-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+tij0ssMRqRAVB87ndQAOLkVCHseFjYiD9hsIv8nf3QptEJPA7xCJMwQ61xMg3i 3ulLuyM9wC50wzKSPuEOxg== 0001169232-03-003672.txt : 20030514 0001169232-03-003672.hdr.sgml : 20030514 20030514102950 ACCESSION NUMBER: 0001169232-03-003672 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUFFOLK BANCORP CENTRAL INDEX KEY: 0000754673 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 112708279 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13580 FILM NUMBER: 03697183 BUSINESS ADDRESS: STREET 1: 6 W SECOND ST CITY: RIVERHEAD STATE: NY ZIP: 11901 BUSINESS PHONE: 5167275667 MAIL ADDRESS: STREET 1: 6 WEST SECOND STREET CITY: RIVERHEAD STATE: NY ZIP: 11901 10-Q 1 d55593_10q.txt QUARTERLY REPORT 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, 2003 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.) 4 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. 11,041,981 SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 12, 2003 This page left blank intentionally. Page 2 SUFFOLK BANCORP AND SUBSIDIARIES page Part I - Financial Information (unaudited) Item 1. Financial Statements Consolidated Statements of Condition 4 Consolidated Statements of Income, For the Three Months Ended March 31, 2003 and 2002 5 Statements of Cash Flows, For the Three Months Ended March 31, 2003 and 2002 6 Notes to the Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Item 4. Controls and Procedures 12 Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders. 13 Item 6. Exhibits and Reports on Form 8-K. 13 Signatures 13 Certifications of Periodic Report 14 Page 3 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (in thousands of dollars except for share and per share data)
March 31, December 31, 2003 2002 ----------- ----------- unaudited ASSETS Cash & Due From Banks $ 44,078 $ 48,000 Federal Funds Sold 2,700 17,500 Investment Securities: Available for Sale, at Fair Value 362,594 359,903 Held to Maturity (Fair Value of $10,907 and $14,115, respectively) Obligations of States & Political Subdivisions 8,178 14,884 Federal Reserve Bank Stock 638 638 Federal Home Loan Bank Stock 1,361 1,361 Corporate Bonds & Other Securities 100 100 ----------- ----------- Total Investment Securities 372,871 376,886 Total Loans 802,777 788,557 Less: Allowance for Possible Loan Losses 8,552 8,695 ----------- ----------- Net Loans 794,225 779,862 Premises & Equipment, Net 21,283 20,437 Accrued Interest Receivable, Net 5,443 5,946 Excess of Cost Over Fair Value of Net Assets Acquired 814 814 Other Assets 20,617 23,272 ----------- ----------- TOTAL ASSETS 1,262,031 1,272,717 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Demand Deposits 301,835 314,714 Saving, N.O.W. & Money Market Deposits 559,226 557,967 Time Certificates of $100,000 or more 22,697 23,495 Other Time Deposits 238,071 246,406 ----------- ----------- Total Deposits 1,121,829 1,142,582 Federal Home Loan Bank Borrowings 18,500 -- Dividend Payable on Common Stock 2,136 1,956 Accrued Interest Payable 1,047 1,335 Other Liabilities 20,021 18,052 ----------- ----------- TOTAL LIABILITIES 1,163,533 1,163,925 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock (par value $2.50; 15,000,000 shares authorized; 11,084,181 and 11,489,481 shares outstanding at March 31, 2003 and December 31, 2002, respectively) 33,838 33,838 Surplus 19,230 19,230 Treasury Stock at Par (2,451,037 and 2,045,737 shares, respectively) (6,128) (5,114) Undivided Profits 43,828 52,453 ----------- ----------- 90,768 100,407 Accumulated Other Comprehensive Income, Net of Tax 7,730 8,385 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 98,498 108,792 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,262,031 $ 1,272,717 =========== ===========
See accompanying notes to consolidated financial statements. Page 4 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands of dollars except for share and per share data)
For the Three Months Ended March 31, 2003 March 31, 2002 -------------- -------------- unaudited unaudited INTEREST INCOME Federal Funds Sold $ 27 $ 131 United States Treasury Securities 104 139 Obligations of States & Political Subdivisions (tax exempt) 129 141 Mortgage-Backed Securities 3,188 2,756 U.S. Government Agency Obligations 826 654 Corporate Bonds & Other Securities 35 15 Loans 14,378 15,624 ----------- ----------- Total Interest Income 18,687 19,460 INTEREST EXPENSE Saving, N.O.W.'s & Money Market Deposits 1,190 1,613 Time Certificates of $100,000 or more 135 255 Other Time Deposits 1,604 2,597 Federal Funds Purchased 12 -- Interest on Other Borrowings 8 -- ----------- ----------- Total Interest Expense 2,949 4,465 Net-interest Income 15,738 14,995 Provision for Possible Loan Losses 270 300 ----------- ----------- Net-interest Income After Provision for Possible Loan Losses 15,468 14,695 OTHER INCOME Service Charges on Deposit Accounts 1,412 1,329 Other Service Charges, Commissions & Fees 510 322 Fiduciary Fees 280 285 Other Operating Income 315 284 ----------- ----------- Total Other Income 2,517 2,220 OTHER EXPENSE Salaries & Employee Benefits 5,448 5,045 Net Occupancy Expense 807 675 Equipment Expense 708 596 Other Operating Expense 2,171 2,198 ----------- ----------- Total Other Expense 9,134 8,514 Income Before Provision for Income Taxes 8,851 8,401 Provision for Income Taxes 3,512 3,340 ----------- ----------- NET INCOME $ 5,339 $ 5,061 =========== =========== Average: Common Shares Outstanding 11,311,275 11,767,980 Dilutive Stock Options 42,882 40,656 ----------- ----------- Average Total Common Shares and Dilutive Options 11,354,157 11,808,636 EARNINGS PER COMMON SHARE Basic $ 0.47 $ 0.43 Diluted $ 0.47 $ 0.43
See accompanying notes to consolidated financial statements. Page 5 SUFFOLK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
For the Three Months Ended March 31, 2003 March 31, 2002 -------------- -------------- unaudited unaudited CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 5,339 $ 5,061 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH Provision for Possible Loan Losses 270 300 Depreciation & Amortization 662 506 Accretion of Discounts (51) (214) Amortization of Premiums 1,105 421 Decrease (Increase) in Accrued Interest Receivable 502 (155) Decrease in Other Assets 2,656 1,914 Decrease in Accrued Interest Payable (287) (873) Increase in Other Liabilities 2,424 2,521 ----------- ----------- Net Cash Provided by Operating Activities 12,620 9,481 CASH FLOWS FROM INVESTING ACTIVITIES Principal Payments on Investment Securities 10,909 5,337 Purchases of Investment Securities; Available for Sale (15,767) (249) Maturities of Investment Securities; Held to Maturity 6,707 -- Purchases of Investment Securities; Held to Maturity -- (21,459) Loan Disbursements & Repayments, Net (14,633) 3,231 Purchases of Premises & Equipment, Net (1,507) (2,437) ----------- ----------- Net Cash Used in Investing Activities (14,291) (15,577) CASH FLOWS FROM FINANCING ACTIVITIES Net Decrease in Deposit Accounts (20,753) (8,414) Dividends Paid to Shareholders (1,956) (1,648) Treasury Shares Acquired (12,842) (1,379) Net Proceeds from Other Borrowings 18,500 -- ----------- ----------- Net Cash Used In Financing Activities (17,051) (11,441) Net Decrease in Cash & Cash Equivalents (18,722) (17,537) Cash & Cash Equivalents Beginning of Period 65,500 78,526 ----------- ----------- Cash & Cash Equivalents End of Period $ 46,778 $ 60,989 =========== ===========
See accompanying notes to consolidated financial statements. Page 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 ("GAAP") 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, 2002. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the remainder of the year. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three-Month Periods ended March 31, 2003 and 2002 Net Income Net income was $5,339,000 for the quarter, ahead 5.5 percent from $5,061,000 posted during the same period last year. Earnings per share for the quarter were $0.47 versus $0.43, a gain of 9.3 percent. Interest Income Interest income was $18,687,000 for the first quarter of 2003, down 4.0 percent from $19,460,000 posted for the same quarter in 2002. Average net loans during the first quarter of 2003 totaled $781,474,000 compared to $781,643,000 for the same period of 2002. During the first quarter of 2003, the yield was 6.43 percent (taxable-equivalent) on average earning assets of $1,166,228,000 down from 7.30 percent on average earning assets of $1,070,705,000 during the first quarter of 2002. Decreases in interest income were attributable primarily to decrease in interest income on loans, offset by increases in investment income as a result of 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 2003 was $2,949,000, down 34.0 percent from $4,465,000 for the same period of 2002. During the first quarter of 2003, the cost of funds was 1.44 percent (taxable-equivalent) on average interest-bearing liabilities of $817,803,000 down from 2.34 percent on average interest-bearing liabilities of $764,115,000 during the first quarter of 2002. Interest expense decreased primarily as a result of decreases in market rates of interest, and as average demand deposits comprised 28.8 percent of total deposits. Each of the Bank's demand deposit accounts has a related non-interest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the non-interest-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 first quarter of 2003 was $15,738,000, up 5.0 percent from $14,995,000 during the same period of 2002. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.42 percent compared to 5.63 percent for the same period of 2002. Page 7 The following table details the components of Suffolk's net interest income on a taxable-equivalent basis: (in thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------ March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------ INTEREST-EARNING ASSETS - ------------------------------------------------------------------------------------------------------------------------------ U.S. treasury securities $ 10,005 $ 106 4.24% $ 9,781 $ 142 5.82% Collateralized mortgage obligations 261,896 3,027 4.62 175,222 2,626 6.00 Mortgage backed securities 15,040 161 4.27 9,301 130 5.60 Obligations of states and political subdivisions 12,105 195 6.45 13,701 214 6.24 U.S. govt. agency obligations 74,674 826 4.43 49,143 654 5.32 Corporate bonds and other securities 2,099 36 6.75 1,850 15 3.15 Federal funds sold and securities purchased under agreements to resell 8,935 27 1.18 30,064 131 1.75 Loans, including non-accrual loans Commercial, financial & agricultural loans 150,516 2,078 5.52 132,328 2,152 6.51 Commercial real estate mortgages 183,235 3,774 8.24 167,926 3,614 8.61 Real estate construction loans 37,435 910 9.72 29,725 689 9.27 Residential mortgages (1st and 2nd liens) 92,759 1,732 7.47 91,202 1,851 8.12 Home equity loans 45,758 634 5.54 32,373 508 6.28 Consumer loans 268,856 5,250 7.81 325,627 6,810 8.37 Other loans (overdrafts) 2,915 -- -- 2,462 -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets $1,166,228 $ 18,756 6.43% $1,070,705 $ 19,536 7.30% ============================================================================================================================== Cash and due from banks $ 56,880 $ 51,635 Other non-interest-earning assets 53,057 50,017 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $1,276,165 $1,172,357 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST-BEARING LIABILITIES - ------------------------------------------------------------------------------------------------------------------------------ Saving, N.O.W.'s and money market deposits $ 547,421 $ 1,190 0.87% $ 464,241 $ 1,613 1.39% Time deposits 265,767 1,739 2.62 299,779 2,852 3.81 - ------------------------------------------------------------------------------------------------------------------------------ Total saving and time deposits 813,188 2,929 1.44 764,020 4,465 2.34 Federal funds purchased and securities sold under agreement to repurchase 2,225 12 2.07 95 -- 1.63 Other borrowings 2,390 8 1.38 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities $ 817,803 $ 2,949 1.44% $ 764,115 $ 4,465 2.34% ============================================================================================================================== Rate spread 4.99% 4.96% Non-interest-bearing deposits $ 328,367 $ 286,010 Other non-interest-bearing liabilities 27,632 25,617 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities $1,173,802 $1,075,742 Stockholders' equity 102,363 96,615 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $1,276,165 $1,172,357 Net-interest income (taxable-equivalent basis) and effective interest rate differential $ 15,807 5.42% $ 15,071 5.63% Less: taxable-equivalent basis adjustment (69) (76) - ------------------------------------------------------------------------------------------------------------------------------ Net-interest income $ 15,738 $ 14,995 ==============================================================================================================================
Other Income Other income increased to $2,517,000 for the three months compared to $2,220,000 the previous year. Service charges on deposits were up 6.2 percent. Service charges, including commissions and fees other than for deposits, increased by 58.4 percent. Trust revenue was down 1.8 percent. Other operating income increased by 10.9 percent. Page 8 Other Expense Other expense for the first quarter of 2003 was $9,134,000, up 7.3 percent from $8,514,000 for the comparable period in 2002. Employee compensation increased by 8.0 percent, net occupancy increased 19.6 percent, equipment expense increased by 18.8 percent, while other operating expense decreased by 1.2 percent. Capital Resources Stockholders' equity totaled $98,498,000 on March 31, 2003, a decrease of 9.5 percent from $108,792,000 on December 31, 2002. The ratio of equity to assets was 7.8 percent at March 31, 2003 and 8.5 percent at December 31, 2002. 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, 2003 Total Capital (to risk-weighted assets) $ 93,378 10.99% $ 71,604 8.00% $ 89,506 10.00% Tier 1 Capital (to risk-weighted assets) 89,826 10.04% 35,802 4.00% 53,703 6.00% Tier 1 Capital (to average assets) 89,826 7.04% 51,009 4.00% 63,761 5.00% ============================================================================================================== As of December 31, 2002 Total Capital (to risk-weighted assets) $ 117,251 13.39% $ 70,079 8.00% $ 87,599 10.00% Tier 1 Capital (to risk-weighted assets) 108,556 12.39% 35,039 4.00% 52,559 6.00% Tier 1 Capital (to average assets) 108,556 8.77% 49,490 4.00% 61,863 5.00% ==============================================================================================================
The following table details repurchases of common stock during the first quarter of 2003:
Period ending Total shares repurchased Average price per share Aggregate cost - ---------------------------------------------------------------------------------------- March 31, 2003 405,300 $ 31.69 $ 12,842,093 ========================================================================================
Stock-Based Compensation At March 31, 2003, Suffolk had one stock-based employee compensation plan. Suffolk accounts for that plan under the recognition and measurement principles of APB 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation costs are reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - --Transition and Disclosure" ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure and certain transition provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS No. 123"). The new disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Page 9 The following table provides the disclosures required by SFAS No. 148 and illustrates the effect on net income and earnings per share if Suffolk had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. - -------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------- Net income (in thousands) As reported $ 5,339 $ 5,061 Stock-based compensation costs determined under fair value method for all awards $ 10 $ 7 pro-forma $ 5,329 $ 5,054 Earnings per share (Basic) As reported $ 0.47 $ 0.45 pro forma $ 0.47 $ 0.45 Earnings per share (Diluted) As reported $ 0.47 $ 0.45 pro-forma $ 0.47 $ 0.45 ================================================================================ The fair value of the options granted in 2003 was $13,640. No options were granted during 2002. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2003: dividend yield of 2.60%; expected volatility of 26.5%; risk-free interest rate of 3.96%, and an expected life of 10.0 years. 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. The following table presents information about the allowance for possible loan losses: (in thousands of dollars except for ratios)
- ----------------------------------------------------------------------------------------------------------------------- For the For the three months ended last 12 Mar. 31 Dec. 31 Sept. 30 June 30 months 2003 2002 2002 2002 - ----------------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses Beginning balance $ 8,834 $ 8,695 $ 9,076 $ 8,957 $ 8,834 Total charge-offs 2,028 561 825 335 307 Total recoveries 396 148 84 94 70 Provision for possible loan losses 1,350 270 360 360 360 - ----------------------------------------------------------------------------------------------------------------------- Ending balance $ 8,552 $ 8,552 $ 8,695 $ 9,076 $ 8,957 ======================================================================================================================= Coverage ratios Loans, net of discounts: average $ 785,982 $ 781,474 $ 769,877 $ 789,784 $ 802,794 at end of period 795,903 802,777 788,557 785,582 806,694 Non-performing assets 1,943 1,272 1,758 1,753 2,987 Non-performing assets/total loans (net of discount) 0.24% 0.16% 0.22% 0.22% 0.37% Net charge-offs/average net loans (annualized) 0.21% 0.21% 0.38% 0.12% 0.12% Allowance/non-accrual, restructured, & OREO 496.13% 672.33% 494.60% 517.74% 299.87% Allowance for loan losses/net loans 1.11% 1.07% 1.10% 1.16% 1.11% - -----------------------------------------------------------------------------------------------------------------------
Page 10 Critical Accounting Policies, Judgments and Estimates Suffolk's accounting and reporting policies conform to the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for Credit Losses Suffolk considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses. All of these factors may change significantly. To the extent actual performance differs from management's estimates, additional provisions for loan losses may be required that would reduce earnings in future periods. Income Taxes Under the liability method, deferred tax assets and liabilities are determined by the difference between the financial statement, and the tax bases of assets and liabilities. Deferred tax assets are subject to management's judgment of available evidence that future realization is more likely than not. If management determines that Suffolk may be unable to realize all or part of the net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the amount management expects can be realized. Recent Accounting Pronouncements Suffolk implemented SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. As of March 31, 2003, the balance of excess cost over the fair value of net assets acquired recorded on Suffolk's statement of condition was $814,000. During the first quarter of 2003, Suffolk determined that there was no impairment of the goodwill recorded on its books and no expense was recorded. Suffolk adopted FASB Interpretation 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Suffolk has financial and performance letters of credit. Financial letters of credit require Suffolk to make payment if the customer's financial condition deteriorates, as defined in the agreements. Performance letters of credit require Suffolk to make payments if the customer fails to perform certain non-financial contractual obligations. Suffolk previously did not record a liability when guaranteeing obligations unless it became probable that Suffolk would have to perform under the guarantee. FIN 45 applies prospectively to guarantees Suffolk issues or modifies subsequent to December 31, 2002. The maximum potential undiscounted amount of future payments of these letters of credit as of March 31, 2003 is $8,166,000 and they expire as follows: - -------------------------------------------------------------------------------- 2003 $ 5,146,000 2004 2,341,000 2005 100,000 2006 478,000 2007 101,000 - -------------------------------------------------------------------------------- $ 8,166,000 ================================================================================ Amounts due under these letters of credit would be reduced by any proceeds that Suffolk would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. The valuation of the allowance for loan losses includes a provision of $12,249 for possible loan losses based on the letters of credit outstanding on March 31, 2003. In January 2003, the FASB issued FASB Interpretation 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements", for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from Page 11 other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Suffolk is in the process of determining what effects, if any, the adoption of the provisions of FIN 46 will have upon its financial condition or results of operations. Suffolk does not anticipate FIN 46 to have a material impact on the consolidated financial position or results of operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 re-priced 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, 2002. Business Risks and Uncertainties This report contains some statements that look to the future. These may include remarks about Suffolk Bancorp, the banking industry, and the economy in general. Factors affecting Suffolk Bancorp include particularly, but are not limited to: changes in interest rates; increases or decreases in retail and commercial economic activity in Suffolk's market area; variations in the ability and propensity of consumers and businesses to borrow, repay, or deposit money, or to use other banking and financial services. Further, it could take Suffolk longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require Suffolk to change its practices in ways that materially change the results of operation. Each of the factors may change in ways that management does not now foresee. These remarks are based on current plans and expectations. They are subject, however, to a variety of uncertainties that could cause future results to vary materially from Suffolk's historical performance, or from current expectations. Item 4. Controls and Procedures Suffolk's Chief Executive Officer and Chief Financial Officer (collectively, the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures for Suffolk. Based upon their evaluation of these controls and procedures as of a date within ninety (90) days of the filing of this report, the Certifying Officers have concluded that Suffolk's disclosure controls and procedures are effective to ensure that information required to be disclosed by Suffolk in this report is accumulated and communicated to Suffolk's management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure. The Certifying Officers also have indicated that there were no significant changes in Suffolk's internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. Page 12 PART II Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the shareholders was held at 1:00 PM on April 8, 2003 at the Administrative and Lending Center of the Suffolk County National Bank in Riverhead, New York. Three directors were elected for a term of three years and the appointment of Grant Thornton, L.L.P. as independent auditors for the fiscal year ending December 31, 2003 was ratified. The following table details the vote: - -------------------------------------------------------------------------------- Shares Voted Nominees for Director For Withheld - -------------------------------------------------------------------------------- James E. Danowski 7,798,003 707,678 Thomas S. Kohlmann 7,798,003 707,678 Terence X. Meyer 7,797,465 708,215 Ratification of Independent Auditors For Against Abstain - -------------------------------------------------------------------------------- Grant Thornton, L.L.P. 7,881,237 528,588 95,855 - -------------------------------------------------------------------------------- Summary Outstanding # Voted % Voted - -------------------------------------------------------------------------------- At Date of Record 11,239,481 8,505,681 75.7% ================================================================================ Item 6. Exhibits and Reports on Form 8-K. Current Report on Form 8-K - April 22, 2003 - Press Release of April 8, 2003, "Suffolk Bancorp Announces 9.3 Percent Increase in Earnings Per Share." 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 14, 2003 /s/ Thomas S. Kohlmann ---------------------- Thomas S. Kohlmann President & Chief Executive Officer Date: May 14, 2003 /s/ J. Gordon Huszagh --------------------- J. Gordon Huszagh Executive Vice President & Chief Financial Officer Page 13 CERTIFICATION OF PERIODIC REPORT I, Thomas S. Kohlmann, Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Suffolk Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within ninety (90) days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 /s/ Thomas S. Kohlmann - ---------------------- Thomas S. Kohlmann President & Chief Executive Officer Page 14 CERTIFICATION OF PERIODIC REPORT I, J. Gordon Huszagh, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Suffolk Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within ninety (90) days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 /s/ J. Gordon Huszagh - --------------------- J. Gordon Huszagh Executive Vice President & Chief Financial Officer Page 15 EX-99.1 3 d55593_ex99-1.txt CERTIFICATION CERTIFICATION OF PERIODIC REPORT Exhibit 99.1 I, Thomas S. Kohlmann and President & Chief Executive Officer of Suffolk Bancorp (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2003 /s/ Thomas S. Kohlmann - ---------------------- Thomas S. Kohlmann President & Chief Executive Officer EX-99.2 4 d55593_ex99-2.txt CERTIFICATION CERTIFICATION OF PERIODIC REPORT Exhibit 99.2 I, J. Gordon Huszagh, Executive Vice President & Chief Financial Officer of Suffolk Bancorp (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2003 /s/ J. Gordon Huszagh - --------------------- J. Gordon Huszagh Executive Vice President & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----