTEREST RATE RISK
<TABLE>
<CAPTION>
June 30,1998
------------------------------------------------------
Estimated Increase (Decrease) in NPV* Percent Increase
Change in Interest Rates Estimated NPV ------------------------------------- (Decrease) in NPV at
(Basis Points) Amount Amount Percent June 30, 1997
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+200 143,353 (28,470) (17)% (20)%
+100 160,531 (11,292) (7)% (9)%
- -- 171,823 -- -- --
- -100 173,498 1,675 0.97% 4%
- -200 173,026 1,203 0.70% 6%
</TABLE>
* Pre- Tax
Certain assumptions are employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay rates
and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates, although there can be no assurance that
this will be the case. Even if the interest rates change in the designated
amounts, there can be no assurance that the Bank's assets and liabilities would
perform as set forth above. In addition, a change in U.S. Treasury rates in the
designated amounts accompanied by a change in the slope of the Treasury yield
curve would cause significantly different changes to the NPV than indicated in
the chart.
17
<PAGE>
PART II
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Bancorp, was held on April 28, 1998 at
12:00 noon for the following purposes:
1. To elect thirteen directors to serve until the next Annual Meeting of
Stockholders and/or until their successors are elected and qualified. All
served the prior year.
Charles J. Baum
William J. Cardew
Eric W. Gould
Rudolf H. Hertz
Isidore Karten
James G. Lawrence
Robinson Markel
Paul Meyrowitz
Alan Mirken
Mitchell J. Nelson
Leonard Schlussel
Charles I. Silberman
Spencer B. Witty
Total Votes For 8,385,927
Total Votes Against 3,231
Total Votes Withheld 1,282,625
2. To consider and act upon a proposal to amend the Company's Certificate of
Incorporation to increase the aggregate number of shares of Common Stock,
par value $.001 per share, which the Company shall have authority to
issue, from the present 10,000,000 shares to 40,000,000 shares.
Total Votes For 7,800,552
Total Votes Against 574,976
Total Votes Withheld 1,296,255
3. To transact such other business as may properly come before the Meeting or
any adjournments or postponements thereof. There were no other matters
discussed.
18
<PAGE>
PART II
Item 6 - Exhibits and Reports on Form 8 - K
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8 - K: None
SIGNATURES
Pursuant to the requirements of the Securities and 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
Date: August 13, 1998 /s/ James G. Lawrence
------------------------------------
James G. Lawrence
President & Chief Executive Officer
Date: August 13, 1998 /s/ M. Nasette Espiritu
------------------------------------
M. Nasette Espiritu
Assistant Vice President & Assistant
Comptroller
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 30,718,250
<INT-BEARING-DEPOSITS> 386,332
<FED-FUNDS-SOLD> 5,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 604,510,673
<INVESTMENTS-CARRYING> 222,012,857
<INVESTMENTS-MARKET> 226,313,077
<LOANS> 342,978,388
<ALLOWANCE> 7,083,361
<TOTAL-ASSETS> 1,237,956,743
<DEPOSITS> 870,947,010
<SHORT-TERM> 220,028,882
<LIABILITIES-OTHER> 37,426,278
<LONG-TERM> 0
0
0
<COMMON> 9,989
<OTHER-SE> 109,544,584
<TOTAL-LIABILITIES-AND-EQUITY> 1,237,956,743
<INTEREST-LOAN> 14,647,208
<INTEREST-INVEST> 26,038,253
<INTEREST-OTHER> 535,677
<INTEREST-TOTAL> 41,221,138
<INTEREST-DEPOSIT> 14,068,282
<INTEREST-EXPENSE> 19,328,532
<INTEREST-INCOME-NET> 21,892,606
<LOAN-LOSSES> 600,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,884,677
<INCOME-PRETAX> 12,049,011
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,912,972
<EPS-PRIMARY> 0.81 <F1>
<EPS-DILUTED> 0.80 <F1>
<YIELD-ACTUAL> 4.19
<LOANS-NON> 152,000
<LOANS-PAST> 1,749,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,167,000
<CHARGE-OFFS> 0
<RECOVERIES> 316,204
<ALLOWANCE-CLOSE> 7,083,361
<ALLOWANCE-DOMESTIC> 98,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,985,361
<FN>
<F1> * Per SFAS No. 128 "Earnings Per Share", effective December 31, 1997, the
EPS for June 30, 1997 is as follows:
Basic $0.73
Diluted $0.72
</FN>
</TABLE>
