10-Q 1 d26368_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 June 30, 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 I.R.S. Employer of incorporation or organization) Identification No.) 6 West Second Street, Riverhead, New York 11901 (Address of Principal Executive Offices (Zip Code) (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. 5,905,814 SHARES OF COMMON STOCK OUTSTANDING AS OF JUNE 30, 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 June 30, 2001 and 2000 5 Consolidated Statements of Income, For the Six Months Ended June 30, 2001 and 2000 6 Statements of Cash Flows, For the Six Months Ended June 30, 2001 and 2000 7 Notes to the Unaudited Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information 11 Signatures 11 3 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (unaudited, in thousands of dollars, except share and per share data)
June 30, 2001 December 31, 2000 ------------- ----------------- ASSETS Cash & Due From Banks $ 52,280 $ 69,584 Federal Funds Sold 44,300 3,700 Investment Securities: Available for Sale, at Fair Value 135,438 149,186 Held to Maturity: Obligations of States & Political Subdivisions 5,927 13,317 Corporate Bonds & Other Securities 3,468 3,468 ----------- ----------- Total Investment Securities 144,833 165,971 Total Loans 796,974 775,997 Less: Allowance for Possible Loan Losses 8,446 7,749 ----------- ----------- Net Loans 788,528 768,248 Premises & Equipment, Net 13,366 13,445 Other Real Estate Owned, Net -- 175 Accrued Interest Receivable, Net 5,621 6,298 Excess of Cost Over Fair Value of Net Assets Acquired 995 1,176 Other Assets 23,602 20,983 ----------- ----------- TOTAL ASSETS 1,073,525 1,049,580 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Demand Deposits 276,831 288,657 Savings, N.O.W.'s & Money Market Deposits 392,935 378,212 Time Certificates of $100,000 or more 26,284 23,175 Other Time Deposits 270,197 252,392 ----------- ----------- Total Deposits 966,247 942,436 Dividend Payable on Common Stock 1,654 1,373 Accrued Interest Payable 2,609 3,325 Other Liabilities 11,572 14,393 ----------- ----------- TOTAL LIABILITIES 982,082 961,527 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock (par value $2.50; 15,000,000 shares authorized; 5,905,814 and 5,959,964 shares outstanding at June 30, 2001 and December 31, 2000, respectively) 19,112 19,026 Surplus 19,165 18,456 Treasury Stock at Par (1,739,106 and 1,650,456 shares, respectively) (4,348) (4,126) Undivided Profits 56,594 53,874 ----------- ----------- 90,523 87,230 Accumulated Other Comprehensive Income, Net of Tax 920 823 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 91,443 88,053 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,073,525 $ 1,049,580 =========== ===========
See accompanying notes to consolidated financial statements 4 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands of dollars, except share and per share data)
For the Three Months Ended June 30, 2001 June 30, 2000 ------------- ------------- INTEREST INCOME Federal Funds Sold $ 166 $ 24 United States Treasury Securities 328 431 Obligations of States & Political Subdivisions (tax exempt) 164 324 Mortgage-Backed Securities 1,436 1,232 U.S. Government Agency Obligations 445 556 Corporate Bonds & Other Securities 56 71 Loans 17,378 16,379 ---------- --------- Total Interest Income 19,973 19,017 INTEREST EXPENSE Savings, N.O.W.'s & Money Market Deposits 2,146 2,209 Time Certificates of $100,000 or more 380 315 Other Time Deposits 3,669 3,134 Federal Funds Purchased 28 116 Interest on Other Borrowings 173 395 ---------- --------- Total Interest Expense 6,396 6,169 Net-interest Income 13,577 12,848 Provision for Possible Loan Losses 405 300 ---------- --------- Net-interest Income After Provision for Possible Loan Losses 13,172 12,548 OTHER INCOME Service Charges on Deposit Accounts 1,342 1,170 Other Service Charges, Commissions & Fees 381 370 Fiduciary Fees 238 190 Other Operating Income 248 111 Net Gain on Sale of Securities 247 -- ---------- --------- Total Other Income 2,456 1,841 OTHER EXPENSE Salaries & Employee Benefits 4,320 4,326 Net Occupancy Expense 711 620 Equipment Expense 586 614 Other Real Estate Expense -- 3 Other Operating Expense 2,062 2,058 ---------- --------- Total Other Expense 7,679 7,621 Income Before Provision for Income Taxes 7,949 6,768 Provision for Income Taxes 3,121 2,693 ---------- --------- NET INCOME $ 4,828 $ 4,075 ========== ========= Average: Common Shares Outstanding 5,910,147 6,010,506 Dilutive Stock Options 8,461 6,924 ---------- --------- Average Total Common Shares and Dilutive Options 5,918,608 6,017,430 EARNINGS PER COMMON SHARE Basic $ 0.82 $ 0.68 Diluted $ 0.82 $ 0.68
See accompanying notes to consolidated financial statements. 5 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands of dollars, except share and per share data)
For the Six Months Ended June 30, 2001 June 30, 2000 ------------- ------------- INTEREST INCOME Federal Funds Sold $ 178 148 United States Treasury Securities 726 850 Obligations of States & Political Subdivisions (tax exempt) 321 637 Mortgage-Backed Securities 2,881 2,361 U.S. Government Agency Obligations 990 1,098 Corporate Bonds & Other Securities 128 127 Loans 34,642 32,143 ------- ------- Total Interest Income 39,866 37,364 INTEREST EXPENSE Savings, N.O.W.'s & Money Market Deposits 4,267 4,409 Time Certificates of $100,000 or more 725 667 Other Time Deposits 7,301 6,152 Federal Funds Purchased 98 191 Interest on Other Borrowings 548 640 ------- ------- Total Interest Expense 12,939 12,059 Net-interest Income 26,927 25,305 Provision for Possible Loan Losses 810 600 ------- ------- Net-interest Income After Provision 26,117 24,705 OTHER INCOME Service Charges on Deposit Accounts 2,623 2,352 Other Service Charges, Commissions & Fees 692 652 Fiduciary Fees 478 423 Other Operating Income 441 343 Net Gain on Sale of Securities 395 -- ------- ------- Total Other Income 4,629 3,770 OTHER EXPENSE Salaries & Employee Benefits 8,974 8,817 Net Occupancy Expense 1,430 1,246 Equipment Expense 1,148 1,251 Other Real Estate Expense 10 6 Other Operating Expense 4,045 4,266 ------- ------- Total Other Expense 15,607 15,586 Income Before Provision for Income Taxes 15,139 12,889 Provision for Income Taxes 5,908 5,185 ------- ------- NET INCOME $ 9,231 $ 7,704 ======= ======= Average: Common Shares Outstanding 5,930,197 6,029,856 Dilutive Stock Options 6,951 7,042 ---------- --------- Average Total Common Shares and Dilutive Options 5,937,148 6,036,898 EARNINGS PER COMMON SHARE Basic $ 1.56 $ 1.28 Diluted $ 1.55 $ 1.28
See accompanying notes to consolidated financial statements. 6 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands of dollars, except share and per share data)
For the Six Months Ended June 30, 2001 June 30, 2000 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 9,231 $ 7,704 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH Provision for Possible Loan Losses 810 600 Depreciation & Amortization 992 1,018 Amortization of Excess Cost Over Fair Value of Net Assets Acquired 181 181 Accretion of Discounts (453) (122) Amortization of Premiums 218 363 Decrease (Increase) in Accrued Interest Receivable 677 (187) Decrease in Other Assets (2,620) (1,424) Decrease in Accrued Interest Payable (715) (136) (Decrease) Increase in Other Liabilities (2,821) 99 Net Security Gains (395) -- -------- -------- Net Cash Provided by Operating Activities 5,105 8,096 CASH FLOWS FROM INVESTING ACTIVITIES Principal Payments on Investment Securities 1,083 482 Proceeds from Sale of Investment Securities, Available for Sale 1,005 -- Maturities of Investment Securities; Available for Sale 9,490 21,566 Purchases of Investment Securities; Available for Sale (2,100) (7,485) Maturities of Investment Securities; Held to Maturity 79,899 6,000 Purchases of Investment Securities; Held to Maturity (67,632) (12,342) Loan Disbursements & Repayments, Net (20,970) (23,712) Purchases of Premises & Equipment, Net (913) (622) Disposition of Other Real Estate Owned 175 -- -------- -------- Net Cash Provided by (Used in) Investing Activities 37 (16,113) CASH FLOWS FROM FINANCING ACTIVITIES Net Increase in Deposit Accounts 23,811 43,519 Net Proceeds from Other Borrowings -- 1,700 Dividends Paid to Shareholders (3,037) (2,662) Treasury Shares Acquired (3,415) (1,631) Stock Options Exercised 795 -- -------- -------- Net Cash Provided by Financing Activities 18,154 40,926 Net Increase in Cash & Cash Equivalents 23,296 32,909 Cash & Cash Equivalents Beginning of Period 73,284 53,452 -------- -------- Cash & Cash Equivalents End of Period $ 96,580 $ 86,361 ======== ========
See accompanying notes to consolidated financial statements. 7 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 June 30, 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 June 30, 2001 and 2000 Net Income Net income was $4,828,000 for the quarter, ahead 18.5 percent from $4,075,000 posted during the same period last year. Earnings per share for the quarter were $0.82 versus $0.68, a gain of 20.6 percent. Interest Income Interest income was $19,973,000 for the second quarter of 2001, up 5.0 percent from $19,017,000 posted for the same quarter in 2000. Average net loans during the second quarter of 2001 totaled $784,498,000, compared to $734,945,000 for the same period of 2000. During the second quarter of 2001, the yield was 8.39 percent (taxable-equivalent) on average earning assets of $956,401,000 down from 8.44 percent on average earning assets of $909,215,000 during the second 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 second quarter of 2001 was $6,396,000, up 3.7 percent from $6,169,000 for the same period of 2000. During the second quarter of 2001, the cost of funds was 3.80 percent (taxable-equivalent) on average interest-bearing liabilities of $672,784,000 up from 3.73 percent on average interest-bearing liabilities of $660,777,000 during the second quarter of 2000. Interest expense remained moderate as demand deposits comprised 28.6 percent of total deposits. Each of the Bank's demand deposit accounts has a related noninterest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the noninterest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in demand deposits in the accompanying consolidated statements of condition. 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 second quarter of 2001 was $13,172,000, up 5.0 percent from $12,548,000 during the same period of 2000. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.72 percent compared to 5.73 percent for the same period of 2000. 8 The following table details the components of Suffolk's net interest income on a taxable-equivalent basis: (dollars in thousands)
---------------------------------------------------------------------------------------------------------------------------- June 30, 2001 2000 ---------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS ---------------------------------------------------------------------------------------------------------------------------- U.S. treasury securities $ 22,823 $ 334 5.85% $ 31,320 $ 440 5.62% Collateralized mortgage obligations 82,788 1,435 6.94 66,879 1,233 7.37 Obligations of states and political subdivisions 13,157 250 7.59 30,829 493 6.40 U.S. govt. agency obligations 33,327 446 5.35 40,271 555 5.52 Corporate bonds and other securities 3,468 57 6.57 3,468 71 8.17 Federal funds sold and securities purchased under agreements to resell 16,340 166 4.06 1,503 24 6.44 Loans, including non-accrual loans Commercial, financial agricultural loans 146,825 3,279 8.93 138,547 3,669 10.59 Commercial real estate mortgages 157,865 3,564 9.03 151,355 3,356 8.87 Real estate construction loans 30,799 840 10.92 30,042 753 10.03 Residential mortgages (1st and 2nd liens) 90,003 1,948 8.66 84,565 1,897 8.97 Home equity loans 23,029 495 8.60 20,033 504 10.06 Consumer loans 333,623 7,251 8.69 309,723 6,200 8.01 Other loans (overdrafts) 2,354 -- -- 680 -- -- ---------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $ 956,401 $ 20,065 8.39% $ 909,215 $19,195 8.44% ============================================================================================================================ Cash and due from banks $ 56,652 $ 62,371 Other non-interest-earning assets 38,840 39,482 ---------------------------------------------------------------------------------------------------------------------------- Total assets $1,051,893 $1,011,068 ---------------------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES ---------------------------------------------------------------------------------------------------------------------------- Savings, N.O.W.'s and money market deposits $ 365,229 $ 2,146 2.35% $ 369,950 $ 2,208 2.39% Time deposits 291,167 4,049 5.56 259,095 3,450 5.33 ---------------------------------------------------------------------------------------------------------------------------- Total savings and time deposits 656,396 6,195 3.78 629,045 5,658 3.60 Federal funds purchased and securities sold under agreement to repurchase 2,394 24 4.03 7,335 116 6.35 Other borrowings 13,994 177 5.05 24,397 395 6.47 ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $ 672,784 $ 6,396 3.80% $ 660,777 $ 6,169 3.73 % ============================================================================================================================ Rate spread 4.59% 4.71% Non-interest-bearing deposits $ 267,318 $ 247,658 Other non-interest-bearing liabilities 22,942 25,319 ---------------------------------------------------------------------------------------------------------------------------- Total liabilities $ 963,044 $ 933,754 Stockholders' equity 88,849 77,314 ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,051,893 $1,011,068 Net-interest income (taxable-equivalent basis) and effective interest rate differential $ 13,669 5.72% $13,026 5.73% Less: taxable-equivalent basis adjustment (92) (178) ---------------------------------------------------------------------------------------------------------------------------- Net-interest income $ 13,577 $12,848 ============================================================================================================================
9 Other Income Other income increased to $2,456,000 for the three months compared to $1,841,000 the previous year. Service charges on deposits were up 14.7 percent. Service charges, including commissions and fees other than for deposits, increased by 3.0 percent. Trust revenue was up 25.3 percent. Other operating income increased by 123.4 percent. Net gains on the sale of securities amounted to $247,000. Other Expense Other expense for the second quarter of 2001 was $7,679,000, up 0.8 percent from $7,621,000 for the comparable period in 2000. Employee compensation decreased by 0.1 percent owing to a one-time recapture of employee benefits, net occupancy increased by 14.7 percent, equipment expense dropped by 4.6 percent, while other operating expense increased by 0.2 percent. Capital Resources Stockholders' equity totaled $91,443,000 on June 30, 2001, an increase of 3.8 percent from $88,053,000 on December 31, 2000. The ratio of equity to assets was 8.5 percent at June 30, 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 June 30, 2001 Total capital (to risk-weighted assets) $ 97,838 10.87% $ 71,994 8.00% $ 89,993 10.00% Tier 1 capital (to risk-weighted assets) 89,392 9.93% 35,997 4.00% 53,996 6.00% Tier 1 capital (to average assets) 89,392 8.50% 42,076 4.00% 52,595 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. 10 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 June 30 March 31 Dec. 31 Sept. 30 months 2001 2001 2000 2000 -------------------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses Beginning balance 7,527 8,061 7,749 7,676 7,527 Total charge-offs 831 202 144 279 206 Total recoveries 340 182 51 52 55 Provision for possible loan losses 1,410 405 405 300 300 -------------------------------------------------------------------------------------------------------------------------- Ending balance 8,446 8,446 8,061 7,749 7,676 ========================================================================================================================== Coverage ratios Loans, net of discounts: average 760,952 784,498 770,283 750,598 738,427 at end of period 781,884 796,974 795,669 775,997 758,894 Non-performing assets 2,662 2,578 2,686 2,700 2,685 Non-performing assets/total loans (net of discount) 0.34% 0.32% 0.34% 0.35% 0.35% Net charge-offs/average net loans (annualized) 0.07% 0.01% 0.05% 0.12% 0.08% Allowance/non-accrual, restructured, & OREO 300.15% 327.62% 300.11% 287.00% 285.88% Allowance for loan losses/net loans 1.02% 1.06% 1.01% 1.00% 1.01% --------------------------------------------------------------------------------------------------------------------------
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: August 14, 2001 /s/ Thomas S. Kohlmann ----------------------------- Thomas S. Kohlmann President & Chief Executive Officer Date: August 14, 2001 /s/ J. Gordon Huszagh ------------------------------ J. Gordon Huszagh Executive Vice President & Chief Financial Officer 11