<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File Number 0-13580
SUFFOLK BANCORP
(Exact name of registrant as specified in its charter)
New York 11-2708279
(State or other jurisdiction of (IRS Employer
incorporation or organization) dentification No.)
6 West Second Street, Riverhead, New York 11901
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 727-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5 Par Value
(Title of Class)
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 .
--- ---
Class of Common Stock Number of Shares Outstanding as of February 23, 1995
--------------------- ----------------------------------------------------
$ 5 Par Value 3,799,642
The aggregate market value of the Registrant's Common Stock (based on the most
recent sale at $27.25 on March 21, 1995) held by non-affiliates was
approximately $98,148,423.
<PAGE> 2
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held April 11, 1995, filed on March 15, 1995. (Part III)
ITEM 1. Business
SUFFOLK BANCORP ("Registrant")
Registrant was incorporated on January 2, 1985 for the purpose of becoming a
bank holding company. On that date, the Registrant acquired, and now owns, all
of the outstanding capital stock of The Suffolk County National Bank. On July
14, 1988, the Registrant acquired and now owns all the outstanding capital stock
of Island Computer Corporation of New York, Inc. The business of the Registrant
consists primarily of the ownership, supervision, and control of its
subsidiaries. On April 11, 1994, the Registrant acquired all the outstanding
capital stock of Hamptons Bancshares, Inc. and merged it into a subsidiary.
The registrant's chief competition is local banking institutions with main or
branch offices in the service area of The Suffolk County National Bank,
including North Fork Bank and Trust Co., and Bridgehampton National Bank.
Additionally, New York City money center banks and regional banks provide
competition. These banks include Bank of New York, Chemical Bank, Fleet Bank,
European American Bank and National Westminster Bank USA.
Registrant and its subsidiaries had 375 full-time and 43 part-time employees as
of December 31, 1994.
THE SUFFOLK COUNTY NATIONAL BANK ("Bank")
The Suffolk County National Bank of Riverhead was organized under the National
Banking laws of the United States of America on January 6, 1890. The Bank is a
member of the Federal Reserve System, and its deposits are insured by the
Federal Deposit Insurance Corporation to the extent provided by law.
Directed by members of the communities it serves, the Bank's main service area
includes the towns of Brookhaven, Islip, Riverhead, Southampton, and Southold.
The main office of the Bank is situated at 6 West Second Street, Riverhead, New
York. Its branch offices are located at Bohemia, Center Moriches, Cutchogue,
East Hampton, Hampton Bays, Mattituck, Medford, Miller Place, Montauk,
Riverhead, Port Jefferson, Sag Harbor, Shoreham, Southampton, Wading River,
Water Mill, and Westhampton Beach, New York.
The Bank is a full-service bank serving the needs of the local residents of
eastern Suffolk County. Approximately 90 percent of the Bank's business is
devoted to rendering services to those residing in the immediate area of the
Bank's main and branch offices. Among the services rendered by the Bank are the
maintenance of checking accounts, savings accounts, time and savings
certificates, money market accounts, negotiable-order-of-withdrawal accounts,
holiday club accounts and individual retirement accounts; the making of secured
and unsecured loans, including commercial loans to individuals, partnerships and
corporations, agricultural loans to farmers, installment loans to finance small
businesses, mobile home loans, automobile loans, home equity and real estate
mortgage loans; the maintenance of safe deposit boxes; the performance of trust
and estate services, the sale of mutual funds and annuities, and the maintenance
of a master pension plan for self-employed individuals' participation. The
business of the Bank is only mildly seasonal, as a great majority of the Bank's
business is devoted to those residing in the Bank's service area.
ISLAND COMPUTER CORPORATION OF NEW YORK, INC. ("Island Computer")
Island Computer Corporation of New York, Inc. is a data processing company which
serves several bank and thrift institutions, including The Suffolk County
National Bank.
(2)
<PAGE> 3
Supervision and Regulation
References in this section to applicable statutes and regulations are brief
summaries only, and do not purport to be complete. The reader should consult
such statutes and regulations themselves for a full understanding of the
details of their operation.
SUFFOLK is a bank holding company registered under the BHC Act, and is subject
to supervision and regulation by the Federal Reserve Board. Federal laws
subject bank holding companies to particular restrictions on the types of
activities in which they may engage, and to a range of supervisory requirements
and activities, including regulatory enforcement actions for violation of laws
and policies.
Activities "Closely Related" to Banking.
The BHC Act prohibits a bank holding company, with certain limited exceptions,
from acquiring direct or indirect ownership or control of any voting shares of
any company which is not a bank or from engaging in any activities other than
those of banking, managing or controlling banks and certain other subsidiaries,
or furnishing services to or performing services for its subsidiaries. One
principal exception to these prohibitions allows the acquisition of interests
in companies whose activities are found by the Federal Reserve Board, by order
or regulation, to be so closely related to banking, managing, or controlling
banks as to be a proper incident thereto.
Safe and Sound Banking Practices.
Bank holding companies are not permitted to engage in unsafe and unsound
banking practices. The Federal Reserve Board may order a bank holding company
to terminate an activity or control of a nonbank subsidiary if such activity or
control constitutes a significant risk to the financial safety, soundness or
stability of a subsidiary bank and is inconsistent with sound banking
principles. Regulation Y also requires a holding company to give the Federal
Reserve Board prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of the company's consolidated net worth.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") expanded the Federal Reserve Board's authority to prohibit activities
of bank holding companies and their nonbanking subsidiaries which represent
unsafe and unsound banking practices or which constitute violations of laws or
regulations. Notably, FIRREA increased the amount of civil money penalties which
the Federal Reserve Board can assess for such practices or violations. The
penalties can be as high as $1 million per day. FIRREA also expanded the scope
of individuals and entities against which such penalties may be assessed.
Annual Reporting; Examinations.
SUFFOLK is required to file an annual report with the Federal Reserve Board,
and such additional information as the Federal Reserve Board may require
pursuant to the BHC Act. The Federal Reserve Board may examine a bank holding
company or any of its subsidiaries, and charge the company for the cost of such
an examination. SUFFOLK is also subject to reporting and disclosure
requirements under state and federal securities laws.
(3)
<PAGE> 4
Imposition of Liability for Undercapitalized Subsidiaries.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities, as
well as reflect the actual performance and expected risk of loss on multi-family
mortgages. The new law also required each federal banking agency to specify, by
regulation, the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the regulations
adopted by the banking agencies, SCNB would be deemed to be "well capitalized."
FDICIA requires bank regulators to take "prompt corrective action" to resolve
problems associated with insured depository institutions. In the event an
institution becomes "undercapitalized," it must submit a capital restoration
plan. If an institution becomes "significantly undercapitalized" or "critically
undercapitalized," additional and significant limitations are placed on the
institution. The capital restoration plan of an undercapitalized institution
will not be accepted by the regulators unless each company "having control of"
the undercapitalized institution "guarantees" the subsidiary's compliance with
the capital restoration plan until it becomes "adequately capitalized." SUFFOLK
has control of SCNB for purpose of this statute.
Additionally, Federal Reserve Board policy discourages the payment of dividends
by a bank holding company from borrowed funds as well as payments that would
adversely affect capital adequacy. Failure to meet the capital guidelines may
result in institution by the Federal Reserve Board of appropriate supervisory
or enforcement actions.
Acquisitions by Bank Holding Companies.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve Board before it may acquire all or substantially all of the
assets of any bank, or ownership or control of any voting shares of any bank,
if after such acquisition it would own or control, directly or indirectly, more
than 5% of the voting shares of such bank. In approving bank acquisitions by
bank holding companies, the Federal Reserve Board is required to consider the
financial and managerial resources and future prospects of the bank holding
company and the banks concerned, the convenience and needs of the communities
to be served, and various competitive factors. The Attorney General of the
United States may, within 30 days after approval of an acquisition by the
Federal Reserve Board, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts.
Interstate Acquisitions.
The Federal Reserve Board will only allow the acquisition by a bank holding
company of an interest in any bank located in another state if the statutory
laws of the state in which the target bank is located expressly authorize such
acquisition. New York banking laws permit, in certain circumstances,
out-of-state bank holding companies to acquire certain existing banks and bank
holding companies in New York.
Banking Regulation.
SCNB is a national bank, which is subject to regulation and supervision by the
Comptroller. SCNB is subject to the requirements and restrictions under federal
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon, and limitations on the types of investments that may be
made and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the banks.
(4)
<PAGE> 5
Restrictions on Transactions with Affiliates.
Section 23A of the Federal Reserve Act imposes quantitative and qualitative
limits on transactions between a bank and any affiliate, and also requires
certain levels of collateral for such loans. It also limits the amount of
advances to third parties which are collateralized by the securities or
obligations of SUFFOLK or its subsidiaries.
Among other things, Section 23B requires that certain transactions between
SCNB's affiliates must be on terms substantially the same, or at least as
favorable, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated companies. In the absence of such comparable
transactions, any transaction between SUFFOLK and its affiliates must be on
terms and under circumstances, including credit standards, that in good faith
would be offered to or would apply to nonaffiliated companies.
Restrictions on Subsidiary Bank Dividends.
The Federal Reserve Board and the Comptroller have each issued policy
statements to the effect that bank holding companies and national banks should
generally only pay dividends out of current operating earnings. The prior
approval of the Comptroller is required if the total of all dividends declared
by the board of directors of a national bank in any calendar year will exceed
the aggregate of the bank's net profits (as defined by regulatory authorities)
for that year and its retained net profits for the preceding two years. In
addition, national banks can pay dividends only to the extent that retained net
profits exceed "bad debts," which are generally defined to include the
principal amount of loans that are in arrears as to interest by six months or
more and that are not secured and that are not in the process of collection. As
of September 30, 1993, SCNB could have declared additional dividends to SUFFOLK
of approximately $14.1 million without regulatory approval or restriction.
Federal banking regulators also may prohibit federally insured banks from
paying dividends if the payment of such dividend would leave the bank
"undercapitalized" as defined in FDICIA and the implementing regulations or the
payment of dividends would, in light of the financial condition of such bank,
constitute an unsafe or unsound practice.
Examinations.
The FDIC periodically examines and evaluates insured banks. Based upon such an
evaluation, the FDIC may revalue the assets of an insured institution and
require that it establish specific reserves to compensate for the difference
between the FDIC-determined value and the book value of such assets. Effective
December 19, 1992, FDICIA requires that these on-site examinations be conducted
every 18 months until December 31, 1993, except that certain
less-than-satisfactory institutions must be examined every 12 months.
Thereafter, the examinations are to be conducted every 12 months, except that
certain well capitalized banks may be examined every 18 months. FDICIA
authorizes the FDIC to assess the institution for its costs of conducting the
examinations. The rules and regulations of the Comptroller also provide for
periodic examinations by those agencies.
Standards for Safety and Soundness.
As part of the FDICIA's efforts to promote the safety and soundness of
depository institutions and their holding companies, the appropriate federal
banking regulators are required to promulgate by December 1, 1993 regulations
specifying operational and management standards (addressing internal controls,
loan documentation, credit underwriting and interest rate risk) and asset
quality, earnings and stock valuation standards (including a minimum ratio of
market value to book value of the publicly traded shares of such depository
institutions and holding companies). The Federal Reserve Board issued on April
19, 1993, proposed regulations on standards for safety and soundness, and is
seeking public comment on this proposal. The impact of these regulations is
difficult to determine until final regulations are issued. The proposed
regulations did not address standards for a minimum ratio of market value to
book value because the Board found that market value is affected by factors
unrelated to safety and soundness.
(5)
<PAGE> 6
Expanding Enforcement Authority.
One of the major additional burdens imposed on the banking industry by FDICIA
is the increased ability of banking regulators to monitor the activities of
banks and their holding companies. In addition, the Federal Reserve Board,
Comptroller and FDIC are possessed of extensive authority to police unsafe or
unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. For example, the FDIC may
terminate the deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also assess civil
money penalties of up to $1 million per day, issue cease and desist or removal
orders, seek injunctions, and publicly disclose such actions. FDICIA, FIRREA
and other laws have expanded the agencies' authority in recent years, and the
agencies have not yet fully tested the limits of their powers.
Recent Legislation
As a consequence of the extensive regulation of commercial banking activities
in the United States, the business of Suffolk and its subsidiaries are
particularly susceptible to being affected by enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities or enhancing the competitive
position of other financial institutions.
In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
was enacted by Congress. Under the act, begining on September 29, 1995, bank
holding companies may acquire banks in any state, notwithstanding contrary
state law, and all banks commonly owned by a bank holding company may act as
agents for one another. An agent bank may receive deposits, renew time
deposits, accept payments, and close and service loans for its principal banks
but will not be considered to be a branch of the principal banks.
Banks also may merge with banks in another state and operate either office as a
branch, pre-existing contrary state law notwithstanding. This law becomes
automatically effective in all states on June 1, 1997, unless (1) the law
becomes effective in a given state at any earlier date through legislation in
that state; or (2) the law does not become effective at all in a given state if
by legislation enacted before June 1, 1997, that state opts out of coverage by
the interstate branching provision. Upon consummation of an interstate merger,
the resulting bank may acquire or establish branches on the same basis that any
participants in the merger could have if the merger had not taken place.
Banks may also merge with branches of banks in other states without merging
with the banks themselves, or may establish de novo branches in other states,
if the laws of the other states expressly permit such mergers or such
interstate de novo branching.
Governmental Monetary Policies and Economic Conditions
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, stockholder's equity and borrowed funds. The
availability of these various sources of funds and other potential sources,
such as preferred stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which are the FRB's
monetary policies and the relative costs of different types of funds. An
important function of the FRB is to regulate the national supply of bank credit
in order to combat recession and curb inflationary pressure. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
these objections are open market operations in United States Government
securities, changes in the discount rate on bank borrowings, and changes in
reserve requirements against bank deposits. The monetary policies of the FRB
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to do so in the future. In view of the
recent changes in regulations affecting commercial banks and other actions and
proposed actions by the federal government and its monetary and fiscal
authorities, including proposed changes in the structure of banking in the
United States, no prediction can be made as to future changes in interest
rates, credit availability, deposit levels, the overall performance of banks
generally or Suffolk and its subsidiaries in particular.
(6)
<PAGE> 7
STATISTICAL DISCLOSURE
Pages 6 through 17 of this Annual Report to Shareholders for the fiscal year
ended December 31, 1994.
ITEM 2. Properties
Registrant
Registrant as such has no physical properties. Office facilities of the
Registrant are located at 6 West Second Street, Riverhead, New York.
Bank
The Bank's main offices are also located at 6 West Second Street, Riverhead, New
York, which the Bank owns in fee. The Bank owns a total of 17 buildings in fee,
and holds 11 buildings under lease agreements.
Island Computer
Island Computer's offices are located at 40 Orville Drive, Bohemia, New York,
which Island Computer holds under a lease agreement.
In the opinion of management of the Registrant, the physical facilities are
suitable and adequate and at present are being fully utilized. The Company,
however, is evaluating future needs, and anticipates changes in its facilities
during the next several years.
ITEM 3. Legal Proceedings
There are no material legal proceedings, individually or in the aggregate to
which the Registrant or its subsidiaries are a party or of which any of the
property is subject.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Pages 6 and 20 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1994.
At December 31, 1994, there were approximately 1,700 equity holders of record of
the Company's common stock.
(7)
<PAGE> 8
ITEM 6. Selected Financial Data
Page 31 of this Annual Report to Shareholders for the fiscal year ended December
31, 1994.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 7 through 17 of this Annual Report to Shareholders for the fiscal year
ended December 31, 1994.
ITEM 8. Financial Statements and Supplementary Data
Pages 18 to 31 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1994.
The Company's annual report to shareholders was incorrect with respect to the
pro forma results of operations disclosed in footnote 2 to the financial
statements on page 23. The following table presents that information correctly.
Unaudited Pro Forma Results of Operations: (in thousands of dollars except share
and per-share data)
<TABLE>
<CAPTION>
December 31, 1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $54,527 $55,582
Interest expense 16,481 17,542
---------------------------------------------------------------------------------------------------------------------------
Net interest income 38,046 38,040
Provision for possible loan losses 805 1,398
Other income 5,906 6,554
Other expenses 30,321 31,223
---------------------------------------------------------------------------------------------------------------------------
Net operating expense 25,220 24,669
Income before taxes and cumulative effect
of change in accounting principle 12,826 11,973
Provision for income taxes 4,713 4,162
---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 8,113 7,811
Cumulative effect of change in accounting principle - 665
---------------------------------------------------------------------------------------------------------------------------
Net income $ 8,113 $ 8,476
Earnings-per-share $ 2.13 $ 2.24
---------------------------------------------------------------------------------------------------------------------------
Average shares 3,800,250 3,792,045
===========================================================================================================================
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Pages 2 - 8 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 11, 1995 is incorporated herein by reference.
(8)
<PAGE> 9
Executive Officers
<TABLE>
<CAPTION>
Name Age Position Business Experience
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward J. Merz 63 President & Chief 12/87 - 12/94 President & CEO
Executive Officer 9/75 - 12/87 President & CAO
Employed by The Suffolk County National Bank
Since September 1975
Victor F. Bozuhoski, Jr. 56 Executive Vice President & 12/88 - 12/94 EVP & CFO
Chief Financial Officer 12/87 - 12/88 EVP & Comptroller, CFO
12/85 - 12/87SVP & Comptroller
1/78 - 12/85 VP & Comptroller
Employed by The Suffolk County National Bank
Since September 1965.
Ronald M. Krawczyk 45 Executive Vice President 4/94 - 12/94 EVP
1/93 - 4/94 President & Chief Executive Officer
Bank of the Hamptons
Officer of Bank of the Hamptons since 1984
Employed by The Suffolk County National Bank
Since April 1994
Robert C. Dick 45 Senior Vice President 12/88 - 12/94 SVP
4/88 - 12/88 SVP & Compliance Officer
12/82 - 4/88 VP
Employed by The Suffolk County National Bank
Since January 1980
Thomas S. Kohlmann 48 Senior Vice President 2/92 - 12/94 SVP
1980 - 1992 SVP Marine Midland Bank
Employed by The Suffolk County National Bank
Since February 1992
Alexander B. Doroski 46 Senior Vice President, 4/88 - 12/94 SVP & Chief Operations Officer
Cashier & Chief Operations 12/85 - 4/88 VP & Cashier
Officer 12/80 - 12/85 VP
Employed by The Suffolk County National Bank
Since April 1971
John F. Hanley 48 Senior Vice President 4/86 - 12/94 SVP
12/80 - 4/86 VP
Employed by The Suffolk County National Bank
Since September 1971
J. Gordon Huszagh 41 Senior Vice President & 12/92 - 12/94 SVP & Comptroller
Comptroller 12/88 - 12/92 VP & Comptroller
12/86 - 12/88 VP
1/83 - 12/86 Auditor
Employed by The Suffolk County National Bank
Since January 1983
Augustus C. Weaver 52 President, Island Computer 2/87 - 12/94 President Island Computer Corporation of New York,
Inc.
2/86 - 2/87 Director of Data Processing and Corporate Planning,
Southland Frozen Food Corporation
2/62 - 2/86 First VP & Director of Operations, Long Island
Savings Bank
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11. Executive Compensation
Pages 3 - 8 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 11, 1995 is incorporated herein by reference.
(9)
<PAGE> 10
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Pages 2, 4, 5, 6, and 8 of Registrant's Proxy Statement for its Annual Meeting
of Shareholders to be held on April 11, 1995 is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions
Pages 7 and 8 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 11, 1995 is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements of the Registrant and
Subsidiaries, and the accountant's report thereon, included on Page 18 through
32 inclusive, of Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1994.
Financial Statements (Consolidated)
Statements of Condition - December 31, 1994 and 1993
Statements of Income - For the years ended December 31, 1994, 1993, and
1992
Statements of Changes in Stockholders' Equity - For the years ended
December 31, 1994, 1993, and 1992
Statements of Cash Flows - For the years ended December 31, 1994, 1993,
and 1992
Notes to Consolidated Financial Statements
EXHIBITS
The following exhibits, which supplement this report, have been filed with
the Securities and Exchange Commission. Suffolk Bancorp will furnish a copy
of any or all of the following exhibits to any person so requesting in
writing to Secretary, Suffolk Bancorp, 6 West Second Street, Riverhead,
New York 11901.
A. Certificate of Incorporation of Suffolk Bancorp (filed by incorporation
by reference to Suffolk Bancorp's Form 10-K for the fiscal year ended
December 31, 1985, filed March 18, 1986)
B. Bylaws of Suffolk Bancorp (filed by incorporation by reference to
Suffolk Bancorp's Form 10-K for the fiscal year ended December 31,
1985, filed March 18, 1986.)
The following Exhibit is submitted herewith:
C. Notice of Annual Meeting and Proxy Statement.
Reports on Form 8-K
There were no reports filed on Form 8-K for the three month period ended
December 31, 1994.
(10)
<PAGE> 11
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.
SUFFOLK BANCORP March 28, 1995
--------------------
(Registrant)
By /s/ Raymond A. Mazgulski
--------------------------------------
RAYMOND A. MAZGULSKI
Chairman of the Board
By /s/ Edward J. Merz
-------------------------------------
EDWARD J. MERZ
President
Chief Executive Officer
Director
By /s/ Victor F. Bozuhoski, Jr.
-------------------------------------
VICTOR F. BOZUHOSKI, JR.
Executive Vice President,
Chief Financial Officer & Treasurer
<TABLE>
<S> <C>
/s/ Joseph A. Deerkoski /s/ Howard M. Finkelstein
-------------------------------- ------------------------------------
JOSEPH A. DEERKOSKI HOWARD M. FINKELSTEIN
Director Director
/s/ Edgar F. Goodale /s/ J. Douglas Stark
------------------------------- ------------------------------------
EDGAR F. GOODALE J. DOUGLAS STARK
Director Director
/s/ Hallock Luce 3rd /s/ Peter Van de Wetering
----------------------------- ------------------------------------
HALLOCK LUCE 3RD PETER VAN DE WETERING
Director Director
/s/ Bruce Collins /s/ John J. Raynor
---------------------------- ------------------------------------
BRUCE COLLINS JOHN J. RAYNOR
Director Director
</TABLE>
EXHIBIT INDEX
-------------
Description Exhibit Pages
----------- ------- -----
1994 Annual Report to Shareholders 13 1-36
Financial Data Schedule 27
(11)
<PAGE> 1
PHOTOGRAPH OF SHINNECOCK CANAL
NO BORDERS - FOUR COLOR BLEED
[SUFFOLK BANCORP LOGO]
ANNUAL REPORT 1994
<PAGE> 2
ON THE COVER
THE SHINNECOCK CANAL
The Shinnecock Canal opened in 1886, providing a link between Shinnecock Bay, in
the foreground, and Great Peconic Bay. Coastal mariners were saved the long
traverse of open ocean to Montauk Point and no longer had to run through the
treacherous inlets in the barrier beaches of Long Island's south shore. Named
for the Shinnecock tribe whose reservation is still found several miles to the
east in Southampton, the canal also marks the line between the branch office
networks of The Suffolk County National Bank and the former Bank of the
Hamptons, acquired during the past year. Bridges carrying Montauk Highway, The
Long Island Railroad, and Sunrise Highway tie the South Fork to Suffolk
Bancorp's traditional markets.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Corporate Profile & Financial Highlights............................ 1
Message to the Shareholders......................................... 2
Commentary.......................................................... 3
Summary of Selected Financial Data................................. 6
Price Range of Common Stock & Dividends............................ 6
Management's Discussion & Analysis of Financial Condition
and Results of Operations........................................ 7
The Company's Business............................................. 7
Acquisition of Hamptons Bancshares, Inc............................ 7
General Economic Conditions........................................ 8
Results of Operations.............................................. 8
Net Income......................................................... 8
Net-interest Income................................................ 8
Average Assets, Liabilities, & Stockholders' Equity, Rate Spread,
& Effective Interest Rate Differential........................... 9
Analysis of Changes in Net-interest Income......................... 10
Interest Income.................................................... 10
Investment Securities.............................................. 10
Loan Portfolio..................................................... 11
Summary of Loan Loss Experience
& Allowance for Possible Loan Losses............................. 13
Interest Expense................................................... 14
Deposits........................................................... 14
Short Term Borrowings.............................................. 14
Other Income....................................................... 15
Other Expense...................................................... 15
Interest Rate Sensitivity.......................................... 15
Asset/Liability Management & Liquidity............................. 16
Business Risks & Uncertainties..................................... 16
Capital Resources.................................................. 16
Risk-Based Capital/Leverage Guidelines............................. 17
Discussion of Current Accounting Principles........................ 17
Consolidated Statements of Condition............................... 18
Consolidated Statements of Income.................................. 19
Consolidated Statements of Changes in Stockholders' Equity......... 20
Consolidated Statements of Cash Flows.............................. 21
Notes to Consolidated Financial Statements......................... 22
Independent Auditors' Report....................................... 32
Report of Management............................................... 33
Suffolk Bancorp: Directors and Officers............................ 34
Island Computer Corporation: Directors and Officers................ 34
The Suffolk County National Bank: Directors and Officers........... 35
Directory of Offices and Departments:
Addresses, Telephones, and Telecopiers......................inside back cover
</TABLE>
This statement has not been reviewed or confirmed for accuracy or relevance
by the Office of the Comptroller of the Currency.
<PAGE> 3
CORPORATE PROFILE
Suffolk Bancorp is engaged in the commercial banking business
through its wholly owned subsidiary, The Suffolk County National Bank. "SCNB"
is a full-service commercial bank. Organized in 1890, the Bank is the second
largest independent bank headquartered on Long Island. The Bank has built a
strong local reputation by providing personal service which has developed a
loyal and growing clientele.
The Bank focuses on developing and maintaining ties to the
communities it serves. Its business is primarily retail, and emphasizes loans
to individual consumers, and to small and medium-sized commercial enterprises.
It has special expertise in indirect retail lending, evaluating and buying
loans generated by automobile dealers. The Bank's primary market is Suffolk
County, New York, which is increasingly suburban in character. The County has a
population of more than 1.3 million people, and incomes above the national
average.
Suffolk Bancorp also owns Island Computer Corporation of New York,
Inc., a bank data processing company located in Bohemia, New York. On April 11,
1994, Suffolk Bancorp acquired Hamptons Bancshares, Inc., a bank holding
company on the south fork of Long Island which had eight offices and
$160,000,000 in assets. The following information for 1994 reflects the
earnings from Hamptons Bancshares from April 11, 1994.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(dollars in thousands,
except ratios, share, and
per-share information)
--------------------------------------------------------------------------------------------------------------------------------
SUFFOLK BANCORP December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS FOR THE YEAR Income before cumulative effect of accounting change $ 8,318 $ 7,689
Cumulative effect of accounting change - 624
Net income 8,318 8,313
Net-interest income 35,830 29,472
Income before accounting change per-share 2.25 2.27
Cumulative effect of accounting change per-share - 0.18
Net income-per-share 2.25 2.45
Cash dividends-per-share 0.71 0.68
--------------------------------------------------------------------------------------------------------------------------------
BALANCES AT YEAR-END Assets $811,654 $642,359
Net loans 529,075 406,740
Investment securities available for sale 68,261 -
Investment securities held to maturity 126,380 194,391
Deposits 723,993 568,768
Equity 77,093 63,284
Shares outstanding 3,799,674 3,396,460
Book value per common share $ 20.29 $ 18.63
--------------------------------------------------------------------------------------------------------------------------------
RATIOS Return on average equity 11.50% 13.78%
Return on average assets 1.11 1.35
Average equity to average assets 9.68 9.79
Net-interest margin (taxable-equivalent) 5.34 5.31
Net charge-offs to average net loans 0.23 0.24
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUFFOLK BANCORP ANNUAL MEETING TRADING
Tuesday, April 11, 1995, 1:00 P.M. Suffolk Bancorp's common stock is
Fox Hill Golf & Country Club traded over-the-counter, and is
Oakleigh Avenue listed on the NASDAQ National
Baiting Hollow, New York Market System under the symbol
"SUBK." Market makers at December
31, 1994 included the firms of:
Ernst & Co.; Herzog, Heine,
Geduld, Inc.; Keefe, Bruyette &
Woods, Inc.; McConnell, Budd &
Downes, Inc.; Sandler O'Neill &
Partners, L.P.; and Smith Barney
Shearson, Inc.
REGISTRAR AND TRANSFER AGENT S.E.C. FORM 10-K
American Stock Transfer & Trust Co. The Annual Report to the Securities
40 Wall Street, 46th Floor and Exchange Commission on Form 10-K
New York, New York 10269-0436 and documents incorporated by
(212) 936-5100 reference can be obtained, without
charge, by writing to the Secretary,
Suffolk Bancorp, 6 West Second
Street, Riverhead, New York 11901.
1
<PAGE> 4
[SUFFOLK BANCORP LETTERHEAD]
To Our Shareholders:
Nineteen-ninety-four was a successful year for Suffolk Bancorp and for its
wholly owned subsidiaries, The Suffolk County National Bank and Island Computer
Corporation.
Net income was $8,318,000 compared to $7,689,000 last year before a change in
the accounting for income taxes. It was ahead slightly from $8,313,000 after
the effect of the change. Earnings-per-share were $2.25 compared to $2.27 last
year before the change, and $2.45 after. Assets totaled $811,654 at year-end,
up 26 percent from 1993. Shareholders' equity totaled $77,093,000, up 22
percent from year-end 1993. Book-value-per-share was $20.29, up 9 percent from
last year. Dividends-per-share increased to $0.71 from $0.68, and the price of
your shares reached a new high of $28.50, closing the year at $26.00.
Each of these numbers represents entirely satisfactory performance. It is
book-value-per-share, of which I am most proud. This year we consummated the
acquisition of Hamptons Bancshares, Inc. Even with this transaction,
book-value-per-share increased in keeping with our historical rates of growth.
This was an important achievement for our shareholders. When we consider the
strategic advantages of our new-found presence across Long Island's east end,
it is an unqualified success.
The economy in our region continued to improve throughout 1994, albeit slowly.
Our net interest margin improved slightly from year to year as the repricing of
loans and investments moved ahead of the repricing of our core deposits. As we
expected, asset quality was affected adversely as we took troubled loans and
foreclosed real estate from Hamptons into our own portfolio, but we were able
to reduce the ratio of non-performing loans to total loans from a high of 2.18
percent at the end of the second quarter, to 1.70 percent at year-end.
Each year, I try to convey to you the principles which guide us in managing
Suffolk Bancorp day to day and into the future. In providing our shareholders
with a steady and reliable return, our first concern is for our customers,
whose loyalty is what makes all else possible. In equal measure, we attend to
the needs of our employees and the communities we serve. The Suffolk County
National Bank of Riverhead was founded one-hundred-and-five years ago in the
twin spirits of independence and service to the community. We do truly trace
our roots to that first office on Main Street. While we have prospered and
grown, seen great advances in technology and great changes in the communities
we serve, I believe that your company's founders would recognize our values
today: prudence, common sense, honesty, and decency. These have always been the
foundation of Suffolk Bancorp's success, and will remain so far into the
future.
Once again, and as always, it is an honor and great distinction to have served
as your chief executive officer during the past year. I am grateful for your
loyal support, and hope that we can count on it in the years to come.
Edward J. Merz
President & Chief Executive Officer
2
<PAGE> 5
COMMENTARY
PUTTING IT TOGETHER
On April 11, 1994, Hamptons Bancshares, Inc. of Southampton, New York was
merged into a subsidiary of Suffolk Bancorp. At the same time, Hamptons'
banking subsidiary, The Bank of the Hamptons, was merged directly into
Suffolk's banking subsidiary, The Suffolk County National Bank. The immediate
result was a super-community bank with twenty-one offices, spanning the region
from Montauk to Bohemia on Long Island's south shore, and from Cutchogue to
Port Jefferson on the north.
The acquisition of Hamptons remains the largest transaction in the long history
of Suffolk Bancorp and its predecessor, The Suffolk County National Bank of
Riverhead. Throughout those many years, Suffolk has been conservative, pursuing
a steady, dependable return to its shareholders, and providing sensible,
personal service to its customers. In Hamptons, we saw the opportunity to
continue in that tradition, serving five new communities similar to the eleven
where we already had offices.
Even as the transaction closed, signs bearing the SCNB logo were in place at
each of the locations of the former Hamptons. From the first day, the company
functioned as one. While the transition was not flawless, in a matter of
months, most operational wrinkles had been ironed out of the new organization,
and customers across Long Island's east end could enjoy true, hometown service,
a commodity provided by the ever smaller number of independent financial
institutions operating on Long Island.
Last year in this space, we discussed the reasons why management decided to
pursue this transaction. This year, we will review those reasons, report on
some preliminary steps we have taken to capitalize on the Hamptons franchise,
discuss other developments in the past year, and finally articulate an
important principle which guides us as we shape your company's future.
WHY WE ACQUIRED HAMPTONS.
Hometown Service
When the management of Hamptons expressed interest in joining forces with
Suffolk Bancorp, we saw it as a unique opportunity. Hamptons was devoted to
the same kind of hometown hamlets and villages as we were. Pleasant, personal
service and the minimum of bureaucratic red tape are what made the reputations
of both institutions.
Market Share
At the time of the transaction, Suffolk had 29.5 percent of local deposits in
its east end markets. Hamptons had 18.5 percent. Most of the communities we
serve have a "Main Street." This makes its easier for us to focus our message
to build and maintain a substantial share of local markets.
3
<PAGE> 6
Geographic Proximity
Each of the eight offices of the former Hamptons is in a community new to
Suffolk. There was no overlap, but the two branch networks were contiguous,
making a perfect fit for customers' convenience, advertising and operations.
Diversification
Commercial credits with variable rates have improved Suffolk's ability to
withstand rising rates of interest. Hamptons contributed more demand deposits,
proportionately, also working to bolster Suffolk's net interest margin.
Cost Savings
Consumer and commercial lending, branch administration, item processing, data
processing, training, accounting, personnel, marketing, shareholder relations,
compliance, audit, facilities and security are managed by the same departments
as before the merger, for an institution a quarter again as large. In years to
come, consolidation will mean cost savings.
Leverage
More than 28 percent of the purchase price was paid in cash. That added
leverage to Suffolk's capital, unusually high at the time of the acquisition.
Liquidity
The rest of the price was paid in stock. More than 400,000 additional shares
were issued. At year-end, Suffolk was worth $99 million in the stock market,
making your company more visible, and easier for our shareholders to trade.
MAKING THE MOST OF HAMPTONS
Fiduciary Services
One of the first steps we took after the merger was to move our trust
department to Southampton. "The Hamptons" are renowned the world over for the
wealth of a certain element of their population. Hometown service extends
beyond taking deposits and making loans to helping customers to manage their
money and their estates. We believe this is an unusually good opportunity to
develop fee income for the bank.
Regional Commercial Lending
Hamptons also provided us with the perfect opportunity to focus our efforts to
develop and serve new commercial credits in each of three regions, bringing our
lending officers closer to their customers. Our office in Southampton is
convenient to customers on Long Island's south fork, our office in Port
Jefferson taps into the growing markets to the west, and our office in
Riverhead tends to our traditional customers on the north fork and in the
county seat.
RECENT DEVELOPMENTS
An Office in Miller Place
On February 6, 1995, SCNB opened its 22nd office in Miller Place, New York.
This location takes SCNB one step closer to serving each of the communities
along Long Island Sound east of Port Jefferson. Proud of its history, Miller
Place is home to a number of professionals, academics, and longtime residents
who appreciate the personal service on which SCNB's reputation is based.
Mutual Fund and Annuity Sales
As part of a continuing attempt to meet all of the financial needs of our
customers, we brought our "INTRACK" mutual fund sales program in-house,
training and registering our own representatives. The same representative will
understand all of the services SCNB can offer, including savings accounts and
certificates of deposit, as well as mutual funds, and will be able to refer
customers to our trust department when that would be most appropriate to their
needs.
LOOKING TO THE FUTURE
It may seem obvious, but it bears frequent restatement. Banking is a service
industry. The most successful banks are those which provide the best service to
their customers. Suffolk Bancorp has a long history of good service. Not
coincidentally, its history of reliable dividends is equally long, and the
price of the each share has increased steadily over the years, allowing for
temporary fluctuations in the stock market. Service ensures profit.
Efficiency is important, and finding the simplest and most effective way of
doing our jobs is a daily task for each of us. But efficiency can be measured
only against the successful completion of the task at hand. The competitive
advantage of a community bank lies not only in the quality of its staff, but in
their number as well. It is well to hone operating procedures to find every
efficiency possible, but when the customer meets the banker, there is no
substitute for a friendly greeting, for useful, well-informed advice, and
careful attention to the customer's needs.
Recently, many banks have "restructured." We are the first to concede that this
may improve the next quarter's earnings, and maybe those of the next year as
well. Lean and mean is the fashion of the moment. In the long run, however, we
believe that approach is counterproductive to profitable community banking.
4
<PAGE> 7
Certain efficiencies make sense. For example, automatic teller machines are as
fast as any teller in dispensing cash, do so at any time of the day or night,
and can be found around the globe. That is why we operate 15 of them. But
banking is much more than cashing checks, and we doubt the day will ever come
when the average customer will want a ten-second explanation of service
charges, and ten more on home equity loans. That is why we have 22 offices.
Momentary efficiencies can have unintended consequences. Over time, with fewer
friendly faces in fewer, more crowded offices, with longer lines and slower
service, customers would drift away to other banks which take more time with
them, and less time from them.
This is simply not our way at Suffolk Bancorp. We know that it is easier to
lose a customer than to gain one, and much less expensive to keep one than to
attract one anew. We think that most of our shareholders will agree that sudden
changes in a successful strategy are ill-advised.
Our story has never been riveting but always consistent; our performance never
spectacular but always reliable. We are traditional enough to believe that
bankers should be conservative, and resist the temptation to sprint. We are in
business for the long haul. We have offered good service and a steady profit
for the last century, and we plan to do so throughout the next.
Suffolk Bancorp has grown and prospered through more than a century of the most
rapid and amazing changes the world has ever seen. It has done so by keeping
the interests of all of its constituents firmly in mind all of the time. In
that respect, Suffolk's past is also its future.
* * * *
Management's discussion and analysis of financial condition and results begins
on page 7. The Board of Directors and Management encourage you to read it to
gain a better understanding of our operations during the past year.
The Board of Directors of Suffolk Bancorp
Left to Right: Joseph A. Deerkoski; Peter Van de Wetering; Edgar F. Goodale;
Edward J. Merz, President & C.E.O.; J. Douglas Stark; Bruce Collins;
John J. Raynor; Howard M. Finkelstein; Hallock Luce 3rd; and Raymond A.
Mazgulski, Chairman
Mr. Collins and Mr. Raynor come to the board from the former Hamptons.
We welcome them and look forward to their counsel as we plan for the future.
5
<PAGE> 8
SUMMARY OF SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY: (dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Years 1994 (1) 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 51,564 $ 43,997 $ 46,984 $ 50,787 $ 52,528
Interest expense 15,734 14,525 18,153 25,619 29,187
----------------------------------------------------------------------------------------------------------------------------------
Net-interest income 35,830 29,472 28,831 25,168 23,341
Provision for possible loan losses 730 1,098 2,572 2,610 1,548
Other income 5,675 4,730 4,060 3,169 2,526
Other expense 27,752 21,345 19,788 18,090 15,809
----------------------------------------------------------------------------------------------------------------------------------
Net operating expense 22,077 16,615 15,728 14,921 13,283
Income before income taxes and cumulative effect
of change in accounting principle 13,023 11,759 10,531 7,637 8,510
Provision for income taxes 4,705 4,070 3,858 2,576 3,138
----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting for income taxes 8,318 7,689 6,673 5,061 5,372
Cumulative effect of change
in accounting for income taxes - 624 - - -
----------------------------------------------------------------------------------------------------------------------------------
Net income $ 8,318 $ 8,313 $ 6,673 $ 5,061 $ 5,372
==================================================================================================================================
BALANCE AT DECEMBER 31,
Federal funds sold $ - $ - $ 27,600 $ 40,400 $ 30,300
Investment securities- available for sale 68,261 - - - -
Investment securities- held to maturity 126,380 194,391 166,946 136,113 125,426
----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 194,641 194,391 166,946 136,113 125,426
Net loans 529,075 406,740 369,005 360,074 351,783
Total assets 811,654 642,359 599,418 574,042 542,792
Total deposits 723,993 568,768 538,604 517,551 487,399
Other borrowings - 6,500 - - -
Stockholders' equity $ 77,093 $ 63,284 $ 57,105 $ 52,268 $ 48,765
----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity 11.50% 13.78% 12.19% 10.02% 11.42%
Return on average assets 1.11 1.35 1.13 0.93 1.02
Net interest margin (taxable equivalent) 5.34 5.31 5.43 5.28 5.11
Average equity to average assets 9.68 9.79 9.24 9.27 8.92
Dividend pay-out ratio 31.61 27.32 29.40 37.16 33.96
Asset Quality: (2)
Non-performing loans to total loans 1.70 1.26 1.84 1.40 0.58
Non-performing assets to total assets 1.11 0.80 1.13 0.88 0.37
Allowance to non-accrual loans and 90+ 77.39 92.73 71.62 52.50 72.42
Allowance to loans, net of discounts 1.16 1.20 1.27 1.06 0.81
Net charge-offs to average loans 0.23% 0.24% 0.48% 0.46% 0.27%
----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA: (3) (4)
Income before cumulative effect of change in
accounting principle $ 2.25 $ 2.27 $ 1.97 $ 1.51 $ 1.62
Cumulative effect of change in accounting principle - 0.18 - - -
Net income 2.25 2.45 1.97 1.51 1.62
Cash dividends 0.71 0.68 0.60 0.56 0.55
Book value at year-end 20.29 18.63 16.85 15.51 14.64
Highest market value 28.50 25.00 20.00 11.00 13.25
Lowest market value $ 21.00 $ 19.00 $ 9.00 $ 7.75 $ 7.50
----------------------------------------------------------------------------------------------------------------------------------
Number of full-time-equivalent employees at year-end 426 322 307 297 287
Number of branch offices at year-end 21 13 13 13 12
Number of automatic teller machines 14 8 5 4 1
==================================================================================================================================
</TABLE>
(1) The information for 1994 reflects the acquisition of Hamptons on April 11,
1994.
(2) Includes $2,128,000 of non-performing loans and $1,222,000 of other real
estate acquired from Hamptons.
(3) Reflects issuance of 402,109 shares in acquisition of Hamptons.
(4) Per share data is based on average shares outstanding of 3,692,286 in 1994,
3,391,149 in 1993, 3,387,198 in 1992, 3,358,228 in 1991, and 3,316,179 in
1990.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's common stock is traded in the over-the-counter market,
and is quoted on the NASDAQ National Market System under the symbol "SUBK." The
following table details the quarterly high and low prices of the Company's
common stock. Prices for 1994 and 1993 are as reported by NASDAQ.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
1994 High Low Dividends 1993 High Low Dividends
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First quarter $ 24.00 $ 21.50 $ 0.17 First quarter $ 21.00 $ 19.00 $ 0.17
Second quarter 23.50 21.00 0.17 Second quarter 22.00 19.50 0.17
Third quarter 27.50 22.00 0.18 Third quarter 22.50 20.25 0.17
Fourth quarter 28.50 26.00 0.19 Fourth quarter 25.00 21.88 0.17
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company declares regular quarterly cash dividends, payable on the
first business day of each fiscal quarter.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion which follows provides an analysis of Suffolk Bancorp's
(the "Company" or "Suffolk") results of operations for each of the past three
years, and its financial condition as of December 31, 1994 and 1993,
respectively. Selected tabular data are presented for each of the past five
years.
THE COMPANY'S BUSINESS
Nearly all of the Company's business is providing banking services to
its commercial and retail customers in Suffolk County, on Long Island, New
York. The Company is a one-bank holding company which banking subsidiary, The
Suffolk County National Bank (the "Bank"), operates 21 full-service offices in
the eastern half of Suffolk County. It offers a full line of domestic, retail,
and commercial banking services, including trust services. The Bank's primary
lending area includes all of Suffolk County, New York.
The Bank serves as an indirect lender to the customers of many
automobile and marine dealers in its service area. The Bank also lends to
small manufacturers, wholesalers, builders, farmers and retailers, including
financing for dealer inventory. The Bank also makes loans secured by real
estate, including residential mortgages, of which most are sold to mortgage
investors, real estate construction loans, and loans which are secured by
commercial real estate and which float with the prime rate, or which have
relatively short terms and are retained in the Bank's portfolio. The Bank
offers both fixed and floating rate second mortgage loans with a variety of
repayment plans.
Other investments are made in short-term United States Treasury debt,
high quality obligations of municipalities in New York State, issues of
agencies of the United States Government, and high-quality corporate bonds.
The Bank finances most of its activities with deposits which include
demand, savings, N.O.W., and money market accounts, as well as term
certificates. To a much lesser degree, it relies on other short-term sources of
funds, including sale-repurchase agreements, and when needed, interbank
overnight loans.
The Company is also the sole owner of Island Computer Corporation of
New York, Inc. ("Island Computer"), a financial data-processing service company
located in Bohemia, New York. Approximately 86 percent of the ongoing business
of Island Computer is providing services to The Suffolk County National Bank.
ACQUISITION OF HAMPTONS BANCSHARES, INC.
On April 11, 1994, the Company completed the acquisition of Hamptons
Bancshares, Inc. ("Hamptons") of Southampton, New York. Shareholders of
Hamptons received stock in Suffolk or cash. Seventy-two percent of the
aggregate consideration was common stock. Holders of Hamptons' stock received
0.6809 shares of Suffolk common stock for each share of Hamptons stock, or cash
of $14.64 per share based on the market price for the Company's shares on
September 7, 1993 of $21.50 per share. The total consideration amounted to
$12,472,000.
Hamptons was a one-bank holding company which conducted business
through its wholly owned subsidiary, The Bank of the Hamptons, N.A., a
commercial bank headquartered in East Hampton, New York. Established in 1964 as
the First National Bank of East Hampton, The Bank of the Hamptons maintained 8
offices in the communities of Bohemia, East Hampton, Montauk, Sag Harbor,
Southampton, and Water Mill, New York, all of which have been converted to
branches of The Suffolk County National Bank.
7
<PAGE> 10
The Company, acquired the assets and assumed the liabilities of
Hamptons effective at the close of business on April 11, 1994. This transaction
has been accounted for as a purchase. The fair values of the assets and
liabilities at that time were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------
<S> <C>
Cash & cash equivalents $ 19,494
Investment securities 34,994
Net loans 88,100
Other assets 14,194
------------------------------------------------------------------------------
Total assets 156,782
------------------------------------------------------------------------------
Deposits 142,227
Other liabilities 3,568
------------------------------------------------------------------------------
Total liabilities $ 145,795
==============================================================================
</TABLE>
The transaction resulted in goodwill of $3,619,000, which is being
amortized over 10 years.
The following table sets forth the net effect on income of purchase
accounting adjustments for the fiscal years ended December 31, 1995 through
1999: (in thousands)
<TABLE>
<CAPTION>
Fiscal Amortization Purchase Accounting Net Effect
Year of Goodwill Discounts/(Premium), Net on Income
<S> <C> <C> <C>
1995 $ (362) $ 713 $ 351
1996 (362) 296 (66)
1997 (362) 159 (203)
1998 (362) (113) (475)
1999 (362) (202) (564)
</TABLE>
GENERAL ECONOMIC CONDITIONS
Long Island's economy improved slightly in 1994. The benefits of
increased demand for financial, information, transportation and tourist
services were offset by the effects of layoffs resulting from corporate
consolidations and downsizing. Long Island has a highly educated and skilled
work force, and a diverse industrial base. It is adjacent to New York City, one
of the world's largest centers of distribution and a magnet for finance and
culture. The island's economic cycles vary from those of the national economy.
During 1994, interest rates rose throughout the year, particularly
those for short-term obligations. This was in response to general fears of
inflation and the subsequent actions of the Board of Governors of the Federal
Reserve.
RESULTS OF OPERATIONS
NET INCOME
Net income was $8,318,000 compared to $7,689,000 last year before a
change in the accounting for income taxes. It was ahead slightly from
$8,313,000 after the effect of the change and $6,673,000 in 1992. This
represents an 8.18 percent increase after a 24.58 percent increase prior to the
change in accounting. This represents a 0.06 percent increase after a 24.58
percent increase after the change. Earnings-per-share were $2.25 compared to
$2.27 last year before the change, and $2.45 after the effect of the change and
$1.97 in 1992.
NET-INTEREST INCOME
Net-interest income during 1994 was $35,830,000, up from $29,472,000
and $28,831,000 in 1993 and 1992, respectively. These represent increases of
21.6 percent and 2.2 percent, respectively. Net-interest income is the most
important part of the net income of the Company. The increase in net interest
income in 1994 is primarily attributable to the net-interest margin produced by
additional assets and liabilities acquired from Hamptons.
The effective-interest-rate-differential, on a taxable-equivalent
basis, was 5.34 percent during 1994, up from 5.31 percent in 1993, which was
down from 5.43 percent in 1992. Average rates on average interest-earning
assets decreased to 7.62 percent in 1994 from 7.83 percent in 1993. Average
rates on average interest-bearing liabilities decreased from 3.15 percent to
2.93 percent. These resulted in a 0.03 percent increase in the interest rate
differential from 1993 to 1994, compared to a 0.12 percent decrease from 1992
to 1993. It increased because of the higher yield of assets acquired from
Hamptons, and the fact that Hamptons liabilities included a larger proportion
of demand deposits. The upward repricing of core deposits lagged the upward
repricing of assets.
8
<PAGE> 11
AVERAGE ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY,
RATE SPREAD, AND EFFECTIVE INTEREST RATE DIFFERENTIAL
(on a Taxable-equivalent Basis)
The following table illustrates the average composition of the
Company's statements of condition. It presents an analysis of net-interest
income on a taxable-equivalent basis, listing each major category of
interest-earning assets and interest-bearing liabilities, as well as other
assets and liabilities: (dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
---------------------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $123,864 $ 5,520 4.46% $122,175 $ 5,354 4.38% $103,982 $ 5,445 5.24%
Obligations of states &
political subdivisions 37,004 2,561 6.92 41,663 3,095 7.43 41,556 3,741 9.00
U.S. govt. agency obligations 24,854 1,610 6.48 1,912 99 5.18 3,931 324 8.24
Corporate bonds & other securities 665 49 7.37 934 70 7.49 927 71 7.66
Federal funds sold & securities
purchased under agreements to resell 15,771 663 4.20 27,870 852 3.06 47,990 1,636 3.41
Loans, including non-accrual loans 487,297 42,145 8.65 381,884 35,691 9.35 358,093 37,154 10.38
---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $689,455 $52,548 7.62% $576,438 $45,161 7.83% $556,479 $48,371 8.69%
=================================================================================================================================
Cash & due from banks $ 25,319 $ 25,319 $ 24,078
Other non-interest-earning assets 32,671 14,494 12,061
---------------------------------------------------------------------------------------------------------------------------------
Total assets $747,445 $616,251 $592,618
---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
---------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s &
money market deposits $373,690 $ 8,949 2.39% $303,364 $ 7,815 2.58% $280,641 $ 8,935 3.18%
Time deposits 155,278 6,430 4.14 158,071 6,705 4.24 177,562 9,218 5.19
---------------------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 528,968 15,379 2.91 461,435 14,520 3.15 458,203 18,153 3.96
Federal funds purchased 3,861 171 4.43 125 4 3.20 - - -
Other borrowings 2,132 81 3.80 18 1 5.56 - - -
Mortgages 1,446 103 7.12 - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $536,407 $15,734 2.93% $461,578 $14,525 3.15% $458,203 $18,153 3.96%
=================================================================================================================================
Rate spread 4.69% 4.68% 4.73%
Non-interest-bearing deposits $135,593 $ 90,564 $ 76,310
Other non-interest-bearing liabilities 3,097 3,767 3,374
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities $675,097 $555,909 $537,887
Stockholders' equity 72,348 60,342 54,731
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders'
equity $747,445 $616,251 $592,618
Net-interest income (tax equivalent
basis) & effective interest rate
differential $36,814 5.34% $30,636 5.31% $30,218 5.43%
Less: taxable-equivalent basis
adjustment (984) (1,164) (1,387)
---------------------------------------------------------------------------------------------------------------------------------
Net-interest income $35,830 $29,472 $28,831
=================================================================================================================================
</TABLE>
The average balance of investments and stockholders' equity does not include
the effect of SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities."
Interest income on a taxable-equivalent basis includes the additional amount of
interest income that would have been earned had the Bank's investment in
non-taxable U.S. Treasury Securities and state and municipal obligations had
been subject to New York State and Federal income taxes yielding the same
after-tax income. The rate used for this adjustment was approximately 34.0% for
federal income taxes and 11.9% for New York State income taxes for all periods.
For each of the years 1994, 1993 and 1992, $1.00 of non-taxable income from
obligations of states and political subdivisions equates to fully taxable
income of $1.52. In addition, in 1994, 1993 and 1992, $1.00 of non-taxable
income on U.S. Treasury securities equates to $1.02 of fully taxable income.
Amortization of loan fees are included in interest income.
9
<PAGE> 12
ANALYSIS OF CHANGES IN NET-INTEREST INCOME
The following table represents a summary analysis of changes in
interest income, interest expense and the resulting net-interest income on a
taxable-equivalent basis for the periods presented, each as compared with the
preceding period. Because of the numerous simultaneous changes in volume and
rate during the period analyzed, it is not possible to precisely allocate the
changes between volumes and rates. For purposes of this table, changes which
are not due solely to volume or to rate have been allocated to these categories
based on the respective percentage changes in average volume and average rate
as they compare to each other: (in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
1994 over 1993 1993 over 1992
---------------------------------------------------------------------------------------------------------------------------------
Changes due to Changes due to
Volume Rate Net Change Volume Rate Net Change
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
---------------------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $ 75 $ 91 $ 166 $ 872 $ (963) $ (91)
Obligations of states & political
subdivisions (331) (203) (534) 10 (656) (646)
U.S. govt. agency obligations 1,480 31 1,511 (131) (94) (225)
Corporate bonds & other securities (20) (1) (21) 1 (2) (1)
Federal funds sold & securities purchased
Under agreements to resell (444) 255 (189) (629) (155) (784)
Loans, including non-accrual loans 9,273 (2,819) 6,454 2,370 (3,833) (1,463)
---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $10,033 $(2,646) $ 7,387 $ 2,493 $ (5,703) $ (3,210)
---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
---------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & money market deposits $ 1,690 $ (556) $ 1,134 $ 682 $ (1,802) $ (1,120)
Time deposits (117) (158) (275) (942) (1,571) (2,513)
Federal funds purchased 165 2 167 4 - 4
Other borrowings 81 (1) 80 1 - 1
Mortgages 103 - 103 - - -
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 1,922 $ (713) $ 1,209 $ (255) $ (3,373) $ (3,628)
---------------------------------------------------------------------------------------------------------------------------------
Net change in net-interest income
(taxable-equivalent basis) $ 8,111 $(1,933) $ 6,178 $ 2,748 $ (2,330) $ 418
=================================================================================================================================
</TABLE>
The table above includes the effect of the acquisition of Hamptons as of April
11, 1994.
INTEREST INCOME
Interest income increased to $51,564,000 in 1994 from $43,997,000 in
1993 an increase of 17.2 percent, which was itself down 6.4 percent from
$46,984,000 during 1992. Loans acquired from Hamptons resulted in greater
interest income for the Company, offsetting lesser income than expected from
indirect auto loans, the result of greater competition for these loans on Long
Island.
INVESTMENT SECURITIES
Average investment in U.S. Treasury securities increased to
$123,864,000 in 1994 from $122,175,000 in 1993, an increase of 1.4 percent.
These securities are the primary source of the Company's liquidity. Holdings of
municipal securities have decreased because yields, even on a
taxable-equivalent basis, have become less attractive during 1994 as changes in
the income tax code for individuals made it possible for them to underbid
corporate investors. U.S. Treasury and municipal securities provide collateral
for various liabilities to municipal depositors. The Company currently holds no
investment in derivative products. The increase in the holdings of U.S.
Government Agency Obligations is the result of the acquisition of the
investment portfolio of Hamptons.
10
<PAGE> 13
The following table summarizes the carrying amounts and the
distribution of the Company's Investment Securities available for sale and held
to maturity as of the dates indicated: (in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities available for sale, at fair value:
U.S. treasury securities $ 68,261 $ - $ -
-------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale 68,261 - -
-------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. treasury securities 57,091 149,999 111,921
Obligations of states & political subdivisions 36,780 42,025 51,351
U.S. govt. agency obligations 31,871 1,176 2,743
Corporate bonds & other securities 638 1,191 931
-------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity 126,380 194,391 166,946
-------------------------------------------------------------------------------------------------------------------
Total investment securities $194,641 $194,391 $166,946
-------------------------------------------------------------------------------------------------------------------
Fair value of investment securities held to maturity $123,096 $195,532 $168,832
Unrealized gains 228 1,298 2,072
Unrealized losses 3,512 157 186
===================================================================================================================
</TABLE>
Investment securities acquired from Hamptons totaled $34,994,000.
These investments included $34,262,000 of U.S. Government Agency Obligations,
$534,000 of Obligations of States and Political Subdivisions and $198,000 of
Federal Reserve Bank stock.
The carrying value, maturities and approximate weighted average
yields, on a taxable-equivalent basis, at December 31, 1994 are as follows: (in
thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Available for Sale- - - - - - - - - - - - - - - - - - - - - - - - - Held To Maturity - - - - - - - - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Corporate Total
U.S. Treasury U.S. Treasury States & Political Govt. Agency Bonds & Carrying
Securities Securities Subdivisions Obligations Other Securities Value
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Carrying Carrying Carrying Carrying Carrying
Maturity (in years) Value Yield Value Yield Value Yield Value Yield Value Yield
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 $34,588 5.93% $45,004 4.12% $30,714 6.67% $ 1 6.50% $ - - % $110,307
After 1 but within 5 34,492 6.60 12,087 5.46 6,066 9.49 14,664 6.36 - - 67,309
After 5 but within 10 - - - - - - 17,206 6.15 - - 17,206
Other securities (FRB) - - - - - - - - 638 6.00 638
-----------------------------------------------------------------------------------------------------------------------------------
Total $69,080 6.26% $57,091 4.41% $36,780 7.14% $31,871 6.25% $638 6.00% $195,460
===================================================================================================================================
</TABLE>
As a member of the Federal Reserve System, the Bank owns Federal
Reserve Bank stock with a book value of $638,000. An equity investment, the
stock has no maturity. There is no public market for this investment. The last
declared dividend was 6%.
LOAN PORTFOLIO
Consumer loans, net of unearned discounts, totaled $269,725,000 at
year-end 1994, up 14.3 from $236,043,000 at the end of 1993. Only $6,215,000
related to Hamptons acquired balances. Consumer loan balances are composed
primarily of indirect, dealer-generated automobile loans. The Bank has
developed a reputation for good service that has enabled it to maintain its
share of the market for this type of lending. Rates on these loans have
remained low despite a general rise in interest rates owing to increased
competition in our primary market on Long Island.
Commercial loans, totaling $71,414,000 at year-end 1994, were up 37.1
percent from $52,103,000 at year-end 1993. The Company acquired $20,399,000
from Hamptons. These loans continue to be made to small local businesses.
Several major borrowers had not drawn on their lines of credit as they usually
would have at year end. Additionally, the Bank elected to exit from some
credits acquired from Hamptons.
Commercial and residential real estate mortgages, including home
equity loans have increased 54.6 percent to $190,111,000 in 1994 from
$122,994,000 in 1993. The increase includes $60,090,000 of loans acquired from
Hamptons.
11
<PAGE> 14
The following table categorizes the Company's total loans at December
31,: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
CATEGORY 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial & agricultural loans $ 71,414 $ 52,103 $ 45,030 $ 41,435 $ 47,590
Commercial real estate mortgages 104,548 65,738 59,250 49,365 44,200
Real estate - construction loans 8,018 5,327 6,294 4,883 6,554
Residential mortgages (1st and 2nd liens) 50,011 33,489 34,558 31,782 26,456
Home equity loans 27,534 18,440 19,900 21,843 22,358
Consumer loans (net of unearned discounts) 269,725 236,043 207,211 205,855 206,072
Lease finance 743 - - - -
Other loans 3,296 522 1,492 8,782 1,426
--------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned discounts) $ 535,289 $ 411,662 $ 373,735 $ 363,945 $ 354,656
================================================================================================================================
</TABLE>
Loans, net of unearned discounts acquired from Hamptons totaled
$88,100,000. The composition of loan balances included $20,399,000 of
commercial, financial and agricultural loans, $27,278,000 of commercial real
estate, $5,538,000 of real estate construction loans $15,295,000 of residential
mortgages, $11,979,000 of home equity loans, $6,215,000 of consumer loans, and
$1,396,000 of lease finance loans.
The following table illustrates the sensitivity to changes in interest
rates of the Company's total loans, net of discounts, not including overdrafts
and loans not accruing interest, together totaling approximately $9,310,000 at
December 31, 1994: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Due Within After 1 But After
INTEREST RATE PROVISION 1 Year Within 5 Years 5 Years Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Predetermined rates $ 33,515 $ 284,959 $ 15,618 $ 334,092
Floating or adjustable rates 176,175 11,747 3,965 191,887
--------------------------------------------------------------------------------------------------------------
Total $ 209,690 $ 296,706 $ 19,583 $ 525,979
==============================================================================================================
</TABLE>
The following table shows the Company's non-accrual, past due,
restructured loans, and other real estate owned at December 31,: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accruing loans which are
contractually past due 90 days or more $ 2,015 $ 871 $1,372 $2,441 $2,230
Loans not accruing interest 6,014 4,437 5,175 4,054 1,007
Restructured loans 372 51 744 878 730
Other real estate owned 2,622 649 853 125 298
--------------------------------------------------------------------------------------------------------------------------------
Total $11,023 $6,008 $8,144 $7,498 $4,265
================================================================================================================================
</TABLE>
Loans acquired from Hamptons which were not accruing interest at the
time of the acquisition or which have subsequently stopped accruing interest
totaled $2,128,000 at December 31, 1994. In addition, $1,222,000 of other real
estate acquired from Hamptons remained at December 31, 1994.
Interest on loans which have been restructured or are no longer
accruing interest would have amounted to $394,000 for 1994, $322,000 for 1993
and $361,000 for 1992 under the contractual terms of those loans. The Company
records the payment of interest on such loans as a reduction of principal.
Interest income recognized on restructured and non-accrual loans was immaterial
for the years 1994, 1993 and 1992.
The percentage of net charge-offs to average net loans during 1994 was
0.23 percent, compared to 0.24 percent during 1993 and 0.48 percent during
1992. The ratio of the allowance for possible loan losses to loans, net of
discount was 1.16 percent during 1994, compared to 1.20 percent in 1993 and
1.27 percent in 1992. During 1992, the Company refined its policy of internal
credit review to more precisely identify risk and exposure in the loan
portfolio.
Generally, recognition of interest income is discontinued where
reasonable doubt exists as to whether interest can be collected. Ordinarily,
loans no longer accrue interest when ninety days past due. When a loan is
placed on non-accrual status, all interest accrued previously in the current
year, but not collected, is reversed against interest income in the current
year. Any interest accrued in prior years is charged against the allowance for
possible loan losses. Loans are removed from non-accrual status when they
become current as to principal and interest, and when, in the opinion of
management, the loans can be collected in full. There were no loans of a
material amount which have become problems that are not reflected in the
foregoing tables.
12
<PAGE> 15
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
To determine the allowance required for possible loan losses,
management identifies problem loans and estimates the probability and amount of
potential losses based primarily on the financial condition of the borrower
and, among other things, the appraised value of the collateral. For loans not
specifically identified as problems, management uses data concerning the
Company's general experience with loan losses and considers current economic
conditions to compute the additional reserve required to offset unidentified
problem loans. In addition, management considers the examination of loans by
regulatory authorities, internal reviews and other evaluations. The Company
allocates the allowance in proportion to the risk identified in each category
of loans.
Transactions in the Allowance for Possible Loan Losses are made in
seven major loan categories. The summary of such transactions for periods
indicated follows: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses, January 1, $4,922 $4,730 $3,871 $2,873 $2,264
Allowance acquired from Hamptons 1,678 - - - -
Loans charged-off:
Commercial, financial & agricultural loans 869 440 623 479 171
Commercial real estate mortgages 8 - 244 - -
Real estate - construction loans - - - - -
Residential mortgages (1st & 2nd liens) - - - 52 -
Home equity loans 80 - 50 - -
Consumer loans 511 678 1,022 1,329 896
Lease finance - - - - -
Other loans - 49 - - -
--------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 1,468 1,167 1,939 1,860 1,067
--------------------------------------------------------------------------------------------------------------------------------
Recoveries of charged-off loans:
Commercial, financial & agricultural loans 72 14 11 54 4
Commercial real estate mortgages - - - - -
Real estate - construction loans 11 - - - -
Residential mortgages (1st & 2nd liens) - - - - -
Home equity loans - - - - -
Consumer loans 269 247 215 194 124
Lease finance - - - - -
Other loans - - - - -
--------------------------------------------------------------------------------------------------------------------------------
Total recoveries 352 261 226 248 128
Net loans charged-off 1,116 906 1,713 1,612 939
Provisions for possible loan losses 730 1,098 2,572 2,610 1,548
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $6,214 $4,922 $4,730 $3,871 $2,873
================================================================================================================================
</TABLE>
The distribution of the Allowance for Possible Loan Losses, and the
percentage of the total allowance, by category at end of period, is listed in
the following table. The distribution is proportionate to the risk identified
in each category: (dollars in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 % 1993 % 1992 % 1991 % 1990 %
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial & agricultural loans $1,988 32.0 $1,581 32.1 $1,557 32.9 $1,552 40.1 $ 434 15.1
Commercial real estate mortgages 2,212 35.6 1,707 34.7 1,383 29.3 992 25.6 - -
Real estate - construction loans 80 1.3 1 0.0 - - - - - -
Residential mortgages (1st & 2nd liens) 449 7.2 155 3.1 147 3.1 108 2.8 535 18.6
Home equity loans 200 3.2 254 5.2 223 4.7 204 5.3 - -
Consumer loans 1,243 20.0 1,191 24.2 1,396 29.5 1,003 25.9 1,865 64.9
Other loans 42 0.7 34 0.7 24 0.5 12 0.3 39 1.4
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $6,214 100.0 $4,922 100.0 $4,730 100.0 $3,871 100.0 $2,873 100.0
================================================================================================================================
</TABLE>
The following table presents information concerning loan balances and
asset quality: (dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of discounts:
Average net loans $487,297 $381,884 $358,093 $347,286 $351,217
Net loans at end of period $535,289 $411,662 $369,005 $360,074 $351,783
---------------------------------------------------------------------------------------------------------------------------------
Non-performing loans to total loans 1.70% 1.26% 1.84% 1.40% 0.58%
Non-performing assets to total assets 1.11 0.80 1.13 0.88 0.37
Ratio of net charge-offs to average net loans 0.23 0.24 0.48 0.46 0.27
Net charge-offs to net loans at December 31, 0.21 0.22 0.46 0.45 0.27
Allowance for possible loan losses
to loans, net of discounts 1.16 1.20 1.27% 1.06 0.81
=================================================================================================================================
</TABLE>
The disparity between average net loans and net loans at December 31, 1994 is
largely attributable to the acquisition of the loan portfolio of Hamptons
during the second quarter.
13
<PAGE> 16
INTEREST EXPENSE
Interest expense for 1994 was $15,734,000, up 8.3 percent from
$14,525,000 during 1993, which was down 20.0 percent from $18,153,000 in 1992.
The largest part of the Company's interest expense was incurred by deposits of
individuals, commercial enterprises, and various levels of government and
agencies. The majority of the deposits acquired from Hamptons were core
deposits of lower cost, including primarily demand, savings, and N.O.W.
deposits. Short-term borrowings, including Federal Funds Purchased (inter-bank
short-term lending), Securities Sold Under Agreements to Repurchase, and
Federal Reserve Bank Borrowings were minimal during 1994 and 1993.
DEPOSITS
Average interest-bearing deposits increased to $528,968,000 in 1994
from $461,435,000 in 1993. Traditional savings deposits increased during 1994,
averaging $225,142,000, up 22.2 percent from $184,185,000 in 1993. Average
balances of time certificates under $100,000, decreased to $139,675,000 in
1994, down from $144,340,000 in 1993, a decrease of 3.2 percent. Average
balances of money market deposits of $90,085,000 were 13.6 percent of average
total deposits during 1994. Average balances of time certificates of $100,000
or more were $15,603,000, up 13.6 percent from $13,731,000 during 1993.
Deposits acquired from Hamptons totaled $142,227,000. These included
$42,609,000 of demand deposits, $36,836,000 of savings deposits, $48,209,000 of
N.O.W. and money market deposits, $3,058,000 of time certificates of $100,000
or more, and $11,515,000 of other time deposits.
The following table shows the classification of the average deposits
of the Company for each of the periods indicated: (dollars in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Rates Paid Rates Paid Rates Paid
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 135,593 - $ 90,564 - $ 76,310 -
Savings deposits 225,142 2.67% 184,185 2.84% 138,720 3.50%
N.O.W. & money market deposits 148,548 1.98 119,179 2.16 141,921 2.87
Time certificates of $100,000 or more 15,603 2.55 13,731 2.49 20,048 2.88
Other time deposits 139,675 4.32 144,340 4.41 157,514 5.49
--------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 664,561 $ 551,999 $ 534,513
================================================================================================================================
</TABLE>
At December 31, 1994, the remaining maturities of the Company's time
certificates of $100,000 or more were as follows: (in thousands)
<TABLE>
--------------------------------------------------------------------
<S> <C>
3 months or less $ 14,774
Over 3 through 6 months 3,642
Over 6 through 12 months 2,020
Over 12 months 3,330
--------------------------------------------------------------------
Total $ 23,766
====================================================================
</TABLE>
SHORT TERM BORROWINGS
The Company uses several types of short-term funding. These include
lines of credit for federal funds with correspondent banks, retail
sale-repurchase agreements and the Federal Reserve Bank discount window.
Average balances of federal funds purchased were $3,861,000 and $125,000 for
1994 and 1993 respectively. Average balances of Federal Reserve Bank borrowings
during 1994 were $351,000 and $18,000 for 1993. Retail repurchase agreements
averaged $1,781,000 in 1994. There were no retail repurchase agreements in
1993.
14
<PAGE> 17
OTHER INCOME
Other income increased to $5,675,000 during 1994, up 20.0 percent from
$4,730,000 in 1993, which was up 16.5 percent from $4,060,000 in 1992. Service
charges on deposit accounts were up 34.0 percent from 1993 to 1994, and 4.0
percent from 1992 to 1993. The deposits acquired from Hamptons provided the
basis for this overall increase. Other service charges were up 31.3 percent and
21.7 percent for the same periods.
OTHER EXPENSE
Other expense during 1994 was $27,752,000, up 30.0 percent from
$21,345,000 in 1993, which was up 7.9 percent from $19,788,000 during 1992.
Growth of the Company resulting from the acquisition of Hamptons eight branch
offices and the related growth in the volume of business has increased costs in
the areas of: retention and training of qualified staff, increased use of data
processing to provide better operating and management information, and the
improvement and expansion of facilities. The Company expects to realize
operating efficiencies from this transaction in the future. FDIC assessments
increased from $1,135,000 in 1992, to $1,203,000 in 1993, to $1,407,000 in
1994.
INTEREST RATE SENSITIVITY
Interest-rate sensitivity is determined by the date when each asset
and liability in the Bank's portfolio of assets and liabilities can be
repriced. Sensitivity occurs when the interest-earning assets and
interest-bearing liabilities cannot be repriced at the same time. While this
analysis presents the quantity of assets and liabilities repricing in each time
period, it does not consider the sensitivity of various assets and liabilities
to changes in interest rates.
Management reviews its asset/liability strategy regularly. Given
differing sensitivities to the various interest rates of its assets and
liabilities, management may selectively mismatch the repricing of assets and
liabilities to take advantage of temporary or projected differences in interest
rates. The following table reflects the sensitivity of the Company's
consolidated statement of condition at December 31, 1994: (dollars in
thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
0 - 90 91 - 180 181-360 Over One Not Rate
MATURITY Days Days Days Year Sensitive Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
----------------------------------------------------------------------------------------------------------------------------------
Domestic loans (1) (net of unearned discount) $131,746 $ 43,145 $ 72,910 $ 274,272 $ 13,216 $535,289
Investment securities (2) 40,514 43,359 26,457 83,673 638 194,641
----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $172,260 $ 86,504 $ 99,367 $ 357,945 $ 13,854 $729,930
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS AND INTEREST-BEARING LIABILITIES
----------------------------------------------------------------------------------------------------------------------------------
Demand deposits (3) $ 14,566 $ 14,566 $ 29,132 $ 88,869 $ - $147,133
N.O.W. & money market accounts (4) 7,366 7,366 14,732 157,816 - 187,280
Interest bearing deposits (5) 49,540 34,681 48,352 257,007 - 389,580
Federal funds purchased (6) 4,300 - - - - 4,300
Mortgage payable (6) 50 51 52 1,781 - 1,934
----------------------------------------------------------------------------------------------------------------------------------
Total demand deposits and interest-bearing
liabilities $ 75,822 $ 56,664 $ 92,268 $ 505,473 $ - $730,227
----------------------------------------------------------------------------------------------------------------------------------
Gap $ 96,438 $ 29,840 $ 7,099 $(147,528) $ 13,854 $ (297)
----------------------------------------------------------------------------------------------------------------------------------
Cumulative difference between interest-earning
assets and interest-bearing liabilities $ 96,438 $126,278 $133,377 $ (14,151) $ (297) $ -
----------------------------------------------------------------------------------------------------------------------------------
Cumulative difference as a percentage of total
assets 11.88% 15.56% 16.43% (1.74%) (0.04%)
=================================================================================================================================
</TABLE>
(1) Based upon contractual maturity, repricing date if applicable, and projected
prepayments, based upon experience. Loans not accruing interest, loans in
the process of renewal, and potential charge-offs are classified as not
sensitive to rates.
(2) Includes securities held to maturity and available for sale based upon
contractual maturity, projected prepayments, based upon experience. FRB
stock is not sensitive to rates.
(3) Based upon experience with stable core deposits.
(4) N.O.W. and Money Market balances are assumed to decline over a period of
two years.
(5) Deposits with fixed rates and deposits with fixed pricing intervals are
included in the period of contractual maturity. Savings balances are
assumed to decline over a period of five years.
(6) Based upon contractual maturities.
As of December 31, 1994, the volume of interest-earning assets with
maturities of less than one year exceeded interest-bearing liabilities of
similar maturity. This cumulative gap might result in increased net interest
margin if interest-earning assets and interest-bearing liabilities reprice
upward. If interest rates decline, a narrowing of the net interest margin could
result.
15
<PAGE> 18
ASSET/LIABILITY MANAGEMENT & LIQUIDITY
The asset/liability management committee (the "committee") reviews the
financial performance of the Company under the asset/liability management
policy. The committee is composed of two outside directors, executive
management, the comptroller, and the heads of commercial lending, retail
lending, and marketing. It uses computer simulations of financial performance
under changing interest rates to quantify interest-rate risk and project
liquidity. The simulations also help in developing alternative strategies to
increase the Bank's net-interest margin. The committee always assesses the
impact of any change in strategy on the Bank's ability to make loans and repay
deposits. While managing financial risk, only strategies and policies which meet
regulatory guidelines and are appropriate under the economic and competitive
conditions in the Bank's market are considered by the committee. The Bank has
not used forward contracts or interest rate swaps to manage interest-rate risk.
Liquidity is the Company's ability to meet anticipated loan demand and
withdrawals of deposits. It is ensured by assets which can be converted quickly
into cash. These liquid assets must be of a short term to minimize the risk to
principal from changing interest rates. The committee anticipates cash flows in
detail for the coming three months and suggests actions to ensure liquidity.
Thus, the Bank has sufficient cash flow under normal operations, and is aware
of potential sources of liquidity to meet the demand for loans and withdrawals
of deposits.
BUSINESS RISKS AND UNCERTAINTIES
The Bank's principal investments are in loans and in a portfolio of
short and medium term debt of the United States Treasury, states and other
political subdivisions, U.S. Government agencies, and corporations.
Consumer loans, net of unearned discounts, comprised 50.4 percent of
the Bank's loan portfolio, more than 84.6 percent of which are indirect
dealer-generated loans secured by automobiles. Nearly all of these loans are
made to residents of the Bank's primary lending area, which is Suffolk County,
New York. Each loan is small in amount, and borrowers represent a cross-section
of the population employed in a variety of industries. The risk presented by
any one loan is correspondingly small, and therefore, the risk which this
portion of the portfolio presents to the Company is dependent upon the
financial stability of the population as a whole, and is not dependent on any
one entity or industry.
Loans secured by real estate represented 35.5 percent of the
portfolio, most of which are for commercial properties. Loans of this variety
present somewhat greater risk than consumer loans, particularly in the current
economy. The Bank has attempted to minimize the risks of these loans by
carefully considering, among other things, the creditworthiness of the
borrower, whether or not the real estate is located in the Bank's primary
lending area, the condition and value of, as well as the business prospects for
the security property.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 13.4 percent of the loan portfolio.
These loans present significantly greater risk than other types of loans.
Average credits are greater in size than consumer loans, and unsecured loans
may be more difficult to collect. The Bank obtains, whenever possible, the
personal guarantees of the principal(s), and cross-guarantees among the
principals' business enterprises.
U.S. Treasury securities represented 64.4 percent of the investment
portfolio and offer little or no financial risk.
Municipal obligations constitute 18.9 percent of the investment
portfolio. These obligations present slightly greater risk than U.S. Treasury
securities, but significantly less risk than loans because they are backed by
the full faith and taxing power of the municipal entity, each of which is
located in the state of New York. The Company's policy is to hold these
securities to maturity, which eliminates the risk to principal caused by
variations in interest rates.
Aggregate balances of other types of loans and investments are not
material in amount, and present little overall risk to the Company.
Virtually all of the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effect of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Management believes that
continuation of its efforts to manage its net-interest spread and the maturity
of its assets and liabilities will position the Company to benefit from current
interest rates.
CAPITAL RESOURCES
Primary capital including stockholders' equity without consideration
for the net unrealized loss on securities available for sale, net of tax and
the allowance for possible loan losses amounted to $83,750,000 at year-end
1994, compared to $68,206,000 at year-end 1993 and $61,835,000 at year-end
1992. Capital increased in conjunction with the acquisition of Hamptons totaled
$8,531,000. This was represented by the issuance of 402,109 shares of the
Company's stock under the terms of the agreement to acquire Hamptons.
<PAGE> 19
16
The following table presents the Company's primary capital and related ratios
for each of the last five years:
<TABLE>
(CAPTION>
(dollars in thousands)
--------------------------------------------------------------------------------------------------------------------
1994 (1) 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary capital at year-end $83,750 $68,206 $61,835 $56,139 $51,638
Primary capital at year-end as a
percentage of year-end:
Total assets plus allowance for possible
loan losses 10.24% 10.54% 10.24% 9.69% 9.46%
Loans, net of unearned discounts 15.65% 16.57% 16.55% 15.43% 14.56%
Total deposits 11.57% 11.99% 11.48% 10.82% 10.59%
===================================================================================================================
</TABLE>
(1) Capital ratios do not include the effect of SFAS No. 115 "Accounting for
Certain Investments in Debt and Investment Securities."
The Company measures how effectively it utilizes capital using two
widely accepted performance ratios, return on average assets and return on
average common stockholders' equity. The returns in 1994 on average assets of
1.11 percent and average common equity of 11.50 percent decreased from 1993. In
1993, returns were 1.35 percent and 13.78 percent, respectively.
All dividends must conform to applicable statutory requirements. The
Company's ability to pay dividends depends on the Bank's ability to pay
dividends. Under 12 USC 56-9, a national bank may not pay a dividend on its
common stock if the dividend would exceed net undivided profits then on hand.
Further, under 12 USC 60, a national bank must obtain prior approval from the
Office of the Comptroller of the Currency to pay dividends on either common or
preferred stock that would exceed its net profits for the current year combined
with retained net profits (net profits minus dividends paid during that period)
of the prior two years. The amount currently available is $17,064,000.
RISK-BASED CAPITAL/LEVERAGE GUIDELINES
The Federal Reserve Bank's requirements concerning risk-based capital
requirements for bank holding companies were implemented during a transition
period ending in 1992.
The guidelines require minimum ratios of capital to risk-weighted
assets, which include certain off-balance sheet activities, such as standby
letters of credit. The guidelines define capital as being "core," or "Tier 1,"
capital, which includes common stockholders' equity, a limited amount of
perpetual preferred stock, minority interest in unconsolidated subsidiaries,
less goodwill; or "supplementary" or "Tier 2" capital which includes
subordinated debt, redeemable preferred stock, and a limited amount of the
allowance for possible loan losses. By year-end 1993, all bank holding
companies should have met a minimum ratio of total qualifying capital to risk
weighted assets of 8.00 percent, of which at least 4.00 percent should be in
the form of Tier 1 capital. At December 31, 1994, the Company's ratios of core
capital and total qualifying capital (core capital plus Tier 2 capital) to
risk-weighted assets were 12.56 percent and 13.62 percent, respectively.
DISCUSSION OF CURRENT ACCOUNTING PRINCIPLES
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 would require all creditors to account
for impaired loans, except those that are accounted for at fair market value or
at the lower of cost or fair value, at the present value of the expected future
cash flows discounted at the loan's effective interest rate. SFAS No. 114 is
effective for fiscal years beginning after December 15, 1994. The Company will
implement SFAS No. 114 as of January 1, 1995 and it is not expected to have a
material effect on the financial statements taken as a whole.
In October 1994, the FASB issued SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 118 is
effective for fiscal years beginning after December 15, 1994 and amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. This Statement also amends the disclosure
requirements of SFAS No. 114 to require information about the recorded
investment in certain impaired loans and about how a creditor recognizes
interest income related to those impaired loans. The Company does not believe
that the adoption of SFAS No. 118 will have a material impact.
In October 1994, the FASB issued SFAS No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS
No. 119 is effective for fiscal years ending after December 15, 1994 and
requires disclosure about derivative financial instruments including futures,
forwards, swap and option contracts, and other financial instruments with
similar characteristics. It also amends the existing requirements of SFAS No.
105, "Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk", and
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments." This
statement requires disclosures about amounts, nature, and terms of derivative
financial instruments that are not subject to SFAS No. 105 because they do not
result in the off-balance sheet risk of financial loss. It requires that a
distinction be made between financial instruments held or issued for trading
purposes and financial instruments held or issued for purposes other than
trading. It also amends SFAS No. 105 and 107 to require that distinction in
certain disclosures required by those statements. The adoption of SFAS No. 119
has not had a material impact.
17
<PAGE> 20
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
ASSETS 1994 1993
<S> <C> <C>
Cash & Cash Equivalents......................................................... $ 56,488,206 $ 27,556,696
Investment Securities Available for Sale, At Fair Value
United States Treasury Securities........................................... 68,260,575 -
Investment Securities Held to Maturity (Fair Value of $123,096,000
and $195,532,000, respectively)
United States Treasury Securities........................................... 57,090,622 149,999,285
Obligations of States & Political Subdivisions.............................. 36,780,489 42,025,332
U.S. Government Agency Obligations.......................................... 31,871,215 1,175,893
Corporate Bonds & Other Securities.......................................... 637,849 1,190,644
----------- ------------
126,380,175 194,391,154
------------ ------------
Total Investment Securities............................................... 194,640,750 194,391,154
Total Loans..................................................................... 568,198,173 442,224,211
Less: Unearned Discounts........................................................ 32,909,042 30,561,954
Allowance for Possible Loan Losses........................................ 6,213,548 4,922,126
------------ ------------
Net Loans..................................................................... 529,075,583 406,740,131
Premises & Equipment, Net....................................................... 12,428,053 4,727,625
Other Real Estate Owned, Net.................................................... 2,621,598 648,510
Accrued Interest Receivable, Net................................................ 4,007,001 2,199,028
Excess of Cost Over Fair Value of Net Assets Acquired........................... 3,347,969 -
Other Assets.................................................................... 9,044,349 6,095,900
------------ ------------
TOTAL ASSETS $ 811,653,509 $ 642,359,044
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits................................................................. $ 147,133,340 $ 98,531,935
Savings, N.O.W.'s & Money Market Deposits....................................... 408,838,090 319,556,727
Time Certificates of $100,000 or more........................................... 23,766,390 12,868,514
Other Time Deposits............................................................. 144,255,106 137,811,235
------------ ------------
Total Deposits 723,992,926 568,768,411
Federal Funds Purchased......................................................... 4,300,000 -
Other Borrowings................................................................ - 6,500,000
Dividend Payable on Common Stock................................................ 721,938 577,398
Accrued Interest Payable........................................................ 1,099,826 967,808
Other Liabilities............................................................... 4,446,133 2,261,145
------------ ------------
TOTAL LIABILITIES 734,560,823 579,074,762
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Common Stock (par value $5.00; 7,500,000 shares authorized;
3,799,674 & 3,396,460 shares issued and outstanding at
December 31, 1994 & 1993, respectively)...................................... 18,998,370 16,982,300
Surplus......................................................................... 18,373,392 11,831,795
Undivided Profits............................................................... 40,164,291 34,470,187
Net Unrealized Loss on Securities Available for Sale, Net of Tax................ (443,367) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 77,092,686 63,284,282
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 811,653,509 $ 642,359,044
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 21
18
CONSOLIDATED STATEMENTS OF INCOME
For the Years ended December 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Federal Funds Sold................................................ $ 663,262 $ 851,504 $ 1,635,665
United States Treasury Securities ................................ 5,412,007 5,249,261 5,338,244
Obligations of States & Political Subdivisions (tax exempt)....... 1,685,087 2,035,667 2,461,312
U.S. Government Agency Obligations................................ 1,609,537 98,884 323,941
Corporate Bonds & Other Securities................................ 49,022 70,436 71,169
Loans............................................................. 42,145,375 35,690,994 37,153,379
----------- ----------- -----------
Total Interest Income 51,564,290 43,996,746 46,983,710
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits......................... 8,949,438 7,815,716 8,934,992
Time Certificates of $100,000 or more............................. 398,591 341,536 576,887
Other Time Deposits............................................... 6,032,300 6,363,027 8,640,660
Federal Funds Purchased........................................... 170,093 3,999 -
Interest on Other Borrowings...................................... 81,387 542 -
Interest on Mortgages............................................. 102,612 - -
----------- ----------- -----------
Total Interest Expense 15,734,421 14,524,820 18,152,539
Net-interest Income 35,829,869 29,471,926 28,831,171
Provision For Possible Loan Losses................................ 730,000 1,098,000 2,572,000
----------- ----------- -----------
Net-interest Income After Provision For Possible Loan
Losses...................................................... 35,099,869 28,373,926 26,259,171
OTHER INCOME
Service Charges on Deposit Accounts............................... 3,007,977 2,244,682 2,157,584
Other Service Charges, Commissions & Fees......................... 1,502,648 1,145,272 941,128
Fiduciary Activities.............................................. 450,000 410,549 345,383
Other Operating Income............................................ 714,606 929,976 616,046
----------- ----------- -----------
Total Other Income 5,675,231 4,730,479 4,060,141
OTHER EXPENSE
Salaries & Employee Benefits...................................... 14,540,444 11,609,771 10,707,026
Net Occupancy Expense............................................. 2,202,202 1,659,004 1,514,866
Equipment Expense................................................. 2,784,688 2,037,297 2,062,587
FDIC Assessments.................................................. 1,407,465 1,202,640 1,134,996
Amortization of Excess Cost
Over Fair Value of Net Assets Acquired........................ 270,969 - -
Other Operating Expense........................................... 6,546,500 4,836,464 4,368,839
----------- ----------- -----------
Total Other Expense 27,752,268 21,345,176 19,788,314
Income Before Income Taxes and Cumulative Effect of Change
in Accounting for Income Taxes................................ 13,022,832 11,759,229 10,530,998
Provision For Income Taxes........................................ 4,705,000 4,070,000 3,858,000
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES 8,317,832 7,689,229 6,672,998
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES - 623,614 -
----------- ----------- -----------
NET INCOME $ 8,317,832 $ 8,312,843 $ 6,672,998
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Before Cumulative Effect Of Change in Accounting Principle $ 2.25 $ 2.27 $ 1.97
Cumulative Effect Of Change In Accounting Principle - 0.18 -
----------- ----------- -----------
Net Income $ 2.25 $ 2.45 $ 1.97
=========== =========== ===========
Average Common Shares Outstanding 3,692,286 3,391,149 3,387,198
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 22
19
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Loss On
Securities
Common Undivided Available
Stock Surplus Profits For Sale Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $16,847,655 $11,596,643 $23,823,211 $ - $52,267,509
Net Income - - 6,672,998 - 6,672,998
Dividend - - (2,032,411) - (2,032,411)
Issuance of Stock Under Stock Dividend
Reinvestment Plan (19,750 Shares) 98,750 98,368 - - 197,118
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1992 $16,946,405 $11,695,011 $28,463,798 $ - $57,105,214
Net Income - - 8,312,843 - 8,312,843
Dividend - - (2,306,454) - (2,306,454)
Issuance of Stock Under Stock
Option Plan (7,179 Shares) 35,895 136,784 - - 172,679
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 $16,982,300 $11,831,795 $34,470,187 $ - $63,284,282
Net Income - - 8,317,832 - 8,317,832
Dividend - - (2,623,728) - (2,623,728)
Issuance of Stock in Purchase of
Hamptons Bancshares (402,109 shares) 2,010,545 6,520,653 - - 8,531,198
Issuance of Stock Under Stock
Option Plan (1,105 Shares) 5,525 20,944 - - 26,469
Cumulative Effect of Change in Accounting
Principle at January 1, 1994 - - - (328,472) (328,472)
Net Change in Unrealized Loss on
Securities Available For Sale - - - (114,895) (114,895)
----------- ----------- ----------- ------------ -----------
Balance, December 31, 1994 $18,998,370 $18,373,392 $40,164,291 $ (443,367) $77,092,686
=========== =========== =========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 31,
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1994 1993 1992
<S> <C> <C> <C>
NET INCOME........................................................ $ 8,317,832 $ 8,312,843 $ 6,672,998
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses.......................... 730,000 1,098,000 2,572,000
Depreciation................................................ 1,727,892 1,212,234 1,383,297
Amortization of Excess Cost Over Fair Value
of Net Assets Acquired.................................... 270,969 - -
Accretion of Discounts...................................... (2,107,671) (1,496,699) (1,489,162)
Amortization of Premiums.................................... 284,555 387,413 368,200
(Increase) Decrease in Accrued Interest Receivable.......... (892,059) 323,470 360,397
Increase in Other Assets.................................... (527,083) (1,630,011) (960,094)
Decrease in Accrued Interest Payable........................ (36,898) (303,619) (932,473)
Increase (Decrease) in Income Taxes Payable................. 6,053 (319,554) 2,788
(Decrease) Increase in Other Liabilities.................... (1,219,703) 685,514 344,533
----------- ----------- -----------
Net Cash Provided by Operating Activities................. 6,553,887 8,269,591 8,322,484
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities................. 1,449,362 1,575,421 2,508,187
Maturities of Investment Securities; Available for Sale..... 55,000,000 - -
Purchases of Investment Securities; Available for Sale ..... (123,295,731) - -
Maturities of Investment Securities; Held to Maturity....... 126,756,406 177,424,983 198,974,514
Purchases of Investment Securities; Held to Maturity........ (25,673,742) (205,203,351) (231,061,999)
Loan Disbursements & Repayments, Net........................ (35,913,818) (38,868,615) (12,301,844)
Purchases of Premises & Equipment, Net...................... (1,184,547) (1,343,369) (723,276)
Disposition of OREO Property................................ 823,216 204,990 -
Cash & Cash Equivalents Acquired, Net of Cash Disbursement.. 15,938,431 - -
----------- ----------- -----------
Net Cash Provided by (Used) in Investing Activities....... 13,899,577 (66,209,941) (42,604,418)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts............................ 12,997,051 30,164,131 21,053,712
(Decrease) Increase in Other Borrowings..................... (6,500,000) 6,500,000 -
Increase in Federal Funds Purchased......................... 4,300,000 - -
Common Stock Sold for Cash.................................. 26,469 172,679 197,118
Dividends Paid to Shareholders.............................. (2,490,014) (2,271,341) (1,961,860)
Increase in Dividend Payable on Common Stock................ 144,540 35,113 70,551
----------- ----------- -----------
Net Cash Provided by Financing Activities................ 8,478,046 34,600,582 19,359,521
----------- ----------- -----------
Net Increase (Decrease) in Cash & Cash Equivalents....... 28,931,510 (23,339,768) (14,922,413)
Cash & Cash Equivalents Beginning of Year.............. 27,556,696 50,896,464 65,818,877
----------- ----------- -----------
Cash & Cash Equivalents End of Year.................... $ 56,488,206 $ 27,556,696 $ 50,896,464
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest.................. $ 49,756,316 $ 44,320,216 $ 47,344,107
=========== =========== ===========
Cash Paid During the Year for:
Interest.................................................. $ 15,602,404 $ 14,828,440 $ 19,085,012
Income Taxes.............................................. 4,698,947 4,389,554 3,855,212
----------- ----------- -----------
Total Cash Paid During Year for Interest & Income Taxes. $ 20,301,350 $ 19,217,994 $ 22,940,224
=========== =========== ============
Non Cash Investing & Financing - (loans re-classified as "other real
estate owned", including foreclosures and in-substance foreclosures) $ 1,510,346 $ - $ 728,500
Issuance of Common Stock 8,531,198 - -
FASB 115 Adjustment 819,229 - -
Deferred Tax Benefit from FASB 115 375,862 - -
Dividends Declared Not Paid 721,938 - -
Net Assets Acquired from Hamptons Bancshares, Inc. (see footnote 2) 9,308,631 - -
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Suffolk Bancorp and its subsidiaries
conform to generally accepted accounting principles and general practices
within the banking industry. The following footnotes describe the most
significant of these policies.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported assets and liabilities
as of the date of the consolidated statements of condition. The same is true of
revenues and expenses reported for the period. Actual results could differ
significantly from those estimates.
(A) Consolidation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, The Suffolk County
National Bank (the "Bank") and Island Computer Corporation of New York, Inc.
All intercompany transactions have been eliminated in consolidation.
(B) Investment Securities -- Prior to January 1, 1994, debt securities are
carried at cost, adjusted for the amortization of premiums and accretion of
discounts, and mortgage-backed securities are carried at current unpaid
principal balances adjusted for unamortized premiums and unearned discounts.
Such securities are reported as "held to maturity" in the consolidated
statements of condition because of management's ability and intent to hold such
securities to maturity.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which was issued in May
1993. Under SFAS No. 115, the Company is required to report debt securities and
mortgage-backed securities in one of the following categories: (i) "held to
maturity" (management has the intent and ability to hold to maturity) which are
to be reported at amortized cost; (ii) "trading" (held for current resale)
which are to be reported at fair value, with unrealized gains and losses
included in earnings; and (iii) "available for sale" (all other debt securities
and mortgage-backed securities) which are to be reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. Accordingly, in adopting SFAS No. 115, the
Company classified all of its holdings of debt securities and mortgage-backed
securities as either "held to maturity", or "available for sale." The adoption
of SFAS No. 115 had no impact on net income in 1994, but resulted in a $328,472
decrease in stockholders' equity at January 1, 1994. The net change in
unrealized loss on securities available for sale during 1994 was $114,895.
Under SFAS No. 115, at the time a security is purchased, a determination will
be made as to the appropriate classification.
Premiums and discounts on debt and mortgage-backed securities are amortized as
expense and accreted as income over the estimated life of the respected
security using a method which approximates the level-yield method. Gains and
losses on the sales of investment securities are recognized upon realization,
using the specific identification method and shown separately in the
consolidated statements of income.
(C) Loans and Loan Interest Income Recognition -- Loans are stated at the
principal amount outstanding. Interest on loans not made on a discounted basis
is credited to income, based upon the principal amount outstanding during the
period. Unearned discounts on installment loans are credited to income using
methods which approximate a level-yield. Recognition of interest income is
discontinued when reasonable doubt exists as to whether interest can be
collected. Loans generally no longer accrue interest when 90 days past due.
When a loan is placed on non-accrual status, all interest previously accrued in
the current year, but not collected, is reversed against current year interest
income. Any interest accrued in prior years is charged against the allowance
for possible loan losses. Loans and leases are removed from non-accrual status
when they become current as to principal and interest, and when, in the opinion
of management, the loans can be collected in full.
(D) Allowance for Possible Loan Losses -- The balance of the Allowance for
Possible Loan Losses is determined by management's estimate of the amount of
financial risk in the loan portfolio and the likelihood of loss. The analysis
also considers the Bank's loan loss experience, and may be adjusted in the
future depending on economic conditions. Additions to the Allowance are made by
charges to expense, and actual losses, net of recoveries, are charged to the
Allowance. Regulatory examiners may require the Bank to add to the allowance
based upon their judgment of information available to them at the time of their
examination
(E) Premises and Equipment -- Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is calculated by
the declining-balance or straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized using the straight-line
method over the term of the lease or the estimated life of the asset, whichever
is shorter.
(F) Other Real Estate Owned -- Property acquired through foreclosure (other
real estate owned or "OREO"), including in-substance foreclosures, is stated at
the lower of cost or fair value less selling costs. Credit losses arising at
the time of the acquisition of property are charged against the allowance for
possible loan losses. Any additional write-downs to the carrying value of these
assets that may be required, as well as the cost of maintaining and operating
these foreclosed properties, are charged to expense. Additional write-downs are
recorded in a valuation reserve account that is maintained asset by asset. Also
included is $105,000 representing investment in property purchased by the Bank
for a possible branch office.
(G) Excess of Cost Over Fair Value of Net Assets Acquired -- The excess of
cost over fair value of net assets acquired (goodwill) is amortized over ten
years.
<PAGE> 25
22
(H) Income Taxes -- Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changed the
Company's method of accounting for income taxes from the deferred method to an
asset and liability approach. The asset and liability approach requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Under SFAS No. 109, deferred tax assets are
recognized if it is more likely than not that a future benefit will be
realized. It is management's position, as currently supported by the facts and
circumstances, that no valuation allowance is necessary against any of the
Company's deferred tax assets. SFAS No. 109 was adopted on a prospective basis.
(see Note 9.)
Prior to January 1, 1993, provisions for income taxes were based upon results
reported for purposes of financial statements. Deferred income taxes were
provided for significant timing differences arising from reporting the
components of such results in different periods than those reported for tax
purposes.
(I) Summary of Retirement Benefits Accounting -- The Company's retirement
plan is non-contributory and covers substantially all eligible employees. The
plan conforms to the provisions of the Employee Retirement Income Security Act
of 1974, as amended. The Company's policy is to accrue for all pension costs
and to fund the maximum amount allowable for tax purposes. Actuarial gains and
losses that arise from changes in assumptions concerning future events, used in
estimating pension costs, are amortized over a period that reflects the
long-term nature of pension expense.
The Company adopted SFAS No. 106 "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" ("SFAS No. 106") on January 1, 1992. This
Statement established accounting standards for post-retirement benefits other
than pensions (hereinafter referred to as post-retirement benefits). The
statement focuses principally on health care, although it applies to all forms
of post-retirement benefits other than pensions. SFAS No. 106 changed the
Company's practice of accounting for post-retirement benefits on a cash basis
by requiring accrual of the cost of providing those benefits to an employee,
and the employee's beneficiaries and covered dependents, during the years that
the employee renders the necessary service.
(J) Cash and Cash Equivalents -- For purposes of the consolidated statement
of cash flows, cash and due from banks and federal funds sold are considered to
be cash equivalents. Generally, federal funds are sold for one-day periods.
(K) Reclassification of Prior Year Consolidated Financial Statements --
Certain reclassifications have been made to the prior year's consolidated
financial statements that conform with the current year's presentation.
Note 2 - Acquisition of Hamptons Bancshares, Inc.
On April 11, 1994, Suffolk Bancorp ("Suffolk") acquired Hampton Bancshares,
Inc. ("Hamptons"). Hamptons principal asset was Bank of the Hamptons, which
operated 8 branch locations in eastern Suffolk County. Each share of Hamptons
common stock on that date was entitled to receive 0.6809 shares of Suffolk
common stock or $14.64 in cash. 402,109 shares were issued. Total consideration
was $12,472,000. At the date of acquisition, Hamptons had $152,271,000 in
assets and deposits of $142,461,000. This transaction has been accounted for
under the purchase method of accounting and, accordingly, the Company's
consolidated results of operations reflect the results of Hamptons from April
11, 1994. The assets and liabilities have been recorded at their estimated fair
values. The excess cost over the fair value of net assets acquired of
$3,619,000 is shown as an intangible asset on the statement of condition at
December 31, 1994, and is being amortized over 10 years. At the date of
acquisition, Hamptons had assets (exclusive of cash & cash equivalents) with a
fair value of $137,288,000, including investment securities of $34,994,000, net
loans of $88,100,000, and other assets of $14,194,000; and liabilities with a
fair value of $145,795,000, including deposits of $142,227,000 and other
liabilities of $3,568,000; resulting in net liabilities assumed (exclusive of
cash & cash equivalents) of $8,507,000. The following is an unaudited pro forma
summary of the consolidated results of operations for the years ended December
31, 1994 and 1993, assuming the aforementioned acquisition occurred on January
1, 1993. The unaudited pro forma results are not necessarily indicative of the
results which would have actually been attained if the acquisition had been
consummated in the past or what may be attained in the future.
Unaudited Pro Forma Results of Operations: (in thousands of dollars except
share and per-share data)
<TABLE>
<CAPTION>
December 31, 1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $51,579 $55,582
Interest expense 15,761 17,542
---------------------------------------------------------------------------------------------------------------------------
Net interest income 35,818 38,040
Provision for possible loan losses 730 1,398
Other income 5,823 6,554
Other expenses 27,993 31,223
---------------------------------------------------------------------------------------------------------------------------
Net operating expense 22,170 24,669
Income before taxes and cumulative effect
of change in accounting principle 12,918 11,973
Provision for income taxes 4,705 4,162
---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 8,213 7,811
Cumulative effect of change in accounting principle - 665
---------------------------------------------------------------------------------------------------------------------------
Net income $ 8,213 $ 8,476
Earnings-per-share $ 2.16 $ 2.24
---------------------------------------------------------------------------------------------------------------------------
Average shares 3,800,250 3,792,045
===========================================================================================================================
</TABLE>
<PAGE> 26
23
Purchase-accounting discounts and premiums from the acquisition of
Hamptons which are accreted or amortized over their estimated lives from the
acquisition date, using the level yield method are as follows: (dollars in
thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Estimated
Amount Life
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchase discount on investment securities $ 1,445 4 years
Purchase discount on loans 1,323 2 years
Purchase premium on bank premises 1,418 7 years
Purchase premium on other time deposits 214 2 years
Purchase premium on CD's > $100,000 20 6 months
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3 - Investment Securities
The amortized cost, estimated fair values and gross unrealized gains and losses
of the Company's investment securities available for sale and held to maturity
at December 31, 1994 and 1993 were: (in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Investment Securities 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
Estimated Gross Gross Estimated Gross Gross
Amortized Fair Unrealized Unrealized Amortized Fair Unrealized Unrealized
Cost Value Gains Losses Cost Value Gains Losses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. treasury securities $ 69,080 $ 68,261 $ 23 $ 842 $ - $ - $ - $ -
________ ________ ________ _______ ______ _______ ________ ________
Balance at end of year 69,080 68,261 23 842 - - - -
------------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
U.S. treasury securities $ 57,091 $ 55,827 $ - $ 1,264 $149,999 $150,328 $ 373 $ 44
Obligations of states and
political subdivisions 36,780 36,841 221 160 42,025 42,894 910 41
U.S. govt. agency
obligations 31,871 29,790 7 2,088 1,176 1,123 11 64
Corporate bonds and
other securities 638 638 - - 1,191 1,187 4 8
-------- -------- -------- -------- -------- -------- -------- --------
Balance at end of year $126,380 $123,096 $ 228 $ 3,512 $194,391 $195,532 $ 1,298 $ 157
------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $195,460 $191,357 $ 251 $ 4,354 $194,391 $195,532 $ 1,298 $ 157
====================================================================================================================================
</TABLE>
U.S. Government Agency Obligations are mortgage-backed securities which
represent participating interests in pools of first mortgage loans.
The carrying value, maturities and approximate fair value at December 31, 1994
are as follows: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Available for Sale- - - - - - - - - - - - - - - - - - - - - - - - - Held To Maturity - - - - - - - - - - -
--------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Corporate Total
U.S. Treasury U.S. Treasury States & Political Govt. Agency Bonds & Carrying
Securities Securities Subdivisions Obligations Other Securities Value
--------------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair Carrying Fair Carrying Fair
Maturity (in years) Value Value Value Value Value Value Value Value Value Value
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 $34,588 $34,611 $45,004 $44,304 $30,714 $30,616 $ 1 $ 1 $ - $ - $110,307
After 1 but within 5 34,492 33,650 12,087 11,523 6,066 6,225 14,664 13,956 - - 67,309
After 5 but within 10 - - - - - - 17,206 15,833 - - 17,206
Other securities (FRB) - - - - - - - - 638 638 638
--------------------------------------------------------------------------------------------------------------------------------
Total $69,080 $68,261 $57,091 $55,827 $36,780 $36,841 $31,871 $29,790 $ 638 $ 638 $195,460
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As a member of the Federal Reserve system, the Bank owns Federal Reserve Bank
Stock with a book value of $638,000. The stock has no maturity and there is no
public market for the investment.
Actual maturities of U.S. Government Agency Obligations will differ from
contractual maturities because the mortgage-loan borrowers have the right to
prepay obligations with or without penalties because the issuer can call the
security before it is due.
At December 31, 1994 and 1993, investment securities carried at $170,522,000
and $168,880,000, respectively, were pledged to secure trust deposits and
public funds on deposit. No securities have been sold during the past three
years.
24
<PAGE> 27
Note 4 - Loans
At December 31, 1994 and 1993, loans included the following: (in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Commercial, financial
and agricultural loans $ 71,414 $ 52,103
Commercial real estate 104,548 65,738
Real estate construction loans 8,018 5,327
Residential mortgages (1st & 2nd liens) 50,011 33,489
Home equity loans 27,534 18,440
Consumer loans 302,634 266,605
Lease finance 743 -
Other loans 3,296 522
$568,198 $442,224
Unearned discounts (32,909) (30,562)
Allowance for possible loan losses (6,214) (4,922)
-----------------------------------------------------------------
Balance at end of year $529,075 $406,740
-----------------------------------------------------------------
</TABLE>
Restructured loans, loans not accruing interest and loans contractually past
due 90 days or more with regard to payment of principal and/or interest
amounted to $8,401,000 and $5,359,000 at December 31, 1994 and 1993,
respectively. Interest on loans which have been restructured or are no longer
accruing interest would have amounted to $394,000 during 1994, $322,000 during
1993 and $361,000 during 1992 under the contractual terms of those loans.
Interest income recognized on restructured and non-accrual loans was immaterial
for the years 1994, 1993 and 1992.
The Company makes loans to its directors, as well as to other related parties
in the ordinary course of its business. Loans made to directors, either
directly or indirectly, which exceed $60,000 in aggregate for any one director
totaled $7,012,000 and $5,752,000 at December 31, 1994 and 1993, respectively.
Unused portions of lines of credit to directors, directly or indirectly,
totaled $4,250,000 and $3,225,000 as of December 31, 1994 and 1993,
respectively. New loans totaling $15,819,000 were granted and payments of
$14,559,000 were received during 1994.
The Company has pledged $8,839,000 of 1-4 family residential mortgages as
collateral against advances from the Federal Reserve Bank as of December 31,
1994.
Note 5 - Allowance for Possible Loan Losses
An analysis of the changes in the Allowance for Possible Loan Losses follows:
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $4,922 $4,730 $3,871
Allowance acquired from Hamptons 1,678 - -
Provision for possible loan losses 730 1,098 2,572
Loans charged-off (1,468) (1,167) (1,939)
Recoveries on loans 352 261 226
------------------------------------------------------------------
Balance at end of year $6,214 $4,922 $4,730
==================================================================
</TABLE>
Note 6 - Premises and Equipment
The following table presents detail concerning premises and equipment: (in
thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------
1994 1993
------------------------------------------------------------
<S> <C> <C>
Land $ 2,412 $ 498
Premises 7,477 2,493
Furniture, fixtures & equipment 12,010 9,398
Leasehold improvements 411 560
------------------------------------------------------------
22,310 12,949
Accumulated depreciation
and amortization (9,882) (8,221)
------------------------------------------------------------
Balance at end of year $ 12,428 $ 4,728
============================================================
</TABLE>
Depreciation and amortization charged to operations amounted to $1,728,000,
$1,212,000, and $1,383,000 during 1994, 1993 and 1992, respectively.
Note 7 - Short-Term Borrowings
Presented below is information concerning short-term interest-bearing
liabilities, principally Federal Reserve Bank Borrowings, and Securities Sold
Under Agreements to Repurchase, with maturities of less than one year, and
their related weighted average interest rates for the years 1994 and 1993:
(dollars in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------
<S> <C> <C>
Daily average outstanding $ 2,132 $ 18
Total interest cost 81 0.5
Average interest rate paid 3.80% 2.78%
Maximum amount outstanding at any month-
end (February 1994, December 1993) $22,840 $ 6,500
December 31, balance - 6,500
Weighted average interest rate
on balances outstanding at December 31, -% 3.00%
------------------------------------------------------------------------
</TABLE>
There were no short-term borrowings for the year 1992.
Note 8 - Stockholders' Equity
The Company has a Dividend Reinvestment Plan. Stockholders can reinvest
dividends in common stock of the Company at a 3% discount from market value on
newly issued shares. Shareholders may also make additional cash purchases.
There were no shares issued in 1994 or 1993, and 19,750 shares were issued
under the Plan during 1992
At the 1989 annual meeting, the shareholders approved an Incentive Stock Option
Plan ("the Plan") which reserved 330,000 shares of the Company's common stock
for issuance to key employees. Options are awarded by a committee appointed by
the Board of Directors. The Plan provides that the option price shall not be
less than the fair value of the common stock on the date the option is granted.
All options are exercisable for a period of ten years or less. The Plan provides
for the grant of stock appreciation rights which the holder may exercise instead
of the underlying option. When the stock appreciation right is exercised, the
underlying option is cancelled. The optionee receives shares of common stock
with a fair market value equal to the excess of the fair value of the shares
subject to the option at the time of exercise (or the portion thereof so
exercised) over the aggregate option price of the shares set
<PAGE> 28
25
forth in the option agreement. The exercise of stock appreciation rights is
treated as the exercise of the underlying option.
The following table presents the options exercised during each of the past
three years:
<TABLE>
<CAPTION>
-----------------------------------------------------
Number of
Shares
-----------------------------------------------------
<S> <C>
Balance at December 31, 1991 16,096
Options granted -
Options exercised -
Options expired or terminated -
-----------------------------------------------------
Balance at December 31, 1992 16,096
Options granted -
Options exercised (11,481)
Options expired or terminated -
-----------------------------------------------------
Balance at December 31, 1993 4,615
Options granted -
Options exercised (1,401)
Options expired or terminated (3,214)
Balance at December 31, 1994 -
-----------------------------------------------------
</TABLE>
All dividends must conform to applicable statutory requirements. Under 12 USC
56-9, a national bank may not pay a dividend on its common stock if the dividend
would exceed net undivided profits then on hand. Further, under 12 USC 60, a
national bank must obtain prior approval from the Office of the Comptroller of
the Currency ("OCC") to pay dividends on either common or preferred stock that
would exceed its net profits for the current year combined with retained net
profits (net profits minus dividends paid during that period) of the prior two
years. At December 31, 1994, approximately $17,064,000 was available for
dividends from the Bank to Suffolk Bancorp without prior approval of the OCC.
Note 9- Income Taxes
As discussed in Note 1(H), the Company adopted Statement No. 109 as of January
1, 1993. The cumulative effect of this change in accounting for income taxes of
$624,000 is determined as of January 1, 1993 and is reported separately in the
consolidated statements of income in 1993. Prior years' consolidated financial
statements have not been restated to apply the provisions of Statement No. 109.
The provision for income taxes in the consolidated statements of income is
comprised of the following: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 3,792 $ 3,115 $ 3,064
State 1,270 1,367 1,347
--------------------------------------------------------------
5,062 4,482 4,411
Deferred
Federal (413) (295) (446)
State 56 (117) (107)
--------------------------------------------------------------
(357) (412) (553)
--------------------------------------------------------------
Total $ 4,705 $ 4,070 $ 3,858
==============================================================
</TABLE>
The total tax expense was less than the amounts computed by applying the
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense
at statutory rates 34% 34% 34%
Tax exempt interest (4%) (5%) (7%)
Amortization of excess cost over
fair value of net assets acquired 1% - -
State income taxes net of
federal benefit 7% 7% 7%
Other (1%) (1%) 3%
--------------------------------------------------------------------
Total 37% 35% 37%
===================================================================
</TABLE>
The tax effects of temporary differences that create significant deferred-tax
assets and deferred-tax liabilities at December 31, 1994 and 1993 and the
recognition of income and expense for purposes of tax and financial reporting,
resulting in net increases to the Company's net deferred tax asset for the year
ended December 31, 1994 are presented below: (in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Dollar
1994 1993 Change
---------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Provision for possible
loan losses $2,230 $1,958 $ 272
Depreciation 41 54 (13)
Post-retirement benefits 186 106 80
Deferred compensation 249 285 (36)
Purchase accounting 987 - 987
Tax net operating loss carry-
forward acquired from Hamptons 192 - 192
Tax benefit from investment
securities available for sale 376 - 376
Other - 20 (20)
---------------------------------------------------------------------
Total deferred tax assets
before valuation allowance 4,261 2,423 1,838
Valuation allowance - - -
---------------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 4,261 2,423 1,838
---------------------------------------------------------------------
Deferred tax liability:
Pension 249 102 (147)
Other - 38 38
---------------------------------------------------------------------
Total deferred tax liability 249 140 (109)
Net deferred tax asset $4,012 $2,283 $1,729
=====================================================================
</TABLE>
The Company recognized a net deferred tax asset of $1,710,000 at the date of
acquisition as a result of the acquisition of Hamptons. Included in the net
deferred tax asset is a deferred tax asset of $407,000 relating to an acquired
tax net operating loss carryforward acquired in the acquisition. The tax net
operating loss carryforward of $565,000 as of December 31, 1994 will begin to
expire in the year 2005.
<PAGE> 29
26
The tax effects of temporary differences that create significant deferred-tax
assets and deferred-tax liabilities as of January 1, 1993 and December 31, 1993
and the temporary difference in the recognition of income and expense for
purposes of tax and financial reporting, resulting in net increases to the
Company's net deferred tax asset for the year ended December 31, 1993 are
presented below:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------
Change for
the year
ended
Jan. 1, Dec. 31, Dec. 31,
1993 1993 1993
<S> <C> <C> <C>
--------------------------------------------------------------
Deferred tax assets:
Provision for possible
loan losses $1,878 $1,958 $ 80
Deferred compensation 220 285 65
Other 64 180 116
--------------------------------------------------------------
Total deferred tax assets
before valuation allowance 2,162 2,423 261
Valuation allowance - - -
--------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 2,162 2,423 261
--------------------------------------------------------------
Deferred tax liability:
Depreciation 128 - 128
Other 163 140 23
--------------------------------------------------------------
Total deferred tax liability 291 140 151
Net deferred tax asset $1,871 $2,283 $ 412
==============================================================
</TABLE>
The sources of timing differences prior to the adoption of SFAS No. 109
resulting in deferred income taxes and the related tax effect of each were as
follows: (in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------
Year Ended December 31, 1992
-------------------------------------------------
<S> <C>
Loan loss deduction $ (534)
Accelerated tax depreciation (27)
Deferred compensation (25)
Other, net 33
-------------------------------------------------
Total $ (553)
=================================================
</TABLE>
The Internal Revenue Service has examined and closed their years through tax
year 1990.
Note 10 - Employee Benefits
On October 1, 1994, the Hamptons Retirement Plan was merged into the retirement
plan of Suffolk Bancorp, the Prototype Plan of the New York State Bankers
Retirement System. Beginning on October 1, 1994, all remaining Hamptons Plan
members (including terminated vested and retired members) will participate in
Suffolk's Plan.
The benefits for active employees will be calculated as if the employee had
always participated in Suffolk's Plan. All service and pay earned while
employed by Hamptons will be counted under Suffolk's Plan. Nevertheless, the
benefits payable will never be less than the accrued vested plan benefit earned
in the Hamptons Plan.
(A) Retirement Plan
The Company has a non-contributory pension plan available to all full-time
employees who are at least 21 years old and have completed at least one year of
employment. The following tables set forth the status of Hamptons' and of
Suffolk Bancorp's combined plan as of September 30, 1994 and Suffolk's Plan as
of September 30, 1993, the time at which the annual valuation of the plan is
made:
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation $ 5,939,500 $ 3,490,400
-----------------------------------------------------------------
Vested benefit obligation $ 5,765,409 3,440,437
-----------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(8,014,115) $(5,223,485)
Plan assets at fair value, primarily
listed stocks and bonds 8,304,960 6,220,420
-----------------------------------------------------------------
Plan assets in excess of
projected benefit obligation $ 290,845 $ 996,935
Unrecognized net transition assets
being amortized over 17.5 years (551,916) (607,541)
Unrecognized prior service cost (24,739) 26,562
Unrecognized net loss 1,248,975 230,770
-----------------------------------------------------------------
Prepaid pension cost included in
other assets $ 963,165 $ 646,726
=================================================================
</TABLE>
The effect of merging the two plans on the components of prepaid pension cost
are as follows: Accumulated vested benefit obligations increased $80,994,
vested benefit obligation increased $80,125, and the projected benefit
obligation increased $237,030.
Net pension cost for 1994, 1993 & 1992 included the following components:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Service cost $ 589,376 $ 446,139 $ 397,851
Interest cost on projected
benefit obligations 587,690 391,655 360,456
Expected return on plan assets (676,728) (449,584) (398,832)
Net amortization & deferral (37,457) (38,936) (27,914)
-----------------------------------------------------------------
Net periodic pension cost $ 462,881 $ 349,274 $ 331,561
=================================================================
</TABLE>
<PAGE> 30
27
The weighted average discount rate for purposes of determining net periodic
pension cost was 8.0% in 1994 and 8.5% 1993. The rate of increase in future
compensation levels used in determining these amounts was 5.0% in 1994 and 6.5%
1993, respectively. The expected long-term rate of return on assets is 8.5% for
1994 and 1993.
(B) Deferred Compensation Plan
During 1986, the Board approved a deferred compensation plan. Under the plan,
certain employees and Directors of the Company elected to defer compensation
aggregating approximately $177,000 in exchange for stated future payments to be
made at specified dates which would include a guaranteed rate of return on the
initial deferral. For purposes of financial reporting, interest (approximately
$100,000 in 1994, $130,000 in 1993 and $95,000 in 1992) at the plan's
contractual rate is being accrued on the deferral amounts over the expected
plan term. During 1994, the Company made payments of $99,000 to participants of
the plan.
The Company has purchased life insurance policies on the plan's participants
based upon reasonable actuarial benefit and other financial assumptions where
the present value of the projected cash flows from the insurance proceeds
approximates the present value of the projected cost of the employee benefit.
The Company is the named beneficiary on the policies. Net insurance expense
(income) related to the policies aggregated approximately ($11,000), $1,000 and
($7,000) in 1994, 1993 and 1992, respectively.
(C) Post-Retirement Benefits Other Than Pension
On January 1, 1992, the Company adopted SFAS No. 106. Post-retirement benefits
other than pension are available to all full time employees who have met
certain age requirements and have completed at least one year of employment.
The accrued post-retirement benefit recognized during 1994 includes a service
cost of $83,461, interest of $94,007 and amortization of $37,339. The accrued
post-retirement benefit recognized during 1993 includes a service cost of
$77,291, interest cost of $51,940 and amortization of $20,769. Interest is
calculated assuming a discount rate of 8.5 percent, and the amortization cost
represents the unrecognized transition obligation as of January 1, 1992,
amortized using the straight-line method over a twenty-year period. The only
benefit available after retirement is participation in group insurance plans.
Note 11 - Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding commitments and
contingent liabilities, such as standby letters-of-credit and commitments to
extend credit, which are not reflected in the accompanying consolidated
financial statements. No material losses are anticipated as a result of these
transactions. The Company is contingently liable under standby
letters-of-credit in the amount of $4,432,000 and $1,356,000 at December 31,
1994 and 1993, respectively. The Company has commitments to make or to extend
credit in the form of revolving open end lines secured by 1-4 family
residential properties, commercial real estate, construction and land
development loans, and lease financing arrangements in the amount of
$18,080,000 and $12,829,000, and commercial loans of $5,549,000 and $3,860,000
as of December 31, 1994 and 1993, respectively.
In the opinion of management, based upon legal counsel, liabilities arising
from legal proceedings against the Company, would not have a significant effect
on the financial position of the Company.
During 1994, the Company was required to maintain balances with the Federal
Reserve Bank of N.Y. for reserve and clearing requirements. These balances
averaged $4,444,000 in 1994.
Total rental expense for the years ended December 31, 1994, 1993 and 1992
amounted to $527,000, $496,000 and $457,000, respectively. At December 31,
1994, the Company was obligated under a number of non-cancellable operating
leases for land and buildings used for bank purposes. Minimum annual rentals,
exclusive of taxes and other charges under non-cancellable operating leases,
are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------
Year ending December 31, Minimum Annual Rentals
------------------------------------------------------------
<S> <C>
1995 $ 475
1996 473
1997 492
1998 497
1999 and thereafter 507
============================================================
</TABLE>
Note 12 - Credit Concentrations and Regulatory Matters
The Bank's principal investments are in loans, and in a portfolio of short and
medium term debt of the United States Treasury, states and other political
subdivisions, U.S. Government agencies, and corporations.
As of December 31, 1994, consumer loans, net of unearned discounts, comprised
50.4 percent of the Bank's loan portfolio, more than 84.6 percent of which are
indirect dealer-generated loans secured by automobiles. Most of these loans are
made to residents of the Bank's primary lending area, which is Suffolk County,
New York. Borrowers represent a cross-section of the population employed in a
variety of industries. The risk presented by any one loan is correspondingly
small, and therefore, the risk which this portion of the portfolio presents to
the Company is dependent upon the financial stability of the population as a
whole, and is not dependent on any one entity or industry.
As of December 31, 1994, loans secured by real estate represented 35.5 percent
of the portfolio, most of which are for commercial properties. Loans of this
variety present somewhat greater risk than consumer loans, particularly in the
current economy. The Bank has attempted to minimize the risks of these loans by
carefully considering, among
<PAGE> 31
28
other things, the creditworthiness of the borrower, whether or not the real
estate is located in Suffolk County, New York, the Bank's primary lending area,
the condition and value of, as well as the business prospects for the security
property. The Bank obtains, whenever possible, the personal guarantees of the
principal(s), and cross-guarantees among the principal's business enterprises.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 13.4 percent of the loan portfolio.
These loans present significantly greater risk than other types of loans.
Average credits are greater in size than consumer loans, and unsecured loans
may be more difficult to collect. The Bank obtains, whenever possible, the
personal guarantees of the principal(s), and cross-guarantees among the
principal's business enterprises.
In connection with the determination of the allowance for possible loan losses
and other real estate owned, management obtains independent appraisals for
significant properties. Management believes that the allowances for possible
loan losses and other real estate owned are adequate. While management uses
whatever information is available to recognize losses on loans and other real
estate owned, future additions to the allowances may be necessary because of
changes in economic conditions, particularly in the northeastern United States.
During 1994, management charged-off $1,116,000 net of recoveries, made
additions to the allowance of $730,000 and recorded an acquired allowance from
Hamptons of $1,678,000.
In addition, various regulatory agencies, as part of their examinations,
periodically review the Bank's allowance for possible losses on loans and real
estate owned. These agencies may require the Bank to make additions to the
allowance, based on their judgments about information available to them at the
time of their examination.
Note 13 - Fair Value of Financial Instruments
The following table presents the carrying amounts and fair values of the Banks
financial instruments at December 31, 1994 and 1993. FASB SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale: (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash & cash equivalents $ 56,488 $ 56,488 $ 27,557 $ 27,557
Investment securities
available for sale 68,261 68,261 - -
Investment securities
held to maturity 126,380 123,096 194,391 195,532
Loans 568,198 555,195 442,224 447,526
Accrued interest receivable 4,007 4,007 2,199 2,199
Deposits 723,993 720,857 568,768 569,590
Accrued interest payable 1,100 1,100 968 968
Fed funds purchased 4,300 4,300 - -
Other borrowings - - 6,500 6,500
=====================================================================
</TABLE>
Limitations
The following estimates are made at a specific point in time and may be based
on judgments regarding losses expected in the future, risk, and other factors
which are subjective in nature. The methods and assumptions used to produce the
fair value estimates are listed below.
Short-term Instruments
Short-term financial instruments are valued at the carrying amounts included in
the statements of condition, which are reasonable estimates of fair value due
to the relatively short period or no maturity of the instruments. This approach
applies to cash and cash equivalents, federal funds purchased, accrued interest
receivable, non-interest bearing demand deposits, N.O.W., money market, savings
accounts, accrued interest payable and other borrowings.
Investment Securities
The fair value of the investment portfolio including mortgage-backed securities
was based on quoted market prices or market prices of similar instruments with
appropriate adjustments.
Loans
Fair values are estimated for portfolios of loans with similar characteristics.
Loans are segregated by type.
The fair value of performing loans was calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that
reflect the credit and interest-rate risk inherent in the loan. The estimate of
maturity is based on the Bank's historical experience with repayments for each
type of loan, modified, as required, by an estimate of the effects of the
current economy.
Fair value for significant non-performing loans is based on recent external
appraisals of collateral, if any. If appraisals are not available, estimated
cash flows are discounted using a rate commensurate with the associated risk.
Assumptions regarding credit risk, cash flows, and discount rates are made
using available market information and specific borrower information.
The carrying amount and fair value of loans were as follows at December 31,
1994 and 1993: (in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
& agricultural $ 71,414 $ 68,617 $52,103 $ 51,344
Commercial real estate 104,548 103,895 65,738 65,936
Real estate
construction loans 8,018 7,540 5,327 5,357
Residential mortgages
(1st & 2nd liens) 50,011 50,215 33,489 33,723
Home equity loans 27,534 27,531 18,440 18,448
Consumer loans 302,634 293,382 266,605 272,195
Lease finance 743 720 - -
Other loans 3,296 3,295 522 523
----------------------------------------------------------------
Totals $568,198 $555,195 $442,224 $447,526
================================================================
</TABLE>
29
<PAGE> 32
Deposit Liabilities
The fair value of certificates of deposit were calculated by discounting cash
flows with applicable origination rates. At December 31, 1994, the fair value
of certificates of deposit of $164,886,000 had a carrying value of
$168,021,000. At December 31, 1993, the fair value of certificates of deposit
of $151,501,000 had a carrying value of $150,680,000.
Commitments to Extend Credit, Standby Letters of Credit, and Written Financial
Guarantees
The fair value of commitments to extend credit was estimated either by
discounting cash flows or using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties.
The estimated fair value of written financial guarantees and letters of credit
is based on fees currently charged for similar agreements: (in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1994 1993
Contract Fair Contract Fair
Amount Value Amount Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments to
extend credit $21,124 $21,173 $14,968 $15,016
Stand-by letters of credit 4,432 4,432 1,356 1,376
Written financial guarantees 5,549 5,559 3,860 3,874
---------------------------------------------------------------------
Totals $31,105 $31,164 $20,184 $20,266
---------------------------------------------------------------------
</TABLE>
Note 14 - Suffolk Bancorp (Parent Company Only)
<TABLE>
<CAPTION>
Condensed Financial Statements: (in thousands)
---------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Due From Banks $ 1,368 $ 1,635
Investment in Subsidiaries:SCNB 75,811 61,695
ICC 587 281
Other Assets 69 293
---------------------------------------------------------------------------------------------------------------------------
Total Assets $77,835 $63,904
---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Dividends Payable $ 722 $ 577
Other Liabilities 20 43
Stockholders' Equity 77,093 63,284
---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $77,835 $63,904
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Income for the year ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from Subsidiary Bank $ 2,629 $ 2,306 $ 2,032
Interest Income 8 23 27
---------------------------------------------------------------------------------------------------------------------------
2,637 2,329 2,059
Expense
Other (Income) Expense (17) 185 5
---------------------------------------------------------------------------------------------------------------------------
Income before Equity in Undistributed Net Income of Subsidiaries 2,654 2,144 2,054
Equity in Undistributed Earnings of Subsidiaries 5,664 6,169 4,619
---------------------------------------------------------------------------------------------------------------------------
Net Income $ 8,318 $ 8,313 $ 6,673
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows for the year ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 8,318 $ 8,313 $ 6,673
less: Equity in Undistributed Earnings of Subsidiaries 5,664 6,169 4,619
Other, net 3,099 (252) -
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,753 1,892 2,054
---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Cash Paid for Acquisition (3,556) - -
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities (3,556) - -
Cash Flows from Financing Activities
Issuance of Stock under Stock Option Plan 26 173 197
Dividends Paid (2,490) (2,271) (1,961)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (2,464) (2,098) (1,764)
Net (Decrease) Increase in Cash and Cash Equivalents (267) (206) 290
Cash and Cash Equivalents, Beginning of Year 1,635 1,841 1,551
---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,368 $ 1,635 $ 1,841
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: No income tax provision has been recorded on the books of Suffolk
Bancorp since it files a return consolidated with its subsidiaries.
30
<PAGE> 33
Note 15- Selected Quarterly Financial Data (Unaudited)
The comparative results for the four quarters of 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(in thousands of dollars except for share and per-share data)
---------------------------------------------------------------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $10,711 $12,880 $13,999 $13,974 $11,273 $11,021 $10,882 $10,821
Interest expense 3,465 3,920 4,087 4,262 3,781 3,618 3,559 3,567
---------------------------------------------------------------------------------------------------------------------------------
Net-interest income 7,246 8,960 9,912 9,712 7,492 7,403 7,323 7,254
Provision for possible
loan losses 150 330 130 120 345 253 150 350
---------------------------------------------------------------------------------------------------------------------------------
Net-interest income
after provision for
possible loan losses 7,096 8,630 9,782 9,592 7,147 7,150 7,173 6,904
Other income 1,011 1,428 1,518 1,866 950 1,022 1,490 1,268
Other expense 5,310 7,338 7,521 7,731 5,185 5,275 5,435 5,450
Provision for income
taxes 890 1,110 1,155 1,550 1,080 990 1,155 845
---------------------------------------------------------------------------------------------------------------------------------
Income before
cumulative effect of
accounting change 1,907 1,610 2,624 2,177 1,832 1,907 2,073 1,877
Cumulative effect of
accounting change - - - - 624 - - -
---------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,907 $ 1,610 $ 2,624 $ 2,177 $ 2,456 $ 1,907 $ 2,073 $ 1,877
---------------------------------------------------------------------------------------------------------------------------------
Per-share data:
Income before
cumulative effect
of accounting change $ 0.56 $ 0.43 $ 0.69 $ 0.57 $ 0.54 $ 0.56 $ 0.61 $ 0.56
Cumulative effect
of accounting
change - - - - 0.18 - - -
---------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.56 $ 0.43 $ 0.69 $ 0.57 $ 0.72 $ 0.56 $ 0.61 $ 0.56
---------------------------------------------------------------------------------------------------------------------------------
Cash dividends $ 0.17 $ 0.17 $ 0.18 $ 0.19 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Average shares 3,396,689 3,741,574 3,799,088 3,799,674 3,389,587 3,390,139 3,390,628 3,396,460
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
KPMG PEAT MARWICK LLP
Certified Public Accountants
1 Jericho Plaza
Jericho, New York 11753
Independent Auditors' Report
The Stockholders and Board of Directors
Suffolk Bancorp:
We have audited the accompanying consolidated statements of condition
of Suffolk Bancorp and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company'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 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
Suffolk Bancorp and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in notes 1(b) and 9, the Company adopted provisions of
Statement of Accounting Standards Nos. 115, "Accounting for Certain Debt and
Equity Securities," effective January 1, 1994, and Statement of Accounting
Standards No. 109 "Accounting for Income Taxes" on January 1, 1993.
January 23, 1995
32
<PAGE> 35
[SUFFOLK BANCORP LETTERHEAD]
The Stockholders and Board of Directors
Suffolk Bancorp:
The management of Suffolk Bancorp is responsible for the preparation
and integrity of the consolidated financial statements and all other information
in this annual report, whether audited or unaudited. The financial statements
have been prepared in accordance with generally accepted accounting principles
and, where necessary, are based on management's best estimates and judgment. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.
Suffolk Bancorp's independent auditors have been engaged to perform an
audit of the consolidated financial statements in accordance with generally
accepted auditing standards and the auditors' report expresses their opinion as
to the fair presentation of the consolidated financial statements and conformity
with generally accepted accounting principles.
Suffolk Bancorp maintains systems of internal controls that provide
reasonable assurance that assets are safeguarded and reliable financial records
are maintained for preparing financial statements. Internal audits are conducted
to continually evaluate the adequacy and effectiveness of such internal
controls, policies, and procedures.
The examining and audit committee of the Board of Directors, which is
composed entirely of directors who are not employees of Suffolk Bancorp, meets
periodically with the independent auditors, internal auditors, and with
management to discuss audit and internal accounting controls, regulatory audits,
and financial reporting matters.
Edward J. Merz Victor F. Bozuhoski, Jr.
President and Executive Vice-President,
Chief Executive Officer Chief Financial Officer,
and Treasurer
33
<PAGE> 36
[SUFFOLK BANCORP LOGO]
DIRECTORS
Raymond A. Mazgulski
Chairman of the Board, Suffolk Bancorp
Bruce Collins
Superintendent of Public Works, Village of East Hampton, N.Y.
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Howard M. Finkelstein
Partner, Smith, Finkelstein, Lundberg, Isler & Yakaboski
(attorneys)
Edgar F. Goodale
President, Riverhead Building Supply, Corp.
Hallock Luce 3rd
Director, Lupton & Luce, Inc.
(general insurance)
President, Hallup Realty Corp.
(real estate)
Edward J. Merz
President & Chief Executive Officer, Suffolk Bancorp
John J. Raynor
President, John J. Raynor, P.E.& L.S., P.C.
(Civil Engineering/Surveying Firm)
J. Douglas Stark
President, Stark Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering Greenhouses, Inc.
(wholesale nursery)
OFFICERS
Edward J. Merz
President & Chief Executive Officer
Victor F. Bozuhoski, Jr.
Executive Vice President, Chief Financial Officer, &
Treasurer
Douglas Ian Shaw
Vice President & Corporate Secretary
AUDIT DEPARTMENT
Roy Garbarino, C.P.A.
Auditor
Joanne Appel
IS Audit Manager
Maureen Mougios
Assistant Vice President
Carolyn Leahy
Senior Staff Auditor
SUBSIDIARIES
DIRECTORS
Edward J. Merz, Chairman,
President & Chief Executive Officer, Suffolk Bancorp
Augustus C. Weaver
President, Island Computer Corporation of New York, Inc.
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Alexander B. Doroski
Senior Vice President & Chief Operations Officer,
The Suffolk County National Bank
Peter Van de Wetering
President, Van de Wetering
Greenhouses, Inc. (wholesale nursery)
[ISLAND COMPUTER CORPORATION LOGO]
OFFICERS
Augustus C. Weaver
President
Mark J. Drozd
Vice President
Thomas J. Munkelwitz
Corporate Secretary
Janet L. Maher
Corporate Treasurer
Suffolk Bancorp and its subsidiaries are Equal Opportunity Affirmative Action
Employers
34
<PAGE> 37
[LOGO]
THE SUFFOLK COUNTY NATIONAL BANK
DIRECTORS
Raymond A. Mazgulski
Chairman of the Board
The Suffolk County
National Bank
Bruce Collins
Superintendent of
Public Works
Village of East Hampton
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Howard M. Finkelstein
Partner; Smith, Finkelstein,
Lundberg, Isler
& Yakaboski
(attorneys)
Edgar F. Goodale
President
Riverhead Building
Supply, Corp.
Hallock Luce 3rd
Director,
Lupton & Luce, Inc.
(general insurance)
President,
Hallup Realty Corp.
(real estate)
Edward J. Merz
President &
Chief Executive Officer,
Suffolk Bancorp
John J. Raynor
President, John J. Raynor,
P.E.& L.S., P.C. (civil
engineering/surveying firm)
J. Douglas Stark
President, Stark
Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering
Greenhouses, Inc.
(wholesale nursery)
OFFICERS
Edward J. Merz
President &
Chief Executive Officer
Victor F. Bozuhoski, Jr.
Executive Vice President &
Chief Financial Officer
Ronald M. Krawczyk
Executive Vice President
Retail Banking
CONSUMER LOANS
John F. Hanley
Senior Vice President
Brian Both
Vice President
Linda J. Brooks
Vice President
Jeanne P. Hamilton
Vice President
Gordon F. Handshaw
Vice President
Stasia Bermudez
Assistant Vice President
Robert D. Brown
Assistant Vice President
Jacqueline A. Covell
Assistant Vice President
John Dunleavy
Assistant Vice President
Laura D. Ogden
Assistant Vice President
Pamela L. Palleschi
Assistant Vice President
Karen A. Szalay
Assistant Vice President
Helene Caspar
Bank Officer
Henry J. Fine
Bank Officer
Marilyn Lang
Bank Officer
Kathleen Manglaviti
Bank Officer
Christopher R. Martinelli
Bank Officer
Sarah Mayo
Bank Officer
Stephen B. Probst
Bank Officer
Deborah A. Simonetti
Bank Officer
COMMERCIAL LOANS
Robert C. Dick
Senior Vice President
Frank Filipo
Senior Vice President
Lawrence Milius
Senior Vice President
Peter M. Almasy
Vice President
David T. De Vito
Vice President
Robert T. Ellerkamp
Assistant Vice President
Steven W. Goad
Assistant Vice President
Fredrick J. Weinfurt
Assistant Vice President
Wendy Harris
Bank Officer
Jana Saelzer
Bank Officer
Loan Administration
Thomas S. Kohlmann
Senior Vice President
Loan Review
Vanessa J. Pusar
Bank Officer
Vincent J. Toner
Bank Officer
BRANCH ADMINISTRATION
Robert H. Militscher
Senior Vice President &
Branch Administrator
Barbara A. Scesny
Regional Vice President
Wayne Swiatocha
Vice President
Deanna L. Miller
Assistant Vice President
Francis G. Painter, Jr.
Assistant Vice President
Mary Ann Tepedino
Bank Officer
Bohemia Office
Dwight W. Miller
Vice President
Center Moriches Office
Thomas R. Columbus, Sr.
Vice President
Paul G. Cuddy
Assistant Manager
Cutchogue Office
Richard J. Noncarrow
Vice President
Juneann Zarzecki
Assistant Manager
East Hampton Pantigo Office
Katherine M. Francis
Vice President
Neil Toner
Assistant Manager
35
<PAGE> 38
East Hampton Village Office
Jill M. James
Assistant Vice President
Hampton Bays Office
John J. Reilly
Vice President
Jeannette Jarzombek
Assistant Manager
Mattituck Office
Janet V. Stewart
Assistant Vice President
Anita M. Young
Assistant Manager
Medford Office
Paul E. Vaas
Vice President
Wendy A. Hackal
Assistant Manager
Miller Place
William K. Miller
Vice President
Annette Hawkins
Assistant Manager
Montauk Harbor Office
Susan M. Williams
Assistant Vice President
Patricia L. Morici
Assistant Manager
Montauk Village Office
Susan M. Williams
Assistant Vice President
Port Jefferson Office
Peter Poten
Vice President
Alison S. Cassara
Assistant Manager
Riverhead, Ostrander Avenue Office
Linda C. Zarro
Vice President
Theresa M. Danglemaier
Assistant Manager
Riverhead, Second Street Office
Anita J. Nigrel
Assistant Vice President
David E. Hawkes
Assistant Manager
Sag Harbor Office
Jane P. Markowski
Assistant Vice President
Recilla L. Stamos
Assistant Manager
Shoreham Office
William K. Miller
Vice President
Eloise L. Husch
Assistant Manager
Southampton Office
Jeffrey D. Morch
Assistant Vice President
David Barczak
Assistant Manager
Wading River Office
William K. Miller
Vice President
Barbara McHugh
Assistant Manager
Westhampton Beach Office
Charles E. Johnson
Vice President
Maryellin Whaley
Assistant Manager
Water Mill Office
Mildred E. Hornell
Assistant Vice President
TRUST
Dan A. Cicale
Senior Vice President
& Trust Officer
William C. Araneo
Vice President
Linda A. Schwartz
Assistant Vice President
Lori E. Thompson
Assistant Vice President
COMPTROLLER
J. Gordon Huszagh
Senior Vice President
& Comptroller
David J. Bennett
Vice President
Patricia M. Bihn
Assistant Vice President
Arlyne M. Morgenstern
Assistant Vice President
Barbara J. Danowski
Bank Officer
COMPLIANCE
Louis A. Antoniello
Bank Officer
CORPORATE SERVICES
Douglas Ian Shaw
Vice President & Secretary
Nellie J. Tysz
Bank Officer
Ronald A. Zlatniski
Bank Officer
FACILITIES AND SECURITY
William E. Heck, Jr.
Vice President
John Rutkoske
Bank Officer
HUMAN RESOURCES
Richard Montenegro
Vice President
Lillian M. Spiess
Assistant Vice President
Judi A. Fouchet
Training Officer
Christine Troyano
Bank Officer
Roberta J. Zaweski
Bank Officer
MARKETING
Brenda B. Sujecki
Assistant Vice President
OPERATIONS
Alexander B. Doroski
Senior Vice President,
Cashier & Chief
Operations Officer
Dennis F. Orski
Vice President
Margaret M. Coughlin
Assistant Vice President
Linda M. Follett
Assistant Vice President
Yvette C. McGuinness
Assistant Vice President
Michael E. Newins
Assistant Vice President
Dawn P. Sadowski
Assistant Vice President
Susan Tersillo
Assistant Vice President
Diana M. Whelan
Assistant Vice President
Donna J. DeLong
Bank Officer
Virginia Kleinheksel
Bank Officer
Lawrence A. Mennella
Data Systems Officer
Melinda Noncarrow
Bank Officer
FOR ONE-HUNDRED-AND-FIVE YEARS...
...A TRADITION OF STRENGTH
36
<PAGE> 39
DIRECTORY OF OFFICES AND DEPARTMENTS
<TABLE>
<CAPTION>
Area Code (516)
Telephone Telecopier
<S> <C> <C> <C>
Executive Offices.......................................6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Audit ..........................................3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-4678 585-4780
Bohemia Office..................................3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-4477 585-4809
Center Moriches Office.................................502 Main Street, Center Moriches, N.Y. 11934 878-8800 878-4431
Commercial Loans .......................................6 West Second Street, Riverhead, N.Y. 11901 727-2701 727-5798
Compliance ...............................................220 Roanoke Avenue, Riverhead, N.Y. 11901 727-5395 727-3214
Comptroller..............................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5270 369-2230
Consumer Loans .........................................244 Old Country Road, Riverhead, N.Y. 11901 727-7277 727-5521
Corporate Services (investor relations)...................220 Roanoke Avenue, Riverhead, N.Y. 11901 727-5667 727-3214
Cutchogue Office....................................................Route 25, Cutchogue, N.Y. 11935 734-5050 734-7759
East Hampton Pantigo Office..............................351 Pantigo Road, East Hampton, N.Y. 11937 324-2000 324-6367
East Hampton Village Office................................100 Park Place, East Hampton, N.Y. 11937 324-3800 324-3863
Facilities & Security...................................6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Hampton Bays Office.......................................Montauk Highway, Hampton Bays, N.Y. 11946 728-2700 728-8311
Human Resources..........................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5377 727-3170
Item Processing.........................................295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-5422
Marketing ................................................220 Roanoke Avenue, Riverhead, N.Y. 11901 727-4712 727-3214
Mattituck Office.............................................10900 Main Road, Mattituck, N.Y. 11952 298-9400 298-9188
Miller Place Office........................................74 Echo Avenue, Miller Place, N.Y. 11764 474-8400 474-8510
Medford Office..........................................2690R Expressway Plaza, Medford, N.Y. 11763 758-1500 758-1509
Montauk Harbor Office..........................................West Lake Drive, Montauk, N.Y. 11954 668-4333 668-3643
Montauk Village Office.....................................746 Montauk Highway, Montauk, N.Y. 11954 668-5300 668-1214
Mortgage Loans .........................................244 Old Country Road, Riverhead, N.Y. 11901 727-7277 369-2468
Operations ..............................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5834
Port Jefferson Harbor Office..........................135 West Broadway, Port Jefferson, N.Y. 11777 473-9603 331-7806
Port Jefferson Village Office......................228 East Main Street, Port Jefferson, N.Y. 11777 473-7700 473-9406
Riverhead, Second Street Office.........................6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Riverhead, Ostrander Avenue Office.....................1201 Ostrander Avenue, Riverhead, N.Y. 11901 727-6800 727-5095
Sag Harbor Office............................................17 Main Street, Sag Harbor, N.Y. 11963 725-3000 725-4627
Shoreham Office................................................9926 Route 25A, Shoreham, N.Y. 11786 744-4400 744-6743
Southampton Office......................................295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-3293
Trust and Investment Services...........................295 North Sea Road, Southampton, N.Y. 11968 727-3100 287-3296
Wading River Office...........................2065 Wading River-Manor Rd., Wading River, N.Y. 11792 929-6300 929-6799
Water Mill Office.......................................828 Montauk Highway, Water Mill, N.Y. 11976 726-4500 726-7573
Westhampton Beach Office.............................144 Sunset Ave., Westhampton Beach, N.Y. 11978 288-4000 288-9252
Island Computer Corporation...................................40 Orville Drive, Bohemia, N.Y. 11716 589-5131 589-6329
</TABLE>
<PAGE> 40
BACK COVER WRAP AROUND
PHOTOGRAPH OF SHINNECOCK CANAL
NO BORDERS - FOUR COLOR BLEED
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 56,488
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,261
<INVESTMENTS-CARRYING> 126,380
<INVESTMENTS-MARKET> 123,096
<LOANS> 535,290
<ALLOWANCE> 6,214
<TOTAL-ASSETS> 811,654
<DEPOSITS> 723,993
<SHORT-TERM> 4,300
<LIABILITIES-OTHER> 6,268
<LONG-TERM> 0
<COMMON> 77,536
0
0
<OTHER-SE> (443)
<TOTAL-LIABILITIES-AND-EQUITY> 77,093
<INTEREST-LOAN> 42,145
<INTEREST-INVEST> 8,756
<INTEREST-OTHER> 663
<INTEREST-TOTAL> 51,564
<INTEREST-DEPOSIT> 15,381
<INTEREST-EXPENSE> 15,734
<INTEREST-INCOME-NET> 35,830
<LOAN-LOSSES> 730
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,752
<INCOME-PRETAX> 13,023
<INCOME-PRE-EXTRAORDINARY> 8,318
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,318
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 7.62
<LOANS-NON> 6,014
<LOANS-PAST> 2,015
<LOANS-TROUBLED> 372
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,922
<CHARGE-OFFS> 1,468
<RECOVERIES> 352
<ALLOWANCE-CLOSE> 6,214
<ALLOWANCE-DOMESTIC> 6,214
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
