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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission File No. 0-22058
December 31, 1999
MERCHANTS NEW YORK BANCORP, INC.
(Exact name of registrant as specified in charter)
Delaware 13-3650812
(State or other jurisdiction of (IRS employer
incorporation or organization) identification No.)
275 Madison Avenue, New York, N.Y. 10016
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 973-6600
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class:
---------------
Common Shares, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ ].
As of February 1, 2000, the aggregate market value of the voting stock
held by non-affiliates was $235,255,944.
As of February 1, 2000, 18,956,040 shares of common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Specified portions of the 1999 Annual Report of Merchants New York
Bancorp, Inc. are incorporated by reference in Part I, Part II and Part
IV.
(2) Specified portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders, dated March 24, 2000 of Merchants New York
Bancorp, Inc. are incorporated by reference in Part III.
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<PAGE>
MERCHANTS NEW YORK BANCORP, INC.
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
PART II 21
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 21
ITEM 6. SELECTED FINANCIAL DATA 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 22
PART III 22
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 22
ITEM 11. EXECUTIVE COMPENSATION 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22
PART IV 23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 23
SIGNATURES 24
<PAGE>
PART I
Item 1. Business
General
Merchants New York Bancorp, Inc. (the "Company") is a bank holding company
that was organized under the laws of the State of Delaware on February 27, 1992
for the purpose of acquiring all of the issued and outstanding capital stock of
The Merchants Bank of New York (the "Bank"), a banking corporation organized
under the laws of the State of New York. The sole subsidiary of the Company is
the Bank. The principal business of the Company is the operation of the Bank.
The Bank is a commercial bank, servicing the communities in which its
branches are located. It is authorized to receive both demand and time deposits,
to make loans of various types, to engage in trust services and other fiduciary
funds, to issue letters of credit, to accept and pay drafts, to rent safety
deposit boxes, and to engage in similar activities.
The Bank was founded in 1874 as Markel Brothers Private Bankers. A New
York City branch was established in 1881. In 1926, a charter was obtained from
the Banking Department of the State of New York. The name and style of the Bank
was changed to The Merchants Bank, and at the same time the Bank became publicly
held. The Bank's name was changed to The Merchants Bank of New York in 1937.
Cash dividends were commenced in 1932 and since then have been paid
consecutively every quarter for the ensuing 67 years.
The Bank operates seven branches, all in Manhattan, which are
strategically located to serve its middle market customers. The executive
offices of the Company are located at 275 Madison Avenue, New York, New York
10016. The telephone number is (212) 973-6600.
Banking Services
The Bank offers conventional banking services consisting of retail
banking, commercial banking, international banking and trust services to small
and medium size businesses and to individuals. The Bank's deposits are insured
by the Federal Deposit Insurance Corporation (the "FDIC").
The Bank provides a full range of retail banking services that include
Regular and Special Checking Accounts, NOW (Negotiable Orders of Withdrawal) and
Super NOW Accounts, Money Market Accounts, Savings Accounts plus Keogh and IRA
Accounts and Lease Security Accounts for landlords and Attorney Escrow Accounts.
The Bank issues VISA(R) and MASTERCARD(R) credit cards offered through an
intermediary affinity program with all credit risk assumed by the third party.
The complete process, including credit checks and eligibility, is being handled
by the third party. 24-hour automated teller machine (ATM) cards with access to
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NYCE(R), The Exchange(R) and CIRRUS(R) systems are available for use on non-Bank
owned ATMs. The Bank does not have any ATMs at any of its branches and does not
anticipate installing any in the near future.
The Bank furnishes lending and depository services to small and medium
size commercial and industrial customers and to individuals. Loan facilities to
these customers include short term loans, revolving credit arrangements, term
loans, personal installment loans, and auto loans. Most of the Bank's business
loans are short term. Lending is limited to the New York metropolitan area which
includes the five boroughs, Westchester, Long Island, and Northern New Jersey.
No single borrower or group of related borrowers is indebted to the Bank in the
aggregate for an amount in excess of $10.9 million. The Bank's legal lending
limit was in excess of $17 million at December 31, 1999.
The Bank's subsidiary, MBNY Holdings Corp., a Delaware corporation, is a
holding company that owns the common stock and a majority of the preferred stock
of Merchants Capital Corporation, a real estate investment trust that owns
approximately 90% of the real estate related portion of the Bank's investment
portfolio.
The Bank's subsidiary, Merchants New York Commercial Corp., a Delaware
corporation, specializes in asset-based lending, providing revolving loans to
manufacturing, wholesale, distribution and service companies with high working
capital needs. The loans are based on the level of a company's working capital
assets, primarily accounts receivable and inventory. In addition, machinery and
equipment loans for both existing and new equipment may be provided. In all
instances, the loans are secured by the related assets which are closely
monitored.
The Bank's International Banking Department offers financial services to
its customers through its network of correspondent banks around the world. The
Bank provides Letters of Credit and foreign collection services to finance
import and export transactions. It also issues Standby Letters of Credit for
domestic use. The Bank maintains active correspondent relationships with leading
financial institutions, both domestic and world wide.
Competition
The Bank faces significant competition for both the loans it makes and the
deposits it accepts. The Bank's market area has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Company, and all of which are
competitors of the Bank to varying degrees. The Company and its competitors are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Bank's competition for loans comes principally from other commercial
banks. The Bank competes successfully for loans primarily by emphasizing the
quality of its loan services and by charging loan fees and interest rates that
are generally competitive in its market area. Its most direct competition for
deposits has historically come from commercial banks, savings
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banks, credit unions, and savings and loan associations. Additionally, the Bank
faces competition for deposits from money market funds, stock and bond mutual
funds, brokerage companies and insurance companies. The Bank competes for
deposits by offering a variety of customer services and deposit accounts at
generally competitive interest rates.
Management considers the Bank's reputation for financial strength and
customer service as its major competitive advantage in attracting customers in
its market area. The Bank also believes it benefits from its community bank
orientation as well as its relatively high percentage of core deposits.
Potential Impact of Changes in Government Monetary Policies and Interest Rates
The earnings of the Company and the Bank are affected by legislative
changes and policies of various governmental authorities such as the New York
State Banking Department, the Board of Governors of the Federal Reserve System
(the "FRB") and the FDIC. The FRB controls interest rates, which in turn may
affect the cost of funds and the return on earning assets. The changing economic
conditions and changes in the money markets make it impossible to predict future
changes in interest rates, loan demand, or their effects on the Bank's business
and earnings.
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest on interest-earning assets, such as loans and
securities, and its interest expense on interest-bearing liabilities, such as
deposits. When the amount of interest-earning assets differs from the amount of
interest-bearing liabilities expected to mature or reprice in a given period, a
significant change in market rates of interest will affect net interest income.
The Bank manages its interest rate risk primarily by structuring its balance
sheet to emphasize holding adjustable rate loans in its portfolio, maintaining a
large portion of its investments in mortgage-backed securities which produce
monthly cash flow for reinvestment, and maintaining a large base of core
deposits.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended primarily to
protect depositors and not stockholders. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
Any change in the applicable law or regulation may have a material effect on the
business and prospects of the Company and the Bank.
The Company is a registered bank holding company subject to the regulation
and examination by the Federal Reserve Board under the Bank Holding Company Act
of 1956, as amended (the "Act"). The Company is required to file with the FRB
quarterly and annual reports and any additional information that may be required
under the Act. The Act also requires every bank holding company to obtain the
prior approval of the FRB before (i) acquiring all or substantially all of the
assets of, or direct or indirect ownership or control of, more than 5% of
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the outstanding voting stock of any bank which is not already majority owned, or
(ii) acquiring, or merging or consolidating with, any other bank holding
company. The FRB will not approve any acquisition, merger, or consolidation that
would have a substantially anti-competitive effect, unless the anti-competitive
impact of the proposed transaction is clearly outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
FRB also considers capital adequacy and other financial and managerial resources
and future prospects of the companies and the banks concerned, together with the
convenience and needs of the community to be served, when reviewing
acquisitions, mergers or consolidations.
In November 1999, the Gramm-Leach-Bliley Act became law. This legislation
repealed many limitations applicable to banks, including those relating to
transactions in investment securities and to interstate branch banking. It is
too early to predict the effect, if any, that this new legislation will have on
the Company and the Bank.
The Riegle-Neal Act of 1994 permits an adequately capitalized and managed
bank holding company, with FRB approval, to acquire control of banks outside its
principal state of operation, without regard to whether such acquisitions are
permissible under state law (except that states may restrict out-of-state
acquisitions of newly formed banks by prescribing a minimum time that a bank
must have been in existence before it can be acquired by an out-of-state bank;
this cannot be greater than five years.) No bank holding company may make an
acquisition outside its principal state of operation which would result in it
controlling more than 10% of the total amount of deposits of all insured
depository institutions in the United States, or 30% or more of the total
deposits of insured depository institutions in any state (unless such limit is
waived, or a more restrictive or permissive limit is established, by a
particular state).
Riegle-Neal also allows banks to branch across state lines either by
merging with banks in other states or by establishing new branches in other
states. The provision relating to establishing new branches in another state
requires a state's specific approval. The banking laws of New York provide that
a New York bank chartered less than five years which is acquired by an
out-of-state bank holding company generally may not be merged with other banks
owned by that bank holding company, but that an out-of-state bank may branch
into the state by merging with, or by acquiring one or more branches of, an
existing New York bank. The banking laws of New York do not provide the specific
approval for out-of-state banks to establish new branches in New York. The
Company is unable to predict the ultimate impact of interstate banking on it or
its competition.
Additionally, Riegle-Neal prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries. Exceptions may be allowed in cases
where the non-banking business is determined by the FRB to be so closely related
to banking or managing or controlling banks as to be properly incident thereto.
In making such determinations, the FRB is required to weigh the expected
benefits to the public, such as
4
<PAGE>
greater convenience, increased competition or gains in efficiency, against the
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices.
The FRB has adopted risk-based capital guidelines for bank holding
companies. The risk-based capital guidelines are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Under these guidelines, assets
and off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. Failure to
meet the capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities.
Bank holding companies currently are required to maintain a minimum ratio
of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) of 8%. 50% or more of the total
capital is required to be "Tier 1 capital," consisting of shareholder equity
plus retained earnings, less certain goodwill items and intangible assets. The
remainder ("Tier 2 capital") may consist of (a) an allowance for loan losses not
to exceed 1.25% of risk-weighted risk assets, (b) excess of qualifying perpetual
preferred stock, (c) hybrid capital instruments, (d) perpetual debt, (e)
mandatory convertible debt securities, and (f) subordinated debt and
intermediate-term preferred stock limited for this purpose to 50% of Tier 1
capital. Total capital is the sum of Tier 1 and Tier 2 capital less reciprocal
holdings of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as determined by the FRB
(determined on a case by case basis or as a matter of policy after formal
rule-making).
Bank holding company assets are given risk-weights of 0% (no risk), 20%,
50% and 100%. In addition, certain off-balance sheet items are given similar
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These percentages represent the fraction
of an asset's value that must be considered when computing the ratio of total
capital to risk weighted assets. An asset with a zero risk weight need not be
considered in computing the ratio. If an asset has a 20% risk weight, 20% of its
value must be taken into account in computing the ratio. Half the value of a 50%
risk weighted asset, and the full value of a 100% risk weighted asset, must be
taken into account for this purpose.
Risk weighting is fixed according to the degree of risk each asset
represents. Most loans receive a risk weight of 100%, except for performing
first mortgage loans fully secured by certain residential property, which carry
a 50% risk rating. Most investment securities (including, primarily, general
obligation claims on states or other political subdivisions of the United
States) will be assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S.
Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance-sheet items,
direct credit substitutes including general guarantees and standby letters of
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<PAGE>
credit backing financial obligations, are given a 100% conversion factor with a
50% risk-weight. Transaction related contingencies such as bid bonds, standby
letters of credit backing non-financial obligations and commitments (including
commercial credit lines) with an initial maturity of more than one year have a
50% conversion factor. Short-term commercial letters of credit are converted at
20% and certain short-term or unconditionally cancelable commitments have a 0%
factor.
The Company's management believes that the risk-weighting of assets under
these guidelines does not and will not have a material impact on the Company's
operations or on the operations of the Bank.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier 1 capital leverage ratio, under which a bank holding company must
maintain a minimum ratio of Tier 1 capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. The leverage capital ratio assists in the assessment of the capital
adequacy of bank holding companies. Its principal objective is to place a
constraint on the maximum degree to which a banking organization can leverage
its equity capital base, even if it invests primarily in assets with low
risk-weights.
At December 31, 1999, the capital ratios of the Company and the Bank
exceeded the FRB's minimum regulatory capital guidelines as follows:
<TABLE>
<CAPTION>
Merchants New York Bancorp, Inc.
Risked-Based Capital
Leverage Capital(1) Tier 1 Total(2)
---------------------------- ------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------- ---------------------------- ----------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Actual $103,937 7.54% $103,937 14.88% $112,670 16.13%
Minimum
requirement 41,354 3.00 27,940 4.00 55,881 8.00
====================== ====================== ====================
Excess $ 62,583 4.54% $ 75,997 10.88% $ 56,789 8.13%
====================== ====================== ====================
</TABLE>
<TABLE>
<CAPTION>
The Merchants Bank of New York
Risk-Based Capital
Leverage Capital(1) Tier 1 Total(2)
---------------------------- ------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------- ---------------------------- ----------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Actual $104,653 7.58% $104,653 14.96% $113,396 16.21%
Minimum
requirement 55,226 4.00 27,982 4.00 55,963 8.00
====================== ====================== ====================
Excess $ 49,427 3.58% $ 76,671 10.96% $ 57,433 8.21%
====================== ====================== ====================
</TABLE>
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(1) The leverage capital requirement is generally between 3.0% and 5.0% for
all but the most highly-rated companies.
(2) The Company's Tier 1 capital includes stockholders' equity, net of
intangible assets, and gross of unrealized securities valuation accounts.
Total risk-based (Tier 2) capital includes Tier 1 capital plus the amount
of loan loss allowance or 1.25% of risk-weighted assets, whichever is
less.
The capital adequacy guidelines also provide explicitly for consideration
of interest rate risk in the overall evaluation of a bank's capital adequacy in
order to ensure that banking institutions effectively measure and monitor their
interest rate risk, and that they maintain adequate capital for the risk.
Banking institutions deemed by the Federal bank regulatory agencies to have
excessive interest rate risk may be required to maintain additional capital.
The Bank is a state-chartered bank subject to supervision, regulation and
examination by the New York State Banking Department and by the FRB. Deposits,
reserves, investments, loans, consumer law compliance, issuance of securities,
payment of dividends, establishing and closing of branches, mergers and
consolidations, changes in control, electronic funds transfer, community
reinvestment, management practices and other aspects of operations are subject
to regulation by the appropriate Federal and state regulatory agencies. The Bank
is also subject to various regulatory requirements of the FRB including
disclosure requirements in connection with personal and mortgage loans, interest
on deposits and reserve requirements. In addition, the Bank is subject to
numerous federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and discrimination in
credit transactions.
Federal regulatory agencies have broad powers to take prompt corrective
action to resolve problems at banking institutions, including (in certain cases)
the appointment of a conservator or receiver. The extent of these powers is
generally influenced by the level of capital at the institution. Management does
not anticipate that the Bank will become subject to these prompt corrective
action provisions.
Only a well capitalized depository institution may accept brokered
deposits without prior regulatory approval. Under FDIC regulations, an
institution is generally considered "well capitalized" if it has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, and a Tier 1 capital (leverage) ratio of at least 5%. The Company
and the Bank meet the guidelines to be considered a "well capitalized"
institution. Federal law generally requires full-scope on-site annual
examinations of all insured depository institutions by the appropriate Federal
bank regulatory agency although the examination may occur at longer intervals
for small well-capitalized or state-chartered banks.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Act on any extension of credit to the bank holding
company or any of its subsidiaries, or investments in the stock or other
securities of the bank holding company or its subsidiaries, and in the taking of
such stock or securities as collateral for loans to any borrower. A bank holding
company and its subsidiaries are prohibited from engaging in certain "tie-in"
arrangements in connection with the extension of credit or provision of any
property or services.
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Various restrictions limit the extent to which the Bank can supply funds
to the Company. The FRB limits the amount of dividends the Bank can pay the
Company. Without prior approval, the maximum dividend payable to the Company in
a single fiscal year is limited to the Bank's net profits for that year plus its
retained earnings for the preceding two calendar years, less any required
transfer to surplus. Further restrictions prevent the Company from borrowing
from a Bank subsidiary unless the loans are secured in specified amounts.
Without the prior approval of the FRB, secured loans, other transactions and
investments between the Company and any Bank subsidiary are generally limited in
amount to 10% of the Bank's capital and surplus. Federal law also requires that
transactions between a Bank subsidiary and the Company, including extension of
credit, sales of securities or assets and the provision of services, be
conducted on terms at least as favorable to the Bank subsidiary as those that
apply or that would apply to comparable transactions with unaffiliated parties.
As a consequence of the extensive regulation of the commercial banking
business in the United States, the business of the Company and the Bank are
particularly susceptible to changes in federal and state legislation and
regulations which may increase the cost of doing business.
Lending Activities and Credit Risk Management
The Bank's commercial and industrial loan portfolio represents
approximately 96% of total loans. Loans in this category are typically made to
small and medium sized businesses. Such loans typically range between $100,000
and $3 million, although larger loans are made on occasion, as the Bank's legal
lending limit is in excess of $17 million. Loan proceeds are generally used for
working capital and are seasonal in nature. In addition, the Bank supports the
financing of the importation of merchandise through letters of credit and direct
loans. The primary source of repayment is from the borrowers' conversion cycle
of inventory and accounts receivable as well as profits and cash flows.
The Bank's mortgage loan portfolio represents approximately 4% of gross
loans and is secured by mortgages on real property located in the New York
metropolitan area. Mortgage loans are made on an accommodation basis to current,
well established customers or are on occasion made to a business for property
which it is occupying. In the latter instance, full credit evaluation of the
borrowers' financial status is done and the Bank does not rely solely on the
collateral.
The Bank's lending is subject to its written underwriting standards and to
loan origination procedures prescribed by management. Detailed information is
obtained to assist in determining the borrower's ability to repay including
credit reports, financial statements and confirmations. The Bank's commercial
and industrial loans are underwritten based on the cash flow and financial
condition of the borrowing business and applicable collateral when appropriate.
Such loans may be secured in whole or in part by collateral such as liquid
assets, accounts receivable, inventory, equipment or real property. The majority
of the loans are personally guaranteed by the principals of the business and may
be further collateralized by the assets of those principals. The interest rates
on commercial and industrial loans are primarily variable rates that change with
market conditions and are priced in relation to the "prime rate."
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Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Bank's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which in turn
depends on current and expected economic conditions, the financial conditions of
borrowers and the credit management process.
As of December 31, 1999, the Bank's loans of $437 million, net of unearned
discounts, represented 31% of total assets. The Bank has no foreign loans
outstanding. The following table sets forth the composition of the Bank's loan
portfolio net of unearned discounts at the end of each of the most recent five
fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial........ $417,509 $339,982 $312,967 $283,341 $256,620
Real estate - mortgage........... 17,499 19,307 15,723 10,941 11,276
Installment loans................ 2,146 2,520 3,212 2,855 3,067
-------- -------- -------- -------- --------
Gross loans...................... 437,154 361,809 331,902 297,137 270,963
Less: unearned discounts...... (57) (46) (94) (56) (59)
======== ======== ======== ======== ========
Total (net of unearned
discounts)..................... $437,097 $361,763 $331,808 $297,081 $270,904
======== ======== ======== ======== ========
</TABLE>
Approximately 38% of the current loan portfolio is outstanding to
companies in the diamond, jewelry, furs and apparel industries. This includes
loans to various types of companies such as wholesalers, retailers,
manufacturers and casters. The Bank's portfolio is sensitive to downturns in the
economy, since these items are purchased with disposable income. As of December
31, 1999, there are no categories of loans exceeding 10% of total loans except
as shown in the above table. Substantially all of the Bank's loans are to
borrowers in the New York metropolitan area.
The following table sets forth the maturities of selected loans in the
Bank's gross loan portfolio at December 31, 1999:
<TABLE>
<CAPTION>
Due One Due One Due After
Year or Less to Five Years Five Years Total
----------------- ----------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial........ $376,662 $37,227 $3,563 $417,452
Real estate - mortgage........... 3,495 10,331 3,673 17,499
-------- ------- ------ --------
Total............................ $380,157 $47,558 $7,236 $434,951
======== ======= ====== ========
Loans included in the above
which are due after one year,
which have:
Fixed interest rates............. $ 4,853 $2,373 $ 7,226
Adjustable interest rates........ 42,705 4,863 47,568
------- ------ -------
Total............................ $47,558 $7,236 $54,794
======= ====== =======
</TABLE>
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<PAGE>
Asset and Liability Management
The Bank's net interest income is an important component of its operating
results. The stability of net interest income in changing interest rate
environments depends on the Bank's ability to manage effectively the interest
rate sensitivity and maturity of its assets and liabilities. The Bank's Asset
and Liability Management Committee develops and implements risk management
strategies, and uses various risk measurement tools to evaluate the impact of
changes in interest rates on the Bank's asset/liability structure and net
interest income.
The Bank's asset/liability management goal is to maintain an acceptable
level of interest rate risk to produce relatively stable net interest income in
changing interest rate environments. Management's plan has been (i) to maximize
the amount of loans having interest rates that move with prime rate changes
(approximately 97% of the loan portfolio is in this category) and (ii) to invest
a major portion of the investment portfolio in mortgage-backed securities which
have an average life of four years or less and a constant cash flow return of
principal which can be reinvested on a monthly basis (during 1999 this cash flow
averaged approximately $18 million per month). In addition, a substantial
portion of the investment portfolio has been classified in the
available-for-sale category to allow for sales to be made, when appropriate, to
take advantage of interest rate arbitrage to improve future interest returns. As
economic conditions change, management will modify the plan as necessary.
One measure of the Bank's interest rate sensitivity is its interest
sensitivity gap, or the difference between interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within a specified
time frame. Shorter gaps are a measure of exposure to changes in interest rates
for shorter intervals and longer gaps measure sensitivity over a longer
interval. At December 31, 1999, the Bank had a negative one-year gap of
approximately (19%) of total interest-earning assets; that is, it had more
interest-bearing liabilities than interest-earning assets maturing or repricing
within one year. A negative gap may enhance earnings in periods of declining
interest rates in that, during such periods, the interest expense paid on
liabilities may decrease more rapidly than the decrease in interest income
earned on assets. Conversely, in an increasing interest rate environment, a
negative gap may result in an increase in the interest expense paid on
liabilities that is more rapid than the increase in interest income earned on
assets. While a negative gap indicates the amount of interest-earning
liabilities which will mature before interest-bearing assets, it does not
indicate the extent to which they reprice. Therefore, at times, a negative gap
may not increase earnings in a declining interest rate environment.
10
<PAGE>
The following table summarizes the Bank's interest rate sensitive assets
and liabilities at December 31, 1999 according to the time periods in which they
are expected to reprice, and the resulting gap for each time period:
<TABLE>
<CAPTION>
Less than Three to One to
Three Twelve Five Over
Months Months Years Five Years Total
----------- ----------- ----------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold.................... $ 50,000 $ -- $ -- $ -- $ 50,000
U.S. government and
agency obligations................ 35,961 107,884 396,747 161,495 702,087
Obligations of states and political
subdivisions...................... 125 6,258 12,586 68,251 87,220
Other securities...................... 39,885 -- 275 31,236 71,396
Commercial and industrial loans:
Fixed rate........................ 29,937 3,958 3,388 1,379 38,662
Adjustable rate................... 378,790 -- -- -- 378,790
Real estate loans:
Fixed rate........................ -- -- 1,755 2,373 4,128
Adjustable rate................... 13,371 -- -- -- 13,371
Installment loans..................... 342 728 1,076 -- 2,146
Other................................. 6,881 -- -- -- 6,881
-------- -------- -------- -------- ----------
Total interest-earning assets..... $555,292 $118,828 $415,827 $264,734 $1,354,681
-------- -------- -------- -------- ----------
Interest-bearing liabilities:
NOW accounts........................ $ 51,215 $ -- $ -- $ -- $ 51,215
Savings accounts.................... 28,866 -- -- -- 28,866
Money market accounts............... 191,972 -- -- -- 191,972
Time deposits....................... 265,474 91,374 17,696 81 374,625
Securities sold under repurchase
agreements........................ 135,000 40,000 10,000 -- 185,000
FHLB Term Advances 65,000 40,000 -- -- 105,000
Other short term borrowings........... 20,048 -- -- -- 20,048
-------- -------- -------- -------- ----------
Total interest-bearing liabilities. $757,575 $171,374 $ 27,696 $ 81 $ 956,726
-------- -------- -------- -------- ----------
Net interest sensitivity gap.......... (202,283) (52,546) 388,131 264,653 397,955
Cumulative gap position............... (202,283) (254,829) 133,302 397,955
Cumulative gap/total
interest-earning assets........... (14.93%) (18.81%) 9.84% 29.38%
======== ======== ======== ========
</TABLE>
Mortgage backed securities have been adjusted for weighted average
maturity dates and prepayments. All securities are disclosed at book values.
Prepayments and scheduled payments have been estimated for the loan portfolio
based on the Bank's historical experience. Non-accrual loans are included in the
table at their original contractual maturities. Savings account and NOW account
repricings are based on the Bank's historical repricing experience and
management's belief that these accounts are not highly sensitive to changes in
interest rates.
11
<PAGE>
Asset Quality
Management continually reviews delinquent loans to adequately assess
problem situations and to quickly and efficiently remedy these problems whenever
possible. When a loan becomes past due (when it is past due 90 days) and doubt
exists as to the ultimate collection of principal or interest, the accrual of
interest is discontinued. Any accrued but unpaid interest on such loans is
charged against current earnings. Non-accrual loans at December 31, 1999 were
$428,000 or 0.10% of total loans, while at December 31, 1998 and 1997, they were
$146,000 and $159,000, respectively. Loans which are current as of December 31,
1999 but for which there are serious doubts as to the ability of the borrowers
to comply with the present loan repayment terms are not material in amount.
The following table sets forth the aggregate amount of domestic
non-accrual, past due and restructured loans at the end of each of the most
recent five fiscal years:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans....................... $428 146 159 1,109 2,169
Past due 90 days or more
(other than above).................... 496 351 204 687 281
---- ---- ---- ----- -----
Total................................... $924 497 363 1,796 2,450
---- ---- ---- ----- -----
Restructured*........................... 292 -- -- -- --
Interest income that would
have been earned on
non-accrual and reduced
rate loans outstanding................ 57 3 126 288 201
Interest income included in
net income for the above
loans................................. -- -- 81 39 --
Non-accrual, past due and
restructured loans as a
percentage of total gross
loans................................. .21% .14 .11 .60 .90
</TABLE>
* Included in Non-accrual loans
The provision for loan losses is a charge against income which increases
the allowance for loan losses. The adequacy of the allowance for loan losses is
evaluated periodically and is determined based on management's judgment
concerning the amount of risk and potential for loss inherent in the portfolio.
This judgment is based upon a number of factors including a review of
non-performing and other classified loans, the value of collateral for such
loans, historical loan loss experience, changes in the nature and volume of the
loan portfolio, and current and prospective economic conditions. While
management uses the best information available in establishing the allowance for
loan losses, future adjustments may be necessary based on changes in economic
conditions and in the credit risk inherent in the loan portfolio. As
12
<PAGE>
of December 31, 1999, there were no potential problem loans of which they were
aware that in management's opinion would materially impact financial results.
The Bank's allowance for loan losses at December 31, 1999 was $9.1 million
or 2.08% of total loans compared to $7.97 million or 2.2% of total loans at
December 31, 1998. At December 31, 1997 the allowance was $6.17 million or 1.86%
of total loans. Of the allowance for loan losses, non-accrual loans represented
4.7%, 1.8% and 2.6% at December 31, 1999, 1998 and 1997, respectively.
As in all banks, in addition to non-accrual loans, the Bank has other
sub-standard loans which reflect a higher degree of risk because of general
economic conditions or specific deterioration because of circumstances for a
particular borrower. These loans are reflected in the criticized and/or
classified categories by the Bank's loan review process. In establishing the
allowance for loan losses, the Bank must consider these categories, and
additions to the allowance are made with this in mind.
As a general rule, non-accrual loans (those on which interest is no longer
being accrued) are charged off at December 31 of each year. On average, $0.8
million of such loans have been charged off for each of the past five years.
Some sub-standard loans outside the non-accrual category are also charged off on
these occasions, resulting in the Bank's total charge-offs for the past five
years having averaged $1.9 million per year. In the same period, the average
annual provision for additions to the loan loss allowance was $1.9 million.
The following table sets forth certain information with respect to the
Bank's loan loss experience for each of the most recent five fiscal years:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
(Dollars in Thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses balance at
beginning of year................... $7,965 6,167 5,617 6,484 6,188
Provision for loan losses........... 1,915 1,425 1,700 2,580 2,080
Charge offs:
Commercial and industrial........ (1,223) (208) (1,460) (4,345) (2,315)
Installment...................... (1) (24) (9) (60) (33)
------ ------ ------ ------ ------
Total charge offs................... (1,224) (232) (1,469) (4,405) (2,348)
Recoveries:
Commercial and industrial........ 446 589 314 952 563
Installment...................... 6 16 5 6 1
------ ------ ------ ------ ------
Total recoveries.................... 452 605 319 958 564
Net charge offs..................... (772) 373 (1,150) (3,447) (1,784)
------ ------ ------ ------ ------
Balance at end of year.............. $9,108 7,965 6,167 5,617 6,484
====== ====== ====== ====== ======
Ratio of net charge offs to average
loans outstanding, net of unearned
discounts........................... .19% (.11) .35 1.23 .65
</TABLE>
13
<PAGE>
The following table sets forth an approximate breakdown of the allowance
for loan losses by major categories of loans for each of the most recent five
fiscal years:(1)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
--------------- ------------- -------------- ------------ --------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
in Ea. in Ea. in Ea. in Ea. in Ea.
Categ. Categ. Categ. Categ. Categ.
Loan to Loan to Loan to Loan to Loan to
Loss Total Loss Total Loss Total Loss Total Loss Total
Allow Loans Allow Loans Allow Loans Allow Loans Allow Loans
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & industrial.. $ 214 95.52 73 93.96 80 94.34 555 95.36 1,085 94.71
Real estate.............. -- 4.00 -- 5.34 -- 4.70 -- 3.68 -- 4.16
Installment.............. 25 .48 20 0.70 22 96 24 96 23 1.13
Unallocated.............. 8,869 -- 7,872 -- 6,065 -- 5,038 -- 5,376 --
------ ----- ----- ----- -----
Total.................... $9,108 7,965 6,167 5,617 6,484
====== ===== ===== ===== =====
</TABLE>
Securities and Investment Policy Objectives
The Bank invests in U.S. Government obligations, U.S. Agency
mortgage-backed securities and high quality state and municipal securities, high
grade bonds and money market instruments. The Bank's investment portfolio
represents a significant share of its assets and exerts an important and
stabilizing influence upon the Bank's earnings.
The Bank's investment policy is designed to promote three objectives. The
primary objective is to provide liquidity necessary to meet day to day, cyclical
and long term changes in the mix of the Bank's assets and liabilities. The
second objective is to provide a stable flow of dependable earnings while
maintaining liquidity through absorbing funds when loan demand decreases due to
seasonal trends and to supply funds when loan demand increases toward its annual
peak. The third objective is to provide a balance of quality and diversification
to the Bank's assets. There is minimal exposure to trading losses, since the
Bank invests but does not trade. Only high grade short term instruments and top
rated bonds with an average life of four years or less are acquired with
staggered maturities for liquidity.
Current money and security market conditions are evaluated by the Bank's
Investment Committee on a monthly basis. The Investment Committee includes
Messrs. Witty, Hertz, Lawrence, Cardew and Gould. The Committee's strategy and
investment program for each month, developed in accordance with the Bank's
investment policy, is presented for approval at the previous month's Board
meeting.
- -----------
(1) The allocation of loan loss allowance is calculated on the basis of 50% of
the non-accruing commercial and industrial loans and a 5 year average of losses
on installment loans. Such allocation is not necessarily indicative of the
amounts in which future charge-offs may be taken or of future loss trends.
14
<PAGE>
As of December 31, 1999, no single issuer's securities accounted for as
much as 10% of stockholders' equity, except for securities issued by the United
States and its political subdivisions and agencies.
The following table sets forth for the most recent three fiscal years the
book values and estimated market values of the Company's investment securities:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1999 1998 1997
---- ---- ----
Available for sale securities: (in Thousands)
<S> <C> <C> <C>
U.S. government and agency
obligations......................................... $436,834 $484,293 $496,300
Obligations of states and political
subdivisions........................................ 27,729 28,435 22,838
Other securities....................................... 198,152 132,846 8,194
-------- -------- --------
Total - available for sale (book value)................ $662,715 $645,574 $527,332
======== ======== ========
Estimated market value................................. $649,932 $660,026 $541,634
======== ======== ========
Held to maturity securities:
U.S. government and agency
obligations......................................... $114,636 $109,502 $159,690
Obligations of states and political
subdivisions........................................ 59,491 59,813 55,154
Other securities....................................... 23,861 28,848 327
-------- -------- --------
Total - held to maturity (book value).................. $197,988 $198,163 $215,171
======== ======== ========
Estimated market value................................. $195,169 $203,429 $219,902
======== ======== ========
</TABLE>
15
<PAGE>
The following tables set forth the investment values, range of maturities
and average yields for each category at December 31, 1999.
<TABLE>
<CAPTION>
Securities Available for Sale (Market Value)
--------------------------------------------
One to Five to Over Total Average
One Year Five Ten Ten Market Yield to
or Less Years Years Years Value Maturity
------------ ------------ ---------- ---------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Obligations(1)(2)............ $122,630 $ 66,504 $ -- $ 943 $190,077 8.14%
U. S. agency obligations..... 121,187 227,679 15,496 1,730 366,092 7.43%
Obligation of state and
political subdivisions(2).... 1,160 3,528 6,549 15,479 26,716 5.46%
Other securities............. 39,887 -- -- 27,160 67,047 6.50%
-------- -------- ------- ------- -------- -----
Total available for sale..... $284,864 $297,711 $22,045 $45,312 $649,932 7.46%
======== ======== ======= ======= ======== =====
Average yield to maturity.... 7.83% 7.32 6.15 6.32
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity (Book Value)
----------------------------------------
One to Five to Over Total Average
One Year Five Ten Ten Book Yield to
or Less Years Years Years Value Maturity
------------- ----------- ----------- --------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Obligations (1)(2)........... $ 26,219 $ 29,702 $ -- $ -- $ 55,921 8.64%
U.S. agency obligations...... 32,762 25,953 -- -- 58,715 7.96%
Obligations of New York
state (2).................... 5,240 9,144 19,621 25,486 59,491 5.38%
Other securities............. -- 23,786 75 -- 23,861 7.20%
-------- -------- ------- ------- -------- -----
Total held to maturity....... $ 64,221 $ 88,585 $19,696 $25,486 $197,988 7.28%
======== ======== ======= ======= ======== =====
Average yield to maturity.... 8.21% 6.91 5.09 4.95
Total investments............ $349,085 $386,296 $41,741 $70,798 $847,920 7.42%
======== ======== ======= ======= ======== =====
</TABLE>
- -----------
(1) Consisting mainly of Government guaranteed GNMA investments with an
average life of four years.
(2) Above yield is not computed on tax-equivalent basis. The average
tax-equivalent yield to maturity on obligations of states and political
subdivisions are as follows: securities available for sale - 8.27% and
securities held to maturity - 8.15%. The total tax equivalent yield on the
entire investment securities portfolio is 7.70%.
Deposits
Deposits are the Bank's principal source of funds. The Bank attracts
deposits from the general public and small businesses by offering a variety of
deposit accounts at competitive rates. The Bank's deposit accounts include
savings accounts, personal and commercial checking accounts, money market
accounts, NOW accounts, and certificates of deposit ("time deposits"). The Bank
also offers tax deferred retirement savings accounts (IRAs), savings and
certificates of deposit accounts of $100,000 or more ("jumbo certificates").
Management believes that a
16
<PAGE>
significant portion of maturing deposits will be retained by the Bank. There are
no material amounts of foreign deposits in domestic offices.
At December 31, 1999, the Bank had $280.8 million in jumbo certificates,
compared to $310 million at December 31, 1998 and $301.2 million at December 31,
1997. At December 31, 1999, the dollar amount of jumbo certificates by remaining
maturity dates and the weighted average interest rates were as follows:
<TABLE>
<CAPTION>
Remaining Maturity Amount Weighted
------------------ (in Thousands) Average Rate
-------------- ------------
<S> <C> <C>
3 months or less............................. $228,355 4.81%
More than 3 through 6 months................. 33,415 5.14
More than 6 months through 12 months......... 13,676 5.41
More than 12 months.......................... 5,360 5.98
-------- -----
Total.................................... $280,806 5.33%
======== =====
</TABLE>
Deposit inflows and outflows are generally dependent on market conditions,
interest rates, the general economic environment in the Bank's market area and
other competitive factors. The variety of accounts offered by the Bank has
enabled it to be more competitive in obtaining funds and to respond with more
flexibility to changes in the interest rate environment. Management's policy is
to review deposit interest rates at least weekly and to adjust appropriately
based on the need for funds, competition and the effect on the net interest
margin.
Fixed rate, fixed term certificates of deposit accounts ("CD's") are
generally a significant source of funds for the Bank At December 31, 1999, CD's
amounted to $374.6 million or 57.9% of total interest-bearing deposits, compared
to $416.9 million or 63.9% at December 31, 1998 and $419.1 million or 65.9% at
December 31, 1997. CD's offered by the Bank have maturities of seven days or
more, impose a minimum balance requirement of $2,000, and pay simple interest.
At December 31, 1999, savings deposit accounts amounted to $28.9 million
or 4.5% of the Bank's total interest-bearing deposits, compared to $26.2 million
or 4% of the Bank's total interest-bearing deposits at December 31, 1998 and
$24.7 million or 4% of the Bank's total interest-bearing deposits at December
31, 1997. Savings deposits consist of passbook savings accounts and statement
savings accounts. The minimum initial deposit required is $100. Savings accounts
offered by the Bank pay interest compounded and credited on a quarterly basis,
to accounts with a minimum balance of $5 at the end of the quarter.
The Bank offers NOW accounts with unlimited check writing privileges. The
minimum initial deposit required is $2,500. There is a service charge incurred
if the daily average balance for the month falls below $2,500. Interest is
compounded monthly. Interest is credited at the end of the month, at the current
rate determined by the Bank. NOW accounts amounted to $51.2 million, or 7.9% of
the Bank's total interest-bearing deposits at December 31, 1999, compared to
$46.4 million, or 7.1%, at December 31, 1998 and $47.3 million, or 7.4%, at
December 31, 1997.
17
<PAGE>
The Bank also offers a money market account with limited check writing
privileges. Such accounts have a minimum balance requirement of $2,000 and earn
interest at the Bank's money market rate if the account maintains a minimum
average balance of $2,000 for the month. There is a service charge incurred if
the daily average balance falls below $2,000. Interest on all money market
accounts is compounded monthly and credited monthly. Money market accounts
amounted to $192.0 million, or 29.7% of the Bank's total interest-bearing
deposits, at December 31, 1999, compared to $162.8 million, or 25%, at December
31, 1998 and $145.3 million, or 22.8%, at December 31, 1997.
The following table sets forth the average deposits and average rates paid
for each of the most recent three fiscal years for the classifications of
deposits listed:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 Rate(%) 1998 Rate(%) 1997 Rate(%)
---- ------- ---- ------- ---- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand.................... $277,710 -- $255,239 -- $227,744 --
NOW....................... 48,896 1.93 44,609 2.24 41,904 2.27
Savings................... 27,757 2.98 25,476 2.98 24,277 2.98
Money market.............. 173,011 3.49 145,660 3.38 141,671 3.37
Other time ............... 385,873 4.76 416,286 5.27 416,221 5.45
-------- -------- -------- ----
Total.......................... $913,247 $887,270 $851,817
======== ======== ========
</TABLE>
Management believes the variety of deposit accounts offered by the Bank
allows it to compete for funds effectively. However, these sources of funds
generally are interest rate sensitive and therefore can be more costly in a high
interest rate environment. Although the Bank will continue to carefully monitor
deposit flows, the ability of the Bank to control deposit flows will continue to
be significantly affected by the general market rate environment and economic
conditions.
Additional sources of funds are interest and principal payments on loans
and securities, and positive cash flows generated from operations. Interest and
principal payments on loans are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general market
interest rates, economic conditions and competitive factors. In the event that
the Bank is not able to generate sufficient funds from these sources, it has
available $122 million of overnight federal funds lines of credit from other
financial institutions as well as the ability to obtain substantial funds
through repurchase agreements against its investment portfolio. The bulk of the
real estate related portion of the Bank's investment portfolio is held by a real
estate investment trust, Merchants Capital Corporation ("MCC"), which is a
subsidiary of the Bank's Delaware holding company subsidiary, MBNY Holdings
Corp, formed in 1998. MCC and the Bank are parties to an agreement under which
the portion of the investment portfolio held by MCC is available to support
repurchase agreements entered into by the Bank. The Bank is a member of the
Federal Home Loan Bank of New York where it has availability of $210 million of
funds, of which $50 million may be used in overnight funds. Furthermore, the
Bank has access to the discount window of the Federal Reserve Bank. There were
no borrowings
18
<PAGE>
from the Federal Reserve Bank's discount window under these arrangements in
1999, 1998 or 1997.
Short Term Borrowings
The following table represents the Bank's material short term borrowings
for the fiscal years ending December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at year end........................................... $310,048 $209,031 $191,772
Weighted average interest rate on balances at end of year..... 5.87% 5.34% 5.82%
Maximum amount of borrowing at any month end.................. $310,048 $259,841 $248,436
Approximate average amounts outstanding during period......... $246,115 $211,269 $182,285
Approximate weighted average interest rate during period...... 5.33% 5.65% 5.80%
</TABLE>
Year 2000 ("Y2K") Compliance
The date rollover was a non-event for the Company's systems and software
applications, including those maintained by the Company's third-party data
processor. The Company's applications successfully achieved the date rollover.
Ongoing assessment and evaluation will continue to the end of the first quarter
of this year. Total cost of the Y2K readiness project remained at approximately
$400,000.
Employees
At December 31, 1999, the Company and the Bank had 243 employees,
consisting of 80 officers and 163 supervisory and clerical employees. The Bank
considers its relations with its employees to be good.
19
<PAGE>
SELECTED STATISTICAL INFORMATION
In addition to the statistical information that is presented in this Form
10-K, the following information is included in the Company's 1999 Annual Report
to Shareholders (the "Annual Report") and is hereby incorporated herein by
reference:
<TABLE>
<CAPTION>
Description of Statistical Information Annual Report Caption Page
- -------------------------------------- --------------------- ----
<S> <C> <C>
Average Balance Sheets Average Assets, Liabilities and
Stockholders' Equity 39
Analysis of Net Interest Earnings Analysis of Net Interest Earnings 10
Volume and Rate Variance Change in Interest Income and Expense
11
Return on Equity and Assets Selected Financial Data 8
</TABLE>
Item 2. Properties
The Bank owns the nine story office building at 434 Broadway, New York,
New York where one of its branch offices is located. The Bank occupies five of
the nine floors, the mezzanine and basement; four floors are presently rented to
others. In addition, the Bank owns the commercial condominium located at 62 West
47th Street, New York, New York, which houses the Bank's midtown branch office,
consisting of a main floor, mezzanine, and basement.
In addition to the above two offices, the Bank maintains five branch
offices at 93 Canal Street, 1040 Sixth Avenue, 295 Fifth Avenue, 145 Fifth
Avenue, and its corporate headquarters at 275 Madison Avenue, New York, New
York, where the Bank's main branch office is located.
Item 3. Legal Proceedings
Various actions and proceedings are presently pending to which the Company
or the Bank is a party. In the opinion of management, the aggregate liabilities,
if any, arising from such actions are not expected to have a material adverse
effect on the financial position of the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1999, there were no matters submitted to a
vote of the Company's stockholders.
20
<PAGE>
Part II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
The market for the Company's common equity is not an exchange but is
established by the National Association of Securities Dealers' Automated
Quotation System. At December 31, 1999 the total number of holders of record of
the Company's common equity was 1,627. The information appearing on page 16 of
the Annual Report under the caption "Price Range of Common Stock" is
incorporated herein by reference.
Cash dividends have been declared in each quarter of 1999 and 1998
aggregating annually $8.7 million and $7.8 million, respectively, or $.45 per
share in 1999 and $.40 per share in 1998, after adjusting for the two-for-one
stock split which occurred during 1999.
As a depository institution whose deposits are insured by the FDIC, the
Bank may not pay dividends or distribute any of its capital assets while it
remains in default on any assessment due the FDIC. The Bank currently is not in
default under any of its obligations to the FDIC. The Company and the Bank, in
declaring and paying dividends, are also limited insofar as minimum capital
requirements of regulatory authorities must be maintained. The Company and the
Bank comply with such capital requirements.
Under the Federal Reserve Act, the approval of the FRB is required for
dividends declared by a state member bank which in any year exceed the net
profits of such bank for that year, as defined, combined with retained net
profits for the two preceding years. Additionally, under Federal law, a bank is
prohibited from paying dividends in amounts greater than undivided profits then
on hand, as defined, after deducting bad debts.
During 1986, the stockholders approved the Employee Stock Option Plan of
the Bank (the "Option Plan"). Due to the Bank's becoming the wholly-owned
subsidiary of the Company on July 1, 1993, the Company adopted a substantially
identical stock option plan as successor to the Option Plan and all stock
options have become options to purchase the Company's Common Stock rather than
shares of the Bank's stock. During 1999, no options were granted under the
Option Plan. During 1999, outstanding options to purchase a total of 123,054
shares of Common Stock were exercised. All shares delivered upon these exercises
were reissued from the Company's treasury. The weighted average exercise price
of such options was $5.17 per share. Such transactions were exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.
Item 6. Selected Financial Data
The information appearing on page 37 (Note 17) and page 8 respectively, of
the Annual Report under the captions "Selected Quarterly Financial Data" and
"Selected Financial Data" is incorporated herein by reference.
21
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information appearing on pages 9 through 16 of the Annual Report under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing on pages 13 and 15 of the Annual Report under
the caption "Market Risk Management" is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements, related notes and Independent
Auditors' Report which appear on pages 17 through 38 of the Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Company
The information appearing on pages 5 through 7 of the Company's Proxy
Statement prepared in connection with the 1999 Annual Meeting of Stockholders
(the "Proxy Statement") under the caption "Election of Directors" is
incorporated herein by reference.
All executive officers are designated annually by the Board of Directors
and serve at the pleasure of the Board.
Item 11. Executive Compensation
The information appearing on pages 10 and 11 of the Proxy Statement under
the caption "Executive Compensation" is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing on pages 8 and 9 of the Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing on page 13 of the Proxy Statement under the
caption "Compensation and Option Committee Report on Executive Officer
Compensation" and on page 16 thereof under the caption "Certain Relationships
and Related Transactions" is incorporated herein by reference.
22
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements. The financial statements, related notes and the
Report of Independent Auditors, KPMG LLP, dated January 24, 2000 appear on pages
17 through 38 of the Annual Report and are incorporated herein by reference.
(a)2. Financial Statements Schedules.
(a)3. Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Item Description
---- -----------
(11) Computation of Earnings Per Share
(13) 1999 Annual Report to Shareholders
(27) Financial Data Schedule
(b) Reports on Form 8-K. One, dated September 17, 1999, containing information
responsive to Item 5 of Form 8-K.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERCHANTS NEW YORK BANCORP, INC.
(Registrant)
By: /s/ Spencer B. Witty
-----------------------------------
Spencer B. Witty
Chairman of the Board
Dated February 29, 2000
By: /s/ James G. Lawrence
-----------------------------------
James G. Lawrence
President, Chief Executive Officer and
Director (Principal Executive Officer)
Dated February 29, 2000
By: /s/ William J. Cardew
-----------------------------------
William J. Cardew
Vice Chairman of the Board,
Chief Operating Officer and Director
(Principal Financial Officer)
Dated February 29, 2000
By: /s/ M. Nasette Aranda
-----------------------------------
M. Nasette Aranda
Vice President and Comptroller
(Principal Accounting Officer)
Dated February 29, 2000
24
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles J. Baum Director February 29, 2000
- ------------------------------
Charles J. Baum
/s/ William J. Cardew Vice Chairman of the Board, Chief February 29, 2000
- ------------------------------ Operating Officer and Director
William J. Cardew
/s/ Eric W. Gould Executive Vice President, Treasurer February 29, 2000
- ------------------------------ and Director
Eric W. Gould
/s/ Rudolf H. Hertz Vice Chairman of the Board and Director February 29, 2000
- ------------------------------
Rudolf H. Hertz
/s/ James G. Lawrence President, Chief Executive Officer and February 29, 2000
- ------------------------------ Director
James G. Lawrence
/s/ Robinson Markel Director February 29, 2000
- ------------------------------
Robinson Markel
/s/ Paul Meyrowitz Director February 29, 2000
- ------------------------------
Paul Meyrowitz
/s/ Alan Mirken Director February 29, 2000
- ------------------------------
Alan Mirken
/s/ Mitchell J. Nelson Director February 29, 2000
- ------------------------------
Mitchell J. Nelson
/s/ Leonard Schlussel Director February 29, 2000
- ------------------------------
Leonard Schlussel
/s/ Charles I. Silberman Vice Chairman of the Board and Director February 29, 2000
- ------------------------------
Charles I. Silberman
/s/ Marcia Toledano Director February 29, 2000
- ------------------------------
Marcia Toledano
/s/ Spencer B. Witty Chairman of the Board and Director February 29, 2000
- ------------------------------
Spencer B. Witty
</TABLE>
25
Exhibit 11
Computation of Earnings Per Share
The computation of earnings per share for each period presented is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income....................................... $19,022,511 15,907,732 14,562,158
Less: Minority Interest 5,569 5,569 0
---------------------------------------------------
Net Income Available to Common
Shareholders....................... $19,016,942 $15,902,163 $14,562,158
Weighted average shares outstanding*............. 19,292,940 19,423,062 19,587,826
Plus: Effect of Stock Options as
Dilutive Securities................ 135,311 291,900 326,554
---------------------------------------------------
Adjusted Weighted Average Shares
Assuming Dilution 19,428,251 19,714,962 19,914,380
Earnings per share, basic........................ $0.99 $0.82 $0.75
Earnings per share, diluted...................... $0.98 $0.81 $0.73
</TABLE>
* Adjusted for the 2-for-1 split of the Common Stock that became effective
October 1, 1999.
26
[PHOTO OMITTED]
[LOGO] MERCHANTS NEW YORK BANCORP
1999 ANNUAL REPORT
Merchants New York Bancorp
<PAGE>
Merchants New York Bancorp
Our core lending business personifies Merchants and the success the Bank has
enjoyed for generations. Growth has continued because we have kept to the policy
on which we were founded--proven over and over again to be the bank for
medium-size and small business with emphasis on middle market banking and
personal service. This includes our unique International Department which
services a myriad of quality importers and exporters, and we are pleased that
our Letters of Credit are accepted around the world.
CONTENTS
1 Financial Highlights
2 To Our Stockholders and Friends
4 Corporate Lending
8 Selected Financial Data
9 Management's Discussion and Analysis of Financial Condition and Results
of Operations
17 Consolidated Statements of Condition
18 Consolidated Statements of Income and Comprehensive Income
19 Consolidated Statements of Changes in Stockholders' Equity
20 Consolidated Statements of Cash Flows
21 Notes to Consolidated Financial Statements
38 Independent Auditors' Report
39 Average Assets, Liabilities and Stockholders' Equity
IBC Board of Directors Counsel -- Paul Meyrowitz
Counsel -- Paul Meyrowitz
Simon, Meyrowitz & Meyrowitz
Attorneys -- Mark W. Schlussel, Esq.
Ziechner, Ellman & Krause
-- Robinson Markel, Esq.
Rosenman & Colin, LLP
Auditors -- KPMG LLP
Transfer Agent -- American Stock Transfer and Trust Co.
The Company's annual report, on Form 10-K, as filed with the Securities &
Exchange Commission, will be made available to stockholders upon request in
writing, at no cost. If interested, please contact: Karen L. Deitz, Corporate
Secretary, Merchants New York Bancorp, 275 Madison Avenue, New York, NY
10016-1011.
<PAGE>
Merchants New York Bancorp
FINANCIAL HIGHLIGHTS
Years ended December 31, 1999 1998
- --------------------------------------------------------------------------------
Financial Condition Data
Total assets $1,395,313,148 $1,289,570,980
Total investment securities 847,920,025 858,189,656
Net loans 427,989,071 353,798,660
Total deposits 958,978,208 934,323,292
Total liabilities 1,296,105,211 1,176,592,775
Total stockholders' equity 99,207,937 112,978,205
Selected Operating Data
Total interest income 90,284,691 86,267,606
Total interest expense 39,615,519 40,872,912
Net interest income 50,669,172 45,394,694
Net interest income after provision
for loan losses 48,754,172 43,969,694
Income before income taxes 28,531,672 24,033,672
Income tax expense 9,514,730 8,131,509
Net income 19,016,942 15,902,163
Net income per average share:
Basic $0.99 $0.82
Diluted $0.98 $0.81
[The following tables were depicted as Bar Charts in the printed material]
Interest-Earnings Assets
(In dollars)
'95 '96 '97 '98 '99
--- --- --- --- ---
935,111,286 1,038,702,034 1,144,487,841 1,211,168,465 1,354,681,877
Net Interest Income
(In dollars)
'95 '96 '97 '98 '99
--- --- --- --- ---
37,662,203 39,639,789 42,567,113 45,394,694 50,669,172
Net Income
(In dollars)
'95 '96 '97 '98 '99
--- --- --- --- ---
11,465,430 12,670,771 14,562,158 15,902,163 19,016,942
<PAGE>
To Our Stockholders and Friends:
[PHOTO OMITTED]
Spencer B. Witty
Chairman of the Board
We are again greatly gratified to report to you that Merchants New York
Bancorp achieved still another record year. This was the sixth record year in a
row and represents twenty-nine consecutive quarters of earnings gains which
distinguishes the "Good Old Bank" as a reliable profitmaking institution and
again added to our reputation as one of the nation's strongest and stable
commercial banks.
For the full year, earnings per share and net income climbed to new highs
with earnings per share increasing 21%, to $0.98 diluted, up from $0.81,
adjusted for the recent stock split. Net income reached an all-time record of
$19,016,942 on record revenues of $96,835,928 versus $15,902,163 on revenues of
$91,715,106 for the prior year.
Merchants Bank is the principal subsidiary of Merchants New York Bancorp.
We attribute the Bank's sixth consecutive record year primarily to increased
lending business as well as the Bank's investment activities. Merchants Bank
continues to concentrate on lending to the middle market mid-size and small
businesses that drive the national economy. Our average loan portfolio has
increased four years in a row without departure from our prudent credit
criteria. This past year's performance reflects the Bank's ability to keep on
achieving record results, as exemplified by our return on average equity (before
security valuation) of 18.02% and our return on average assets of 1.46%. In
addition, the Bank's excellent efficiency ratio further demonstrates its
time-tested controls and diligent management of assets and liabilities.
Our broadened line of loan products, especially those offered by our new
asset-based lending subsidiary, was of great help in supporting our
eager-to-lend loan philosophy. The subsidiary successfully completed its first
year of operation and provided secured loans on accounts receivable, inventory,
machinery and equipment.
At the completion of the year, the Bank's risk-based capital ratio was
16.1% which is twice as high as the regulatory requirement and sets the Bank
again in the coveted Blue Ribbon class and Five Stars by the Bank rating
services.
Consistent with our tradition of sharing our growth with our stockholders,
on October 1, 1999, we again split our stock two for one, the third time since
1995 and also increased our dividend by 25% on an annual basis, the 47th
increase in payout since 1950.
On December 28, 1999, we paid our 266th consecutive quarterly cash
dividend, a streak that began with the inception of dividends in 1932. Our
dividend has never been skipped or cut. We believe this payout record is
unmatched and unrivaled among all commercial banks in the United States.
We recently established a Dividend Reinvestment Plan. This provides
shareholders with the opportunity to automatically reinvest their cash dividends
in additional Merchants New York Bancorp common stock, as well as the option to
make additional cash investments. Participation in the plan is free and there
are no administrative fees or broker commissions.
2
<PAGE>
We were deeply saddened by the passing of Isidore Karten, a long-time
Director and ardent supporter of our Company.
We were pleased to appoint Marcia Toledano, a bright, well connected,
young business woman to our Board. We are confident she will be of great help to
our future growth.
While we take pride in our electronic capabilities, during the course of
the year, we upgraded our computer data processing systems to provide even
faster and better service and will soon be offering the latest technology in
banking to our customers.
"The Good Old Bank" is on a very sound footing with excellent fundamentals
to continue achieving increases in its earnings stream and we profoundly believe
that ultimately the good earnings performance and value will be recognized and
rewarded.
Our Bank relies on many individuals as we feel the "people" resource is of
prime importance to our success. We sincerely wish to thank our stockholders for
their loyalty and support, our Board of Directors for their wise counsel and
valuable assistance, and, very importantly, express our appreciation to our
professional team of officers and our fine staff who have earned us the
reputation of being both a competent and friendly Bank.
The Bank's businesses are lending and investing. We make loans to
qualified U.S.-based borrowers and invest only in the highest quality of top
American issuers. We have no foreign exposure whatsoever. We have a debt-free,
uniquely solid balance sheet. It is noted that recently Congress repealed the
Depression Era restrictions on banking. The new law now permits affiliations
among the banking, securities and insurance industries. While it encourages
competition, it offers both opportunities and challenges and has made our
franchise even more valuable. As always, our motto remains: "At the Good Old
Bank the Depositor's Safety Comes First--Earnings Will Inevitably Follow."
/s/ Spencer B. Witty
- ---------------------
Spencer B. Witty
Chairman of the Board
/s/ James G. Lawrence
- ---------------------
James G. Lawrence
President and Chief Executive Officer
[PHOTO OMITTED]
James G. Lawrence
President and Chief Executive Officer
3
<PAGE>
CORPORATE LENDING
Middle Market encompasses many industries including textiles, apparel and furs,
home furnishings, real estate, business and professional services and the
diamond and jewelery business.
Officers of Corporate Lending Divisions I & II
[PHOTO OMITTED]
(standing, left to right): John V. Buoniconti, Asst. Cashier; Paul A. Gotta,
Asst. Cashier; Joseph J. Wynne, V.P.; Paul L. Hamner, Asst. Cashier; Eugene P.
Schreiner, Asst. Cashier; Mitchell Kreiner, V.P.; Joseph J. Nicolosi, V.P.;
Brian T. Schiffino, V.P.; Leonard Katcher, V.P.; (seated, left to right):
Pamela G. Patterson, Asst. Cashier; John J. Cronin, A.V.P.; Patricia A. Miller,
V.P.; Donald F. Ritchie, V.P.; Salvatore J. Chiarelli, V.P.; Noreen Suarez,
Asst. Cashier
Corporate Lending Administration
[PHOTO OMITTED]
(standing, left to right): Andrew S. Baron, V.P.; James K. Moore, V.P.; Kenneth
J. Satchwill, V.P.; Brian M. Cardew, V.P.; Lester Nadel, V.P.; (seated, left to
right): Leonard S. Levine, Senior V.P.; Janet L. Markel, Senior V.P.; Stephen A.
Barrow, Executive V.P.; James G. Lawrence, President and Chief Executive Officer
Our core lending business personifies Merchants and the success the Bank
has enjoyed for generations. Growth has continued because we have kept to the
policy on which we were founded--proven over and over again to be the bank for
medium-size and small business with emphasis on middle market banking and
personal service. This includes our unique International Department which
services a myriad of quality importers and exporters, and we are pleased that
our Letters of Credit are accepted around the world.
A bank's earnings from its lending operations depends not only on
satisfied customers, but also on interest rates, and the "art" of forecasting
the direction, magnitude, and timing of rate changes. We try, and we usually
succeed, to earn a favorable spread. Our liquidity, lending standards and
relationships continue to be vital to our financial well-being and sustained
earnings power. We make what we believe to be are prudent loans, and, we do not
venture into the more speculative, higher-risk areas where the promise of higher
returns can sometimes cloud fundamental judgment. It is the Lending Officer who
plays a continuing role in assuring a profitable loan portfolio for the Bank and
we are justifiably proud of our lending staff.
Our loans are to customers whose sales range from $1 million to $200
million a year. We have been called a community bank because in a number of
respects we may be likened to a small-town bank. The fact that we are located in
Manhattan, in the city known as the world's financial capital, home to global
megabanks, makes this characterization all the more distinctive. As we know,
there have been many bank mergers and even more bank acquisitions in recent
years. As a consequence, many business owners, having dealt with small or
medium-sized banks for years, are confused about where to go for money or
advice. Their longtime lender has linked up with another institution many times
the size, and the familiar faces are no longer there to serve them, all of which
gives our bank additional opportunities. Brand names are not built solely by
advertising and promotion and we believe we have a unique name in banking's
"Middle Market." Brand names are built by living up to your promises, through
repeat daily performance against a standard of excellence. We constantly think
of how the customer is using our
4
<PAGE>
products and position ourselves as a trusted advisor and lender of funds. Just
as important, we have the size and expertise to handle our larger customers'
needs and we've also got the same caring people with real names and faces to
handle smaller needs, and we value each of our relationships. At Merchants,
small business owners can go directly to one lending officer to get counsel or
information on an array of topics. They are not shunted from one person to
another, nor do they have to deal with strangers or relatively inexperienced
personnel. We have good communication at all levels of the lending process and
our clientele include third and fourth-generation customers of businesses to
whom we originally loaned money.
Our credo is: "The better you understand a client's business, the better
the banker you will be for them. The numbers are important, but it is the people
that pay you back." Bank customers want a lender who knows them and knows their
business. We respond quickly, we give individualized attention and we have no
bureaucracy with which to burden our clients or prospects, and senior management
of the Bank participates in the lending process on a regular basis.
Diamond and Jewelry Industry
Corporate Lending Division III
[PHOTO OMITTED]
(standing, left to right): Gloria R. Trujillo, Asst. Cashier, Elliot Reiner,
V.P.; Michael D. Altman, Senior V.P.; Gerald H. Attanasio, V.P.; Joseph Radice,
A.V.P.; Joseph I. Edelman, V.P.; (seated, left to right): Stephen A. Barrow,
Executive V.P.; James G. Lawrence, President and Chief Executive Officer
- --------------------------------------------------------------------------------
INVESTMENTS
Investments play an important role in contributing to our earnings stream.
The Investment Committee's objective, with the support of the Asset and
Liability Committee, is to balance our earning assets with our deposit
liabilities and to provide funds for our loan growth.
Seasonally, as loans increase, the investment portfolio is engineered to
decrease. Conversely, when loans are paid off, investments are increased to keep
income flowing to our bottom line.
We invest mostly in obligations of the U.S. government agencies which
amortize their bonds monthly giving us a steady cash flow, and in the highest
quality municipal bonds to shelter taxes.
Merchants Bank is very unique. The composition of our assets sets us apart
from most banks. Our loan portfolio mostly floats with the prime rate and the
steady cash flow form our investments affords us the opportunity to reinvest at
higher levels if rates continue to rise. Contrary to most banks, historically,
we do even better as interest rates rise. This augurs well for the months ahead.
[PHOTO OMITTED]
(left to right): Spencer B. Witty, Chairman of the Board and Chairman of the
Investment Committee; Eric W. Gould, Executive Vice President and Treasurer
- --------------------------------------------------------------------------------
Our business continues to come from referrals from satisfied customers,
accountants, attorneys and investment bankers. Our ambition is not to become the
largest bank, but rather to continue to grow as the strongest and safest while
we expand our valuable customer base. This includes a cross section of the
"Middle Market" and encompasses many industries, including textiles, apparel and
furs, home furnishings, real estate, business and professional services and the
diamond and jewelry business.
Merchants New York Commercial Corp.
[PHOTOS OMITTED]
(left to right): Joseph M. Triscoli, V.P.; Irwin Schwartz, President and Chief
Executive Officer; Alexander Rodetis, Jr., Executive V.P.
In the latter part of 1998, we took a strategic step to broaden the scope
of our traditional commercial lending services to middle market companies with
the formation of Merchants New York Commercial Corp., our Asset-Based Lending
subsidiary, which provides accounts receivable and inventory financing and
machinery and equipment loans, as well as letter of credit facilities to new and
existing corporate borrowers. Typically, Asset-Based Lending provides revolving
loans to manufacturing, wholesale, distribution and service companies with high
working capital investment needs and these loans are based on the level of a
company's working capital assets, primarily accounts receivable and inventory.
Our wholly owned subsidiary meets an objective of Merchants long-term
business growth plan by offering this value-added service to our middle market
and smaller corporate borrowers, thereby expanding the Bank's loan portfolio and
earnings potential.
5
<PAGE>
"THE GOOD OLD BANK"
[LOGO] MERCHANTS NEW YORK BANCORP
BRANCH LOCATIONS
[PHOTO OMITTED]
Raymond F. Tornabene
Assistant Vice President
and Branch Manager
[PHOTO OMITTED]
1040 Sixth Avenue
[PHOTO OMITTED]
Simeon Kovacic
Vice President and Branch Manager
[PHOTO OMITTED]
295 Fifth Avenue
[PHOTO OMITTED]
Dennis J. Sheridan
Vice President and Branch Manager
[PHOTO OMITTED]
275 Madison Avenue
[PHOTO OMITTED]
Lawrence I. Kohn
Vice President and Branch Manager
[PHOTO OMITTED]
93 Canal Street
[PHOTO OMITTED]
Joseph R. Criscione
Senior Vice President and Branch Manager
[PHOTO OMITTED]
434 Broadway
<PAGE>
Carrying on a Tradition of Reliability
BRANCH ADMINISTRATION
[PHOTO OMITTED]
Eugene J. Venier
Senior Vice President and Division Head
[PHOTO OMITTED]
William J. Cardew
Vice Chairman and
Chief Operating Officer
[PHOTO OMITTED]
John U. Doekker
Vice President and Branch Manager
[PHOTO OMITTED]
62 West 47th Street
[PHOTO OMITTED]
Michael S. Hassani
Vice President and Branch Manager
[PHOTO OMITTED]
145 Fifth Avenue
- --------------------------------------------------------------------------------
STAFF DEPARTMENTS
[PHOTO OMITTED]
M. Nasette Aranda
Vice President and Comptroller
[PHOTO OMITTED]
Karen Deitz
Corporate Secretary and
Director of Stockholder Relations
[PHOTO OMITTED]
Rosemarie A. Calabro
Senior Vice President
Bank Operations
[PHOTO OMITTED]
Mary J. Scarpelli
Vice President and Auditor
[PHOTO OMITTED]
T. John Santoro
Vice President Real Estate
& Administrative Services
[PHOTO OMITTED]
Joseph M. Cestone
Senior Vice President
International Operations
[PHOTO OMITTED]
Ruth T. Aimetti
Vice President
Human Resources
- --------------------------------------------------------------------------------
<PAGE>
Merchants New York Bancorp
SELECTED FINANCIAL DATA
This consolidated selected financial information for the Company is not intended
to be complete and is qualified in its entirety by more detailed financial
information and the financial statements contained elsewhere herein.
<TABLE>
<CAPTION>
For the years ended
December 31, 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands,
except per share amounts)
Interest income $ 90,285 $ 86,268 $ 82,820 $ 73,095 $ 69,569 $ 61,345 $ 60,301
Net interest income 50,669 45,395 42,567 39,640 37,662 36,238 35,280
Provision for loan losses 1,915 1,425 1,700 2,580 2,080 1,850 9,785
Net income 19,017 15,902 14,562 12,671 11,465 10,709 7,884
Earnings per share (1 and 4):
Basic 0.99 0.82 0.75 0.64 0.58 0.54 0.40
Diluted 0.98 0.81 0.73 0.63 0.57 0.54 0.39
Cash dividends declared
per share (1) 0.45 0.40 0.38 0.33 0.28 0.23 0.20
Total assets 1,395,313 1,289,571 1,235,742 1,137,799 1,027,191 1,001,386 1,006,348
Book value per share (1):
Without security valuation 5.56 5.33 5.03 4.84 4.54 4.24 3.92
With security valuation (2) 5.19 5.80 5.49 5.21 5.03 3.92 --
Financial Ratios:
Return on average assets 1.46% 1.27% 1.23% 1.21% 1.19% 1.10% 0.78%
Return on average equity
excluding security valuation 18.02 15.67 14.91 13.45 13.01 13.22 10.36
Return on average equity
including security valuation (2) 17.32 14.34 13.82 12.53 12.59 13.30 10.36
Average equity to
average assets (2) 8.41 8.85 8.90 9.66 9.43 8.35 7.54
Dividend payout ratio 45.61 48.96 50.35 51.10 47.71 41.74 50.38
Net charge-offs to
average loans 0.19 (0.11) 0.35 1.23 0.65 0.96 2.34
Allowance for loan losses
to total loans 2.08 2.20 1.86 1.89 2.39 2.31 2.46
Non-performing loans to
allowance for loan losses 4.70 1.83 2.58 19.74 33.45 21.19 26.39
Risk-Based Capital Ratio: (3)
Tier I 14.88 16.94 18.61 20.41 21.61 19.81 18.59
Total 16.13 18.19 19.80 21.62 22.86 21.06 19.84
</TABLE>
(1) Based upon retroactive adjustments for 2-for-1 stock splits paid October
2, 1995, October 7, 1997 and October 1, 1999.
(2) Per SFAS No. 115, effective in 1994, a valuation account for unrealized
gains (losses) on investments available for sale are included in equity.
(3) The Federal Reserve Board capital guidelines for bank holding companies
require minimum risk-based ratios of Tier 1 and total capital to
risk-weighted assets to be 4.0% and 8.0%, respectively, and a minimum
leveraged-based ratio of Tier 1 capital to total average quarterly assets
generally of at least 3.0%. The ratios above were calculated using the
guidelines in effect at each reporting date.
(4) Per SFAS No. 128, effective in 1997, the earnings per share calculation
and disclosure have been revised. EPS on this schedule has been
retroactively revised to conform to this change.
8
<PAGE>
Merchants New York Bancorp
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1999 and 1998
Overview
Net income in 1999 increased by 19.6% to $19.0 million, compared with 1998's
earnings of $15.9 million. Net income per diluted share continued to increase,
up $0.17 to $0.98 per share versus $0.81 per share in 1998.
Interest Income
Interest income generated in 1999 was $90.3 million, up $4 million, or 4.7%,
from the 1998 total of $86.3 million.
The Bank's primary component of interest income in 1999 was contributed by the
investment portfolio, with $54.7 million versus $53.6 million in 1998. The
increase in investment income was a result of the growth of the investment
portfolio which averaged $815.8 million, up $19.4 million, or 2.4%, from $796.4
million in 1998. The non-tax adjusted interest return for the investment
portfolio decreased to 6.70% from 6.73% in 1998, due to the lower interest rate
environment.
Interest income on loans in 1999 increased to $34.9 million, up $3.1 million
when compared to $31.8 million in 1998. The average balance on loans in 1999 was
$402.5 million, an increase of $52.2 million, or 14.9%, from $350.3 million in
1998. The establishment in late 1998 of Merchants New York Commercial Corp., the
Asset-Based Lending subsidiary, was a major contributor to the increase in
average loans, although all segments of the loan portfolio benefited from the
increased efforts of our lending personnel.
The additional funding to support the growth of the investment and loan
portfolios was achieved through increased deposits, repurchase agreements, FHLB
advances, and other short-term borrowings. On average, approximately $15.8
million per month of principal repayments received from mortgage-backed
securities were reinvested in both the investment and loan portfolios.
In maximizing cash management, the average Federal funds sold decreased to $13.4
million from $16.2 million in 1998. Interest income on Federal funds sold
contributed $658,000 to interest income, a reduction of $185,000 from the
$843,000 earned in 1998.
Interest Expense
Total interest expense decreased to $39.6 million, a reduction of $1.3 million
from $40.9 million in 1998. The decrease was the result of a decline in the
average cost for interest-bearing liabilities to 4.46%, a reduction of 36 basis
points from 4.82% in 1998.
Interest expense on deposits, the highest contributor to interest expense,
decreased to $26.2 million in 1999, a reduction of $2.4 million from $28.6
million in 1998. The average deposits in 1999 were $635.5 million, an increase
of $3.5 million from $632.0 million in the prior year. Average certificates of
deposits balances decreased to $385.9 million in 1999 from $416.3 million in
1998, with the average rate paid decreasing approximately 51 basis points to
4.76% in 1999 from 5.27% in 1998.
Interest expense on repurchase agreements decreased to $9.0 million, a reduction
of $400,000, when compared to $9.4 million for the same period in 1998. The
decrease was the result of lower interest rates offset by an increase in the
average balance for repurchase agreements of $4.2 million to $170.5 million from
$166.3 million in 1998.
9
<PAGE>
Merchants New York Bancorp
Interest expense on FHLB term advances increased to $3.8 million, up $1.8
million from $2.0 million in 1998. The increase was primarily the result of
higher volume as the average balance for 1999 on FHLB term advances increased to
$69.1 million, up $33.2 million from $35.9 million for the same period in 1998.
Other short-term borrowings, consisting of Federal funds purchased and US
Treasury demand notes, averaged $12.2 million in 1999, a decrease of $2.3
million versus $14.5 million in 1998. Interest expense from other short-term
borrowings decreased to $610,000, a reduction of $192,000 when compared to
$802,000 in 1998.
ANALYSIS OF NET INTEREST EARNINGS
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-Earning Assets
Federal funds sold $ 13,356 $ 658 4.93% $ 16,184 $ 843 5.21% $ 8,373 $ 460 5.49%
Investment securities
(book value):
Taxable 730,124 50,074 6.86 712,214 48,911 6.87 684,916 48,226 7.04
Tax-exempt* 85,669 4,576 5.34 84,152 4,648 5.52 71,135 4,332 6.09
- -------------------------------------------------------------------------------------------------------------------------------
Total 815,793 54,650 6.70 796,366 53,559 6.73 756,051 52,558 6.95
Loans (net of
unearned discounts) 402,456 34,883 8.67 350,272 31,767 9.07 325,298 29,771 9.15
Other 1,839 94 4.26 1,548 99 6.40 531 31 5.84
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,233,444 $90,285 7.32% $1,164,370 $86,268 7.41% $1,090,253 $82,820 7.60%
- -------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
NOW $ 48,896 $ 945 1.93% $ 44,609 $ 1,000 2.24% $ 41,904 $ 951 2.27%
Savings accounts 27,757 827 2.98 25,476 758 2.98 24,277 724 2.98
Money market accounts 173,011 6,040 3.49 145,660 4,924 3.38 141,671 4,774 3.37
Time certificates
of deposit 385,873 18,377 4.76 416,286 21,928 5.27 416,221 22,687 5.45
Securities sold under
repurchase agreements 170,548 9,039 5.30 166,315 9,424 5.67 166,294 9,680 5.82
FHLB term advances 69,096 3,778 5.47 35,890 2,037 5.68 7,452 437 5.86
Other short-term borrowings 12,183 610 5.00 14,544 802 5.51 18,229 1,000 5.49
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 887,364 $39,616 4.46% $ 848,780 $40,873 4.82% $ 816,048 $40,253 4.93%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-
earning assets 346,080 315,590 274,205
===============================================================================================================================
Net yield on interest-
earning assets $1,233,444 $50,669 4.11% $1,164,370 $45,395 3.90% $1,090,253 $42,567 3.90%
===============================================================================================================================
</TABLE>
Non accrual loans are included in Interest-Earning Assets.
*Yields are not computed on a tax equivalent basis.
10
<PAGE>
Merchants New York Bancorp
Net Interest Income
The Bank's primary source of earnings is net interest income. This is the amount
by which interest income on interest-earning assets exceeds interest expense on
interest-bearing liabilities. Net interest income increased to $50.7 million in
1999 from $45.4 million in 1998. Net interest income is a function of several
factors including changes in volume, mix of earning assets, funding sources and
market interest rates. While management policies influence these factors, they
are also influenced by external forces including customer needs and demands,
competition, the economic policies of the Federal government and monetary
policies of the Federal Reserve Board.
The following table provides further analysis of the increase in net interest
income during 1999, 1998 and 1997 and indicates that the increases were
primarily due to higher volume of interest-earning assets and lower interest
expense on deposits and borrowed funds. The changes in interest income and
interest expense have been allocated to rate and volume changes in proportion to
the absolute dollar amounts of the change in each.
CHANGES IN INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
- -------------------------------------------------------------------------------------------------------------------
Volume Rate Change Volume Rate Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest Income
Loans (net of unearned discounts) $ 4,571 $(1,455) $ 3,116 $ 2,267 $ (271) $ 1,996
Investment securities (book value):
Taxable 1,228 (65) 1,163 1,891 (1,206) 685
Tax-exempt 83 (155) (72) 745 (429) 316
- -------------------------------------------------------------------------------------------------------------------
Total investments 1,311 (220) 1,091 2,636 (1,635) 1,001
Other interest income (124) (66) (190) 472 (22) 450
- -------------------------------------------------------------------------------------------------------------------
Total interest income 5,758 (1,741) 4,017 5,375 (1,928) 3,447
- -------------------------------------------------------------------------------------------------------------------
Interest Expense
Savings and time deposits:
NOW 91 (146) (55) 61 (12) 49
Savings accounts 68 1 69 36 (2) 34
Money market accounts 950 167 1,117 149 1 150
Time certificates of deposit (1,536) (2,015) (3,551) 4 (762) (758)
- -------------------------------------------------------------------------------------------------------------------
Total (427) (1,993) (2,420) 250 (775) (525)
- -------------------------------------------------------------------------------------------------------------------
Borrowings:
Securities sold under
repurchase agreements 235 (620) (385) 1 (257) (256)
FHLB term advances 1,818 (77) 1,741 1,614 (14) 1,600
Other short-term borrowings (115) (78) (193) (233) 33 (200)
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 1,511 (2,768) (1,257) 1,632 (1,013) 619
- -------------------------------------------------------------------------------------------------------------------
Net interest income $ 4,247 $ 1,027 $ 5,274 $ 3,743 $ (915) $ 2,828
===================================================================================================================
</TABLE>
11
<PAGE>
Merchants New York Bancorp
Other Income, Other Expenses, Provision for Loan Losses and Taxes
Other income increased by $1.1 million to $6.5 million in 1999 when compared to
$5.4 million in 1998. This was primarily the result of an increase in fee income
of $618,000, of which approximately 42% was attributable to Merchants New York
Commercial Corp., the new Asset-Based Lending subsidiary. In addition,
International Department fees increased $339,000 from higher volume of
processing letters of credits and the balance was from increases in other
service fees and charges.
Other expenses in 1999 were $26.8 million, an increase of $1.4 million from
$25.4 million in 1998. This stemmed principally from an increase of $897,000 in
salaries, primarily, for Merchants New York Commercial Corp., which did not
exist until the end of 1998, and a $637,000 increase in benefits.
The provision for loan losses is based on maintaining an allowance for loan
losses to cover all non-accrual and high-risk loans. The provision for loan
losses increased $490,000 to $1.9 million in 1999 compared to $1.4 million in
1998. The increase in the provision reflects management's actions in assessing
the level of adequacy in the allowance of loan losses. The allowance for loan
losses totaled $9.1 million and $8.0 million as of December 31, 1999 and 1998,
respectively. The Bank's level of allowance follows industry standards, with the
provision rising and falling 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, doubtful and substandard
loans including: charged-off loans totaling $1.2 million and $232,000 in 1999
and 1998, respectively; recoveries totaling $452,000 and $605,000 in 1999 and
1998, respectively; changes in levels and characteristics of total outstanding
loans of $437.1 million and $361.8 million in 1999 and 1998, respectively. For
further discussion of the allowance, refer to Notes 1 and 5 of the Financial
Statements.
The provision for income taxes increased $1.4 million in 1999 to $9.5 million
versus $8.1 million in 1998. The increase was primarily due to an increase in
income before taxes of $4.5 million.
Liquidity
Liquidity measures the Bank's ability to satisfy current and future obligations
and commitments as they become due. Funds to meet liquidity needs are raised
through the sale or maturity of an asset or through increased deposits or
borrowings.
For the year ended December 31, 1999, average cash and short-term investments
totaled $55 million, versus $59 million in 1998, accounting for 4.2% and 4.7% of
the Bank's total average assets, respectively. Through principal repayments and
redemptions, the investment portfolio generated $214 million in 1999 and $231
million in 1998 for reinvestment and/or liquidity. Furthermore, $22 million in
1999 and $19 million in 1998 were the result of investment sales to take
advantage of interest rate arbitrage. Also, having 97% of the loan portfolio
priced to float with the prime rate allows immediate adjustments upon an
interest rate change, which impacts the interest rate gap.
On the liability side, the primary source of funds available to meet liquidity
needs is the Bank's core deposit base. The Bank continues to retain a
substantial proportion of its average deposits in the form of
noninterest-bearing funds, with $278 million, or 30%, in 1999 and $255 million,
or 29%, in 1998. The average balance of total deposits increased $26 million to
$913 million in 1999, from $887 million in 1998, of which $22 million came from
noninterest-bearing deposits. Interest-bearing liabilities are priced
competitively, with a slight premium paid for time certificates of deposit, $538
million, or 83%, of which are in the 0 to 3 month maturity range and $91
million, or 14%, are in the 3 to 12 month range. While we include savings
accounts and NOW accounts in the 0 to 3 months category on the Interest Rate
Sensitivity Gap table, the actual repricing on these is at our discretion.
Taking this into consideration, the reflected liability sensitivity of
12
<PAGE>
Merchants New York Bancorp
$202 million would be mitigated by $80 million of combined NOW and savings
accounts balances included there and which would not change at the same rate as
other interest-bearing deposits. As a balance between assets and deposit
liabilities, the average investment portfolio of $823 million in 1999 and $811
million in 1998, can be used as collateral for repurchase agreements, of which
an average of $171 million in 1999 and $166 million in 1998 was utilized.
INTEREST RATE SENSITIVITY GAP ANALYSIS
As of December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Less Than 3 to 12 1 to 5 Over
Interest-Earning Assets 3 Months Months Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 50,000 $ -- $ -- $ -- $ 50,000
Securities available for sale* 68,493 86,469 313,251 194,502 662,715
Securities held to maturity* 7,478 27,673 96,357 66,480 197,988
Loans 422,440 4,686 6,219 3,752 437,097
Other 6,881 -- -- -- 6,881
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 555,292 $ 118,828 $415,827 $264,734 $1,354,681
=================================================================================================================
Interest-Bearing Liabilities
Interest-bearing deposits $ 537,527 $ 91,374 $ 17,696 $ 81 $ 646,678
Securities sold under
repurchase agreements 135,000 40,000 10,000 -- 185,000
FHLB term advances 65,000 40,000 -- -- 105,000
Other short-term borrowings 20,048 -- -- -- 20,048
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 757,575 $ 171,374 $ 27,696 $ 81 $ 956,726
=================================================================================================================
Net interest rate sensitivity gap (202,283) (52,546) 388,131 264,653 397,955
Cumulative gap position (202,283) (254,829) 133,302 397,955 --
Cumulative gap/total earning assets:
At December 31, 1999 (14.93)% (18.81)% 9.84% 29.38%
At December 31, 1998 (16.64)% (19.16)% 13.60% 28.83%
</TABLE>
- ----------
* Adjusted for weighted average maturity dates and prepayments for mortgage
back securities. All securities are disclosed at book value.
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 activities 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 changing rate environments. Management seeks to reduce the
vulnerability
13
<PAGE>
Merchants New York Bancorp
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 off balance sheet derivative instruments to
control interest rate risk. The Board of Directors has 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, and in most circumstances
produce a beneficial effect on our net interest income.
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 asset 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 1999, the Bank continued to utilize
short-term borrowings to fund the purchase of longer-term mortgage-backed
securities. 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
of $437 million consists of virtually all adjustable rate loans. Second, a
majority of the Bank's securities are U.S. Government and Agency mortgage-backed
securities, with $735 million, or 87%, of the total securities have expected
weighted average maturities 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 $278 million in
average demand deposits and $250 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 December 31, 1999, 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 December
31, 1998.
14
<PAGE>
Merchants New York Bancorp
NET PORTFOLIO VALUE ANALYSIS FOR INTEREST RATE RISK
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------
Change in Interest Rates Estimated NPV Estimated Increase (Decrease) in NPV* Percent Increase
------------------------------------ (Decrease) in NPV at
(Basis points) Amount Amount Percent December 31, 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
+200 $119,471 (51,431) (30)% (23)%
+100 145,809 (25,093) (15)% (9)%
- -- 170,902 -- -- --
- -100 188,941 18,039 11% 2%
- -200 191,503 20,601 12% 1%
</TABLE>
- ----------
* Pretax
Certain assumptions are employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay rate
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.
Capital
The capital base of a company is a significant measure of the strength of a
financial institution. The Company has seen a steady capital growth over the
past several years, with our risk-based ratios, as shown below, in excess of the
required "Well Capitalized" level of 10%. The Company was also in excess of the
required leverage ratio of 3%, with 7.54% and 7.91% for the years ended December
31, 1999 and 1998, respectively.
The primary source of capital growth is through retention of earnings. Retained
profits increased to $95.0 million at December 31, 1999 as compared to $86.3
million as of December 31, 1998, resulting from retention of our net profit,
after paying cash dividends to shareholders. The Company's Board of Directors
declared and paid a dividend of $0.10 per share each of the first and second
quarters of 1999, with an increase to $0.125 per share for the third and fourth
quarters. The fourth quarter marked the Company's 266th consecutive dividend
payment. We believe that cash dividends are an important component of
shareholder value and that at current level of performance, dividend payments
will continue into the future. Overall, stockholders' equity increased by $8.7
million of retained earnings and was reduced by a $6.3 million purchase of our
stocks through the buyback program. In addition, the effect of the one day
market valuation of our available for sale securities was a reduction (net of
tax effect) of $7.1 million. The market valuation of the securities reflects
only one point in time and can only be realized upon their sale. With our strong
liquidity and excellent basic capital strength, we only sell securities for
strategic business reasons.
December 31, December 31,
Required 1999 1998
- -------------------------------------------------------------------------------
Tier I Risk-Based Capital Ratio 4.00% 14.88% 16.94%
Total Risk-Based Capital Ratio 8.00 16.13 18.19
Leverage Ratio 3.00 7.54 7.91
15
<PAGE>
The Year 2000 ("Y2K") Issue
The Company's computer systems and business processes successfully handled the
date change from December 31, 1999 to January 1, 2000. The company is not aware
of any significant Y2K problems encountered internally or with third parties
with which it interfaces. Based on operations since January 1, 2000, the Company
does not expect any significant impact to its ongoing business as a result of
the Y2K issue. However, it is possible that the full impact of Y2K has not been
fully recognized and no assurances can be given that Y2K problems will not
emerge.
Ongoing assessment and evaluation will continue throughout the first quarter of
this year. Total cost of the Y2K readiness project remained at approximately
$400,000, which were expensed as incurred through 1999.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about our confidence and strategies and
our expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by such forward-looking terminology as "except," "believe,"
"anticipate," or by expressions of confidence such as "continuing" or "strong,"
or similar statements or variations of such terms. Such forward-looking
statements involve certain risks and uncertainties. These include, but are not
limited to; expected cost, savings not being realized or not being realized
within the expected time frame; income or revenues being lower than expected or
operating costs higher; competitive pressures in the banking or financial
services industries increasing significantly; business disruption related to
program implementation or methodologies; weakening of general economic
conditions nationally or in New York; changes in legal and regulatory barriers
and structures; and unanticipated occurrences delaying planned programs or
initiatives or increasing their costs or decreasing their benefits. The Company
assumes no obligation for updating any such forward-looking statements at any
time.
PRICE RANGE OF THE COMPANY'S
COMMON STOCK
The Company's common stock is traded on the over-the-counter NASDAQ National
market. The Company's symbol is "MBNY." The high and low bid prices for each
quarterly period during the past two years, adjusted for the 2-for-1 stock split
were as follows:
PRICE RANGE OF COMMON STOCK
1999 1998
--------------------------------------------
HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------
First Quarter $ 17 3/16 $16 1/2 $21 15/16 $15 1/2
Second Quarter 17 3/8 16 3/4 21 5/8 18 7/16
Third Quarter 18 1/2 16 7/8 18 15/16 15 1/2
Fourth Quarter 17 7/16 17 1/16 18 31/32 15 3/8
On February 1, 2000, the closing bid and asked prices reported for the common
stock were $16 1/2 and $16 9/16, respectively. These quotations reflect
inter-dealer prices without retail mark up, mark down or commission and may not
represent actual transactions.
16
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 32,940,883 $ 38,435,946
Federal funds sold 50,000,000 5,000,000
Investment securities:
Available for sale at market value 649,931,593 660,026,352
Held to maturity (market value $195,169,226 in 1999
and $203,429,134 in 1998) 197,988,432 198,163,304
- ------------------------------------------------------------------------------------------------------
Total investment securities 847,920,025 858,189,656
- ------------------------------------------------------------------------------------------------------
Loans (net of unearned discounts of $57,304 and $46,100
in 1999 and 1998, respectively) 437,097,287 361,763,395
Less allowance for loan losses 9,108,216 7,964,735
- ------------------------------------------------------------------------------------------------------
Total loans, net 427,989,071 353,798,660
- ------------------------------------------------------------------------------------------------------
Bank premises and equipment 5,992,660 6,708,796
Customers' liability on acceptances 12,134,217 13,241,093
Other assets 18,336,292 14,196,829
- ------------------------------------------------------------------------------------------------------
Total assets $ 1,395,313,148 $ 1,289,570,980
======================================================================================================
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand (noninterest-bearing) $ 312,300,580 $ 282,044,272
NOW 51,214,572 46,444,839
Savings 28,865,561 26,177,229
Money market 191,972,362 162,788,408
Time 374,625,133 416,868,544
- ------------------------------------------------------------------------------------------------------
Total deposits 958,978,208 934,323,292
- ------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements 185,000,000 160,000,000
FHLB term advances 105,000,000 45,000,000
Acceptances outstanding 12,134,217 13,241,093
Other short-term borrowings 20,047,500 4,282,319
Other liabilities 14,945,286 19,746,071
- ------------------------------------------------------------------------------------------------------
Total liabilities 1,296,105,211 1,176,592,775
- ------------------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock -- $.001 par value; 40,000,000
authorized shares, 19,978,664 shares issued in 1999 and 1998 19,978 19,978
Surplus 23,879,363 23,879,363
Undivided profits 95,012,110 86,304,445
Treasury stock at cost (856,160 shares in 1999
and 481,014 shares in 1998) (12,570,633) (6,301,081)
Accumulated other comprehensive income, net of tax:
Unrealized (depreciation) appreciation
on securities available for sale (7,132,881) 9,075,500
Commitments and contingent liabilities -- --
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 99,207,937 112,978,205
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,395,313,148 $ 1,289,570,980
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans $ 34,883,106 $ 31,766,991 $ 29,771,225
Interest and dividends on investment securities:
U.S. Government obligations 37,951,726 44,874,158 47,631,337
Other investments 16,697,404 8,685,750 4,926,841
Other interest income 752,455 940,707 491,166
- ------------------------------------------------------------------------------------------------------
Total interest and dividend income 90,284,691 86,267,606 82,820,569
- ------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 26,189,209 28,610,080 29,135,924
Interest on securities sold under
repurchase agreements 9,038,566 9,424,498 9,680,285
Interest on FHLB term advances 3,777,683 2,036,801 436,690
Other interest expense 610,061 801,533 1,000,557
- ------------------------------------------------------------------------------------------------------
Total interest expense 39,615,519 40,872,912 40,253,456
- ------------------------------------------------------------------------------------------------------
Net interest income 50,669,172 45,394,694 42,567,113
Provision for loan losses 1,915,000 1,425,000 1,700,000
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 48,754,172 43,969,694 40,867,113
- ------------------------------------------------------------------------------------------------------
Other income:
Service fees 1,396,204 1,278,458 1,310,426
International department fees 3,185,013 2,845,865 2,721,033
Investment securities gains on sales 93,381 61,272 21,901
Other 1,876,639 1,261,905 1,129,255
- ------------------------------------------------------------------------------------------------------
Total other income 6,551,237 5,447,500 5,182,615
- ------------------------------------------------------------------------------------------------------
Other expenses:
Salaries 12,256,604 11,359,160 10,855,196
Employee benefits 3,761,551 3,124,212 2,949,066
Occupancy 2,697,545 2,603,722 2,589,996
Equipment and data processing 1,907,681 1,823,525 1,710,850
Other 6,150,356 6,472,903 6,227,854
- ------------------------------------------------------------------------------------------------------
Total other expenses 26,773,737 25,383,522 24,332,962
- ------------------------------------------------------------------------------------------------------
Income before income taxes 28,531,672 24,033,672 21,716,766
Income tax expense 9,514,730 8,131,509 7,154,608
- ------------------------------------------------------------------------------------------------------
Net income $ 19,016,942 $ 15,902,163 $ 14,562,158
- ------------------------------------------------------------------------------------------------------
Earnings per share, basic $0.99 $0.82 $0.75
Earnings per share, diluted $0.98 $0.81 $0.73
======================================================================================================
Comprehensive income:
Net income $ 19,016,942 $ 15,902,163 $ 14,562,158
Other comprehensive income, net of tax:
Unrealized (depreciation) appreciation
on securities available for sale during the period (16,208,381) 131,688 1,525,576
Less: reclassification adjustment for
gains included in net income 60,698 37,276 11,590
- ------------------------------------------------------------------------------------------------------
Total comprehensive income $ 2,747,863 $ 15,996,575 $ 16,076,144
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock:
Balance at beginning of year $ 19,978 $ 19,978 $ 19,971
Shares issued through exercise of Employee Stock
Options: 14,210 shares -- -- 7
- --------------------------------------------------------------------------------------------------------
Balance at end of year 19,978 19,978 19,978
========================================================================================================
Surplus:
Balance at beginning of year 23,879,363 23,879,363 23,734,646
Excess over par value on shares issued through the
exercise of Employee Stock Options -- -- 144,717
- --------------------------------------------------------------------------------------------------------
Balance at end of year 23,879,363 23,879,363 23,879,363
========================================================================================================
Undivided profits:
Balance at beginning of year 86,304,445 80,016,764 72,915,689
Net income 19,016,942 15,902,163 14,562,158
Cash dividends paid (8,674,559) (7,784,505) (7,332,066)
Common stock issued from treasury stock (1,634,718) (1,829,977) (129,017)
- --------------------------------------------------------------------------------------------------------
Balance at end of year 95,012,110 86,304,445 80,016,764
========================================================================================================
Treasury stock:
Balance at beginning of year (6,301,081) (6,665,520) (552,910)
Repurchase of 498,200, 168,086 and 613,300
shares of common stock in 1999, 1998
and 1997, respectively (8,541,056) (3,066,508) (6,492,331)
Issuance of 123,054, 322,170 and 49,762 shares of
common stock in 1999, 1998 and 1997, respectively 2,271,504 3,430,947 379,721
- --------------------------------------------------------------------------------------------------------
Balance at end of year (12,570,633) (6,301,081) (6,665,520)
========================================================================================================
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on
securities available for sale, net of tax effect:
Balance at beginning of year 9,075,500 8,943,812 7,418,236
Changes during the year (16,208,381) 131,688 1,525,576
- --------------------------------------------------------------------------------------------------------
Balance at end of year (7,132,881) 9,075,500 8,943,812
========================================================================================================
Stockholders' equity:
Balance at beginning of year 112,978,205 106,194,397 103,535,632
Changes during the year, net (13,770,268) 6,783,808 2,658,765
- --------------------------------------------------------------------------------------------------------
Balance at end of year $ 99,207,937 $ 112,978,205 $ 106,194,397
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
Merchants New York Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 19,016,942 $ 15,902,163 $ 14,562,158
- ---------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,087,864 1,171,559 1,043,804
Amortization of premium, net of discounts 4,752,285 7,571,911 6,009,043
Provision for loan losses 1,915,000 1,425,000 1,700,000
Gains on sales (93,381) (61,272) (21,901)
Increase (decrease) in unearned discounts 11,203 (47,668) 37,737
Decrease (increase) in other assets 1,396,589 (536,718) (476,836)
Increase in other liabilities 575,951 820,837 2,303,806
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,662,453 26,245,812 25,157,811
- ---------------------------------------------------------------------------------------------------------
Investing activities:
Net (increase) decrease in Federal funds sold (45,000,000) 62,000,000 (41,000,000)
Proceeds from redemptions of securities
available for sale 164,087,779 177,378,297 121,563,684
Proceeds from sales of securities available for sale 22,015,000 18,927,089 10,175,000
Purchase of securities available for sale (224,133,088) (350,346,260) (149,596,774)
Proceeds from redemptions of
securities held to maturity 50,377,145 53,949,290 34,826,437
Purchase of securities held to maturity (33,971,564) (8,653,389) (50,687,265)
Net increase in customer loans (76,116,614) (29,535,428) (35,914,547)
Net increase in bank premises and equipment (257,442) (828,321) (1,099,699)
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (142,998,784) (77,108,722) (111,733,164)
- ---------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in demand deposits, NOW,
savings and money market accounts 66,898,327 32,524,865 15,871,574
Net (decrease) increase in certificates of deposit (42,243,411) (2,288,498) 12,521,941
Net increase in securities sold under
repurchase agreements 25,000,000 -- 40,000,000
Net increase in FHLB advances 60,000,000 25,000,000 20,000,000
Net increase (decrease) in other
short-term borrowings 15,765,181 (7,897,404) 4,980,684
Proceeds from issuance of common stock 636,786 1,600,970 395,428
Purchase of treasury stock (8,541,056) (3,066,508) (6,492,331)
Dividends paid (8,674,559) (7,784,505) (7,332,066)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 108,841,268 38,088,920 79,945,230
- ---------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (5,495,063) (12,773,990) (6,630,123)
Cash and cash equivalents at beginning of the year 38,435,946 51,209,936 57,840,059
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 32,940,883 $ 38,435,946 $ 51,209,936
=========================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 40,758,464 $ 41,071,132 $ 38,923,995
Taxes paid 9,299,614 8,395,784 7,358,778
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
Merchants New York Bancorp
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial reporting and accounting policies of Merchants New York Bancorp
(the "Company") conform to generally accepted accounting principles. The
following is a summary of the significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, The Merchants Bank of New York (the "Bank"), and
the Bank's wholly-owned subsidiaries, MBNY Holdings Corporation and its
subsidiary, Merchants Capital Corporation and Merchants New York Commercial
Corporation. The Company is a bank holding company, organized under the laws of
the state of Delaware. On July 1, 1993, the Company acquired all of the
outstanding capital stock of the Bank. All material intercompany accounts and
transactions have been eliminated in consolidation.
The Bank's principal business consists of attracting deposits from the general
public and employing these deposits by originating commercial loans. Together
with these funds and funds from ongoing operations and borrowings, the Bank also
invests in U.S. Government and agency obligations and other investment
securities. The Bank, which is the wholly-owned subsidiary of the Company,
operates as a commercial bank.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investment Securities
Securities are classified as available for sale or held to maturity. The Bank
does not maintain a trading account. Securities for which the Bank has the
ability and intent to hold to maturity are so classified. All other securities
are classified as available for sale.
Securities classified as held to maturity are carried at cost adjusted for
amortization of premium or accretion of discount. Securities classified as
available for sale are reported at estimated current market prices with the
difference between market value and amortized cost reflected in the equity
section of the statement of condition as an unrealized gain or loss, net of
applicable taxes, until such time as they are sold. Premiums and discounts are
amortized or accreted to interest income on a level yield basis, over the
expected term of the debt security. Realized gains and losses on sales of
securities are determined based on the amortized cost of the specific securities
sold. Unrealized losses on securities would be charged to earnings if management
determines that the decline in the market value of a security was other than
temporary. Actual gains and losses from the sales of securities are computed on
a specific identified basis and are included in other income.
Loans
Loans are reported at principal amount outstanding, net of unearned discounts.
Interest on loans is accrued to income monthly based on outstanding principal
balances. When management considers the collection of previously accrued but
unpaid interest to be doubtful, such interest is reversed by charging interest
income in the current period. Interest payments received on non-accrual loans,
including impaired loans under Statement of Financial Accounting Standards,
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," are
recognized as interest income unless future collections are doubtful. A loan
remains on non-accrual status until the factors that indicated doubtful
collectibility no longer exist or until a loan is determined to be uncollectible
and is charged off against the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is increased by a provision charged to operations
and decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's historical
loan loss experience, a review of non-performing loans and related collateral
values, an estimate of the possibility of loss in view of industry
concentrations and other portfolio risk characteristics, the present financial
condition of borrowers and current economic conditions. While management uses
the best
21
<PAGE>
Merchants New York Bancorp
information available to estimate loan losses, future adjustments to the
allowance may be necessary based on changes in economic conditions, further
information obtained regarding known problem loans, the identification of
additional problem loans and other factors. In management's judgement, the
allowance for loan losses is adequate to absorb probable losses in the existing
portfolio.
SFAS No. 114, as amended by SFAS No. 118, addresses the accounting for impaired
loans. A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect principal or
interest due according to the contractual terms of the loan. Impaired loans are
measured and reported based on one of three methods: the present value of the
expected future cash flows discounted at the loan's effective interest rate; the
loan's observable market price; or the fair value of the collateral if the loan
is collateral dependent. If the measure is less than the impaired loan's
recorded investment, an impairment loss is recognized as part of the allowance
for loan losses.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the shorter of the
estimated useful lives of the related assets or the lease term. Maintenance and
repair costs are expensed as incurred.
Income Taxes
The Bank utilizes the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
realization of deferred tax assets are assessed and a valuation allowance
provided for the portion of the asset that is unlikely to be realized.
Earnings Per Share
Under SFAS No. 128, the Company is required to present both basic and diluted
earnings per share ("EPS"). Basic EPS is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if contracts to issue common stock (such as the Company's stock
options) were exercised, which would result in the issuance of common stock that
then would share in the earnings of the Company.
The weighted average number of shares of common stock used in the computation of
basic earnings per share for the years ended December 31, 1999, 1998 and 1997
were 19,292,940 shares, 19,423,062 shares and 19,587,826 shares, respectively.
The weighted average number of shares of common stock, used in the computation
of diluted earnings per share for the years ended December 31, 1999, 1998 and
1997 were 19,428,251 shares, 19,714,962 shares and 19,914,380 shares,
respectively.
On August 17, 1999, the Company's Board of Directors declared a 2-for-1 stock
split for all shares, with an effective date of October 1, 1999. All shares and
per share amounts in prior years have been restated in these financial
statements to reflect the split.
Stock Options
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation expense is recognized only if the fair
value of the underlying stock at the grant date exceeds the exercise price of
the option. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages
entities to recognize the fair value of all stock-based awards on the date of
grant as an expense over the vesting period. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB No. 25 and provide pro forma
disclosure of net income and net income per share as if the fair value based
method defined in SFAS No. 123 had been applied to employee stock options
granted in 1995 and later years.
22
<PAGE>
Merchants New York Bancorp
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
NOTE 2 -- CASH AND DUE FROM BANKS
The Bank is required to maintain average reserves on deposit with the Federal
Reserve Bank of New York against outstanding domestic deposit liabilities. The
reserves maintained, which are reported in cash and due from banks, were
approximately $8.4 million and $12.5 million at December 31, 1999 and 1998,
respectively. Average required reserves during 1999 and 1998 were approximately
$8.4 million and $12.4 million, respectively. Average balances (in the form of
noninterest-bearing deposits with banks) of approximately $4.7 million and $5.9
million were maintained as compensating balances for services provided by
correspondent banks for the years ended December 31, 1999 and 1998,
respectively.
NOTE 3 -- SECURITIES AVAILABLE FOR SALE
The book values and estimated market values for investment securities available
for sale at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1999 Value Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Government obligations(1) $190,828 $ 3,160 $ (3,911) $190,077
U.S. Agency obligations (2) 246,006 1,852 (2,209) 245,649
Obligations of State and
Political subdivisions 27,729 165 (1,178) 26,716
Collateralized mortgage obligations 127,105 65 (6,727) 120,443
Other securities 71,047 -- (4,000) 67,047
- ------------------------------------------------------------------------------------------
Total $662,715 $ 5,242 $(18,025) $649,932
==========================================================================================
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1999 Value Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Government obligations(1) $205,802 $ 8,131 $ (70) $213,863
U.S. Agency obligations (2) 278,491 5,561 (49) 284,003
Obligations of State and
Political subdivisions 28,435 1,052 (141) 29,346
Collateralized mortgage obligations 110,500 10 (61) 110,449
Other securities 22,346 19 -- 22,365
- ------------------------------------------------------------------------------------------
Total $645,574 $ 14,773 $ (321) $660,026
==========================================================================================
</TABLE>
(1) U.S. Government obligations include U.S. Treasury Notes and Government
National Mortgage Association (GNMA) mortgage-backed securities.
(2) U.S. Agency obligations consist of mortgage-backed securities, including
Federal National Mortgage Association (FNMA) and Federal Home Loan
Mortgage Corporation (FHLMC) securities.
Proceeds from sales of available-for-sale investment securities were $22.0
million, $18.9 million and $10.2 million with gross gains of $93,000, $61,000
and $22,000 during 1999, 1998 and 1997, respectively.
The combined unrealized gains and (losses) before taxes on available-for-sale
securities was $(12.8) million, with $5.7 million in taxes at December 31, 1999
compared to $14.5 million, with $5.4 million in taxes at December 31, 1998.
Changes in unrealized holding gains and losses resulted in an after-tax increase
(decrease) in stockholders' equity of $(16.2) million, $132,000 and $1.5 million
during fiscal 1999, 1998 and 1997, respectively. These gains and losses will
continue to fluctuate based on changes in the portfolio and market conditions.
23
<PAGE>
Merchants New York Bancorp
The amortized cost and estimated market value of the Bank's available-for-sale
investment securities at December 31, 1999 and 1998 are presented in the
following table, based upon their maturity dates. The aging of mortgage-backed
U.S. Agency securities is based on their weighted average maturities. The
expected maturities can differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------
Estimated Average Estimated Average
Book Market Weighted Book Market Weighted
Value Value Yield* Value Value Yield*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Due in one year or less $283,906 $284,864 7.83% $215,751 $224,650 7.81%
Due after one year through five years 304,682 297,711 7.32 363,450 368,388 7.49
Due after five years through ten years 23,315 22,045 6.15 23,521 23,721 6.33
Due after ten years 50,812 45,312 6.32 42,852 43,267 6.24
- --------------------------------------------------------------------------------------------------------------
Total $662,715 $649,932 7.09% $645,574 $660,026 7.52%
==============================================================================================================
</TABLE>
* Average weighted yield not tax adjusted.
Available-for-sale investment securities with a market value of $287.7 million
at December 31, 1999 and $175.3 million at December 31, 1998 were pledged to
secure securities sold under repurchase agreements and for other purposes
required or permitted by law.
NOTE 4 -- INVESTMENT SECURITIES HELD TO MATURITY
The book values and estimated market values of investment securities held to
maturity at December 31, 1999 and 1998 are listed below.
<TABLE>
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1999 Value Gains Losses Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Government obligations (1) $ 55,921 $ 894 $(1,324) $ 55,491
U.S. Agency obligations (2) 58,715 725 (885) 58,555
Obligations of State and
Political subdivisions 59,491 524 (1,540) 58,475
Other 23,861 -- (1,213) 22,648
- --------------------------------------------------------------------------------------
Total $197,988 $2,143 $(4,962) $195,169
======================================================================================
<CAPTION>
Gross Gross Estimated
Book Unrealized Unrealized Market
1999 Value Gains Losses Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Government obligations (1) $ 42,889 $1,322 $ -- $ 44,211
U.S. Agency obligations (2) 66,613 1,542 -- 68,155
Obligations of State and
Political subdivisions 59,813 2,442 (11) 62,244
Other 28,848 -- (29) 28,819
- --------------------------------------------------------------------------------------
Total $198,163 $5,306 $(40) $203,429
======================================================================================
</TABLE>
(1) U.S. Government obligations includes U.S. Treasury Notes and fixed rate
GNMA mortgage-backed securities.
(2) U.S. Agency obligations consists of fixed rate mortgage-backed securities,
including FNMA and FHLMC securities.
24
<PAGE>
Merchants New York Bancorp
The amortized cost and estimated market value of the Bank's securities held to
maturity at December 31, 1999 and 1998 are presented in the following table
based upon their maturity dates. The aging of mortgage-backed U.S. Agency
securities is based on their weighted average maturities. The expected
maturities can differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------
Estimated Average Estimated Average
Book Market Weighted Book Market Weighted
Value Value Yield* Value Value Yield*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Due in one year or less $ 64,221 $ 64,895 8.21% $ 16,997 $ 17,303 7.05%
Due after one year through five years 88,585 86,334 6.91 142,883 146,136 7.58
Due after five years through ten years 19,696 19,730 5.09 17,045 17,974 5.08
Due after ten years 25,486 24,210 4.95 21,238 22,016 4.99
- ---------------------------------------------------------------------------------------------------------------
Total $197,988 $195,169 7.28% $198,163 $203,429 7.22%
===============================================================================================================
</TABLE>
* Average weighted yield not tax adjusted.
Held to maturity investment securities with a book value of $96.8 million and
$71.6 million at December 31, 1999 and 1998, respectively, were pledged to
secure securities sold under repurchase agreements and for other purposes
required or permitted by law.
Note 5 -- LOANS
Loans at December 31, 1999 and 1998 are comprised of the following:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Commercial loans $ 417,509 $ 339,982
Mortgage loans 17,499 19,307
Installment loans 2,146 2,520
- -------------------------------------------------------------------------------
437,154 361,809
Unearned discounts (57) (46)
- -------------------------------------------------------------------------------
437,097 361,763
Allowance for loan losses (9,108) (7,965)
- -------------------------------------------------------------------------------
Total, net $ 427,989 $ 353,798
===============================================================================
The changes in the allowance for loan losses for 1999, 1998 and 1997 are
summarized as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
(In thousands)
Balance at beginning of year $ 7,965 $ 6,167 $ 5,617
Provision for loan losses 1,915 1,425 1,700
Charge-offs (1,224) (232) (1,469)
Recoveries 452 605 319
- -------------------------------------------------------------------------------
Balance at end of year $ 9,108 $ 7,965 $ 6,167
===============================================================================
25
<PAGE>
Merchants New York Bancorp
Information concerning impaired loans as defined by SFAS Nos. 114 and 118 is
presented below:
For the years ended December 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Recorded investment in impaired loans at year end:
Non-accrual loans $428 $146
Restructured loans* 292 --
================================================================================
Average recorded investment in impaired loans $456 $153
================================================================================
* Included in non-accrual loan.
The Bank's impaired loans are only those identified as in a non-accrual status
for 90 days or more. Impaired is defined as "when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement." The amount of
interest income recognized on impaired loans was $57,000 for 1999 and $3,000 for
1998. The impact on interest income relating to impaired loans for both years is
not material. The allowance for loan losses contains an additional amount deemed
necessary to maintain it at levels considered adequate by management. It is the
Bank's policy to keep loans on non-accrual status until the principal and
interest is current or they are charged off.
Loans to officers and directors of the Bank or for the benefit of corporations
in which they have a beneficial interest are made in the ordinary course of
business and on substantially the same terms as those prevailing at the time for
comparable transactions with members of the general public, including interest
rates and collateral. Such loans did not involve more than the normal risk of
collectibility or present other unfavorable features. The following schedule
sets forth information with respect to such loans:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts End of
Borrower of Year Additions Collected Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
1999 Directors (4) $12,333 $ 6,802 $11,072 $ 8,063
1998 Directors (6) $14,785 $11,266 $13,718 $12,333
1997 Directors (8) $10,952 $14,307 $10,474 $14,785
</TABLE>
There were no charge-offs of loans made to officers and directors in any of the
years in the three-year period ended December 31, 1999. Loans at December 31,
1999 bear interest rates of 6.88% to 8.75% and are partially secured. The
maturities applicable to outstanding loans at December 31, 1999 are $2.7 million
due within 90 days, which included $1.4 million in letters of credit, $0.7
million due in 120 days, $4.0 million due within one year and mortgages totaling
$0.7 million due in 2007, 2008 and 2009.
26
<PAGE>
Merchants New York Bancorp
The following is a summary of the major industry concentrations of the Bank's
commercial loan portfolio as of December 31, 1999:
Wholesale jewelry 20%
Jewelry manufacturing 11
Miscellaneous manufacturing 8
Apparel & furs 7
Non-durable goods 7
Real Estate 7
Home furnishings 5
Textiles 5
Miscellaneous wholesalers 4
Business & professional services 4
Private households 4
Miscellaneous retail 4
Non-depository institutions 3
Construction 2
All others 9
-----------------------------------------------------------
Total 100%
===========================================================
Substantially all of the Bank's loans are to borrowers located in the New York
metropolitan area.
Note 6 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998 are comprised of the
following:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Bank premises and leasehold improvements $ 10,734 $ 9,418
Equipment 4,663 5,730
- -------------------------------------------------------------------------------
15,397 15,148
Accumulated depreciation (9,404) (8,439)
- -------------------------------------------------------------------------------
Total, net $ 5,993 $ 6,709
===============================================================================
Note 7 -- DEPOSITS
The following table sets forth the average deposits and average rates paid for
each of the most recent two fiscal years for the classifications of deposits
listed:
Years ended December 31, 1999 Rate % 1998 Rate %
- -------------------------------------------------------------------------------
(Dollars in thousands)
Deposits:
Demand $277,710 -- $255,239 --
NOW 48,896 1.93% 44,609 2.24%
Savings 27,757 2.98 25,476 2.98
Money market 173,011 3.49 145,660 3.38
Time 385,873 4.76 416,286 5.27
- -------------------------------------------------------------------------------
Total $913,247 $887,270
===============================================================================
27
<PAGE>
Merchants New York Bancorp
Note 8 -- SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND
OTHER SHORT-TERM BORROWINGS
The Bank enters into sales of U.S. Agency, GNMA and Treasury securities under
repurchase agreements. Repurchase agreements are treated as financing
arrangements and the obligations to repurchase securities sold are reflected as
a liability on the consolidated statements of condition. The carrying value of
the investment securities underlying the agreements remain in the asset account.
All of the repurchase agreements were agreements to repurchase substantially
identical securities. The investment securities underlying the agreements were
transferred to the dealers who arranged the transactions. The dealer may have
sold, loaned or otherwise disposed of such securities to other parties in the
normal course of its operations, and has agreed to resell to the Bank
substantially identical securities at the maturities of the agreements.
Information concerning securities sold under repurchase agreements is presented
below:
<TABLE>
<CAPTION>
Accrued Fair Value Weighted
Interest of Collateral Average
Amount Payable(1) Securities(2) Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Securities Sold Under Repurchase Agreements $185,000 $2,736 $207,741 5.73%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in Other liabilities in the Consolidated Statements of Condition.
(2) Represents the fair value of the mortgage-backed securities which were
transferred to the counterparty, including accrued interest receivable of
$1.2 million. These securities consist of available-for-sale securities
and held-to-maturity securities with book values of $131.7 million and $61
million, respectively.
Federal Home Loan Bank and U.S. Treasury Demand Notes
As a member of the Federal Home Loan Bank (FHLB), the Bank can have outstanding
FHLB advances of up to 20 times of the Bank's purchased FHLB stock or
approximately $210 million at December 31, 1999, in a combination of term
advances and overnight funds. The Bank's unused FHLB borrowing capacity was
approximately $115 million at December 31, 1999. Borrowings are secured by the
Bank's investment in FHLB stock and by a blanket security agreement. This
agreement requires the Bank to maintain as collateral qualifying assets (U.S.
Agency mortgage-backed securities) not otherwise pledged.
The U.S. Treasury, from time-to-time, issues demand notes, which make funds
available on a short-term basis (generally less than 30 days) to qualifying
institutions, at interest rates slightly lower than Federal Funds rates. The
Bank must keep an equivalent amount of qualifying securities as collateral at
The Federal Reserve Bank, based on the Bank's approved borrowing limit.
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------
Weighted Weighted
Amount Average Rate Amount Average Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Federal Home Loan advances $105,000 6.33% $45,000 5.44%
U.S. Treasury demand notes 20,000 4.75% 4,031 4.23%
Other 48 -- 251 --
- ------------------------------------------------------------------------------------------------------
Total other short-term borrowings $125,048 $49,282
======================================================================================================
</TABLE>
Note 9 -- INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31,
1999, 1998 and 1997 are as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
Current:
Federal $ 9,285 $ 7,540 $ 6,104
State and local 315 630 1,148
- --------------------------------------------------------------------------------
Total current 9,600 8,170 7,252
- --------------------------------------------------------------------------------
Deferred:
Federal (85) (104) (59)
State and local -- 66 (38)
- --------------------------------------------------------------------------------
Total deferred (85) (38) (97)
- --------------------------------------------------------------------------------
Total tax expense $ 9,515 $ 8,132 $ 7,155
================================================================================
28
<PAGE>
Merchants New York Bancorp
The following is a reconciliation between the "expected" Federal income tax
computed at the statutory rate and actual tax expense reflected in the financial
statements.
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Federal income tax computed
at statutory rate $ 9,986 35.0% $ 8,412 35.0% $ 7,601 35.0%
State and city income taxes, net
of Federal income tax benefit 205 0.7 452 1.9 721 3.3
Federal income tax benefit
resulting from interest
on tax-exempt obligations (1,471) (5.2) (1,510) (6.3) (1,416) (6.5)
Other 795 2.8 778 3.2 249 1.1
- ----------------------------------------------------------------------------------------------------------------
Total tax/effective rate $ 9,515 33.3% $ 8,132 33.8% $ 7,155 32.9%
================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are presented below:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Allowance for possible loan losses $ 3,188 $ 2,788
Unrealized loss on investments available for sale 5,650 --
Other 290 249
- -------------------------------------------------------------------------------
Total gross deferred tax assets 9,128 3,037
Less: valuation reserve 3,188 2,788
- -------------------------------------------------------------------------------
Net deferred tax asset 5,940 249
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation -- (33)
Unamortized bond premium -- (12)
Unrealized gain on investments available for sale -- (5,377)
- -------------------------------------------------------------------------------
Total gross deferred tax liabilities -- (5,422)
- -------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 5,940 $(5,173)
===============================================================================
Given the subjective nature of recoverability of the deferred tax asset, a 100%
valuation allowance for the deferred tax asset related to the allowance for loan
losses was established relative to this item in 1999 and 1998.
Note 10 -- EMPLOYEE BENEFIT PLAN
Pension Plan
The Bank's retirement plan (the "Plan") covers all employees who have attained
the age of 21 and have completed one year of service with the Bank.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The new statement revises the
required disclosures for employee benefit plans, but does not change the
measurement or recognition of such plans. SFAS No. 132 standardizes certain
disclosures, requires additional information about changes in the benefit
obligations and about changes in the fair value of plan assets to facilitate
analysis, and eliminates certain disclosures that were not deemed useful.
29
<PAGE>
Merchants New York Bancorp
The changes in benefit obligations for 1999 and 1998 are summarized as follows:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Benefit obligation at beginning of year $ 11,048 $ 10,600
Service cost 428 451
Interest cost 795 752
Actuarial (gain)/loss (150) (391)
Benefits paid (481) (364)
- -------------------------------------------------------------------------------
Benefit obligations at end of year $ 11,640 $ 11,048
===============================================================================
The changes in fair value of plan assets for 1999 and 1998 are summarized as
follows:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Fair value of plan assets at beginning of year $ 10,662 $ 10,090
Actual return on plan assets 265 298
Employer contribution 550 638
Benefits paid (481) (364)
- -------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 10,996 $ 10,662
===============================================================================
The following table sets forth the Plan's funded status and amounts recognized
at December 31, 1999 and 1998:
1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Funded status $ (644) $ (386)
Unrecognized transition obligation (1,096) (1,187)
Unrecognized prior service cost (22) (24)
Unrecognized net loss 2,440 2,041
- -------------------------------------------------------------------------------
Prepaid pension asset $ 678 $ 444
===============================================================================
Net periodic Pension costs for the years ended December 31, 1999, 1998 and 1997
are comprised of the following:
1999 1998 1997
- -------------------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 428 $ 451 $ 451
Interest cost 795 752 679
Expected return on market-related value of assets (856) (776) (710)
Amortization of:
Unrecognized net obligations (91) (91) (91)
Unrecognized net loss 41 60 53
Unrecognized prior service cost (2) (2) (2)
- -------------------------------------------------------------------------------
Net cost $ 315 $ 394 $ 380
===============================================================================
Weighted average actuarial assumptions:
Discount rate 7.50% 7.50% 7.50%
Salary increases 4.00% 4.00% 4.00%
Expected long-term rate of return 8.00% 8.00% 8.00%
30
<PAGE>
Merchants New York Bancorp
The Bank adopted a non-qualified Directors retirement plan, effective February
1997. The projected benefit obligations at December 31, 1999 and 1998 were
approximately $1.9 million and $1.7 million, computed with a 7% discount rate.
An expense of $449,000, $460,000 and $280,000 has been recognized for the Plan
in the years ended December 31, 1999, 1998 and 1997, respectively.
In addition, the Bank provides a supplemental retirement contract for key senior
executives, with a projected benefit obligation of about $6.3 million and $5.4
million as of December 31, 1999 and 1998, respectively. These benefits are
partially covered through insurance policies with current values of $2.3
million. An additional pension expense of $800,000, $240,000 and $180,000 was
recognized in the years ended December 31, 1999, 1998 and 1997, respectively.
These retirement benefits are in addition to those offered by the Plan and those
for the Bank's Board of Directors members.
401(k) Savings Plan
Effective January 1, 1997, the Bank implemented a defined contribution plan that
is intended to qualify under Section 401(k) of the Internal Revenue Code.
Contributions began on May 1, 1997. The 401(k) plan covers substantially all
employees, who have been employed six months by the Bank. In 1999, an employee
may contribute up to 15% of their salary, not to exceed $10,000. The Bank has
elected not to match the employees' contribution.
Stock Option Plan
The Employees Stock Option Plan of The Merchants Bank of New York (the "Option
Plan") is set up as an incentive for performance and to encourage the continued
employment of existing key employees. The Company reserves common stock for the
future exercise of the options granted. The options expire ten years after the
date of grant and are exercisable after one year.
The shares of stock authorized for the Option Plan to be granted as stock
options were 180,000 shares in 1986, 750,000 shares in 1987 and 800,000 shares
in 1993. There were 46,500 shares granted in 1998 and no shares were granted in
1999. The basis used to establish the exercise price for the options granted
under the Option Plan was the price of the Company's stock on NASDAQon the date
of issue of the options.
The Company implemented SFAS No. 123 during 1996. As discussed in Note 1, the
Company applies APB Opinion No. 25 and the related interpretations in accounting
for the Option Plan and, accordingly, no compensation cost has been recognized
for the Option Plan. The adoption of SFAS No. 123 would not have had a material
impact on the Bank's results of operations for 1999, 1998 and 1997.
The following chart summarizes information concerning options outstanding and
exercisable at December 31, 1999:
Options Outstanding and Exercisable
-------------------------------------
Number of Shares Remaining Life
Exercise price Outstanding (in years)
- -------------------------------------------------------------------------------
$ 4.94 90,896 2
$ 5.44 55,200 2
$16.38 10,000 9
$17.94 34,750 9
- -------------------------------------------------------------------------------
Total 190,846
===============================================================================
31
<PAGE>
Merchants New York Bancorp
The following table presents the total options granted and outstanding to be
exercised:
Shares Subject Weighted Average
to Option Exercise Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 669,252
Granted --
Exercised (78,182) $ 5.06
Forfeited -- --
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 591,070
Granted 46,500 $17.60
Exercised (322,170) $ 4.97
Forfeited -- --
- --------------------------------------------------------------------------------
Outstanding at December 31, 1998 315,400
Granted --
Exercised (123,054) $ 5.17
Forfeited (1,500) $17.94
- --------------------------------------------------------------------------------
Outstanding at December 31, 1999 190,846 $ 8.05
================================================================================
Note 11 -- STOCKHOLDERS' EQUITY
Regulatory Capital Requirements
FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1
capital to total adjusted assets of 3.0% and minimum ratios of Tier 1 and total
capital to risk weighted assets of 4.0% and 8.0%, respectively.
The FDIC is required to take certain supervisory actions with respect to an
under capitalized bank. These actions could have a direct material effect on a
bank's financial statements. The regulations establish a framework for the
classification of banks into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Generally, a bank is considered well capitalized if it has a
leverage capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at
least 6.0% and a total risk-based capital ratio of at least 10%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgements by the FDIC about capital components, risk
weightings and other factors.
Management believes that as of December 31, 1999, the Bank meets all capital
adequacy requirements to which it is subject. Furthermore, the most recent FDIC
notification categorized the Bank as a well capitalized institution. There have
been no conditions or events since that notification that management believes
have changed the Bank's capital classification.
The following is a summary of the Bank's capital amounts and ratios as of
December 31, 1999 and 1998, compared to the FDIC minimum capital adequacy
requirements and the FDIC requirements for classification as a well capitalized
institution:
<TABLE>
<CAPTION>
FDIC Requirements
----------------------------------------------------------------
Minimum Capital For Classification
Actual Adequacy As Well Capitalized
----------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
December 31, 1999
Leverage Capital $103,937 7.5% $41,354 3.0% $68,924 5.0%
Risk-Based Capital:
Tier 1 103,937 14.9 27,940 4.0 41,910 6.0
Total 112,670 16.1 55,881 8.0 69,851 10.0
December 31, 1998
Leverage Capital $103,545 7.9% $39,271 3.0% $65,452 5.0%
Risk-Based Capital:
Tier 1 103,545 16.9 24,450 4.0 36,675 6.0
Total 111,186 18.2 48,900 8.0 61,125 10.0
</TABLE>
32
<PAGE>
Merchants New York Bancorp
Treasury Stock
On August 19, 1997, the Board authorized the repurchase of up to 5% of the
Bank's common stock, or 1,000,000 shares. This authorization is in addition to
the Board approving up to 5%, or approximately 1,000,000 shares, in 1996. The
Company has purchased 498,200 shares during 1999, with 168,086 shares having
been purchased in 1998. There were 123,054 shares and 322,170 shares reissued
from treasury stock for shares purchased through the stock option plan in 1999
and 1998, respectively.
Dividends
Dividends paid to common stockholders in 1999 totaled $8.7 million, or $0.45 per
share, a 13% increase over 1998. These dividends represented a 46% payout of net
income for 1999.
NOTE 12 -- 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 gain or loss of
available-for-sale securities. Below are the before tax and tax benefit
(expense) amounts of the accumulated other comprehensive income applicable for
the years December 31, 1999, 1998 and 1997.
As of December 31, 1999 1998 1997
- -------------------------------------------------------------------------------
(In thousands)
Unrealized (depreciation) appreciation $(12,783) $ 14,452 $ 14,302
Tax benefit (expense) 5,650 (5,377) (5,358)
Net of tax amount (7,133) 9,075 8,944
NOTE 13 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various commitments and contingent
liabilities, which are properly not recorded on the balance sheet. Management
does not anticipate that losses, if any, as a result of these commitments and
contingent transactions would materially affect the liquidity, operating results
or financial condition of the Bank.
Unused variable rate loan commitments were approximately $14.8 million and $11.4
million for the years ended 1999 and 1998, respectively. These commitments, of
which about 35% will mature in less than one year, are agreements to lend up to
a certain amount to a customer as long as the conditions established in the
contract are met. Commitments generally have fixed expiration dates or
termination clauses and may require payment of a fee. The total commitments do
not necessarily represent future cash requirements because some of the
commitments are expected to expire without being drawn upon. The Bank evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the bank upon extension of credit is
based on management's risk evaluation of the borrower. Collateral held, if any,
may include cash, U.S. Treasury and other marketable securities, accounts
receivable, inventory and property, plant and equipment.
The Bank also issues conditional commitments to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is essentially the same as that in extending loan facilities to customers. For
commercial letters of credit, approximately 95% will expire in less than one
year, usually in 60 to 90 days. Standby letters of credit are approximately 80%
collateralized with cash, cash equivalents or marketable securities. Likewise,
95% of these standby letters of credit will expire within one year, with the
balance generally within two years. About 60% are automatically renewable for
one year. The Bank also purchases and sells foreign currency as an accommodation
for customers. It is not traded for speculative purposes. The Bank's credit risk
for foreign currency would arise from the possibility of a significant downward
change in a country's currency and the failure of a counter party to perform.
33
<PAGE>
Merchants New York Bancorp
Outstanding letters of credit, standby letters of credit, letters of guarantee
and foreign exchange contracts and their balances at December 31, 1999 and 1998
are:
1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Standby letters of credit $28,410 $65,278
Commercial letters of credit 36,791 38,279
Steamship and air guarantees 1,127 1,995
Foreign exchange:
Forward contracts purchased 242 --
Forward contracts sold 242 --
Spot transactions 86 332
The Bank contracted an additional lease for a new lending division at 275
Madison Avenue. The lease is effective until the year 2004.
As of December 31, 1999, the Bank was obligated under seven operating leases for
premises. Rental expense under the seven leases aggregated $1.50 million for
1999, $1.30 million for 1998 and $1.35 million for 1997. The minimum annual rent
under such leases for each of the years ending December 31, 2000 through the
year 2004 and thereafter is as follows (in thousands):
2000 $ 1,550
2001 1,637
2002 1,757
2003 1,809
2004 1,734
Thereafter 22,782
-----------------------------------------------
Total $31,269
===============================================
There are various claims pending against the Bank. In the opinion of management,
after discussion with counsel, liabilities, if any, arising from such claims
will not have a material effect on the Bank's liquidity, operating results or
financial condition.
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying values and estimated fair value of
the Company's financial instruments:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------
Carrying Estimated Carrying Estimated
As of December 31, Value Fair Value Value Fair Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
Financial assets:
Cash and due from banks $ 32,941 $ 32,941 $ 38,436 $ 38,436
Federal funds sold 50,000 50,000 5,000 5,000
Securities available for sale 649,932 649,932 660,026 660,026
Securities held to maturity 197,988 195,169 198,163 203,429
Loans, net of allowance 427,989 427,989 353,799 353,799
Financial liabilities:
Demand, NOW, savings and
money market deposits 584,353 584,353 517,454 517,454
Time deposits 374,625 374,751 416,869 417,095
Repurchase agreements 185,000 185,000 160,000 160,000
FHLB term advances 105,000 105,000 45,000 45,000
Other short-term borrowings 20,048 20,048 4,282 4,282
</TABLE>
SFAS No. 107 requires disclosures about the fair values of financial instruments
for which it is practicable to estimate fair value. Fair value is defined in
SFAS No. 107 as the amount at which a financial instrument
34
<PAGE>
Merchants New York Bancorp
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Quoted market prices are used to estimate fair
values when those prices are available. However, active markets do not exist for
many types of financial instruments. Consequently, fair value for these
instruments must be estimated by management using techniques such as discounted
cash flow analysis and comparison to similar instruments. These estimates are
highly subjective and require judgements regarding significant matters such as
the amount and timing of future cash flows and the selection of discount rates
that appropriately reflect market and credit risks. Changes in these judgments
often have a material impact on the fair value estimates. In addition, since
these estimates are made as of a specific point in time, they are susceptible to
material near-term changes. Fair values disclosed in accordance with SFAS No.
107 do not reflect any premium or discount that could result from the sale of a
large volume of a particular financial instrument, nor do they reflect possible
tax ramifications or estimated transaction cost.
The following is a description of the principal valuation methods used by the
Company to estimate the fair value of its financial instruments.
Securities Available for Sale and Investment Securities
The fair value of securities available for sale and investment securities are
based on quoted market prices.
Loans
Substantially all loans include: (i) variable rate loans, where interest rate
changes are consistent with changes in the prime rate; and (ii) working capital
notes with maturities of less than six months. Accordingly, after consideration
of the allowance for loan loss, net loans are considered to have a fair value
equivalent to their carrying value.
Deposit Liabilities
In accordance with SFAS No. 107, the fair value of deposit liabilities with no
stated maturity (demand, NOW, savings and money market accounts) which are
payable on demand are equal to the carrying amounts. The fair values of time
deposits represent contractual cash flows discounted using interest rates
currently offered on deposits with similar characteristics and remaining
maturities.
As required by SFAS No. 107, these estimated fair values do not include the
intangible value of core deposit relationships which comprise a significant
portion of the Company's deposit base. Management believes that the Company's
core deposit relationships provide a relatively stable, low-cost funding source
which has a substantial intangible value separate from the deposit balances.
Other Financial Assets and Liabilities
Cash and due from banks, Federal funds sold, repurchase agreements, FHLB term
advances, and other short-term borrowings have fair values which approximate the
respective carrying values. These instruments are payable on demand or have
short-term maturities and present relatively low credit risk and interest rate
risk.
NOTE 15 -- RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedge Activities
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 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 statement.
Accounting for the Disclosure about Segments of an Enterprise and Related
Information In June 1997, 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.
35
<PAGE>
Merchants New York Bancorp
NOTE 16 -- PARENT COMPANY ONLY FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CONDITION
December 31, 1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Assets:
Cash $ 8 $ 38
Investment in subsidiary 99,925 113,040
- -------------------------------------------------------------------------------
Total assets $ 99,933 $ 113,078
===============================================================================
Liabilities:
Total liabilities 725 100
Stockholders' equity:
Total stockholders' equity 99,208 112,978
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 99,933 $ 113,078
===============================================================================
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Income:
Dividends received from subsidiary $ 15,925 $ 8,984
Equity in undistributed net income of subsidiary 3,092 6,918
Management fees 793 508
- -------------------------------------------------------------------------------
Total income 19,810 16,410
- -------------------------------------------------------------------------------
Expenses:
Expenses 793 508
- -------------------------------------------------------------------------------
Net income $ 19,017 $ 15,902
===============================================================================
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Operating activities:
Net income $ 19,017 $ 15,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in other liabilities 625 100
Equity in undistributed net income of subsidiary (3,092) (6,918)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 16,550 9,084
- -------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock 636 1,601
Purchases of treasury stock (8,541) (3,066)
Dividends paid (8,675) (7,784)
- -------------------------------------------------------------------------------
Net cash used in financing activities (16,580) (9,249)
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (30) (165)
Cash and cash equivalents at beginning of the year 38 203
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 8 $ 38
===============================================================================
36
<PAGE>
Merchants New York Bancorp
The Merchants Bank of New York (the "Bank") became the wholly-owned subsidiary
of Merchants New York Bancorp Inc, (the "Company"), a Delaware holding company
on July 1, 1993. Each Bank stockholder became a stockholder of the Company,
which has authorized 40,000,000 shares of stock at a par value of $.001 per
share. Of the authorized shares, 19,978,664 shares have been issued as of
December 31, 1999 and 1998.
The earnings of the Bank are recognized by the Company using the equity method
of accounting. Accordingly, earnings of the Bank are recorded as increases in
the Company's investment in the Bank, with any dividends reducing this
investment.
NOTE 17 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is presented below for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Interest income $21,055 $21,626 $23,095 $24,509 $90,285
Net interest income 11,733 12,584 13,064 13,288 50,669
Provision for loan losses 200 400 615 700 1,915
Income before income tax 6,400 7,487 7,964 6,681 28,532
Net income 4,210 4,963 5,501 4,343 19,017
Earnings per share, basic 0.21 0.26 0.29 0.23 0.99
Earnings per share, diluted 0.21 0.26 0.29 0.23 0.98
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Interest income $20,578 $20,643 $22,327 $22,720 $86,268
Net interest income 11,078 10,815 11,506 11,996 45,395
Provision for loan losses 400 200 150 675 1,425
Income before income tax 5,730 6,319 7,175 4,810 24,034
Net income 3,687 4,226 4,748 3,241 15,902
Earnings per share, basic 0.19 0.22 0.25 0.17 0.82
Earnings per share, diluted 0.19 0.22 0.24 0.17 0.81
</TABLE>
37
<PAGE>
Merchants New York Bancorp
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Merchants New York Bancorp:
We have audited the accompanying consolidated statements of condition of
Merchants New York Bancorp and subsidiary (the "Bank") as of December 31, 1999
and 1998, and the related statements of income and comprehensive income, changes
in stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Merchants New York
Bancorp and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
January 24, 2000
38
<PAGE>
Merchants New York Bancorp
AVERAGE ASSETS, LIABILITIES AND
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Average Average Average
Balance % Balance % Balance %
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Cash and due from banks $ 41,334 3.16% $ 42,860 3.42% $ 49,587 4.19%
Federal funds sold 13,356 1.02 16,184 1.29 8,373 0.71
Investment securities*:
Available for sale 617,410 47.26 602,383 48.11 590,342 49.88
Held to maturity 205,121 15.70 209,079 16.70 178,830 15.11
- -----------------------------------------------------------------------------------------------------------------
Total 822,531 62.96 811,462 64.81 769,172 64.99
Loans (net of unearned discounts) 402,456 -- 350,272 -- 325,298 --
Less allowance for loan losses 8,351 -- 6,954 -- 6,247 --
- -----------------------------------------------------------------------------------------------------------------
Total loans, net 394,105 30.17 343,318 27.42 319,051 26.96
Bank premises and equipment 6,386 0.49 6,795 0.55 6,897 0.58
Customers' liability on acceptances 14,871 1.14 16,737 1.34 15,588 1.32
Other assets 13,841 1.06 14,638 1.17 14,812 1.25
- -----------------------------------------------------------------------------------------------------------------
Total assets $1,306,424 100% $1,251,994 100% $1,183,480 100%
=================================================================================================================
Liabilities and Stockholders' Equity
Deposits:
Demand $ 277,710 21.27% $ 255,239 20.39% $ 227,744 19.24%
NOW 48,896 3.74 44,609 3.56 41,904 3.54
Savings 27,757 2.12 25,476 2.03 24,277 2.05
Money market 173,011 13.24 145,660 11.63 141,671 11.97
Time 385,873 29.54 416,286 33.25 416,221 35.17
- -----------------------------------------------------------------------------------------------------------------
Total deposits 913,247 -- 887,270 -- 851,817 --
Securities sold under
repurchase agreements 170,548 13.05 166,315 13.28 166,294 14.05
FHLB term advance 69,096 5.29 35,890 2.87 7,452 0.63
Acceptances outstanding 14,871 1.14 16,737 1.34 15,588 1.32
Other short-term borrowings 12,183 0.93 14,544 1.16 18,229 1.54
Other liabilities 16,664 1.27 20,378 1.63 18,712 1.58
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,196,609 -- 1,141,134 -- 1,078,092 --
Stockholders' Equity
Capital stock 13 -- 10 -- 6 --
Surplus 23,887 1.83 23,897 1.91 23,829 2.01
Undivided profits 91,076 6.97 84,050 6.71 77,394 6.54
Less: Treasury stock 9,433 0.72 6,498 0.51 3,548 0.29
Net unrealized appreciation on
securities available for sale, net 4,272 0.33 9,401 0.75 7,707 0.65
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 109,815 -- 110,860 -- 105,388 --
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,306,424 100% $1,251,994 100% $1,183,480 100%
=================================================================================================================
</TABLE>
* The averages for available-for-sale securities are disclosed at estimated
market value, with securities held to maturity at book value.
39
<PAGE>
THE MERCHANTS BANK OF NEW YORK
LENDING DIVISION
Chief Credit Officer
Stephen A. Barrow
Executive Vice President
Division Heads
Leonard S. Levine
Janet L. Markel
Senior Vice Presidents
Group Managers
Michael D. Altman
Senior Vice President
Gerald H. Attanasio
Andrew S. Baron
Brian M. Cardew
James K. Moore
Lester Nadel
Kenneth J. Satchwill
Vice Presidents
Vice Presidents
Salvatore J. Chiarelli
Joseph I. Edelman
Leonard Katcher
Mitchell Kreiner
Patricia A. Miller
Joseph J. Nicolosi
Elliot Reiner
Donald F. Ritchie
Brian T. Schiffino
Joseph J. Wynne
Assistant Vice Presidents
John J. Cronin
Joseph Radice
Assistant Cashiers
John V. Buoniconti
Paul A. Gotta
Paul L. Hamner
Pamela G. Patterson
Eugene P. Schreiner
Noreen Suarez
Gloria R. Trujillo
INTERNATIONAL DIVISION
Senior Vice President and
Division Head
Joseph M. Cestone
Vice President
Mary Jane G. Lerias
Assistant Vice President
Babulal P. Kapadia
Assistant Cashier
Esteban A. Espiritu
HUMAN RESOURCES
Vice President and
Department Head
Ruth T. Aimetti
CORPORATE SECRETARY
Karen L. Deitz
TREASURER
Executive Vice President
Eric W. Gould
COMPTROLLER
Vice President and
Department Head
M. Nasette Aranda
Assistant Vice Presidents and
Assistant Comptrollers
Joanna Robinson
Perrie H. Mc Cloud
Assistant Comptroller
Richard A. Francia
AUDIT
Vice President and
Department Head
Mary J. Scarpelli
Assistant Auditors
Allan W. Trowbridge, CISA
Rolando Tubungbanua
BANK OPERATIONS
Senior Vice President and Division Head
Rosemarie A. Calabro
Vice President
Thomas J. Stackhouse
Assistant Vice Presidents
Philip S. Cameron
Kenneth Renga, AAP
Patricia A. Revell
Assistant Cashiers
Debra J. Lott
Inmaculada C. Marquez
REAL ESTATE & ADMINISTRATIVE SERVICES
Vice President
T. John Santoro
BRANCH DIVISION
Senior Vice President and Division Head
Eugene J. Venier
Assistant Vice President
Harry Woods
275 MADISON AVENUE
Vice President and
Branch Manager
Dennis J. Sheridan
Assistant Vice Presidents
James T. Kung
M. Carolina Nolasco
Assistant Cashier
Kenrick Clarke
295 FIFTH AVENUE
Vice President and
Branch Manager
Simeon Kovacic
Assistant Vice Presidents
Barbara Green
William A. Matos
Assistant Cashier
Hetty A. Johnson
145 FIFTH AVENUE
Vice President and
Branch Manager
Michael S. Hassani
Assistant Cashier
Amelita L. Antonio
62 WEST 47TH STREET
Vice President and
Branch Manager
John U. Doekker
Vice President
Ralph Salvaggio
Assistant Vice President
David S. Kaplan
Assistant Cashiers
Peter G. Balram
Emilie Llerena
Frances Nardella
434 BROADWAY
Senior Vice President and
Branch Manager
Joseph R. Criscione
Assistant Vice Presidents
Fontaine Firenze
Ronald Mattioli
Elaine P. Sacks
1040 SIXTH AVENUE
Assistant Vice President
and Branch Manager
Raymond F. Tornabene
Assistant Vice President
Javier R. Carrera
93 CANAL STREET
Vice President and
Branch Manager
Lawrence I. Kohn
Assistant Vice President
Orlando Acevedo
<PAGE>
MERCHANTS NEW YORK BANCORP
AND
THE MERCHANTS BANK OF NEW YORK
Spencer B. Witty
Chairman of the Board
James G. Lawrence
President and Chief Executive Officer
Rudolf H. Hertz* William J. Cardew Charles I. Silberman*
Vice Chairman Vice Chairman and Vice Chairman
Chief Operating Officer
Eric W. Gould
Executive Vice President and Treasurer
M. Nasette Aranda
Vice President and Comptroller
Karen L. Deitz
Corporate Secretary
Board of Directors
Charles J. Baum President, Baum Bros. Imports, Inc.,
importers of porcelain dinnerware
William J. Cardew Vice Chairman and Chief Operating Officer
Eric W. Gould Executive Vice President and Treasurer
Rudolf H. Hertz* Vice Chairman of the Board
James G. Lawrence President and Chief Executive Officer
Robinson Markel Attorney -- member of the law firm of Rosenman & Colin LLP
Paul Meyrowitz Attorney -- senior member of the law firm of
Simon, Meyrowitz & Meyrowitz
Alan Mirken President -- Aaron Publishing Group, Inc., book publishers
Mitchell J. Nelson Attorney -- of counsel to the law firm of
Salans, Hertzfeld, Heilbrunn, Christy & Viener;
President, Atlas Real Estate Funds
Leonard Schlussel President, Wellbilt Equipment Corp.,
builders of restaurants;
Partner, Keybro Enterprises, finance
Charles I. Silberman President and Chairman of the Board,
S. Parker Hardware Mfg. Corp., importer and manufacturer of
builders' hardware; Vice Chairman of the Holding Company
Marcia Toledano Senior Vice President of the co-managing general partner of
990 AvAmerica Associates LP, real estate owner/operator
Spencer B. Witty Chairman of the Board of the Bank and Holding Company
* Officer of Bancorp.
SUBSIDIARIES
MERCHANTS MERCHANTS NEW YORK
MBNY HOLDINGS CAPITAL CORP. COMMERCIAL CORP.
Spencer B. Witty Spencer B. Witty Irwin Schwartz
Chairman Chairman President and
Chief Executive Officer
William J. Cardew William J. Cardew
President Vice Chairman
Alexander Rodetis, Jr.
Eric W. Gould Eric W. Gould Executive Vice President
Executive Vice President President
and Treasurer Joseph M. Triscoli
Vice President
<PAGE>
[PHOTO OMITTED]
[LOGO] MERCHANTS NEW YORK BANCORP
275 Madison Avenue
295 Fifth Avenue
145 Fifth Avenue
1040 Sixth Avenue
62 West 47th Street
434 Broadway
93 Canal Street
New York, New York
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
As Of and For the period ended December 31, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> $26,059,537
<INT-BEARING-DEPOSITS> 6,881,346
<FED-FUNDS-SOLD> 50,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 649,931,593
<INVESTMENTS-CARRYING> 197,988,432
<INVESTMENTS-MARKET> 195,169,226
<LOANS> 437,097,287
<ALLOWANCE> 9,108,216
<TOTAL-ASSETS> 1,395,313,148
<DEPOSITS> 958,978,208
<SHORT-TERM> 310,047,500
<LIABILITIES-OTHER> 27,079,503
<LONG-TERM> 0
0
0
<COMMON> 19,978
<OTHER-SE> 99,187,959
<TOTAL-LIABILITIES-AND-EQUITY> 1,395,313,148
<INTEREST-LOAN> 34,883,106
<INTEREST-INVEST> 54,649,130
<INTEREST-OTHER> 752,455
<INTEREST-TOTAL> 90,284,691
<INTEREST-DEPOSIT> 26,189,209
<INTEREST-EXPENSE> 39,615,519
<INTEREST-INCOME-NET> 50,669,172
<LOAN-LOSSES> 1,915,000
<SECURITIES-GAINS> 93,381
<EXPENSE-OTHER> 26,773,737
<INCOME-PRETAX> 28,531,672
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,016,942
<EPS-BASIC> 0.99
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 4.11
<LOANS-NON> 428,000
<LOANS-PAST> 496,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,965,000
<CHARGE-OFFS> 1,224,000
<RECOVERIES> 452,000
<ALLOWANCE-CLOSE> 9,108,000
<ALLOWANCE-DOMESTIC> 239,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,869,000
</TABLE>
