<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission file number 0-13580
SUFFOLK BANCORP
(exact name of registrant as specified in its charter)
New York State 11-2708279
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6 West Second Street, Riverhead, New York 11901
(Address of Principal Executive Offices) (Zip Code)
(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.
6,070,080 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 31, 1999
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SUFFOLK BANCORP AND SUBSIDIARIES
Part I Financial Information page
Consolidated Statements of Condition 4
Consolidated Statements of Income, For the Three Months
Ended March 31, 1999 and 1998 5
Statements of Cash Flows, For the Three Months Ended
March 31, 1999 and 1998 6
Notes to the Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II Other Information 10
Signatures 11
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited, in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Cash & Due From Banks $ 62,491 $ 58,298
Federal Funds Sold 8,500 17,800
Investment Securities
Available for Sale, at Fair Value 105,968 129,348
U.S. Government Agency Obligations 2,194 2,382
Obligations of States & Political Subdivisions 15,631 16,231
Corporate Bonds & Other Securities 3,368 3,240
--------- ------------
Total Investment Securities 127,161 151,201
Total Loans 677,351 647,520
Less: Allowance for Possible Loan Losses 7,086 6,955
--------- ------------
Net Loans 670,265 640,565
Premises & Equipment, Net 15,137 15,249
Other Real Estate Owned, Net 296 341
Accrued Interest Receivable, Net 5,334 5,365
Excess of Cost Over Fair Value of Net Assets Acquired 1,810 1,900
Other Assets 20,227 18,713
--------- ------------
TOTAL ASSETS 911,221 909,432
========= ============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits 226,419 234,049
Savings, N.O.W.'s & Money Market Deposits 345,739 333,098
Time Certificates of $100,000 or more 25,528 25,861
Other Time Deposits 229,330 233,556
--------- ------------
Total Deposits 827,016 826,564
Dividend Payable on Common Stock 1,276 1,097
Accrued Interest Payable 1,966 2,867
Other Liabilities 7,955 7,059
--------- ------------
TOTAL LIABILITIES 838,213 837,587
--------- ------------
STOCKHOLDERS' EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized;
6,070,080 and 6,080,856 shares issued at March 31, 1999
& December 31, 1998, respectively) 19,026 19,026
Surplus 18,456 18,456
Treasury Stock at Par (1,540,340 shares and 1,529,564 shares, respectively) (3,851) (3,824)
Undivided Profits 39,641 38,155
--------- ------------
73,272 71,813
Accumulated Other Comprehensive Income, Net of Tax (264) 32
--------- ------------
TOTAL STOCKHOLDERS' EQUITY 73,008 71,845
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $911,221 909,432
========= ============
</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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Federal Funds Sold $ 98 $ 81
United States Treasury Securities 1,014 1,738
Obligations of States & Political Subdivisions
(tax exempt) 153 192
U.S. Government Agency Obligations 952 407
Corporate Bonds & Other Securities 74 10
Loans 14,071 13,964
---------- ----------
Total Interest Income 16,362 16,392
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits 1,756 1,890
Time Certificates of $100,000 or more 306 350
Other Time Deposits 2,962 3,277
Federal Funds Purchased 167 72
Interest on Other Borrowings 10 70
---------- ----------
Total Interest Expense 5,201 5,659
Net-interest Income 11,161 10,733
Provision for Possible Loan Losses 270 300
---------- ----------
Net-interest Income After Provision
for Possible Loan Losses 10,891 10,433
OTHER INCOME
Service Charges on Deposit Accounts 959 998
Other Service Charges, Commissions & Fees 201 465
Fiduciary Fees 167 115
Other Operating Income 138 340
---------- ----------
Total Other Income 1,465 1,918
OTHER EXPENSE
Salaries & Employee Benefits 4,275 4,018
Net Occupancy Expense 614 613
Equipment Expense 564 501
Other Real Estate Expense 1 23
Other Operating Expense 1,998 2,095
---------- ----------
Total Other Expense 7,452 7,250
Income Before Provision for Income Taxes 4,904 5,101
Provision for Income Taxes 1,881 2,195
---------- ----------
NET INCOME $ 3,023 $ 2,906
========== ==========
AVERAGE: Common Shares Outstanding 6,076,842 6,095,356
Dilutive Stock Options 34,700 27,800
---------- ----------
AVERAGE TOTAL COMMON SHARES AND DILUTIVE OPTIONS 6,111,542 6,123,156
EARNINGS PER COMMON SHARE Basic $ 0.50 $ 0.48
Diluted $ 0.49 $ 0.47
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 3,023 $ 2,906
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses 270 300
Depreciation & Amortization 500 388
Amortization of Excess Cost Over Fair Value of Net Assets Acquired 90 90
Accretion of Discounts (518) (352)
Amortization of Premiums 159 31
Decrease in Accrued Interest Receivable 30 465
Increase in Other Assets (1,469) (1,297)
Decrease in Accrued Interest Payable (900) (1,342)
Increase (Decrease) in Other Liabilities 1,075 (9,104)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,260 (7,915)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities 258 1,012
Maturities of Investment Securities; Available for Sale 1,342 23,928
Purchases of Investment Securities; Available for Sale (128) (9,889)
Maturities of Investment Securities; Held to Maturity 52,000 681
Purchases of Investment Securities; Held to Maturity (29,819) (1,407)
Loan Disbursements & Repayments, Net (29,700) (11,030)
Purchases of Premises & Equipment, Net (388) (78)
Disposition of Other Real Estate Owned -- 248
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (6,435) 3,465
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposit Accounts 452 (12,184)
Dividends Paid to Shareholders (1,097) (1,097)
Treasury Shares Acquired (287) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (932) (13,281)
NET DECREASE IN CASH & CASH EQUIVALENTS (5,107) (17,731)
CASH & CASH EQUIVALENTS BEGINNING OF PERIOD 76,098 71,939
-------- --------
CASH & CASH EQUIVALENTS END OF PERIOD $ 70,991 $ 54,208
======== ========
</TABLE>
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 (Suffolk) and its consolidated
subsidiaries have been prepared to reflect all adjustments (consisting solely of
normally recurring accruals) necessary for a fair presentation of the financial
condition and results of operations for the periods presented. Certain
information and footnotes normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Notwithstanding, management believes that the disclosures
are adequate to prevent the information from misleading the reader, particularly
when the accompanying consolidated financial statements are read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Registrant's annual report and on Form 10-K, for the year ended December 31,
1998.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results of operations to be expected for the
remainder of the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
for the Three-Month Periods ended March 31, 1999 and 1998
NET INCOME
Net income was $3,023,000 for the quarter, ahead 4.0 percent from
$2,906,000 posted during the same period last year. Earnings per share for the
quarter were $0.50 versus $0.48, a gain of 4.2 percent.
INTEREST INCOME
Interest income was $16,362,000 for the first quarter of 1999, down 0.2
percent from $16,392,000 posted for the same quarter in 1998. Average net loans
during the first quarter of 1999 totaled $635,636,000, compared to $606,389,000
for the same period of 1998. During the first quarter of 1999, the yield was
8.13 percent (taxable-equivalent) on average earning assets of $810,317,000 down
from 8.62 percent on average earning assets of $767,137,000 during the first
quarter of 1998.
INTEREST EXPENSE
Interest expense for the first quarter of 1999 was $5,201,000, down 8.1
percent from $5,659,000 for the same period of 1998. Average deposits for the
first quarter 1999 were $809,396,000 up from $769,871,000 for the comparable
period in 1998.
NET INTEREST INCOME
Net interest income is the largest component of the Suffolk's earnings.
Net interest income for the first quarter of 1998 was $11,161,000, up from
$10,733,000 during the same period of 1998. The net interest margin for the
quarter, on a fully taxable-equivalent basis, was 5.56 percent compared to 5.67
percent for the same period of 1998.
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The following table details the components of Suffolk's net interest
income:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Quarter ended March 31, 1999
- --------------------------------------------------------------------------------
Average Average
Balance Interest Rate
- --------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. treasury securities......... $ 78,877 $ 1,034 5.24%
Obligations of states &
political subdivisions.......... 15,266 233 6.11
U.S. govt. agency obligations.... 61,982 952 6.14
Corporate bonds & other
securities...................... 3,254 74 9.13
Federal funds sold & securities
purchased under agreements to
resell.......................... 8,094 98 4.84
Loans, including non-accrual
loans
Commercial, financial
agricultural loans............ 122,068 2,562 8.39
Commercial real estate
mortgages..................... 128,009 2,972 9.29
Real estate - construction
loans......................... 13,379 284 8.50
Residential mortgages (1st and
2nd liens).................... 72,386 1,751 9.68
Home equity loans.............. 21,485 485 9.02
Consumer loans................. 283,933 6,017 8.48
Other loans (overdrafts)....... 1,585 -- --
- --------------------------------------------------------------------------------
Total interest-earning assets.... $810,318 $16,462 8.13%
================================================================================
Cash & due from banks............ $ 58,593
Other non-interest-earning
assets.......................... 45,992
- --------------------------------------------------------------------------------
Total assets..................... $914,903
- --------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- --------------------------------------------------------------------------------
Savings, N.O.W.'s & money
market deposits................. $332,218 $ 1,756 2.11%
Time deposits.................... 257,467 3,268 5.08
- --------------------------------------------------------------------------------
Total savings & time deposits.... 589,685 5,024 3.41
Federal funds purchased &
securities sold under agreement
to repurchase................... 14,189 167 4.76
Other borrowings................. 1,645 10 2.50
- --------------------------------------------------------------------------------
Total interest-bearing
liabilities.................... $605,519 $ 5,201 3.44%
================================================================================
Rate spread...................... 4.69%
Non-interest-bearing deposits.... $219,711
Other non-interest-bearing
liabilities..................... 18,691
- --------------------------------------------------------------------------------
Total liabilities................ $843,921
Stockholders' equity............. 70,982
- --------------------------------------------------------------------------------
Total liabilities &
stockholders' equity............ $914,903
Net-interest income (taxable-
equivalent basis) & effective
interest rate differential...... $11,261 5.56%
Less taxable-equivalent basis
adjustment...................... (100)
- --------------------------------------------------------------------------------
Net-interest income.............. $11,161
================================================================================
</TABLE>
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OTHER INCOME
Other income decreased to $1,465,000 for the three months compared to
$1,913,000 the previous year. Service charges on deposits were down 3.9
percent. Service charges other than for deposits, commissions, and fees
decreased by 56.8 percent. Trust revenue was up 45.2 percent. Other operating
income was down 59.4 percent. More than half of the decline is attributable to
the sale of the merchant services portfolio during the first quarter of 1998.
The portfolio provided revenues which were largely offset by non-interest
expense.
OTHER EXPENSE
Other expense for the first quarter of 1999 was $7,452,000, up 2.8 percent
from $7,250,000 for the comparable period in 1998.
CAPITAL RESOURCES
Stockholders' equity totaled $73,008,000 on March 31, 1999, an increase of
1.6 percent from $71,845,000 on December 31, 1998. The ratio of equity to
assets was 8.0 percent at March 31, 1999 and 7.9 percent at December 31, 1998.
The following table details amounts and ratios of Suffolk's regulatory capital:
(in thousands of dollars except ratios)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
To be Well Capitalized
Per Capital Under Prompt Corrective
Actual Adequacy Action Provisions
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999
Total Capital (to risk-weighted assets) $78,550 10.01% $62,761 8.00% $78,451 10.00%
Tier 1 Capital (to risk-weighted assets) 71,464 9.11% 31,380 4.00% 47,070 6.00%
Tier 1 Capital (to average assets) 71,464 7.81% 31,380 4.00% 39,225 5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998
Total Capital (to risk-weighted assets) $76,423 10.55% $57,941 8.00% $72,426 10.00%
Tier 1 Capital (to risk-weighted assets) 69,468 9.59% 28,970 4.00% 43,455 6.00%
Tier 1 Capital (to average assets) 69,468 7.83% 28,970 4.00% 36,213 5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CREDIT RISK
Suffolk makes loans based on the best evaluation possible of the
creditworthiness of the borrower. Even with the careful underwriting, some
loans may not be repaid as originally agreed. To provide for this possibility,
Suffolk maintains an allowance for possible loan losses, based on an analysis
of the performance of the loans in its portfolio. The following table presents
information about the allowance for possible loan losses: (in thousands of
dollars except ratios)
<TABLE>
<CAPTION>
For the For the three months ended
Last 12 Mar. 31 Dec. 31 Sept. 30 June 30
Months 1999 1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Beginning Balance 6,627 6,955 7,041 6,771 6,627
Total Charge-offs 593 172 119 109 193
Total Recoveries 182 33 33 79 37
Provision for possible loan losses 870 270 -- 300 300
- -------------------------------------------------------------------------------------------------------------------------
Ending Balance 7,086 7,086 6,955 7,041 6,771
=========================================================================================================================
COVERAGE RATIOS
Loans, net of discounts average 627,599 635,636 622,035 628,510 624,213
at end of period 646,564 677,351 647,520 624,268 637,115
Non-performing Assets 2,245 2,453 2,178 2,253 2,097
Non-performing Assets/Total Loans
(net of discount) 0.35% 0.36% 0.34% 0.36% 0.33%
Net Charge-offs/Average Net Loans
(annualized) 0.07% 0.09% 0.06% 0.02% 0.10%
Allowance/Non-Accrual, Restructured, & OREO 314.50% 288.87% 319.33% 312.52% 337.29%
Allowance for Loan Losses/Net Loans 1.08% 1.05% 1.07% 1.14% 1.06%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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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, 1998.
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 of 1998, 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 were 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 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. Assessment of Suffolk's Readiness.
Suffolk's readiness for Y2K has been and continues to be evaluated by
management. It has been and will continue to 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: May 14, 1999 /s/ Victor F. Bozuhoski, Jr.
------------------------------
Victor F. Bozuhoski, Jr.
Executive Vice President &
Acting Chief Operating Officer
Date: May 14, 1999 /s/ J. Gordon Huszagh
------------------------------
J. Gordon Huszagh
Executive Vice President &
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 62,491
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,968
<INVESTMENTS-CARRYING> 21,193
<INVESTMENTS-MARKET> 21,275
<LOANS> 677,351
<ALLOWANCE> 7,086
<TOTAL-ASSETS> 911,221
<DEPOSITS> 827,016
<SHORT-TERM> 0
<LIABILITIES-OTHER> 11,197
<LONG-TERM> 0
0
0
<COMMON> 73,008
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 911,221
<INTEREST-LOAN> 14,071
<INTEREST-INVEST> 2,193
<INTEREST-OTHER> 98
<INTEREST-TOTAL> 16,362
<INTEREST-DEPOSIT> 5,024
<INTEREST-EXPENSE> 5,201
<INTEREST-INCOME-NET> 11,161
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,452
<INCOME-PRETAX> 4,904
<INCOME-PRE-EXTRAORDINARY> 4,904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,023
<EPS-PRIMARY> .50
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 5.56
<LOANS-NON> 1,885
<LOANS-PAST> 2,323
<LOANS-TROUBLED> 272
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,955
<CHARGE-OFFS> 172
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 7,086
<ALLOWANCE-DOMESTIC> 7,086
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
