SUFFOLK BANCORP, 10-Q, 2000-11-14

SUFFOLK BANCORP
10-Q, 2000-11-14
NATIONAL COMMERCIAL BANKS

Previous: COMC INC, 10QSB, EX-27, 2000-11-14

Next: U S GLOBAL INVESTORS INC, 10-Q, 10-Q/A, 2000-11-14

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30, 2000

0-13580
(Commission file number)

SUFFOLK BANCORP
(Exact name of registrant as specified in its charter)

New York State
(State or other jurisdiction
of incorporation or organization)

11-2708279
(I.R.S. Employer
Identification No.)

6 West Second Street,
Riverhead, New York
(Address of Principal Executive Offices)

11901
(Zip Code)

(631) 727-5667
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

5,995,064 shares of common stock outstanding as of September 30, 2000

This page left blank intentionally.

SUFFOLK BANCORP AND SUBSIDIARIES
TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION (Unaudited)
	Consolidated Statements of Condition	4
	Consolidated Statements of Income, for the Three Months Ended September 30, 2000 and 1999	5
	Consolidated Statements of Income, for the Nine Months Ended September 30, 2000 and 1999	6
	Statements of Cash Flows, for the Nine Months Ended September 30, 2000 and 1999	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	11


SIGNATURES	12

PART I. FINANCIAL INFORMATION

SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands of dollars, except share and per share data)
(Unaudited)

	September 30, 2000			December 31, 1999

ASSETS
Cash & due from banks	$	64,158		$	53,452
Federal funds sold		2,100			—
Investment securities:
Available for sale, at fair value		140,208			132,484
Held to maturity:
U.S. Government agency obligations		—			1,583
Obligations of states & political subdivisions		17,692			27,835
Corporate bonds & other securities		3,468			3,468

Total investment securities		161,368			165,370

Total loans		758,894			727,525
Less: allowance for possible loan losses		7,676			7,270

Net loans		751,218			720,255

Premises & equipment, net		13,786			14,345
Other real estate owned, net		175			203
Accrued interest receivable, net		5,936			5,871
Excess of cost over fair value of net assets acquired		1,267			1,538
Other assets		20,713			19,765

Total assets		1,020,721			980,799


LIABILITIES & STOCKHOLDERS’ EQUITY
Demand deposits		265,283			242,397
Savings, N.O.W.’s & Money Market deposits		384,709			369,921
Time Certificates of $100,000 or more		21,706			23,458
Other time deposits		249,601			241,527

Total deposits		921,299			877,303
Federal home loan bank borrowings		—			13,500
Dividend payable on common stock		1,381			1,273
Accrued interest payable		2,916			2,463
Other liabilities		10,363			8,926

Total liabilities		935,959			903,465


Stockholders’ equity:
Common stock (par value $2.50; 15,000,000 shares authorized; 5,995,064 & 6,055,580 shares issued at September 30, 2000 & December 31, 1999, respectively)		19,026			19,026
Surplus		18,456			18,456
Treasury stock at par (1,615,356 shares & 1,554,840 shares, respectively)		(4,038	)		(3,887	)
Undivided profits		51,912			45,576

		85,356			79,171
Accumulated other comprehensive income, net of tax		(594	)		(1,837	)

Total stockholders’ equity		84,762			77,334

Total liabilities & stockholders’ equity	$	1,020,721		$	980,799

See accompanying notes to consolidated financial statements.

SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except share and per share data)
(Unaudited)

	For the Three Months Ended

	September 30, 2000		September 30, 1999

Interest income
Federal funds sold	$	134	$	575
United States treasury securities		441		542
Obligations of states & political subdivisions (tax exempt)		174		150
U.S. Government agency obligations		1,807		906
Corporate bonds & other securities		72		55
Loans		16,757		15,139

Total interest income		19,385		17,367

Interest expense
Savings, N.O.W.’s & Money Market deposits		2,283		2,099
Time Certificates of $100,000 or more		377		307
Other time deposits		3,353		2,925
Federal funds purchased		20		2
Interest on other borrowings		11		—

Total interest expense		6,044		5,333

Net-interest income		13,341		12,034
Provision for possible loan losses		300		275

Net-interest income after provision for possible loan losses		13,041		11,759

Other income
Service charges on deposit accounts		1,179		994
Other service charges, commissions & fees		435		444
Fiduciary fees		199		186
Other operating income		161		158

Total other income		1,974		1,782

Other expense
Salaries & employee benefits		4,325		4,307
Net occupancy expense		686		615
Equipment expense		571		558
Other real estate expense		1		—
Other operating expense		2,316		2,149

Total other expense		7,899		7,629


Income before provision for income taxes		7,116		5,912
Provision for income taxes		2,856		2,330

Net income	$	4,260	$	3,582


Average: Common shares outstanding		5,995,064		6,065,596
Dilutive stock options		8,221		7,048

Average total common shares and dilutive options		6,003,285		6,072,644

Earnings per common share
Basic	$	0.71	$	0.59
Diluted	$	0.71	$	0.59

See accompanying notes to consolidated financial statements.

SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except share and per share data)
(Unaudited)

	For the Nine Months Ended

	September 30, 2000		September 30, 1999

Interest income
Federal funds sold	$	282	$	890
United States treasury securities		1,291		2,099
Obligations of states & political subdivisions (tax exempt)		811		455
U.S. Government agency obligations		5,266		2,707
Corporate bonds & other securities		199		167
Loans		48,900		43,984

Total interest income		56,749		50,302

Interest expense
Savings, N.O.W.’S & Money Market deposits		6,692		5,782
Time Certificates of $100,000 or more		1,044		886
Other time deposits		9,505		8,790
Federal funds purchased		211		171
Interest on other borrowings		651		15

Total interest expense		18,103		15,644

Net-interest income		38,646		34,658
Provision for possible loan losses		900		770

Net-interest income after provision		37,746		33,888

Other income
Service charges on deposit accounts		3,531		3,039
Other service charges, commissions & fees		1,087		965
Fiduciary fees		622		522
Other operating income		504		400

Total other income		5,744		4,926

Other expense
Salaries & employee benefits		13,142		12,741
Net occupancy expense		1,932		1,788
Equipment expense		1,822		1,709
Other real estate expense		7		13
Other operating expense		6,582		6,425

Total other expense		23,485		22,676

Income before provision for income taxes		20,005		16,138
Provision for income taxes		8,041		6,326

Net income	$	11,964	$	9,812


Average: Common shares outstanding		6,018,174		6,070,944
Dilutive stock options		7,458		6,814

Average total common shares and dilutive options		6,025,632		6,077,758
Earnings per common share
Basic	$	1.99	$	1.62
Diluted	$	1.99	$	1.61

See accompanying notes to consolidated financial statements.

SUFFOLK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars, except share and per share data)
(Unaudited)

	For the Nine Months Ended

	September 30, 2000			September 30, 1999

Cash flows from operating activities
Net income	$	11,964		$	9,812
Adjustments to reconcile net income to net cash
Provision for possible loan losses		900			770
Depreciation & amortization		1,522			1,486
Amortization of excess cost over fair value of net assets acquired		271			271
Accretion of discounts		(188	)		(709	)
Amortization of premiums		477			514
(Increase) decrease in accrued interest receivable		(65	)		200
Increase in other assets		(921	)		(737	)
Increase (decrease) in accrued interest payable		453			(612	)
Increase in other liabilities		1,439			810

Net cash provided by operating activities		15,852			11,805

Cash flows from investing activities
Principal payments on investment securities		2,020			712
Maturities of investment securities; available for sale		24,909			15,163
Purchases of investment securities; available for sale		(14,760	)		(25,463	)
Maturities of investment securities; held to maturity		6,000			109,000
Purchases of investment securities; held to maturity		(12,342	)		(86,451	)
Loan disbursements & repayments, net		(32,732	)		(54,308	)
Purchases of premises & equipment, net		(963	)		(973	)
Disposition of other real estate owned		—			95

Net cash used in investing activities		(27,868	)		(42,225	)

Cash flows from financing activities
Net increase in deposit accounts		43,996			39,631
Net payments for other borrowings		(13,500	)		—
Dividends paid to shareholders		(4,043	)		(3,647	)
Treasury shares acquired		(1,631	)		(490	)

Net cash provided by financing activities		24,822			35,494

Net increase in cash & cash equivalents		12,806			5,074
Cash & cash equivalents beginning of period		53,452			76,098

Cash & cash equivalents end of period	$	66,258		$	81,172

See accompanying notes to consolidated financial statements.

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 y ear ended December 31, 1999.

The results of operations for the three months ended September 30, 2000 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 September 30, 2000 and 1999

Net Income

Net income was $4,260,000 for the quarter, ahead 18.9 percent from $3,582,000 posted during the same period last year. Earnings per share for the quarter were $0.71 versus $0.59, a gain of 20.3 percent.

Interest Income

Interest income was $19,385,000 for the third quarter of 2000, up 11.6 percent from $17,367,000 posted for the same quarter in 1999. Average loans during the third quarter of 2000 totaled $738,427,000, compared to $689,600,000 for the same period of 1999. During the third quarter of 2000, the yield was 8.64 percent (taxable-equivalent) on average earning assets of $902,183,000 up from 8.18 percent on average earning assets of $853,772,000 during the third quarter of 1999. Increases in interest income were attributable primarily to increases in the volume of both loans and investments, but also to a change in the composition of the investment portfolio emphasizing high-quality higher-yielding collateralized mortgage obligations.

Interest Expense

Interest expense for the third quarter of 2000 was $6,044,000, up 13.3 percent from $5,333,000 for the same period of 1999. Average deposits for the third quarter of 2000 were $891,910,000 up from $854,189,000 for the comparable period in 1999. Interest expense remained moderate as demand deposits comprised 28.8 percent of total deposits.

Net Interest Income

Net interest income, net of the provision for possible loan losses, is the largest component of Suffolk’s earnings. Net interest income for the third quarter of 2000 was $13,041,000, up 10.9 percent from $11,759,000 during the same period of 1999. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.96 percent compared to 5.68 percent for the same period of 1999.

The following table details the components of Suffolk’s net interest income:

	Quarter Ended September 30,

	2000								1999

	Average Balance		Interest			Average Rate			Average Balance		Interest			Average Rate

Interest-earning assets
U.S. treasury securities	$	31,013	$	449			5.79	%	$	38,956		553			5.68	%
Obligations of states and political subdivisions		13,945		263			7.55			13,288		228			6.87
U.S. govt. agency obligations		106,948		1,807			6.76			64,395		906			5.63
Corporate bonds and other securities		3,468		72			8.34			3,368		55			6.55
Federal funds sold and securities purchased under agreements to resell		8,382		135			6.42			44,166		575			5.21
Loans, including non-accrual loans
Commercial, financial agricultural loans		127,316		2,897			9.10			123,771		2,721			8.80
Commercial real estate mortgages		151,936		3,403			8.96			147,812		3,300			8.93
Real estate construction loans		31,708		819			10.33			13,474		301			8.94
Residential mortgages (1st and 2nd liens)		86,581		1,871			8.64			75,810		1,870			9.87
Home equity loans		19,370		522			10.78			19,987		474			9.49
Consumer loans		321,196		7,245			9.02			303,446		6,473			8.53
Other loans (overdrafts)		320		—						5,299		—			—

Total interest-earning assets	$	902,183	$	19,483			8.64	%	$	853,772		17,456			8.18	%

Cash and due from banks	$	60,872							$	56,062
Other non-interest-earning assets		41,253								32,168

Total assets	$	1,004,308							$	942,002


Interest-bearing liabilities
Savings, N.O.W.’s and Money Market deposits	$	369,532	$	2,283			2.47	%	$	357,050		2,099			2.35	%
Time deposits		265,535		3,729			5.62			253,977		3,232			5.09

Total savings and time deposits		635,067		6,012			3.79			611,027		5,331			3.49
Federal funds purchased and securities sold under agreement to repurchase		1,122		20			7.11			109		2			5.62
Other borrowings		521		12			8.85			—		—			—

Total interest-bearing liabilities	$	636,710		6,044			3.80	%	$	611,136		5,333			3.49	%

Rate spread							4.84	%							4.69	%
Non-interest-bearing deposits	$	256,843							$	243,162
Other non-interest-bearing liabilities		30,254								13,848

Total liabilities	$	923,807								868,146
Stockholders’ equity		80,501								73,856

Total liabilities and stockholders’ equity	$	1,004,308							$	942,002

Net-interest income (taxable-equivalent basis) and effective interest rate differential			$	13,439			5.96	%			$	12,124			5.68	%
Less: taxable-equivalent basis adjustment				(99	)							(89	)

Net-interest income			$	13,340							$	12,035

Other Income

Other income increased to $1,974,000 for the three months compared to $1,782,000 the previous year. Service charges on deposits were up 18.6 percent. Service charges, including commissions and fees other than for deposits, decreased by 2.0 percent. Trust revenue was up 7.0 percent. Other operating income was up 1.9 percent.

Other Expense

Other expense for the third quarter of 2000 was $7,899,000, up 3.5 percent from $7,629,000 for the comparable period in 1999. Employee compensation increased by 0.4 percent, net occupancy by 11.5 percent, equipment expense by 2.3 percent while other operating expense increased by 7.8 percent.

Capital Resources

Stockholders’ equity totaled $84,762,000 on September 30, 2000, an increase of 9.6 percent from $77,334,000 on December 31, 1999. The ratio of equity to assets was 8.3 percent at September 30, 2000 and 7.9 percent at December 31, 1999. The following table details amounts and ratios of Suffolk’s regulatory capital: (in thousands of dollars except ratios)

	Actual					For Capital Adequacy					To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of September 30, 2000
Total capital (to risk-weighted assets)	$	91,604		11.07	%	$	66,223		8.00	%	$	82,779		10.00	%
Tier 1 capital (to risk-weighted assets)		83,928		10.14	%		33,112		4.00	%		49,668		6.00	%
Tier 1 capital (to average assets)		83,928		8.35	%		33,112		4.00	%		50,264		5.00	%

As of December 31, 1999
Total capital (to risk-weighted assets)	$	88,615		11.05	%	$	61,905		8.00	%	$	77,381		10.00	%
Tier 1 capital (to risk-weighted assets)		81,345		10.15	%		30,952		4.00	%		46,429		6.00	%
Tier 1 capital (to average assets)		81,345		8.74	%		30,952		4.00	%		47,010		5.00	%

Credit Risk

Suffolk makes loans based on the best evaluation possible of the creditworthiness of the borrower. Even with careful underwriting, some loans may not be repaid as originally agreed. To provide for this possibility, Suffolk maintains an allowance for possible loan losses, based on an analysis of the performance of the loans in its portfolio. The analysis includes subjective factors based on management’s judgment as well as quantitative evaluation. Prudent, conservative estimates should produce an allowance that will provide for a range of losses. According to generally accepted accounting principles (“GAAP”) a financial institution should record its best estimate. Appropriate factors contributing to the estimate may include changes in the composition of the institution’s assets, or potential economic slowdowns or downturns. Also important is the geographical or political environment in which the institution operates. Suffolk’s management considers all of these factors when determining the provision for possible loan losses.

The following table presents information about the allowance for possible loan losses (in thousands of dollars except ratios).

				For the Three Months Ended

	For the Last 12 Months			Sept. 30, 2000			June 30, 2000			Mar. 31, 2000			Dec. 31, 1999

Allowance for possible loan losses
Beginning balance		7,106			7,527			7,382			7,270			7,106
Total charge-offs		790			206			198			214			172
Total recoveries		160			55			43			26			36
Provision for possible loan losses		1,200			300			300			300			300

Ending balance		7,676			7,676			7,527			7,382			7,270

Coverage ratios
Loans, net of discounts: average		723,733			738,427			734,945			718,721			702,838
Loans, net of discounts: at end of period		744,135			758,894			750,732			739,389			727,525
Non-performing assets		2,003			2,685			2,273			1,646			1,407
Non-performing assets/total loans (net of discount)		0.27	%		0.35	%		0.30	%		0.22	%		0.19	%
Net charge-offs/average net loans (annualized)		0.09	%		0.08	%		0.08	%		0.10	%		0.08	%
Allowance/non-accrual, restructured, & OREO		379.27	%		285.88	%		331.15	%		448.48	%		451.55	%
Allowance for loan losses/net loans		1.00	%		1.01	%		1.00	%		1.00	%		1.00	%

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, 1999.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			SUFFOLK BANCORP
Date: November 14, 2000			/s/ Thomas S. Kohlmann

			Thomas S. Kohlmann President & Chief Executive Officer


Date: November 14, 2000			/s/ J. Gordon Huszagh

			J. Gordon Huszagh Executive Vice President & Chief Financial Officer