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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission file number 0-13580
SUFFOLK BANCORP
(exact name of registrant as specified in its charter)
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<S> <C>
New York State 11-2708279
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6 West Second Street, Riverhead, New York 11901
(Address of Principal Executive Offices) (Zip Code)
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(Registrant's telephone number, including area code) (516) 727-5667
NOT APPLICABLE
(former name, former address and former fiscal year if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
6,095,356 SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 30, 1998
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SUFFOLK BANCORP AND SUBSIDIARIES
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Part I Financial Information page
<S> <C>
Consolidated Statements of Condition 4
Consolidated Statements of Income, For the Three Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Income, For the Nine Months Ended September 30, 1998 and 1997 6
Statements of Cash Flows, For the Nine Months Ended September 30, 1998 and 1997 7
Notes to the Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part II Other Information 10
Signatures 11
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3
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited, in thousands of dollars, except share and per share data)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Cash & Due From Banks $ 55,369 $ 53,439
Federal Funds Sold 52,800 18,500
Investment Securities:
Available for Sale, at Fair Value 88,328 120,878
U.S. Government Agency Obligations 2,629 7,039
Obligations of States & Political Subdivisions 14,740 18,371
Corporate Bonds & Other Securities 638 638
-------- --------
Total Investment Securities 106,335 146,926
Total Loans 624,268 611,388
less: Allowance for Possible Loan Losses 7,041 6,524
-------- --------
Net Loans 617,227 604,864
Premises & Equipment, Net 15,600 16,182
Other Real Estate Owned, Net 341 597
Accrued Interest Receivable, Net 5,160 5,548
Excess of Cost Over Fair Value of Net Assets Acquired 1,991 2,262
Other Assets 19,774 16,595
-------- --------
TOTAL ASSETS 874,597 864,913
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits 207,821 184,085
Savings, N.O.W.'s & Money Market Deposits 327,497 335,047
Time Certificates of $100,000 or more 26,336 23,406
Other Time Deposits 229,905 235,057
-------- --------
Total Deposits 791,559 777,595
Dividend Payable on Common Stock 1,097 1,097
Accrued Interest Payable 2,550 3,075
Other Liabilities 8,591 18,006
-------- --------
TOTAL LIABILITIES 803,797 799,773
-------- --------
STOCKHOLDERS' EQUITY
Common Stock (par value $2.50; 15,000,000 shares
authorized; 6,095,356 shares issued) 19,026 19,026
Surplus 18,456 18,456
Treasury Stock at Par (1,515,064 shares) (3,787) (3,787)
Undivided Profits 36,586 30,991
-------- --------
70,281 64,686
Accumulated Other Comprehensive Income, Net Of Tax 519 454
-------- --------
TOTAL STOCKHOLDERS' EQUITY 70,800 65,140
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $874,597 $864,913
======== ========
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See accompanying notes to consolidated financial statements.
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands of dollars, except share and per share data)
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<CAPTION>
For the 3 Months Ended
9/30/98 9/30/97
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<S> <C> <C>
INTEREST INCOME
Federal Funds Sold $ 552 $ 449
United States Treasury Securities 1,321 1,492
Obligations of States & Political Subdivisions 115 97
U.S. Government Agency Obligations 506 419
Corporate Bonds & Other Securities 10 10
Loans 14,378 13,861
---------- ----------
Total Interest Income 16,882 16,328
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits 1,837 1,867
Time Certificates of $100,000 or more 320 298
Other Time Deposits 3,134 3,228
Federal Funds Purchased -- --
Interest on Other Borrowings -- --
---------- ----------
Total Interest Expense 5,291 5,393
Net-interest Income 11,591 10,935
Provision for Possible Loan Losses 300 300
---------- ----------
Net-interest Income After Provision 11,291 10,635
OTHER INCOME
Service Charges on Deposit Accounts 920 1,117
Other Service Charges, Commissions & Fees 943 739
Fiduciary Fees 167 125
Other Operating Income 180 184
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Total Other Income 2,210 2,165
OTHER EXPENSE
Salaries & Employee Benefits 4,048 4,151
Net Occupancy Expense 635 662
Equipment Expense 607 527
Other Real Estate Expense 2 1
Other Operating Expense 2,706 2,545
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Total Other Expense 7,998 7,886
Income Before Provision for Income Taxes 5,503 4,914
Provision for Income Taxes 2,429 2,034
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NET INCOME $ 3,074 $ 2,880
========== ==========
Average: Common Shares Outstanding 6,095,356 6,131,886
Dilutive Stock Options 27,800 --
---------- ----------
Average Total 6,123,156 6,131,886
EARNINGS PER COMMON SHARE Basic $ 0.51 $ 0.47
Diluted $ 0.51 $ 0.47
</TABLE>
See accompanying notes to consolidated financial statements.
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands of dollars, except share and per share data)
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<CAPTION>
For the Year to Date
9/30/98 9/30/97
<S> <C> <C>
INTEREST INCOME
Federal Funds Sold $ 753 $ 664
United States Treasury Securities 4,556 4,740
Obligations of States & Political
Subdivisions 516 319
U.S. Government Agency Obligations 1,099 1,252
Corporate Bonds & Other Securities 29 29
Loans 42,568 40,765
--------- ----------
Total Interest Income 49,521 47,769
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits 5,574 5,630
Time Certificates of $100,000 or more 971 800
Other Time Deposits 9,544 8,577
Federal Funds Purchased 82 100
Interest on Other Borrowings 70 337
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Total Interest Expense 16,241 15,444
Net-interest Income 33,280 32,325
Provision for Possible Loan Losses 900 834
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Net-interest Income After Provision 32,380 31,491
OTHER INCOME
Service Charges on Deposit Accounts 3,001 3,349
Other Service Charges, Commissions & Fees 2,080 1,517
Fiduciary Fees 425 384
Other Operating Income 643 415
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Total Other Income 6,149 5,665
OTHER EXPENSE
Salaries & Employee Benefits 12,243 12,272
Net Occupancy Expense 1,888 1,880
Equipment Expense 1,691 1,575
Other Real Estate Expense 30 16
Other Operating Expense 6,888 7,142
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Total Other Expense 22,740 22,885
Income Before Provision for Income Taxes 15,789 14,271
Provision for Income Taxes 6,904 5,957
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NET INCOME $ 8,885 $ 8,314
========= ==========
Average: Common Shares Outstanding 6,095,356 6,380,305
Dilutive Stock Options 27,800 --
--------- ----------
Average Total 6,123,156 6,380,305
EARNINGS PER COMMON SHARE Basic $ 1.46 $ 1.30
Diluted $ 1.45 $ 1.30
See accompanying notes to consolidated financial statements.
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of dollars, except share and per share data)
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<CAPTION>
For the Nine Months Ended September 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 8,885 $ 8,314
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses 900 834
Depreciation & Amortization 1,374 978
Amortization of Excess Cost Over Fair Value of Net Assets Acquired 271 271
Accretion of Discounts (893) (618)
Amortization of Premiums 104 253
Decrease in Accrued Interest Receivable 388 672
(Increase) in Other Assets (3,179) (313)
(Decrease) Increase in Accrued Interest Payable (525) 954
(Decrease) Increase in Other Liabilities (9,414) 4,400
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,089) 15,745
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities 4,451 2,278
Maturities of Investment Securities; Available for Sale 98,815 45,509
Purchases of Investment Securities; Available for Sale (67,404) (51,259)
Maturities of Investment Securities; Held to Maturity 12,248 12,406
Purchases of Investment Securities; Held to Maturity (8,623) (9,288)
Loan Disbursements & Repayments, Net (11,400) (8,582)
Purchases of Premises & Equipment, Net (792) (3,765)
Disposition of Other Real Estate Owned 351 1,862
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NET CASH PROVIDED BY (USED IN) BY INVESTING ACTIVITIES 27,646 (10,839)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts 13,964 39,713
Decrease in Other Borrowings -- (7,200)
Dividends Paid to Shareholders (3,291) (3,226)
Treasury Shares Acquired -- (14,578)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,673 14,709
NET INCREASE IN CASH & CASH EQUIVALENTS 36,230 19,615
CASH & CASH EQUIVALENTS BEGINNING OF PERIOD 71,939 51,324
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CASH & CASH EQUIVALENTS END OF PERIOD $ 108,169 $ 70,939
========= =========
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See accompanying notes to consolidated financial statements.
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SUFFOLK BANCORP AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements of Suffolk Bancorp and its consolidated subsidiaries have
been prepared to reflect all adjustments (consisting solely of normally
recurring accruals) necessary for a fair presentation of the financial condition
and results of operations for the periods presented. Certain information and
footnotes normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. Notwithstanding, management believes that the disclosures are adequate
to prevent the information from misleading the reader, particularly when the
accompanying consolidated financial statements are read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Registrant's annual report and on Form 10-K, for the year ended December 31,
1997.
The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results of operations to be expected for
the remainder of the year.
(2) IMPACT OF NEW ACCOUNTING STANDARDS
The Company adopted S.F.A.S. 130, "Reporting Comprehensive Income," during the
first quarter of 1998. For the nine months ended September 30th, comprehensive
income totaled $8,950,000 and $8,308,000 in 1998 and 1997, respectively.
In February 1998, the Financial Accountings Standards Board issued Statement of
Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions
and Other Post-retirement Benefits" ("SFAS No. 132"). SFAS No. 132 supersedes
the disclosure requirements for pension and other post-retirement plans as set
forth in SFAS No. 87, "Employers' Accounting For Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions." SFAS No. 132 does
not address measurement or recognition for pension and other post-retirement
benefit plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
for the Three-Month Periods ended September 30, 1998 and 1997
NET INCOME
Net income was $3,074,000 for the quarter, ahead 6.7 percent from
$2,880,000 posted during the same period last year. Earnings per share for the
quarter were $0.51 versus $0.47, a gain of 8.5 percent.
INTEREST INCOME
Interest income was $16,882,000 for the third quarter of 1998, up 3.4
percent from $16,328,000 posted for the same quarter in 1997. Average net loans
during the third quarter of 1998 totaled $628,510,000, compared to $590,466,000
for the same period of 1997. During the third quarter of 1998, the yield was
8.62 percent (taxable-equivalent) on average earning assets of $787,822,000 down
from 8.68 percent on average earning assets of $752,202,000 during the third
quarter of 1997. The increase in interest income is primarily attributable to
the increase in average balances of earning assets.
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INTEREST EXPENSE
Interest expense for the third quarter of 1998 was $5,291,000, down 1.9
percent from $5,393,000 for the same period of 1997. Average deposits for the
third quarter 1998 were $802,613,000 up from $762,728,000 for the comparable
period in 1997.
NET INTEREST INCOME
Net interest income is the largest component of the Company's earnings.
Net interest income for the third quarter of 1998 was $11,591,000, up from
$10,935,000 during the same period of 1997. The net interest margin for the
quarter, on a fully taxable-equivalent basis, was 5.93 percent compared to 5.81
percent for the same period of 1997.
The following table presents the coverage of troubled assets:
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For the For the three months ended
Last 12 Sept. 30 June 30 Mar. 31 Dec. 31
Coverage Ratios Months 1998 1998 1998 1997
- --------------- ------ -------- ------- ------- -------
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Net Charge-offs/Average Net
Loans (annualized) 0.09% 0.02% 0.10% 0.13% 0.11%
Allowance for Loan Losses/Non-Accrual,
Restructured, & OREO 262.72% 312.52% 337.29% 218.79% 182.29%
Allowance for Loan Losses/Net Loans 1.09% 1.14% 1.06% 1.08% 1.07%
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OTHER INCOME
Other income increased to $2,210,000 for the three months compared to
$2,165,000 the previous year. Service charges on deposits were down 17.6
percent. Service charges other than for deposits, commissions, and fees
increased by 27.6 percent. Trust revenue was up 33.6 percent. Other operating
income was down 2.2 percent.
OTHER EXPENSE
Other expense for the third quarter of 1998 was $7,998,000, up 1.4
percent from $7,886,000 for the comparable period in 1997.
CAPITAL RESOURCES
Stockholders' equity totaled $70,800,000 on September 30, 1998, an
increase of 8.7 percent from $65,140,000 on December 31, 1997. The ratio of
equity to assets was 8.10 percent at September 30, 1998 and 7.53 percent at
December 31, 1997.
MARKET RISK
Suffolk originates and invests in interest-earning assets and solicits
interest-bearing deposit accounts. Suffolk's operations are subject to market
risk resulting from fluctuations in interest rates to the extent that there is a
difference between the amounts of interest-earning assets and interest-bearing
liabilities that are prepaid, withdrawn, mature, or reprice in any given period
of time. Suffolk's earnings or the net value of its portfolio (the present value
of expected cash flows from liabilities) will change when interest rates change.
The principal objective of Suffolk's asset/liability management program is to
maximize net interest income while keeping risks acceptable. These risks include
both the effect of changes in interest rates, and risks to liquidity. The
program also provides guidance to management in funding Suffolk's investment in
loans and securities. Suffolk's exposure to interest-rate risk has not changed
substantially since December 31, 1997.
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READINESS FOR THE YEAR 2000
Suffolk has identified ways in which the year 2000 ("Y2K") may affect
its operations. Following is a summary of its readiness.
1. Suffolk's Readiness.
Suffolk is in the final phase of its evaluation and improvement of its internal
information systems. During the first quarter, Suffolk converted its
core-processing systems (including loans, deposits, and general ledger) to a
state-of-the-art distributed client-server system which is fully ready for Y2K.
Various accounting subsystems (non-core) have been evaluated, and all
modifications are currently expected to be made by December 15, 1998. As a
banking corporation, Suffolk relies mainly on its information systems to conduct
business. Management does not expect that technology embedded in microprocessors
which may not work properly after the year 2000 to have a material effect on
Suffolk's operations or profitability.
2. Cost to Address Y2K.
Management expects the cost of evaluating and modifying systems in preparation
for the year 2000 to be approximately $40,000 for each of 1998 and 1999.
3. Risk of Y2K.
Management at Suffolk believes that it has made provision for its systems to
continue processing information correctly through and beyond the year 2000.
Management has also confirmed, in writing, that key providers of information
have also made proper provision. However, Suffolk has no control over the
readiness of major utilities and communications networks. In the opinion of
management, the failure of such outside services presents the greatest risk to
Suffolk of Y2K problems.
4. Contingency Plan.
As a matter of standard practice, Suffolk maintains a disaster recovery plan
which is reviewed and updated annually. While Suffolk has no means of accurately
measuring risk to the systems of major utilities and communications networks,
its disaster recovery plan assumes that these systems may fail, both for reasons
related to Y2K, as well as for other reasons, and makes provision for operations
to continue without them, albeit with reduced efficiency.
5. External Assessment of Suffolk's Readiness.
Suffolk's readiness for Y2K has been and continues to be evaluated by its
internal and external auditors. It will also be evaluated by its primary banking
regulator, the Office of the Comptroller of the Currency.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUFFOLK BANCORP
Date: November 13, 1998 /s/ John F. Hanley
------------------------------
John F. Hanley
President & Chief Executive Officer
Date: November 13, 1998 /s/ Victor F. Bozuhoski, Jr.
------------------------------
Victor F. Bozuhoski, Jr.
Executive Vice President,
Treasurer & Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 55,369
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 52,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,328
<INVESTMENTS-CARRYING> 18,007
<INVESTMENTS-MARKET> 18,170
<LOANS> 624,268
<ALLOWANCE> 7,041
<TOTAL-ASSETS> 874,597
<DEPOSITS> 791,559
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,238
<LONG-TERM> 0
0
0
<COMMON> 70,800
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 874,597
<INTEREST-LOAN> 42,568
<INTEREST-INVEST> 6,200
<INTEREST-OTHER> 753
<INTEREST-TOTAL> 49,521
<INTEREST-DEPOSIT> 16,089
<INTEREST-EXPENSE> 16,241
<INTEREST-INCOME-NET> 33,280
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,740
<INCOME-PRETAX> 15,789
<INCOME-PRE-EXTRAORDINARY> 15,789
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,885
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 5.93
<LOANS-NON> 1,635
<LOANS-PAST> 1,303
<LOANS-TROUBLED> 277
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<ALLOWANCE-OPEN> 6,524
<CHARGE-OFFS> 555
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</TABLE>
