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
September 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 November 10, 1998, there were 9,719,441 shares of common stock
outstanding, the Registrant's only class of stock.
<PAGE>
Merchants New York Bancorp
Quarterly Report on Form 10-Q
Quarter Ended September 30, 1998
Table of Contents
Part I Financial Information Page
----
Item 1. Financial Statements (Unaudited)
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 15
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
<PAGE>
Merchants New York Bancorp
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 25,158,649 51,209,936
Federal funds sold 10,000,000 67,000,000
Securities available for sale, at market value 627,170,981 541,634,211
Investment securities (market value of
$218,377,705 in 1998
and $219,901,903 in 1997) 211,724,088 215,170,777
Loans, net of unearned discounts 401,869,813 331,807,721
Less allowance for loan losses 7,441,831 6,167,157
-------------- --------------
Total loans, net 394,427,982 325,640,564
Bank premises and equipment 6,648,303 6,937,748
Customers' liability on acceptances 16,002,261 14,374,602
Other assets 15,192,502 13,774,397
-------------- --------------
Total Assets $1,306,324,766 1,235,742,235
-------------- --------------
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand $ 244,341,951 267,561,571
NOW 40,920,272 47,295,963
Savings 25,447,466 24,736,235
Money market 140,580,354 145,336,114
Time 442,270,362 419,157,042
-------------- --------------
Total deposits 893,560,405 904,086,925
Securities sold under repurchase agreements 200,000,000 160,000,000
Other short-term borrowings 60,525,530 32,179,723
Acceptances outstanding 16,002,261 14,374,602
Other liabilities 20,182,674 18,906,588
-------------- --------------
Total Liabilities 1,190,270,870 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 85,648,785 80,016,764
Less: Treasury stock at cost
(256,916 and 317,549 shares
in 1998 and 1997, respectively) 6,387,978 6,665,520
Accumulated other comprehensive
income, net of tax:
Unrealized appreciation on
securities available for sale 12,893,748 8,943,812
-------------- --------------
Total Stockholders' Equity 116,053,896 106,194,397
-------------- --------------
Total Liabilities and Stockholders' Equity $1,306,324,766 1,235,742,235
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Interest on loans $ 8,533,526 $ 8,039,203 $23,180,733 $21,279,227
Interest and dividends on investment
securities:
Taxable 12,543,187 12,526,203 36,324,080 36,932,148
Non-taxable 1,185,389 1,068,431 3,442,749 3,244,379
Other interest income 65,027 53,574 600,705 225,676
----------- ----------- ----------- -----------
Total interest and dividend income $22,327,129 $21,687,411 $63,548,267 $61,681,430
----------- ----------- ----------- -----------
Interest Expense
Interest on deposits 7,231,451 7,303,493 21,307,105 21,781,301
Interest on securities sold under
repurchase agreements 2,621,489 3,080,403 6,767,426 6,773,037
Interest on other short-term borrowings 967,677 422,658 2,074,619 1,027,653
----------- ----------- ----------- -----------
Total interest expense $10,820,617 $10,806,554 $30,149,150 $29,581,991
----------- ----------- ----------- -----------
Net Interest Income $11,506,512 $10,880,857 $33,399,117 $32,099,439
Provision for possible loan losses 150,000 500,000 750,000 1,000,000
----------- ----------- ----------- -----------
Net int. inc. after provision for
loan losses $11,356,512 $10,380,857 $32,649,117 $31,099,439
----------- ----------- ----------- -----------
Non Interest Income
Service fee and other charges 309,952 321,856 940,697 970,782
International department services 755,934 728,703 2,146,307 2,030,908
Fee income 275,407 326,623 892,236 840,321
Other income 0 0 3,136 0
Investment sales - net gains 28,339 0 28,339 21,901
----------- ----------- ----------- -----------
Total non interest income $ 1,369,632 $ 1,377,182 $ 4,010,715 $ 3,863,912
----------- ----------- ----------- -----------
Non Interest Expenses
Salaries and employee benefits 3,232,413 3,008,688 9,996,314 9,310,988
Net occupancy 665,189 643,687 1,931,423 1,949,684
Equipment 202,529 201,997 620,446 573,974
Other expenses 1,450,573 1,659,731 4,887,199 4,925,518
----------- ----------- ----------- -----------
Total non interest expenses $ 5,550,704 $ 5,514,103 $17,435,382 $16,760,164
----------- ----------- ----------- -----------
Income before income taxes $ 7,175,440 $ 6,243,936 $19,224,450 $18,203,187
Provision for income taxes 2,427,434 1,890,731 6,563,473 6,583,111
----------- ----------- ----------- -----------
Net Income $ 4,748,006 $ 4,353,205 $12,660,977 $11,620,076
----------- ----------- ----------- -----------
Earnings per share:
Basic $0.49 $0.45 $1.30 $1.19
Diluted $0.48 $0.44 $1.28 $1.17
Average number of common shares
Basic 9,735,011 9,664,348 9,712,405 9,793,765
Diluted 9,873,143 9,849,667 9,866,441 9,954,759
----------- ----------- ----------- -----------
Dividends per common share $0.20 $0.20 $0.60 $0.55
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 4,748,006 $ 4,353,205 $12,660,977 $11,620,076
Other comprehensive income, net of tax:
Unrealized appreciation on
securities available for sale
during the period 4,499,578 1,827,505 3,967,176 2,099,077
Less: reclassification adjustment
for gains included in net income (17,240) 0 (17,240) (11,590)
----------- ----------- ----------- -----------
Comprehensive income $ 9,230,344 $ 6,180,710 $16,610,913 $13,707,563
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the nine months ended Sept. 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 7
------------- -------------
Balance at end of period 9,989 4,995
============= =============
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 21,618
------------- -------------
Balance at end of period 23,889,352 23,771,247
============= =============
Undivided profits:
Balance at beginning of year 80,016,764 72,915,689
Net income 12,660,977 11,620,076
Cash dividends paid (5,832,580) (5,397,754)
Common stock issued from treasury stock (1,196,376) 0
------------- -------------
Balance at end of period 85,648,785 79,138,011
============= =============
Treasury stock:
Balance at beginning of year (6,665,520) (552,910)
Repurchase of 54,043 and 159,262
shares of common stock in 1998
and 1997, respectively (2,055,284) (6,492,331)
Issuance of 114,676 and 11,953 shares
of common stock in 1998 and 1997,
respectively 2,332,826 364,121
------------- -------------
Balance at end of period (6,387,978) (6,681,120)
============= =============
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 3,949,936 2,087,487
------------- -------------
Balance at end of period 12,893,748 9,505,723
============= =============
Total stockholders' equity
Balance at beginning of year 106,194,397 103,535,632
Changes during the period, net 9,859,499 2,203,224
------------- -------------
Total ending balance $ 116,053,896 $ 105,738,856
============= =============
* 1997 numbers and shares do not reflect the 2:1 stock split in October 1997.
See accompanying notes to consolidated financial statements.
4
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Cash Flows
For the periods ended September 30, 1998, and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,660,977 $ 11,620,076
------------- -------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 825,451 751,092
Amortization of premium, net of discounts 5,992,745 3,874,614
Provision for loan losses 750,000 1,000,000
Gains on sales (28,339) (21,901)
(Decrease) increase in unearned discounts (11,664) 8,538
Increase in taxes payable 637,148 158,173
Increase in interest receivable (1,483,094) (614,014)
(Decrease) increase in interest payable (1,048,753) 64,572
Decrease in accrued expenses (445,899) (461,659)
Increase in other assets (20,725) (434,019)
(Decrease) increase in other liabilities (210,636) 227,136
------------- -------------
Net cash provided by operating activities 17,617,211 16,172,608
------------- -------------
Cash flows from investing activities:
Net decrease in federal funds sold 57,000,000 15,000,000
Proceeds from redemptions of
securities available for sale 131,482,662 90,656,410
Proceeds from sales of securities
available for sale 6,844,407 10,175,000
Purchase of securities available for sale (252,256,745) (142,895,228)
Proceeds from redemptions of
investment securities 40,822,734 25,194,192
Purchase of investment securities (8,653,389) (18,399,115)
Net increase in customer loans (69,525,754) (78,740,626)
Net increase in bank premises and equipment (450,285) (1,012,271)
------------- -------------
Net cash used in investing activities (94,736,370) (100,021,638)
------------- -------------
Cash flows from financing activities:
Net decrease in demand deposits, NOW, savings
and money market accounts (33,639,840) (45,313,099)
Net increase in certificates of deposits 23,113,321 11,297,421
Net increase in securities sold under
repurchase agreements 40,000,000 90,000,000
Net increase in other short-term borrowings 28,345,806 31,236,465
Proceeds from issuance of common stock 1,136,449 21,625
Purchases of treasury stock (2,055,284) (6,128,210)
Dividends paid (5,832,580) (5,397,754)
------------- -------------
Net cash provided by financing activities 51,067,872 75,716,448
------------- -------------
Net decrease in cash and cash equivalents (26,051,287) (8,132,582)
Cash and cash equivalents at
beginning of the period 51,209,936 57,840,059
------------- -------------
Cash and cash equivalents at end
of the period $ 25,158,649 $ 49,707,477
============= =============
Supplemental disclosure of cash
flow information:
Interest paid 31,197,902 29,517,418
Taxes paid 5,926,325 6,424,938
</TABLE>
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 September 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 September 30, 1998 and
1997.
<TABLE>
<CAPTION>
First Second Third Year
Quarter Quarter Quarter To Date
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Net Income $ 3,687,454 $ 4,225,517 $ 4,748,006 $12,660,977
Less: minority interest 1,856 1,856 1,856 5,568
----------- ----------- ----------- -----------
Net income available to common
shareholders $ 3,685,598 $ 4,223,661 $ 4,746,150 $12,655,409
Weighted average shares outstanding 9,678,634 9,698,633 9,735,011 9,712,405
Plus: effect of stock options as
dilutive securities 206,331 133,548 138,132 154,036
----------- ----------- ----------- -----------
Adjusted weighted average shares
assuming dilution 9,884,965 9,832,181 9,873,143 9,866,441
EPS - Basic $ 0.38 $ 0.43 $ 0.49 $ 1.30
EPS - Diluted $ 0.37 $ 0.43 $ 0.48 $ 1.28
===========================================================================================
1997
Net Income $ 3,391,083 $ 3,875,788 $ 4,353,205 $11,620,076
Less: minority interest 0 0 0 0
----------- ----------- ----------- -----------
Net income available to common
shareholders $ 3,391,083 $ 3,875,788 $ 4,353,205 $11,620,076
Weighted average shares outstanding 9,901,545 9,871,925 9,664,348 9,793,765
Plus: effect of stock options as
dilutive securities 121,547 151,791 185,319 160,994
----------- ----------- ----------- -----------
Adjusted weighted average shares
assuming dilution 10,023,092 10,023,716 9,849,667 9,954,759
EPS - Basic $ 0.34 $ 0.39 $ 0.45 $ 1.19
EPS - Diluted $ 0.34 $ 0.39 $ 0.44 $ 1.17
===========================================================================================
</TABLE>
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 September 30,
1998 and December 31, 1997.
Before Tax Tax Net-of-Tax
---------- --- ----------
Amount Expense Amount
------ ------- ------
Other Comprehensive Income:
Unrealized appreciation, as
of September 30, 1998, changes
arising during period $20,596,060 $ 7,702,312 $12,893,748
----------- ----------- -----------
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 in annual and interim financial statements. Management believes
that the Bank operates under one segment as defined by SFAS No. 131, and
additional disclosure is not required.
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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2
Comparison for the three months ended September 30, 1998 and September 30, 1997
Interest income on investments increased $134,000 to $13.7 million as compared
to $13.6 million for the same period in 1997. The increase was a result of
$912,000 from higher volume, offset by a decrease from lower interest rates of
$778,000. The average balance for the investment portfolio increased to $818.8
million , up from $764.7 million in 1997.
Interest income on loans increased to $8.5 million, up $495,000 compared to $8.0
million for the same period in 1997. $501,000 was from higher volume, offset by
a reduction from lower interest rates of $ 6,000. The prime rate remained the
same at 8.50% for both periods. The average loan balance for the quarter
increased to $368.5 million, up $21.6 million from $346.9 million in 1997.
Non interest income remained approximately the same at $1.3 million for both
periods.
Interest expense on interest bearing deposits decreased $72,000 to $7.2 million,
down from $7.3 million for the same period in 1997. The decrease was a result of
$193,000 from lower interest rates, offset by $121,000 from higher volume.
Average interest bearing deposits increased $14.2 million to $628.7 million,
when compared to $614.5 million in 1997.
Interest expense on repurchase agreements decreased to $2.6 million, a reduction
of $459,000, when compared to $3.1 million for the same period in 1997. The
decrease was the result of $357,000 from lower volume, and $102,000 from lower
interest rates. The average balance for repurchase agreements outstanding
decreased by $24.6 million for the quarter to $182.1 million, down from $206.7
million in 1997.
Interest expense from other borrowings consisting of federal funds purchased, US
Treasury demand notes, and FHLB advances increased by $546,000 to $968,000 up
from $422,000 for the same period in 1997. This was primarily the result of
$548,000 from higher volume, principally FHLB advances. Average outstanding
balances for other borrowings increased to $67.2 million in 1998, up $38.2
million from $29.0 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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Non-interest expenses remained relatively the same at $5.5 million for both
periods ending September 30, 1998 and 1997.
Income tax expense increased by $500,000 to $2.4 million, compared to $1.8
million for 1997. This was due principally to higher income before taxes of
$931,000.
LOAN LOSSES
An addition of $150,000 was made to the Provision for Loan Losses for the third
quarter in 1998, versus $500,000 in 1997.
The loan loss provision is based on maintaining a loan loss reserve to cover all
non - accrual and higher risk loans. At September 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 both September 30, 1998 and 1997 was 2 %
of average loans outstanding. 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 9/30/98 9/30/97
- --------------------------------------------------------------------------------
(In thousands)
Balance at beginning of quarter .................. $7,084 $6,332
Provision for loan losses ........................ 150 500
Recoveries
Commercial .............................. 202 40
Installment ............................. 6 0
------------------
Total ............................................ $7,442 $6,872
==================
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Comparison for the nine months ended September 30, 1998 and September 30, 1997
Interest income on investments decreased $409,000 to $39.7 million as compared
to $40.1 million for the same period in 1997. The decrease resulted from $1.6
million from lower interest rates, offset by an increase of $1.2 million from
higher volume. The average balance for the investment portfolio increased to
$787 million up from $763 million in 1997.
Interest income on loans increased to $23.1 million in 1998, up $1.9 million
compared to $21.2 million for the same period in 1997. Higher volume accounted
for $1.8 million, and an increase in interest rates contributed $88,000 as the
average prime rate rose by 8 basis points from 8.42% in 1997 to 8.50% for 1998.
The average loan balance for the period increased to $337 million, up $26
million from $311 million in 1997.
Non interest income increased slightly to $3.9 million, up $140,000 from the
prior year of $3.8 million. This was primarily the result of an increase in
higher volume from the International Department operations , and other fee
income.
Interest expense on interest bearing deposits decreased $480,000 to $21.3
million, down from $21.7 million for the same period in 1997. The decrease was
caused by $252,000 from lower deposits, and $228,000 from lower interest rates.
Average interest bearing deposits decreased $3.7 million to $622.7 million in
1998, when compared to $626.5 million in 1997.
Interest expense on repurchase agreements remained the same at $6.7 million for
both periods. The average balance for repurchase agreements outstanding
increased slightly to $157.6 million, up from $157.1 million in 1997.
Interest expense from other borrowings consisting of Federal funds purchased, US
Treasury demand notes, and FHLB advances, increased by $1.1 million to $2.1
million, up from $1 million for the same period in 1997. This was mainly the
result of the increase in volume, principally FHLB advances. Average outstanding
balances for other borrowings increased to $48.9 million in 1998, up $24 million
from 1997. These funds were employed to support the increases in both the loan
and investment portfolios.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 ( Continued)
Non interest expense increased to $17.4 million, up from $16.7 million in 1997.
This was principally the result of the $685,000 increase in salaries and
benefits.
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 which 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 September 30, 1998 and 1997.
Year To Date
---------------------
Allowance for loan losses 9/30/98 9/30/97
- --------------------------------------------------------------------------------
(In thousands)
Balance at beginning of period ................... $6,167 $5,617
Provision for loan losses ........................ 750 1,000
Recoveries
Commercial .............................. 512 251
Installment ............................. 13 4
------------------
Total ............................................ $7,442 $6,872
==================
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 9/30/98 9/30/97
- --------------------------------------------------------------------------------
(Dollars in thousands)
Non - accrual loans............................... $ 155 $1,673
Loans past due more than 90 days
& still accruing ........................ 303 655
------------------
Total ................................... $ 458 $2,328
==================
Non - accrual loans as a % of reserve ............ 2.1% 24.3%
Non - accrual loans as a % of total
average loans ........................... 0 .5
Interest income that would have
been earned on non- accrual loans ....... $ 3 $ 89
11
<PAGE>
MANAGEMENT'S 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.
Average cash and short term investments totaled $56 million and $54 million at
September 30, 1998, and September 30, 1997 respectively. This accounted for 4.6%
of the Bank's total average assets in both periods
Scheduled loan payments and payments of principal and interest from the
investment portfolio provided additional liquidity. $172 million was received
for the first, second and third quarter of 1998 from maturities and principal
pay downs for investment securities, as compared to $116 million during the same
period in 1997. In 1998, purchases of investments securities totaled $261
million, compared to $161 million in 1997. Investment sales totaled $6.8 million
recorded during the nine month period ending September 30, 1998, as compared to
$10.2 million in the same period for 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
$873.5 million as of September 30, 1998, compared to $850 million for the same
period in 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 September 30, 1998 and 1997, respectively.
Bancorp's cash needs consist primarily of dividends, which were $1,935,418,
$1,950,439, and $1,946,723 in the first, second and third quarters of 1998,
respectively. Dividends paid in 1997 for the same periods were $1,736,079,
$1,727,513 and $1,934,162, respectively.
Capital
The primary source of capital growth is through retention of earnings. Undivided
profits increased to $85.6 million as of September 30, 1998 as compared to $79.1
million as of September 30, 1997. The Bank's Board of Directors declared and
paid a dividend of $.20 per share of common stock for each of the first, second
and third quarters of 1998. In 1997 first and second quarter dividends paid and
declared were .175, and for the third quarter .20, which reflects a 14%
increase.
12
<PAGE>
MANAGEMENT'S 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 "Well
Capitalized" leverage ratio of 5%, with 8.21% at September 30, 1998, and 8.01%
at the same time in 1997.
There was an overall increase of $10.3 million in capital from September 30,
1997 to September 30, 1998. Of this change, there was an increase in retained
earnings of $6.5 million, an increase in the change in market value of available
for sale securities (net of tax effect) of $3.3 million and a net decrease of
$290,000 in Treasury stock transactions.
Required MNY Bancorp
-------- -----------
Well
Minimum Capitalized 9/30/98 9/30/97
------- ----------- ------- -------
Tier I Capital Ratio............. 4.00% 6.00% 15.92% 17.20%
Total Capital Ratio.............. 8.00 10.00 17.07 18.44
Leverage Ratio................... 3.00 5.00 8.21 8.01
The Year 2000 Issue
The Bank has formed a Year 2000 Compliance Committee that reports the progress
of the Year 2000 Plan to the Board of Directors on a quarterly basis. The
committee has inventoried the Bank's hardware and software programs and has
forwarded letters to the various vendors regarding their status for Year 2000
compliance. As of September 30, 1998, the committee had fully completed the
development of a strategy and created full organizational awareness. Other areas
including renovation, validation (testing), and implementation have scheduled
completion dates by the third quarter of 1999.
In compliance with Year 2000 disclosure requirements, the committee has analyzed
the impact that compliance with the Year 2000 may have on earnings. Cost
totaling approximately $360,000 have been identified for testing and other
expenses associated with the Year 2000 as of September 30, 1998, and are being
expensed as incurred. Additional cost are expected, but it is management's
opinion that the cost will not be material to the Bank's earnings.
13
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Part I - Item 2 (Continued)
There can be no complete assurance that the Company will not be adversely
affected by unforseen problems in the Company's computer systems or in systems
provided by third parties and by other entities not associated with the Company
which are unsuccessful in properly addressing this issue.
Contingency plans covering business resumption have been written incompassing a
plan of action in the event of systems failure.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements which are based on
management's current expectations regarding economic, legislative and regulatory
issues that may impact the Company's earnings in future periods. Factors that
could cause future results to vary from current management's expectations
include, but are not limited to general economic conditions: changes in interest
rate, deposit flows, loan demand, real estate values and competition; changes in
accounting principles, policies or guidelines; changes in legislation and
regulation; and other economic, competitive, governmental, regulatory and
technological factors affecting the Company's operations, pricing, products and
services.
14
<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.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3 (Continued)
Interest Rate Sensitivity Gap Analysis
As of September 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 $ 10,000 -- -- -- $ 10,000
Securities available for sale* 40,386 121,159 374,530 70,500 606,575
Securities held to maturity* 12,238 36,714 124,263 38,509 211,724
Loans 390,002 4,057 6,216 1,595 401,870
- -----------------------------------------------------------------------------------------------------
Total interest earning assets $ 452,626 $ 161,930 $ 505,009 $ 110,604 $1,230,169
=====================================================================================================
Interest-Bearing Liabilities
- -----------------------------------------------------------------------------------------------------
Interest-bearing deposits $ 466,199 $ 150,021 $ 32,998 -- $ 649,218
Securities sold under
repurchase agreements 115,000 85,000 -- -- 200,000
FHLB advances -- 45,000 -- -- 45,000
Other short-term borrowings 15,508 -- -- -- 15,508
- -----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 596,707 $ 280,021 $ 32,998 $ -- $ 909,726
=====================================================================================================
Net interest rate sensitivity gap (144,081) (118,091) 472,011 110,604
Cumulative gap position (144,081) (262,172) 209,839 320,443 320,443
Cumulative gap/total earning assets:
At September 30, 1998 (11.71)% (21.31)% 17.06% 26.05%
At September 30, 1997 ( 6.14)% (24.76)% 14.45% 22.97%
</TABLE>
* Adjusted for weighted average maturity dates and prepayments for mortgage back
securities. All securities are disclosed at book value.
16
<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 third 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 September 30, 1998 totaled $402 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 an ending book value of
$682 million, and an expected weighted average maturity 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 $251 million in average demand deposits and $234 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 September 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
September 30, 1997.
17
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Part I - Item 3 (Continued)
NET PORTFOLIO VALUE ANALYSIS FOR INTEREST RATE RISK
<TABLE>
<CAPTION>
September 30,1998
---------------------------------------------------------- Percent Increase
Change in Interest Rates Estimated NPV Estimated Increase (Decrease) in NPV* (Decrease) in NPV at
(Basis Points) Amount Amount Percent September 30, 1997
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+200 148,693 (25,535) (15)% (16)%
+100 165,917 (8,311) (5)% (7)%
-- 174,228 -- -- --
(100) 173,320 (908) (0.52)% 2%
(200) 172,702 (1,526) (0.88)% 3%
</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.
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: November 10, 1998 /s/ James G. Lawrence
-----------------------------------
James G. Lawrence
President & Chief Executive Officer
Date: November 10, 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> SEP-30-1998
<CASH> 23,016,381
<INT-BEARING-DEPOSITS> 2,142,268
<FED-FUNDS-SOLD> 10,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 627,170,981
<INVESTMENTS-CARRYING> 211,724,088
<INVESTMENTS-MARKET> 218,377,705
<LOANS> 401,869,813
<ALLOWANCE> 7,441,831
<TOTAL-ASSETS> 1,306,324,766
<DEPOSITS> 893,560,405
<SHORT-TERM> 260,525,530
<LIABILITIES-OTHER> 36,184,935
<LONG-TERM> 0
0
0
<COMMON> 9,989
<OTHER-SE> 116,043,907
<TOTAL-LIABILITIES-AND-EQUITY> 1,306,324,766
<INTEREST-LOAN> 23,180,733
<INTEREST-INVEST> 39,766,829
<INTEREST-OTHER> 600,705
<INTEREST-TOTAL> 63,548,267
<INTEREST-DEPOSIT> 21,307,105
<INTEREST-EXPENSE> 30,149,149
<INTEREST-INCOME-NET> 33,399,118
<LOAN-LOSSES> 750,000
<SECURITIES-GAINS> 28,339
<EXPENSE-OTHER> 17,435,382
<INCOME-PRETAX> 19,224,450
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,660,977
<EPS-PRIMARY> 1.30<F1>
<EPS-DILUTED> 1.28<F1>
<YIELD-ACTUAL> 4.16
<LOANS-NON> 155,000
<LOANS-PAST> 158,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,167,000
<CHARGE-OFFS> 0
<RECOVERIES> 525,000
<ALLOWANCE-CLOSE> 7,441,831
<ALLOWANCE-DOMESTIC> 100,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,341,831
<FN>
<F1> Per SFAS No. 128 "Earnings Per Share", effective December 31, 1997, the
EPS for September 30, 1997 is as follows:
Basic $1.19
Diluted $1.17
</FN>
</TABLE>
