10-Q 1 d25695_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 2001 Commission file number 0-13580 SUFFOLK BANCORP (exact name of registrant as specified in its charter) New York State 11-2708279 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 6 West Second Street, Riverhead, New York 11901 (Address of Principal Executive (Zip Code) Offices) (Registrant's telephone number, including area code) (631) 727-5667 NOT APPLICABLE (former name, former address and former fiscal year if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 5,925,929 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 31, 2001 1 This page left blank intentionally. 2 SUFFOLK BANCORP AND SUBSIDIARIES Part I - Financial Information (unaudited) page Consolidated Statements of Condition 4 Consolidated Statements of Income, For the Three Months Ended March 31, 2001 and 2000 5 Statements of Cash Flows, For the Three Months Ended March 31, 2001 and 2000 6 Notes to the Unaudited Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II - Other Information 11 Signatures 11 3
SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (unaudited, in thousands of dollars, except for share and per share data) March 31, 2001 December 31, 2000 -------------- ----------------- ASSETS Cash & Due From Banks $ 59,541 $ 69,584 Federal Funds Sold -- 3,700 Investment Securities: Available for Sale, at Fair Value 148,282 149,186 U.S. Government Agency Obligations -- -- Obligations of States & Political Subdivisions 12,992 13,317 Corporate Bonds & Other Securities 3,468 3,468 ----------- ----------- Total Investment Securities 164,742 165,971 Total Loans 795,669 775,997 Allowance for Possible Loan Losses 8,061 7,749 ----------- ----------- Net Loans 787,608 768,248 Premises & Equipment, Net 13,407 13,445 Other Real Estate Owned, Net -- 175 Accrued Interest Receivable, Net 5,870 6,298 Excess of Cost Over Fair Value of Net Assets Acquired 1,086 1,176 Other Assets 22,912 20,983 ----------- ----------- TOTAL ASSETS $1,055,166 $1,049,580 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Demand Deposits $ 241,592 288,657 Savings, N.O.W.'s & Money Market Deposits 374,752 378,212 Time Certificates of $100,000 or more 26,513 23,175 Other Time Deposits 258,769 252,392 ----------- ----------- Total Deposits 901,626 942,436 Federal Home Loan Bank Borrowings/Fed Funds Purchased 44,900 -- Dividend Payable on Common Stock 1,664 1,373 Accrued Interest Payable 2,559 3,325 Other Liabilities 13,702 14,393 ----------- ----------- TOTAL LIABILITIES 964,451 961,527 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock (par value $2.50; 15,000,000 shares authorized; 5,925,929 and 6,035,580 shares issued at March 31, 2001 and 2000, respectively) 19,033 19,026 Surplus 18,501 18,456 Treasury Stock at Par (1,687,091 and 1,574,840 shares, respectively) (4,218) (4,126) Undivided Profits 55,470 53,874 ----------- ----------- 88,786 87,230 Accumulated Other Comprehensive Income, Net of Tax 1,929 823 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 90,715 88,053 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,055,166 $ 1,049,580 =========== ===========
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SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands of dollars, except for share and per share data) For the Three Months Ended March 31, 2001 March 31, 2000 -------------- -------------- INTEREST INCOME Federal Funds Sold $ 12 $ 124 United States Treasury Securities 398 419 Obligations of States & Political Subdivisions (tax exempt) 157 313 Mortgage-Backed Securities 1,445 -- U.S. Government Agency Obligations 545 1,671 Corporate Bonds & Other Securities 72 56 Loans 17,264 15,764 ------- ------- Total Interest Income 19,893 18,347 INTEREST EXPENSE Savings, N.O.W.'s & Money Market Deposits 2,121 2,200 Time Certificates of $100,000 or more 345 352 Other Time Deposits 3,632 3,018 Federal Funds Purchased 70 245 Interest on Other Borrowings 375 75 ------- ------- Total Interest Expense 6,543 5,890 Net-interest Income 13,350 12,457 Provision for Possible Loan Losses 405 300 ------- ------- Net-interest Income After Provision for Possible Loan Losses 12,945 12,157 OTHER INCOME Service Charges on Deposit Accounts 1,281 1,182 Other Service Charges, Commissions & Fees 311 282 Fiduciary Fees 240 233 Other Operating Income 193 232 Net Gain on Sale of Securities 148 -- ------- ------- Total Other Income 2,173 1,929 OTHER EXPENSE Salaries & Employee Benefits 4,654 4,491 Net Occupancy Expense 719 626 Equipment Expense 562 637 Other Real Estate Expense 10 3 Other Operating Expense 1,983 2,208 ------- ------- Total Other Expense 7,928 7,965 Income Before Provision for Income Taxes 7,190 6,121 Provision for Income Taxes 2,787 2,492 ------- ------- NET INCOME $ 4,403 3,629 ======= ======= Average: Common Shares Outstanding 5,950,470 6,049,206 Dilutive Stock Options 14,908 7,154 ---------- --------- Average Total Common Shares and Dilutive Options 5,965,378 6,056,360 EARNINGS PER COMMON SHARE Basic $ 0.74 $ 0.60 Diluted $ 0.74 $ 0.60
See accompanying notes to consolidated financial statements 5
SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited, in thousands of dollars, except share and per share data) For the Three Months Ended March 31, 2001 March 31, 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 4,403 $ 3,629 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH Provision for Possible Loan Losses 405 300 Depreciation & Amortization 486 494 Amortization of Excess Cost Over Fair Value of Net Assets Acquired 90 90 Accretion of Discounts (290) (53) Amortization of Premiums 105 205 Decrease (Increase) in Accrued Interest Receivable 428 (321) (Increase) Decrease in Other Assets (1,931) 237 Decrease in Accrued Interest Payable (765) (402) (Decrease) Increase in Other Liabilities (400) 814 Net Security Gains (148) -- -------- -------- Net Cash Provided by Operating Activities 2,383 4,993 CASH FLOWS FROM INVESTING ACTIVITIES Principal Payments on Investment Securities 346 131 Proceeds from Sale of Investment Securities, Available for Sale 715 -- Maturities of Investment Securities; Available for Sale 1,160 742 Purchases of Investment Securities; Available for Sale (834) (4,685) Maturities of Investment Securities; Held to Maturity 25,000 -- Purchases of Investment Securities; Held to Maturity (22,946) (6,215) Loan Disbursements & Repayments, Net (20,537) (12,018) Purchases of Premises & Equipment, Net (448) (104) Disposition of Other Real Estate Owned 175 -- -------- -------- Net Cash Used in Investing Activities (17,369) (22,149) CASH FLOWS FROM FINANCING ACTIVITIES Net (Decrease) Increase in Deposit Accounts (40,810) 15,279 Net Payments for Other Borrowings 44,900 15,800 Dividends Paid to Shareholders (1,664) (1,273) Treasury Shares Acquired (1,234) (539) Stock Options Exercised 51 -- -------- -------- Net Cash Provided by Financing Activities 1,243 29,267 Net (Decrease) Increase in Cash & Cash Equivalents (13,743) 12,111 Cash & Cash Equivalents Beginning of Period 73,284 53,452 -------- -------- Cash & Cash Equivalents End of Period $ 59,541 $ 65,563 ======== ========
See accompanying notes to consolidated financial statements. 6 SUFFOLK BANCORP AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) General In the opinion of management, the accompanying unaudited consolidated financial statements of Suffolk Bancorp (Suffolk) and its consolidated subsidiaries have been prepared to reflect all adjustments (consisting solely of normally recurring accruals) necessary for a fair presentation of the financial condition and results of operations for the periods presented. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Notwithstanding, management believes that the disclosures are adequate to prevent the information from misleading the reader, particularly when the accompanying consolidated financial statements are read in conjunction with the audited consolidated financial statements and notes thereto included in the Registrant's annual report and on Form 10-K, for the year ended December 31, 2000. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results of operations to be expected for the remainder of the year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for the Three-Month Periods ended March 31, 2001 and 2000 Net Income Net income was $4,403,000 for the quarter, ahead 21.3 percent from $3,629,000 posted during the same period last year. Earnings per share for the quarter were $0.74 versus $0.60, a gain of 23.3 percent. Interest Income Interest income was $19,893,000 for the first quarter of 2001, up 8.4 percent from $18,347,000 posted for the same quarter in 2000. Average net loans during the first quarter of 2001 totaled $770,283,000, compared to $718,721,000 for the same period of 2000. During the first quarter of 2001, the yield was 8.44 percent (taxable-equivalent) on average earning assets of $947,054,000 up from 8.28 percent on average earning assets of $894,044,000 during the first quarter of 2000. Increases in interest income were attributable primarily to increases in the volume of loans, and also to a change in the composition of the investment portfolio emphasizing high-quality higher-yielding collateralized mortgage obligations. Interest Expense Interest expense for the first quarter of 2001 was $6,543,000, up 11.1 percent from $5,890,000 for the same period of 2000. Average deposits for the first quarter of 2001 were $886,988,000 up from $872,557,000 for the comparable period in 2000. Interest expense remained moderate as demand deposits comprised 26.8 percent of total deposits. Net Interest Income Net interest income, net of the provision for possible loan losses, is the largest component of Suffolk's earnings. Net interest income for the first quarter of 2001 was $13,350,000, up 7.2 percent from $12,457,000 during the same period of 2000. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.68 percent compared to 5.65 percent for the same period of 2000. 7 The following table details the components of Suffolk's net interest income:
------------------------------------------------------------------------------------------------------------------------------- March 31, 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS ------------------------------------------------------------------------------------------------------------------------------- U.S. treasury securities $ 29,536 $ 406 5.50% $ 30,995 $ 427 5.52% Collateralized mortgage obligations 82,646 1,445 6.99 62,949 1,129 7.17 Obligations of states and political subdivisions 12,628 239 7.56 30,133 476 6.31 U.S. govt. agency obligations 39,730 545 5.48 38,791 542 5.59 Corporate bonds and other securities 3,468 71 8.23 3,468 56 6.46 Federal funds sold and securities purchased under agreements to resell 828 12 5.86 8,987 124 5.51 Loans, including non-accrual loans Commercial, financial agricultural loans 140,097 3,212 9.17 128,829 3,016 9.37 Commercial real estate mortgages 157,483 3,502 8.89 156,398 3,439 8.80 Real estate construction loans 34,753 912 10.50 22,575 521 9.23 Residential mortgages (1st and 2nd liens) 88,113 1,897 8.61 81,972 1,895 9.25 Home equity loans 22,075 549 9.94 20,144 518 10.28 Consumer loans 335,209 7,192 8.58 306,129 6,375 8.32 Other loans (overdrafts) 488 -- -- 2,674 -- -- ------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets $ 947,054 $ 19,982 8.44% $ 894,044 $ 18,518 8.28% ============================================================================================================================== Cash and due from banks $ 62,989 $ 60,527 Other non-interest-earning assets 39,832 45,733 ------------------------------------------------------------------------------------------------------------------------------ Total assets $1,049,875 $1,000,304 ------------------------------------------------------------------------------------------------------------------------------ INTEREST-BEARING LIABILITIES ------------------------------------------------------------------------------------------------------------------------------ Savings, N.O.W.'s and money market deposits $ 360,916 $ 2,121 2.35% $ 372,750 $ 2,200 2.36% Time deposits 277,511 3,976 5.73 261,457 3,370 5.16 ------------------------------------------------------------------------------------------------------------------------------ Total savings and time deposits 638,427 6,097 3.82 634,207 5,570 3.51 Federal funds purchased and securities sold under agreement to repurchase 6,182 70 4.52 5,043 75 5.94 Other borrowings 25,952 375 5.79 16,497 245 5.94 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities $ 670,561 $ 6,542 3.90% $ 655,747 $ 5,890 3.59% ============================================================================================================================== Rate spread 4.54% 4.69% Non-interest-bearing deposits $ 248,561 $ 238,350 Other non-interest-bearing liabilities 43,226 29,899 ------------------------------------------------------------------------------------------------------------------------------ Total liabilities $ 962,348 $ 923,996 Stockholders' equity 87,527 76,308 ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $1,049,875 $1,000,304 Net-interest income (taxable-equivalent basis) and effective interest rate differential $ 13,440 5.68% $ 12,628 5.65% Less: taxable-equivalent basis adjustment (90) (171) ------------------------------------------------------------------------------------------------------------------------------ Net-interest income $ 13,350 $ 12,457 ==============================================================================================================================
8 Other Income Other income increased to $2,173,000 for the three months compared to $1,929,000 the previous year. Service charges on deposits were up 8.4 percent. Service charges, including commissions and fees other than for deposits, increased by 10.3 percent. Trust revenue was up 3.0 percent. Other operating income decreased by 16.8 percent. Net gains on the sale of securities amounted to $148,000. Other Expense Other expense for the first quarter of 2001 was $7,928,000, down 0.5 percent from $7,965,000 for the comparable period in 2000. Employee compensation increased by 3.6 percent, net occupancy by 14.9 percent, equipment expense dropped by 11.8 percent, while other operating expense decreased by 10.2 percent. Capital Resources Stockholders' equity totaled $90,715,000 on March 31, 2001, an increase of 3.0 percent from $88,053,000 on December 31, 2000. The ratio of equity to assets was 8.6 percent at March 31, 2001 and 8.4 percent at December 31, 2000. The following table details amounts and ratios of Suffolk's regulatory capital: (in thousands of dollars except ratios)
------------------------------------------------------------------------------------------------------------------------- To be well capitalized For capital under prompt corrective Actual adequacy action provisions Amount Ratio Amount Ratio Amount Ratio ------------------------------------------------------------------------------------------------------------------------- As of March 31, 2001 Total capital (to risk-weighted assets) $95,628 10.86% $70,433 8.00% $88,041 10.00% Tier 1 capital (to risk-weighted assets) 87,567 9.95% 35,217 4.00% 52,825 6.00% Tier 1 capital (to average assets) 87,567 8.34% 41,995 4.00% 52,494 5.00% ------------------------------------------------------------------------------------------------------------------------- As of December 31, 2000 Total capital (to risk-weighted assets) $93,676 10.93% $68,540 8.00% $85,675 10.00% Tier 1 capital (to risk-weighted assets) 85,927 10.03% 34,270 4.00% 51,405 6.00% Tier 1 capital (to average assets) 85,927 8.51% 40,407 4.00% 50,509 5.00% =========================================================================================================================
Credit Risk Suffolk makes loans based on the best evaluation possible of the creditworthiness of the borrower. Even with careful underwriting, some loans may not be repaid as originally agreed. To provide for this possibility, Suffolk maintains an allowance for possible loan losses, based on an analysis of the performance of the loans in its portfolio. The analysis includes subjective factors based on management's judgment as well as quantitative evaluation. Prudent, conservative estimates should produce an allowance that will provide for a range of losses. According to generally accepted accounting principles ("GAAP") a financial institution should record its best estimate. Appropriate factors contributing to the estimate may include changes in the composition of the institution's assets, or potential economic slowdowns or downturns. Also important is the geographical or political environment in which the institution operates. Suffolk's management considers all of these factors when determining the provision for possible loan losses. 9 The following table presents information about the allowance for possible loan losses: (in thousands of dollars except ratios)
------------------------------------------------------------------------------------------------------------- For the For the three months ended last 12 March 31 Dec. 31 Sept. 30 June 30 months 2001 2000 2000 2000 ------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses Beginning balance 7,382 7,749 7,676 7,527 7,382 Total charge-offs 827 144 279 206 198 Total recoveries 201 51 52 55 43 Provision for possible loan losses 1,305 405 300 300 300 ----------------------------------------------------------------------------------------------------------- Ending balance 8,061 8,061 7,749 7,676 7,527 =========================================================================================================== Coverage ratios Loans, net of discounts: average 748,563 770,283 750,598 738,427 734,945 at end of period 770,323 795,669 775,997 758,894 750,732 Non-performing assets 2,586 2,686 2,700 2,685 2,273 Non-performing assets/total loans (net of discount) 0.34% 0.34% 0.35% 0.35% 0.30% Net charge-offs/average net loans (annualized) 0.08% 0.05% 0.12% 0.08% 0.08% Allowance/non-accrual, restructured, & OREO 301.04% 300.11% 287.00% 285.88% 331.15% Allowance for loan losses/net loans 1.01% 1.01% 1.00% 1.01% 1.00% ------------------------------------------------------------------------------------------------------------
Market Risk Suffolk originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. Suffolk's operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or reprice in any given period of time. Suffolk's earnings or the net value of its portfolio (the present value of expected cash flows from liabilities) will change when interest rates change. The principal objective of Suffolk's asset/liability management program is to maximize net interest income while keeping risks acceptable. These risks include both the effect of changes in interest rates, and risks to liquidity. The program also provides guidance to management in funding Suffolk's investment in loans and securities. Suffolk's exposure to interest-rate risk has not changed substantially since December 31, 2000. PART II Item 6. Exhibits and Reports on Form 8-K. None SIGNATURES Pursuant to the requirements 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. SUFFOLK BANCORP Date: May 11, 2001 /s/ Thomas S. Kohlmann ----------------------------- Thomas S. Kohlmann President & Chief Executive Officer Date: May 11, 2001 /s/ J. Gordon Huszagh ------------------------------ J. Gordon Huszagh Executive Vice President & Chief Financial Officer 10