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, 2000
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 3, 2000, there were 18,647,793 shares of common stock
outstanding, the Registrant's only class of stock.
<PAGE>
Merchants New York Bancorp
Quarter Ended September 30, 2000
Page
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 2
Consolidated Statements of Income and
Comprehensive Income 3
Consolidated Statements of Changes in Stockholders' 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 18
Signatures 19
<PAGE>
Merchants New York Bancorp
Consolidated Balance Sheets
Part I - Item 1, Financial Statements
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks .................................................... $ 43,072,119 $ 32,940,883
Federal funds sold ......................................................... 8,000,000 50,000,000
Securities available for sale, at market value ............................. 567,492,364 649,931,593
Securities held to maturity (market value of $242,270,656 in
2000 and $195,169,226 in 1999) ................................... 242,287,366 197,988,432
--------------- ---------------
Total securities .......................................... 809,779,730 847,920,025
--------------- ---------------
Loans, net of unearned discounts ........................................... 547,518,791 437,097,287
Less allowance for loan losses ................................... 10,300,353 9,108,216
--------------- ---------------
Total loans, net .......................................... 537,218,438 427,989,071
--------------- ---------------
Premises and equipment, net ................................................ 6,015,397 5,992,660
Customers' liability on acceptances ........................................ 19,328,937 12,134,217
Other assets ............................................................... 16,434,520 18,336,292
--------------- ---------------
Total Assets ..................................................... $ 1,439,849,141 $ 1,395,313,148
=============== ===============
Liabilities and Stockholders' Equity
Deposits:
Demand ........................................................... $ 276,454,844 $ 312,300,580
NOW .............................................................. 54,354,078 51,214,572
Savings .......................................................... 27,148,863 28,865,561
Money market ..................................................... 219,309,881 191,972,362
Time ............................................................. 379,087,684 374,625,133
--------------- ---------------
Total deposits ................................................... 956,355,350 958,978,208
Securities sold under repurchase agreements ................................ 260,000,000 185,000,000
FHLB term advances ......................................................... 70,000,000 105,000,000
Other short-term borrowings ................................................ 14,919,718 20,047,500
Acceptances outstanding .................................................... 19,328,937 12,134,217
Other liabilities .......................................................... 14,949,427 14,945,286
--------------- ---------------
Total Liabilities ................................................ 1,335,553,432 1,296,105,211
Stockholders' Equity*
Capital stock: $.001 par value; 40,000,000 authorized shares;
19,978,664 shares issued in 2000 and 1999 ........................ 19,978 19,978
Surplus .................................................................... 23,879,440 23,879,363
Undivided profits .......................................................... 104,512,761 95,012,110
Treasury stock at cost: 1,331,121 and 856,160 shares
in 2000 and 1999, respectively ................................... (20,480,089) (12,570,633)
Accumulated other comprehensive loss, net of tax:
Unrealized depreciation on securities available for sale ......... (3,636,381) (7,132,881)
--------------- ---------------
Total Stockholders' Equity ....................................... 104,295,709 99,207,937
--------------- ---------------
Total Liabilities and Stockholders' Equity ....................... $ 1,439,849,141 $ 1,395,313,148
=============== ===============
</TABLE>
* Shares are adjusted for 2-1 stock split, effective October 1999.
See accompanying notes to consolidated financial statements.
2
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Income & Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Loans ...................................................... $12,643,841 $ 9,316,062 $33,779,905 $24,399,759
Investment securities:
Taxable .................................................. 13,440,394 12,607,255 41,122,837 37,563,150
Non-taxable .............................................. 1,110,026 1,112,097 3,407,851 3,440,290
Other interest income ...................................... 201,745 60,165 778,066 373,176
----------- ----------- ----------- -----------
Total interest and dividend income ....................... 27,396,006 23,095,579 79,088,659 65,776,375
----------- ----------- ----------- -----------
Interest Expense
Deposits ................................................... 7,820,328 6,389,830 21,679,934 19,290,926
Securities sold under repurchase agreements ................ 3,948,944 2,416,667 10,128,168 6,481,630
FHLB term advances ......................................... 1,210,096 920,364 3,694,240 2,120,287
Other short-term borrowings ................................ 246,188 304,478 751,383 502,268
----------- ----------- ----------- -----------
Total interest expense ................................... 13,225,556 10,031,339 36,253,725 28,395,111
----------- ----------- ----------- -----------
Net Interest Income ...................................... 14,170,450 13,064,240 42,834,934 37,381,264
Provision for loan losses .................................. 850,000 615,000 2,475,000 1,215,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ...... 13,320,450 12,449,240 40,359,934 36,166,264
----------- ----------- ----------- -----------
Non Interest Income
Service fees and other charges ............................. 439,835 363,433 1,231,813 993,281
International department services .......................... 887,473 874,254 2,547,512 2,371,379
Fee income ................................................. 563,767 497,093 1,713,074 1,327,391
Securities gains, net ...................................... 0 0 0 75,881
----------- ----------- ----------- -----------
Total non interest income ................................ 1,891,075 1,734,780 5,492,399 4,767,932
----------- ----------- ----------- -----------
Non Interest Expense
Salaries and employee benefits ............................. 3,711,687 3,495,703 11,542,181 11,036,371
Net occupancy .............................................. 666,320 705,548 2,051,743 1,998,127
Equipment .................................................. 190,676 230,590 625,283 697,756
Other expenses ............................................. 1,424,771 1,788,078 5,422,470 5,351,232
----------- ----------- ----------- -----------
Total non interest expense ............................... 5,993,454 6,219,919 19,641,677 19,083,486
----------- ----------- ----------- -----------
Income before income taxes ................................. 9,218,071 7,964,101 26,210,656 21,850,710
Provision for income taxes ................................. 2,833,488 2,463,530 8,818,872 7,177,021
----------- ----------- ----------- -----------
Net Income ............................................... $ 6,384,583 $ 5,500,571 $17,391,784 $14,673,689
----------- ----------- ----------- -----------
Earnings per share*:
Basic ...................................................... $0.34 $0.29 $0.93 $0.76
Diluted .................................................... 0.34 0.29 0.93 0.76
=========== =========== =========== ===========
Comprehensive income
Net income ................................................... $ 6,384,583 $ 5,500,571 $17,391,784 $14,673,689
Other comprehensive income, net of tax:
Unrealized appreciation (depreciation) on securities
available for sale during the period ..................... 4,817,715 (1,061,538) 3,496,500 (6,682,217)
Reclassification for gains included in net income ............ 0 0 0 (75,881)
----------- ----------- ----------- -----------
Comprehensive income ....................................... $11,202,298 $ 4,439,033 $20,888,284 $ 7,915,591
=========== =========== =========== ===========
</TABLE>
* Adjusted for 2 for 1 stock split, effective 10/1/99.
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 September 30, 2000 1999
--------------------------------------- ------------ ------------
Capital stock:
Balance at beginning and
end of period .......................... $ 19,978 $ 19,978
------------ ------------
Surplus:
Balance at beginning of year ............. 23,879,363 23,879,363
Common stock issued from
treasury stock ......................... 77 0
------------ ------------
Balance at end of period ................. 23,879,440 23,879,363
------------ ------------
Undivided profits:
Balance at beginning of year ............. 95,012,110 86,304,445
Net income ............................... 17,391,784 14,673,689
Cash dividends paid ...................... (7,034,301) (6,278,808)
Common stock issued from
treasury stock ......................... (856,832) (1,608,424)
------------ ------------
Balance at end of period ................. 104,512,761 93,090,902
------------ ------------
Treasury stock:
Balance at beginning of year ............. (12,570,633) (6,301,081)
Repurchase of 546,200 and 365,200
shares of common stock in 2000
and 1999, respectively* ................ (9,126,347) (6,222,650)
Issuance of 71,239 and 120,254 shares
of common stock in 2000 and 1999,
respectively* .......................... 1,216,891 2,227,128
------------ ------------
Balance at end of period ................. (20,480,089) (10,296,603)
------------ ------------
Accumulated other comprehensive income:
Net unrealized (depreciation)
appreciation on securities available
for sale, net of tax effect
Balance at beginning of year ............. (7,132,881) 9,075,500
Changes during the period,
net of tax ............................. 3,496,500 (6,682,217)
------------ ------------
Balance at end of period ................. (3,636,381) 2,393,283
------------ ------------
Total stockholders' equity
Balance at beginning of year ............. 99,207,937 112,978,205
Changes during the period, net ........... 5,087,772 (3,891,282)
------------ ------------
Total ending balance ..................... $104,295,709 $109,086,923
============ ============
* Shares are adjusted for 2-1 stock split, effective October 1999.
See accompanying notes to consolidated financial statements.
4
<PAGE>
Merchants New York Bancorp
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended September 30, 2000 1999
--------------------------------------- ------------- -------------
Operating activities:
Net income ................................. $ 17,391,784 $ 14,673,689
------------- -------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation ............................... 778,966 815,139
Amortization of premium,
net of discounts ......................... 1,276,222 3,616,870
Provision for loan losses .................. 2,475,000 1,215,000
Gain on sales .............................. 0 (75,881)
(Decrease) increase in
unearned discounts ....................... (11,103) 14,271
(Increase) decrease in other
assets ................................... (1,876,229) 1,197,690
Increase (decrease) in other
liabilities .............................. 4,141 (1,975,561)
------------- -------------
Net cash provided by operating
activities ............................. 20,038,781 19,481,217
------------- -------------
Investing activities:
Net decrease (increase) in federal
funds sold ............................... 42,000,000 (1,000,000)
Proceeds from redemptions of securities
available for sale ....................... 123,760,831 130,116,573
Proceeds from sales of securities
available for sale ....................... 0 15,015,000
Purchase of securities available
for sale ................................. (47,565,653) (129,043,026)
Proceeds from redemptions of held
to maturity securities ................... 27,968,102 40,923,423
Purchase of held to maturity securities .... (60,110,421) (26,601,323)
Net increase in customer loans ............. (111,693,263) (101,233,415)
Net increase in bank premises and
equipment ................................ (715,989) (210,572)
------------- -------------
Net cash used by investing activities .... (26,356,393) (72,033,340)
------------- -------------
Financing activities:
Decrease in demand deposits, NOW,
savings and money market accounts ........ (7,085,409) (9,475,624)
Net increase (decrease) in certificates
of deposit ............................... 4,462,551 (26,819,439)
Increase in securities sold under
repurchase agreements .................... 75,000,000 10,000,000
(Decrease) increase in FHLB term
advances ................................. (35,000,000) 85,000,000
(Decrease) increase in other short-term
borrowings ............................... (5,127,782) 10,209,574
Proceeds from issuance of common stock ..... 360,136 618,704
Purchases of treasury stock ................ (9,126,347) (6,222,650)
Dividends paid ............................. (7,034,301) (6,278,808)
------------- -------------
Net cash provided by financing
activities ............................. 16,448,848 57,031,757
------------- -------------
Net increase in cash and cash equivalents .... 10,131,236 4,479,634
Cash and cash equivalents at beginning
of the period .............................. 32,940,883 38,435,946
Cash and cash equivalents at end of
the period ................................. $ 43,072,119 $ 42,915,580
============= =============
Supplemental disclosure of cash flow
information:
Interest paid .............................. $ 35,683,842 $ 30,580,631
Taxes paid ................................. 8,882,895 6,901,754
============= =============
See accompanying notes to consolidated financial statements.
5
<PAGE>
Merchants New York Bancorp
Notes to Consolidated Financial Statements
1. The consolidated financial statements include the accounts of Merchants
New York Bancorp (the "Company") and its wholly owned subsidiary, The Merchants
Bank of New York (the "Bank"), and the Bank's wholly-owned subsidiaries,
Merchants New York Commercial Corporation and MBNY Holdings Corporation and its
subsidiary, Merchants Capital Corporation. All material intercompany accounts
and transactions have been eliminated in consolidation.
The consolidated financial statements as of and for the interim periods ended
September 30, 2000 and 1999 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 1999 financial statements
to conform to the current presentation. The interim financial statements should
be read in conjunction with Bancorp's Annual Report on Form 10 - K for the year
ended December 31, 1999.
2. On September 5, 2000, the Company entered into a definitive merger
agreement with Valley National Bancorp (VNB) for common stock valued at $375
million, based on VNB's market value. Pursuant to the agreement, the Company
will be merged into VNB and the Bank will be merged into Valley National Bank.
The acquisition of the Company is structured as a tax-free merger to be
accounted for as a pooling of interests. Each of the Company's common stock will
be exchanged for .7634 shares of VNB common stock. Valley National Bank
(principal subsidiary of VNB) is a community bank with $6.2 billion in assets,
currently operating 117 branches in 76 communities in New Jersey.
At its regularly scheduled Board meeting held September 19, 2000, the
Company terminated its previously announced stock repurchase program. This was
done in view of the pendency of the Merger. Since the inception of the program
in August 1996, a total of 1,897,346 shares had been repurchased out of the
total authorized to be repurchased of approximately 2,500,000 shares.
3. Accumulated Other Comprehensive Loss - Statement of Financial
Accounting Standards ("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 depreciation on available-for-sale securities. Accumulated Other
Comprehensive Loss is shown on the Balance Sheet net of tax. Below are gross
amounts and the tax benefit applicable as of September 30, 2000 and December 31,
1999.
09/30/00 12/31/99
-------- --------
(In thousands)
Unrealized depreciation $ (5,594) $(12,783)
Tax benefit 1,958 5,650
-------- --------
Net of tax amount $ (3,636) $ (7,133)
======== ========
6
<PAGE>
Merchants New York Bancorp
Notes to Consolidated Financial Statements
4. The Company's Board of Directors declared a 2 for 1 stock split on
August 17, 1999, to shareholders of record as of September 21, 1999, with an
effective date of October 1, 1999. As a result, adjustments have been made to
the capital accounts at the effective date, while retroactive adjustments have
been made to the number of shares used for the earnings per share calculation.
5. In June 2000, the Financial Accounting Standards Board ("FASB"), issued
SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities"
which amended SFAS No. 133. SFAS No. 138 establishes accounting and reporting
standards for derivatives and hedging activities. It requires that all
derivatives be included as assets or liabilities in the balance sheet and that
such instruments be carried at fair market value through adjustments to either
other comprehensive income or current earnings or both, as appropriate. In June
1999, FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000. Management does not anticipate
that the adoption of this standard will have a material impact on the Company's
consolidated financial statements.
6. SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" (Statement 140), was issued on
September 29, 2000. This new Statement replaces Statement SFAS No. 125
(Statement 125) issued in June 1996. Statement 140 addresses implementation
issues that were identified in applying Statement 125. Statement 140 is
effective for transfers of financial assets (including securitization) occurring
after March 31, 2001. However, the provisions of the Statement related to the
recognition and reclassification of collateral in financial statements and
disclosures related to securitization transactions and collateral are effective
for fiscal years ending after December 15, 2000. The Company does not expect the
adoption of Statement 140 to have a material effect upon its financial
statements.
7
<PAGE>
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison for the three months ended September 30, 2000 and September 30, 1999
Interest income on investments for the quarter ended September 30, 2000 was
$14.6 million, an increase of $831,000 when compared to $13.7 million for the
same period in 1999. The increase was the result of $312,000 from higher volume
and $519,000 from an increase in interest rates. The average balance for the
investment portfolio increased to $817 million, up $18 million, from $799
million for the same period in 1999.
Interest income on loans was $12.6 million, an increase of $3.3 million when
compared to $9.3 million for the same period in 1999. $2 million was from higher
volume and $1.3 million from higher interest rates as the prime rate averaged
9.50% versus an average of 8.10% for the same period in 1999. The average loan
balance for the quarter increased to $509.9 million, up $84.6 million from
$425.3 million in 1999, primarily due to Merchants New York Commercial Corp.,
the Bank's asset-based lending subsidiary.
Non interest income increased $156,000 to $1.9 million in 2000, when compared to
$1.7 million in 1999. The increase was primarily the result of increases in fee
income and other service charges of $143,000 combined with an increase in
International Department fees of $13,000.
Interest expense on interest bearing deposits increased $1.4 million to $7.8
million from $6.4 million for the same period in 1999. The increase was a result
of $322,000 from higher volume and $1.1 million from an increase in interest
rates. Average interest bearing deposits for the quarter increased to $658.4
million, up $35.5 million when compared to $622.9 million for the same period
last year.
Interest expense on repurchase agreements for the three months ended September
30, 2000 was $3.9 million, an increase of $1.5 million, when compared to $2.4
million for the same period last year. The increase was the result of $842,000
from higher volume and $690,000 from an increase in interest rates. The average
balance for repurchase agreements increased $56.1 million to $239.3 million, up
from $183.2 million for the same period in 1999.
Interest expense on FHLB term advances increased to $1.2 million, up $290,000
from $920,000 for the same period in 1999. The increase resulted primarily from
higher interest rates. The average balance for the quarter increased slightly to
$70 million when compared to last year's average of $68.4 million.
Other short-term borrowing consist of Federal funds purchased and US Treasury
demand notes. Interest expense from other short- term borrowing remained
relatively the same for the three months ended September 30, 2000 and September
30,1999. Interest expense for the three month period was $246,000 versus
$304,000 for the same period last year. $113,000 decrease was from lower volume
offset by an increase of $55,000 from higher interest rates.
Non interest expense decreased to $6.0 million, down $226,000 from $6.2 million
for the same period in 1999. This was primarily the result of decreases in other
operating expenses.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Income tax expense for the three months ended September 30, 2000 increased
$370,000 to $2.8 million versus $2.5 million for the same period in 1999. The
increase was primarily due to an increase in income before taxes of $1.3
million.
PROVISION FOR LOAN LOSSES
An addition of $850,000 was made to the Provision for Loan Losses for the third
quarter in 2000, versus $615,000 in 1999. The Bank's level of reserve follows
industry standards, with the provision adjusted to reflect the status of the
loan portfolio risk. The level of allowance for loan losses is evaluated by
management quarterly and is based on several factors in addition to non-accrual
loans, doubtful and substandard loans including: charged-off loans, recoveries,
changes in levels and characteristics of outstanding loans, and loans classified
by management as higher than normal credit risk.
The following table sets forth certain information with respect to the loan loss
experience for the quarter ended September 30, 2000 and 1999.
9/30/00 9/30/99
------- -------
(In thousands)
Balance at beginning of period ............... $10,282 $8,556
Provision for loan losses .................... 850 615
Charge offs .................................. (866) (688)
Recoveries:
Commercial .......................... 33 40
Installment ......................... 1 1
------- ------
Total ........................................ $10,300 $8,524
======= ======
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison for the nine months ended September 30, 2000 and September 30, 1999
Interest income on investments for the nine months ended September 30, 2000 was
$44.5 million, an increase of $3.5 million when compared to $41 million for the
same period in 1999. The increase was the result of $1 million from higher
volume and $2.5 million from an increase in interest rates. The average balance
for the investment portfolio increased to $835.4 million, up $19.9 million, from
$815.5 million for the same period in 1999.
Interest income on loans was $33.8 million, an increase of $9.4 million when
compared to $24.4 million for the same period in 1999. $5.9 million was from
higher volume and $3.5 million from higher interest rates as the prime rate
averaged 9.15% versus an average of 7.87% for the same period in 1999. The
average loan balance for the period increased to $467.2 million, up $85.5
million from $381.7 million in 1999, primarily due to Merchants New York
Commercial Corp., the Bank's asset-based lending subsidiary.
Non interest income for the nine months ended September 30, 2000 increased
$724,000 to $5.5 million when compared to $4.8 million for the same period in
1999. The increase was primarily the result of increases in fee income and other
service charges of $624,000. In addition, International Department fees
increased $176,000 from higher volume of processing letters of credits.
Interest expense on interest bearing deposits increased $2.4 million to $21.7
million from $19.3 million for the same period in 1999. The increase was a
result of $158,000 from higher volume and $2.2 million from an increase in
interest rates. Average interest bearing deposits for the period increased $15.5
million to $646.6 million when compared to an average of $631.1 million in 1999.
Interest expense on repurchase agreements for the nine months ended September
30, 2000 was $10.1 million, an increase of $3.6 million, when compared to $6.5
million for the same period last year. The increase was the result of $2 million
from higher volume and $1.6 million from an increase in interest rates. The
average balance for repurchase agreements increased $45.2 million to $213.3
million, up from $168.1 million for the same period in 1999.
Interest expense on FHLB term advances increased to $3.7 million, $1.6 million
higher than the $2.1 million for the same period in 1999. The increase was the
result of $1.1 million from a higher volume and $488,000 from higher interest
rates. The average balance for the period ending September 30, 2000 increased to
$76.6 million, an increase of $23.7 million, when compared to last year's
average of $52.9 million.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Other short-term borrowing consist of Federal funds purchased and US Treasury
demand notes. Interest expense from other short-term borrowing was $751,000 for
the nine months period ended September 30, 2000, an increase of $249,000 when
compared to $502,000 for the same period last year. The increase was the result
of $116,000 from higher volume and $133,000 from higher interest rates.
Non interest expense increased to $19.6 million, up $558,000 from $19.1 million
for the same period in 1999. This was primarily the result of increases in
salaries and employee benefits.
Income tax expense for the nine months ended September 30, 2000 increased $1.6
million to $8.8 million versus $7.2 million for the same period in 1999. The
increase was primarily due to an increase in income before taxes of $4.4
million.
PROVISION FOR LOAN LOSSES
$2,475,000 and $1,215,000 were added to the Provision for Loan Losses for the
nine months ended September 30, 2000 and 1999, respectively. The increase this
year, was primarily the result of $86 million average loan growth.
The following table sets forth certain information with respect to the loan loss
experience for the periods ending September 30, 2000 and 1999.
9/30/00 9/30/99
-------- -------
(In thousands)
Balance at beginning of period ............... $ 9,108 $7,965
Provision for loan losses .................... 2,475 1,215
Charge offs .................................. (1,408) (866)
Recoveries:
Commercial .......................... 124 204
Installment ......................... 1 6
------- ------
Total ........................................ $10,300 $8,524
======= ======
PAST DUE LOANS 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.
11
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth the aggregate amount of non-accrual and past due
loans which are 90 days or more past due as to principal or interest payments on
the date indicated.
9/30/00 12/31/99
------- --------
(Dollars in thousands)
Non - accrual loans .................................... $5,959 $ 428
Loans past due 90 days or more,
and still accruing ................................... 1,520 496
------ -----
Total ......................................... $7,479 $ 924
====== =====
Restructured loans included in non - accrual loans ..... $ 239 $ 292
Non - accrual loans as a % of reserve .................. 57.85% 4.70%
Non - accrual loans as a % of total average loans ...... 1.28% .11%
Interest income that would have been earned on
non-accrual loans ................................... $ 187 $ 57
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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.
The Bank's liquidity continues to be strong, with average cash and short-term
investments totaling $60 million at September 30, 2000 compared with $55 million
at December 31, 1999, accounting for 4.3% and 4.2% of the Bank's total average
assets, respectively. Management considers overall liquidity at September 30,
2000 to be adequate to meet current obligations, to support expectations for
future changes in asset and liability levels and to carry on normal operations.
Scheduled loan payments and payments of principal and interest from the
investment portfolio provided additional liquidity. Through principal repayments
and redemptions, the investment portfolio generated $152 million for the nine
months of 2000, and a total of $214 million for the year ended December 31, 1999
for reinvestment and/or liquidity.
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
$944 million for the nine months ended September 30, 2000, compared to $913
million for the year ended December 31, 1999. The Bank continues to retain a
substantial portion of its average deposits in the form of noninterest-bearing
funds, which were 31.5% at September 30, 2000 and 30% at December 31, 1999, or
$297 million and $278 million, respectively.
CAPITAL
The primary source of capital growth is through retention of earnings. Undivided
profits increased to $104.5 million as of September 30, 2000 as compared to $95
million as of December 31, 1999. On August 15, 2000, the Company's Board of
Directors declared its 269th consecutive quarterly dividend in the amount of
$.125 per share of common stock payable to its shareholders, for the third
quarter of 2000.
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 and leverage ratio, as shown below, in
excess of the required "Well Capitalized" level of 10% and 5%, respectively.
Required 9/30/00 12/31/99
--------------------------------------
Tier I Capital Ratio ......... 4.00% 13.76% 14.88%
Total Capital Ratio .......... 8.00 15.01 16.13
Leverage Ratio ............... 3.00 7.55 7.54
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
There was an overall increase of $5.1 million in capital from December 31, 1999
to September 30, 2000. Of this change, there was an increase in undivided
profits of $9.5 million, an increase in the change in market value of available
for sale securities (net of tax effect) of $3.5 million and net increase of $7.9
million in Treasury stock transactions.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, 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>
Item 3, Quantitative and Qualitative Disclosures About Market Risk
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
exchange 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 Bank's asset/liability
management related activity based upon estimated market risk sensitivity, policy
limit and overall market interest rate levels/trends.
The objectives 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. 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 effect
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
INTEREST RATE SENSITIVITY GAP ANALYSIS
As of September 30, 2000
(Dollars 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
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale* ............... $ 27,403 $ 82,015 $ 265,210 $ 198,459 $ 573,087
Securities held to maturity* ................. 9,504 28,029 123,350 81,404 242,287
Loans ........................................ 519,434 4,995 17,885 5,205 547,519
Other ........................................ 9,545 -- -- -- 9,545
------------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets ................ 565,886 115,039 406,445 285,068 1,372,438
====================================================================================================================================
Interest Bearing Liabilities
------------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits .................... 562,069 102,299 15,532 -- 679,900
Securities sold under
repurchase agreements ................... 125,000 125,000 10,000 -- 260,000
FHLB term advances ........................... 50,000 20,000 -- -- 70,000
Other short-term borrowings .................. 14,853 -- -- -- 14,853
------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities ........... 751,922 247,299 25,532 -- 1,024,753
====================================================================================================================================
Net interest rate sensitivity gap ............ (186,036) (132,260) 380,913 285,068 347,685
Cumulative gap position ...................... (186,036) (318,296) 62,617 347,685
Cumulative gap/total earning assets:
At September 30, 2000 ........................ (13.56)% (23.19)% 4.56% 25.33%
At September 30, 1999 ........................ (21.87)% (24.00)% 6.35% 25.10%
</TABLE>
* Adjusted for weighted average maturity dates and prepayments for
mortgage-backed securities. All securities are disclosed at book value.
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-
16
<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
and short-term interest rates, provide high enough returns to justify the
increased exposure to sudden and unexpected increases in interest rates.
Consequently, 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, 2000, totaled $547.5 million, consisting of
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 $815 million, and an expected weighted average maturity of
approximately four 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 $297 million in average demand deposits
and $284.7 million in average money market, NOW and savings accounts.
17
<PAGE>
Part II - Other Information
Item 6, Exhibits and Reports on Form 8 - K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
1. On September 19, 2000, the Company filed the following reports on Form
8-K Current Report (pursuant to Items 5 and 7), which reported the
Company's merger with Valley National Bancorp, followed immediately by the
merger of The Merchants Bank of New York with Valley National Bank:
a. An Agreement and Plan of Merger dated September 5, 2000.
b. Stock Option Agreement between the Company and Valley National
Bancorp.
c. Press release dated September 6, 2000, announcing the merger.
d. Investor presentation materials regarding the merger.
e. Letter to Stockholders of the Company dated September 8, 2000,
announcing the merger.
f. Press release dated September 19, 2000, announcing the termination
of the Company's stock repurchase program.
2. On October 30, 2000, the Company filed the following reports on Form
8-K Current Report (pursuant to Item 5 and 7), which reported the
Company's earnings for the quarter and for the nine months ended September
30, 2000.
3. On November 1, 2000, the Company published its quarterly report to
stockholders, reporting the results of its operations for the three and
nine months ended September 30, 2000.
18
<PAGE>
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 3, 2000
---------------------------------------
James G. Lawrence
President & Chief Executive Officer
Date: November 3, 2000
---------------------------------------
William J. Cardew
Vice Chairman & Chief Operating Officer
19
<PAGE>
Exhibit 11 - Computation of Earnings Per Share
Earnings Per Share (EPS), presented below is the calculation of basic and
diluted EPS for the Company for the nine months ended September 30, 2000 and
1999.
2000 1999*
----------- -----------
Income before minority interest $17,397,352 $14,679,257
Less: minority interest 5,568 5,568
----------- -----------
Net income $17,391,784 $14,673,689
Weighted average shares outstanding 18,740,627 19,310,356
Plus: effect of stock options as dilutive securities 60,037 93,592
----------- -----------
Adjusted weighted average shares assuming dilution 18,800,664 19,403,948
EPS - Basic $ 0.93 $ .76
EPS - Diluted $ 0.93 $ .76
* Adjusted for the 2-1 stock split, effective October 1999.
20
