<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, 1999 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) Identification No.)
6 West Second Street, Riverhead, New York 11901
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 727-5667
- -------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 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 [ ]
<TABLE>
<CAPTION>
Class of Common Stock Number of Shares Outstanding as of February 18, 2000
- ---------------------- ----------------------------------------------------
<S> <C>
$2.50 Par Value 6,050,580
</TABLE>
The aggregate market value of the Registrant's Common Stock (based on the most
recent sale at $26.75 on February 18, 2000) held by non-affiliates was
approximately $161,853,015.
<PAGE> 2
PART I
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held April 11, 2000, filed on March 10, 2000. (Part III)
ITEM 1. BUSINESS
SUFFOLK BANCORP ("SUFFOLK")
Suffolk was incorporated on January 2, 1985 as a bank holding company. On that
date, Suffolk acquired, and currently owns, all of the outstanding capital
stock of The Suffolk County National Bank. On July 14, 1988, Suffolk acquired
all the outstanding capital stock of Island Computer Corporation of New York,
Inc. The business of Suffolk consists primarily of the ownership, supervision,
and control of its subsidiaries. On April 11, 1994, Suffolk acquired all the
outstanding capital stock of Hamptons Bancshares, Inc. and merged it into a
subsidiary. During 1996, the operations of Island Computer Corporation of New
York, Inc. were assumed by The Suffolk County National Bank.
Suffolk's chief competition includes 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 primarily the Bank of New York, Chase
Manhattan Bank, and Fleet Bank.
Suffolk and its subsidiaries had 365 full-time and 48 part-time employees on
December 31, 1999.
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 Babylon, Brookhaven, East Hampton, Islip, Riverhead,
Smithtown, 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, Port Jefferson, Riverhead, Sag Harbor,
Sayville, Shoreham, Smithtown, Southampton, Wading River, Water Mill, West
Babylon, and Westhampton Beach, New York.
The Bank is a full-service bank serving the needs of the local residents of
Suffolk County. Most 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 offered by the Bank are checking accounts, savings accounts,
time and savings certificates, money market accounts, negotiable-order-of-
withdrawal accounts, holiday club accounts, and individual retirement accounts;
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; safe deposit boxes; 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.
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.
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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 that 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 closely related to banking, managing, or controlling
banks. In the event that a bank holding company has become a "financial holding
company" (an "FHC"), it may engage in activities that are jointly determined by
the Federal Reserve Board and the Treasury Department to be "financial in
nature or incidental to such financial activity." FHCs may also engage in
activities that are determined by the Federal Reserve to be "complementary to
financial activities." See "Recent Legislation" for a brief summary of the
statutory provisions relating to FHCs.
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
percent or more of the company's consolidated net worth.
The Federal Reserve Board has broad 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, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") provides that the Federal Reserve Board can
assess civil money penalties for such practices or violations, which can be as
high as $1 million per day. FIRREA contains expansive provisions regarding the
scope of individuals and entities against which such penalties may be assessed.
ANNUAL REPORTING AND 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.
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 nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multifamily
mortgages. In accordance with the law, each federal banking agency has
specified, by regulation, the levels at which an insured institution would be
considered "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Under
these regulations, the Bank 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 the Bank 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 supervisory or enforcement actions by the Federal Reserve Board.
ACQUISITION 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
2
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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 percent 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 banks concerned,
the convenience and needs of the communities to be served, and the effect on
competition. 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. Under certain circumstances, the 30-day period may be shortened to 15
days.
INTERSTATE ACQUISITIONS
In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 was enacted by Congress. Under the act, beginning on September 29, 1995,
bank holding companies may acquire banks in any state, not withstanding
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 bank
and 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, preexisting contrary state law notwithstanding. This law became
effective automatically in all states on June 1, 1997, unless a state, by
legislation enacted before June 1, 1997, opted 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
participant 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.
BANKING REGULATION
The Bank is a national bank, which is subject to regulation and supervision
primarily by the Office of the Comptroller of the Currency (the "OCC") and
secondarily by the Federal Reserve Board and the FDIC. The Bank 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.
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.
Section 23B requires that certain transactions between the Bank and its
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 the Bank 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.
EXAMINATIONS
The OCC regularly examines the Bank and records of the Bank. The FDIC may also
periodically examine and evaluate insured banks. In addition, the Federal
Reserve Board regularly examines the Bank and records of Suffolk.
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, appropriate federal
banking regulators are required to have in place regulations specifying
operational and management standards (addressing internal controls, loan
documentation, credit underwriting, and interest rate risk), asset quality, and
earnings. In addition, the Federal Reserve Board, the OCC, and FDIC have
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 that it determines has engaged in an unsafe or unsound practice.
The agencies can also assess civil money penalties to $1 million per day, issue
cease-and-desist or removal orders, seek injunctions, and publicly disclose
such actions.
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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 that 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.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act that will, 120 days thereafter, permit bank holding companies to become
FHCs and, by doing so, affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature or complementary
thereto. A bank holding company may become an FHC, if each of its subsidiary
banks is well capitalized under the FDICIA prompt corrective action provisions,
well managed, and has at least a satisfactory rating under the Community
Reinvestment Act, by filing a declaration that the bank holding company wishes
to become an FHC and meets all applicable requirements.
No prior regulatory approval will be required for an FHC to acquire a company,
other than a bank or savings association, engaged in activities permitted under
the Gramm-Leach-Bliley Act. Activities cited the Gramm-Leach-Bliley Act as
being "financial in nature" include securities underwriting and dealing, and
insurance underwriting and agency activities. Activities that the Federal
Reserve Board has determined to be closely related to banking are also deemed
to be financial in nature
A national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
merchant banking, real estate development, and real estate investment, through
a financial subsidiary of the bank, if the bank is well capitalized, well
managed, and has at least a satisfactory Community Reinvestment Act rating.
Subsidiary banks of an FHC or national bank with financial subsidiaries must
continue to be well capitalized and well managed in order to continue to engage
in such activities without regulatory actions or restrictions, which could
include divestiture of the financial subsidiary or subsidiaries. In addition,
an FHC or a bank may not acquire a company that is engaged in such activities
unless each of the subsidiary banks of the FHC or the bank has at least a
satisfactory Community Reinvestment Act rating.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, stockholders' 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 Federal
Reserve Board's monetary policies and the relative costs of different types of
funds. An important function of the Federal Reserve Board 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 objectives 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 Federal Reserve Board 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 of Suffolk and its
subsidiaries in particular.
STATISTICAL DISCLOSURE
ITEM 2. PROPERTIES
REGISTRANT
Suffolk as such has no physical properties. Office facilities of Suffolk 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 15 buildings in
fee and holds 16 buildings under lease agreements. The decision has been made
to consolidate a number of offices housing central operations in the interest
of operational efficiency. The precise financial impact of such a facility has
not yet been determined, although management anticipates that costs may exceed
current run rates in the first years after construction. Otherwise, management
believes that the physical facilities are suitable and adequate and at present
are being fully utilized. Suffolk,
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however, evaluates future needs continuously and anticipates other 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 Suffolk 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 4 and 17 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1999. At December 31, 1999 there were approximately 1,753 equity
holders of record of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Page 28 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 5 - 14 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 15 - 29 of this Annual Report to Shareholders for the fiscal year ended
December 31, 1999.
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 - 6 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 11, 2000 is incorporated herein by reference.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
NAME AGE POSITION BUSINESS EXPERIENCE
---- --- -------- -------------------
<S> <C> <C> <C>
Thomas S. Kohlmann 53 President and Chief Executive Oct-99 - Present President, CEO, and Director, Suffolk Bancorp
Officer Oct-99 - Present President, CEO, and Director, SCNB
Jan-98 - Oct-99 EVP, Suffolk Bancorp
Jan-96 - Oct-99 EVP and Chief Lending Officer
Feb-92 - Dec-95 SVP, SCNB
1980 - Feb-92 Marine Midland Bank
Employed by The Suffolk County National Bank since February 1992.
J. Gordon Huszagh 46 Executive Vice President and Jan-99 - Present EVP and CFO, Suffolk Bancorp
Chief Financial Officer Jan-99 - Present EVP and CFO, SCNB
Jan-97 - Jan-99 SVP and CFO, SCNB
Dec-92 - Dec-96 SVP & Comptroller, SCNB
Dec-88 - Dec-92 VP & Comptroller, SCNB
Dec-86 - Dec-88 VP, SCNB
Jan-83 - Dec-86 Auditor, SCNB
1975 - 1982 Eastern Federal Savings and Loan
Employed by The Suffolk County National Bank since January 1983.
</TABLE>
5
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<TABLE>
<S> <C> <C> <C>
Victor F. Bozuhoski, Jr. 61 Executive Vice President Jan-97 - Present EVP, Retail Banking, Suffolk Bancorp, SCNB
Retail Banking Dec-88 - Dec-96 EVP and CFO, Suffolk Bancorp, SCNB
Dec-87 - Dec-88 EVP, Comptroller, and CFO, Suffolk Bancorp, SCNB
Dec-85 - Dec-87 SVP and Comptroller, Suffolk Bancorp, SCNB
Jan-78 - Dec-85 VP and Comptroller, SCNB
Employed by The Suffolk County National Bank since
September 1965.
Augustus C. Weaver 57 Executive Vice President Jan-98 - Present EVP, Suffolk Bancorp
Chief Information Officer Jan-96 - Present EVP and Chief Information Officer, SCNB
Feb-87 - Dec-95 President, Island Computer Corporation of
New York, Inc.
Feb-86 - Feb-87 Director of Data Processing and Corporate
Planning Southland Frozen Food Corporation
Feb-62 - Feb-86 VP & Director of Operations, Long Island Savings
Bank
Employed by The Suffolk County National Bank since January 1996.
Robert C. Dick 50 Senior Vice President Oct-99 - Present SVP and Chief Lending Officer, SCNB
Chief Lending Officer Dec-88 - Oct-99SVP, Commercial Loans, SCNB
Dec-82 - Apr-88VP, Commercial Loans, SCNB
1965 - 1980 Security National Bank/Chemical Bank
Employed by The Suffolk County National Bank since January 1980.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Pages 3-7 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 11, 2000 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pages 2, 4, 5, 6, and 7 of Registrant's Proxy Statement for its Annual Meeting
of Shareholders to be held on April 11, 2000 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Page 7 of Registrant's Proxy Statement for its Annual Meeting of Shareholders
to be held on April 11, 2000 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 15 through
30 inclusive.
Financial Statements (Consolidated)
Statements of Condition -- December 31, 1999 and 1998
Statements of Income -- For the years ended December 31, 1999, 1998, and 1997
Statements of Changes in Stockholders' Equity -- For the years ended
December 31, 1999, 1998, and 1997
Statements of Cash Flows -- For the years ended December 31, 1999, 1998, and
1997
Notes to Consolidated Financial Statements
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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 persons or requesting in writing to
Secretary, Suffolk Bancorp, 6 West Second Street, Riverhead, New York 11901.
Ex-3(i) 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, 1999, filed March 10, 2000)
Ex-3(ii) Bylaws of Suffolk Bancorp (filed by incorporation by reference to
Suffolk Bancorp's Form 10-K for the fiscal year ended December 31,
1999, filed March 10, 2000)
Ex-99.A Suffolk Bancorp 1995 Shareholder Rights Plan (filed by incorporation by
reference to Suffolk Bancorp's Form 10-K for the fiscal year ended
December 31, 1999, filed March 10, 2000)
Ex-99.B Suffolk Bancorp 1999 Stock Option Plan (filed by incorporation by
reference to Suffolk Bancorp's Form 10-K for the fiscal year ended
December 31, 1999, filed March 10, 2000)
Ex-99.C Suffolk Bancorp Form of Change-of-Control Employment Contract (filed by
incorporation by reference to Suffolk Bancorp's Form 10-K for the
fiscal year ended December 31, 1999, filed March 10, 2000)
REPORTS ON FORM 8-K
The following reports were filed on Form 8-K for the three-month period ended
December 31, 1999:
October 14, 1999
October 29, 1999
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 10, 2000
(Registrant)
<TABLE>
<S> <C> <C>
By: /s/ EDWARD J. MERZ By: /s/ BRUCE COLLINS By: /s/ HALLOCK LUCE III
------------------------------- ------------------------- ----------------------------
Edward J. Merz Bruce Collins Hallock Luce III
Chairman Director Director
Director
By: /s/ JOSEPH A. DEERKOSKI By: /s/ TERENCE X. MEYER
By: /s/ RAYMOND A. MAZGULSKI ------------------------- ----------------------------
------------------------------- Joseph A. Deerkoski Terence X. Meyer
Raymond A. Mazgulski Director Director
Vice Chairman
Director By: /s/ HOWARD M. FINKELSTEIN By: /s/ J. DOUGLAS STARK
------------------------- ----------------------------
Howard M. Finkelstein J. Douglas Stark
By: /s/ THOMAS S. KOHLMANN Director Director
------------------------------
Thomas S. Kohlmann
President and By: /s/ EDGAR F. GOODALE By: /s/ PETER VAN DE WETERING
Chief Executive Officer ------------------------ ---------------------------
Director Edgar F. Goodale Peter Van de Wetering
Director Director
By: /s/ J. GORDON HUSZAGH
-----------------------------
J. Gordon Huszagh
Executive Vice President and
Chief Financial Officer
</TABLE>
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[SUFFOLK BANCORP LOGO]
DIRECTORS
Edward J. Merz
Chairman
Raymond A. Mazgulski
Vice Chairman
<TABLE>
<S> <C>
Bruce Collins Hallock Luce 3rd
Retired Director, Lupton & Luce, Inc. (general insurance)
President, Hallup Realty Corp. (real estate)
Joseph A. Deerkoski
President, Neefus-Stype, Inc. (general insurance) Terence X. Meyer
Managing Partner, Meyer, Meyer, Metli & Keneally, Esqs.
Howard M. Finkelstein L.L.P. (attorneys)
Partner, Smith, Finkelstein, Lundberg, Isler & Yakaboski
(attorneys) J. Douglas Stark
President, Stark Mobile Homes, Inc.
Edgar F. Goodale
President, Riverhead Building Supply Corp. Peter Van de Wetering
President, Van de Wetering
Thomas S. Kohlmann Greenhouses, Inc. (wholesale nursery)
President & Chief Executive Officer
</TABLE>
OFFICERS
Thomas S. Kohlmann
President & Chief Executive Officer
J. Gordon Huszagh
Executive Vice President & Chief Financial Officer
Victor F. Bozuhoski, Jr.
Executive Vice President
Augustus C. Weaver
Executive Vice President
Douglas Ian Shaw
Vice President & Corporate Secretary
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THE SUFFOLK COUNTY NATIONAL BANK
---- ----
EST. [LOGO] 1890
---- ----
<TABLE>
<S> <C> <C> <C>
DIRECTORS CONSUMER LOANS Medford Office West Babylon Office
Edward J. Merz Jeanne P. Hamilton Paul E. Vaas Charles F. Bivona
Chairman of the Board Senior Vice President Vice President Assistant Vice President
Raymond A. Mazgulski Joan Brigante
Vice Chairman of the Board Vice President Miller Place Office Westhampton Beach Office
Bruce Collins John Dunleavy Michele Fenning Charles E. Johnson
Joseph A. Deerkoski Vice President Manager Vice President
Howard M. Finkelstein Michael E. Kelley
Edgar F. Goodale Vice President Montauk Harbor Office TRUST
Thomas S. Kohlmann Montauk Village Office Dan A. Cicale
Hallock Luce 3rd AUDIT LIAISON, John Soyars Senior Vice President
Terence X. Meyer COMPLIANCE & SECURITY Manager & Trust Officer
J. Douglas Stark Alexander B. Doroski William C. Araneo
Peter Van de Wetering Senior Vice President Port Jefferson Office Vice President
Peter A. Poten Lori E. Thompson
EXECUTIVE OFFICERS BRANCH ADMINISTRATION Vice President Vice President
Thomas S. Kohlmann Robert H. Militscher
President & Senior Vice President & Riverhead, Ostrander COMPTROLLER
Chief Executive Officer Branch Administrator Avenue Office J. Gordon Huszagh
J. Gordon Huszagh Richard J. Micallef Linda C. Zarro Executive Vice President
Executive Vice President & Vice President Vice President & Chief Financial Officer
Chief Financial Officer William K. Miller
Victor F. Bozuhoski, Jr. Vice President Riverhead, Second Street Office CORPORATE SERVICES
Executive Vice President Barbara A. Scesny Douglas Ian Shaw
Retail Banking Bohemia Office Regional Vice President Vice President &
Augustus C. Weaver Dean S. Kupinsky Corporate Secretary
Executive Vice President & Vice President Sag Harbor Office
Chief Information Officer Jane P. Markowski FACILITIES
Center Moriches Office Assistant Vice President Charles E. Anderson
LENDING Thomas R. Columbus, Sr. Manager
Robert C. Dick Vice President Sayville
Senior Vice President & David Gierasch HUMAN RESOURCES
Chief Lending Officer Cutchogue Office Assistant Vice President Pamela L. Palleschi
Richard J. Noncarrow Vice President
COMMERCIAL LOANS Vice President Shoreham Office Richard Montenegro
Phillip D. Ammirato Wendy A. Stapon Vice President
Senior Vice President East Hampton Pantigo Office Manager
Lawrence Milius Kenneth Lockard DATA PROCESSING
Senior Vice President Manager Smithtown Office Mark J. Drozd
Peter M. Almasy William K. Soriano Senior Vice President
Vice President East Hampton Village Office Vice President
Thomas E. Clemens Jill James OPERATIONS
Vice President Assistant Vice President Southampton Office Dennis F. Orski
David T. De Vito Patricia Bolomey Senior Vice President
Vice President Hampton Bays Office Vice President
Robert T. Ellerkamp David Barczak MARKETING
Vice President Assistant Vice President Wading River Office Brenda B. Sujecki
John J. Reilly Anita Nigrel Vice President
Vice President Mattituck Office Regional Vice President
Frederick J. Weinfurt Janet V. Stewart
Vice President Vice President Water Mill Office
Joanne Goodwin
Assistant Branch Manager
</TABLE>
9
<PAGE> 11
Directory of Offices and Departments
<TABLE>
<CAPTION>
Area Code (631)
Telephone FAX
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Executive Offices 322 Roanoke Avenue, Riverhead, N.Y. 11901 727-3800 727-2638
Audit Liaison, Compliance & Security 220 Roanoke Avenue, Riverhead, N.Y. 11901 727-2855 727-9223
Bohemia Office 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-4477 585-4809
Branch Administration 6 West Second Street, Riverhead, N.Y. 11901 727-3850 727-3873
Business and Professional Banking Center 260 Middle County Road, Smithtown, N.Y. 11787 979-3400 979-3430
Center Moriches Office 502 Main Street, Center Moriches, N.Y. 11934 878-8800 878-4431
Commercial Loans 1149 Old Country Road, Riverhead, N.Y. 11901 727-2701 727-5798
351 Pantigo Road, East Hampton, N.Y. 11937 324-2502 324-6367
137 West Broadway, Port Jefferson, N.Y. 11777 642-1000 642-0200
295 North Sea Road, Southampton, N.Y. 11968 287-3104 287-3296
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) 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5667 727-3214
Cutchogue Office 31525 Main Road, Cutchogue, N.Y. 11935 734-5050 734-7759
Data Processing 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 727-3499
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 6 West Second Street, Riverhead, N.Y. 11901 727-6782 208-0767
Financial Planning Center 295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-3296
Hampton Bays Office Montauk Highway, Hampton Bays, N.Y. 11946 728-2700 728-8311
Human Resources 6 West Second Street, Riverhead, N.Y. 11901 727-5377 727-3170
Information Services 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5934
Marketing 220 Roanoke Avenue, Riverhead, N.Y. 11901 727-2855 727-9223
Mattituck Office 10900 Main Road, Mattituck, N.Y. 11952 298-9400 298-9188
Medford Office 2799 Route 112, Medford, N.Y. 11763 758-1500 758-1509
Miller Place Office 74 Echo Avenue, Miller Place, N.Y. 11764 474-8400 474-8510
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 474-7200 331-7806
Port Jefferson Village Office 228 East Main Street, Port Jefferson, N.Y. 11777 473-7700 473-9406
Retail Banking 322 Roanoke Avenue, Riverhead, N.Y. 11901 727-3800 727-2638
Riverhead, Ostrander Avenue Office 1201 Ostrander Avenue, Riverhead, N.Y. 11901 727-6800 727-5095
Riverhead, Second Street Office 6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Sag Harbor Office 17 Main Street, Sag Harbor, N.Y. 11963 725-3000 725-4627
Sayville Office 161 North Main Street, Sayville, N.Y. 11782 218-1600 218-9425
Shoreham Office 9926 Route 25A, Shoreham, N.Y. 11786 744-4400 744-6743
Smithtown Office 260 Middle Country Road, Smithtown, N.Y. 11787 979-3400 979-3430
Southampton Office 295 North Sea Road, Southampton, N.Y. 11968 283-3800 287-3293
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
West Babylon Office 955 Little East Neck Road, West Babylon, N.Y. 11704 669-7300 669-5211
Westhampton Beach Office 144 Sunset Ave., Westhampton Beach, N.Y. 11978 288-4000 288-9252
</TABLE>
10
<PAGE> 12
SUFFOLK BANCORP 10-K
<PAGE> 13
[FULL PAGE LANDMARK PHOTO]
[SUFFOLK BANCORP LOGO]
1999 ANNUAL REPORT on FORM 10-K
<PAGE> 14
[LANDMARK PHOTO]
On The Cover
The Robert Moses Causeway
The Robert Moses Causeway is a landmark instantly familiar to most Long
Islanders, as is the state park of the same name. Both are named for the first
and famous longtime Long Island State Parks Commissioner, Robert Moses. His
public works ranged from bridges to parkways to the extraordinary series of
public beaches along the south shore of Long Island, of which Robert Moses
State Park is the easternmost. From its beginning at Southern State Parkway,
the Causeway is 8.1 miles in length. It runs south from Long Island across
Great South Bay and traverses Captree Island and Fire Island Inlet to its
terminus at the water tower on the western end of Fire Island. Purchased by the
State of New York in 1893, and dedicated as a park in 1908, the Park is the
oldest state park on Long Island.
<TABLE>
<S> <C>
Corporate Profile.......................................................................................................... 1
Financial Highlights....................................................................................................... 1
To Our Shareholders ....................................................................................................... 2
Price Range of Common Stock and Dividends.................................................................................. 4
Summary of Selected Financial Data......................................................................................... 4
Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 5
Suffolk's Business......................................................................................................... 5
General Economic Conditions................................................................................................ 5
Results of Operations...................................................................................................... 5
Net Income................................................................................................................. 5
Net-Interest Income........................................................................................................ 5
Average Assets, Liabilities, and Stockholders' Equity, Rate Spread, and Effective Interest Rate Differential............... 6
Analysis of Changes in Net Interest Income................................................................................. 7
Interest Income............................................................................................................ 7
Investment Securities...................................................................................................... 7
Loan Portfolio............................................................................................................. 8
Non-Performing Loans....................................................................................................... 9
Summary of Loan Losses and Allowance for Possible Loan Losses.............................................................. 9
Interest Expense...........................................................................................................10
Deposits...................................................................................................................10
Short-Term Borrowings......................................................................................................11
Other Income...............................................................................................................11
Other Expense..............................................................................................................11
Interest Rate Sensitivity..................................................................................................11
Market Risk................................................................................................................12
Interest Rate Risk.........................................................................................................12
Asset/Liability Management & Liquidity.....................................................................................13
Readiness for the Year 2000 and Actual Experience..........................................................................13
Capital Resources..........................................................................................................13
Risk-Based Capital and Leverage Guidelines ................................................................................14
Discussion of New Accounting Pronouncements................................................................................14
Business Risks and Uncertainties...........................................................................................14
Consolidated Statements of Condition.......................................................................................15
Consolidated Statements of Income..........................................................................................16
Consolidated Statements of Changes in Stockholders' Equity.................................................................17
Consolidated Statements of Cash Flows......................................................................................18
Notes to Consolidated Financial Statements.................................................................................19
Report of Independent Public Accountants...................................................................................30
Report of Management.......................................................................................................30
Annual Report on Form 10-K.................................................................................................31
Directors and Officers -- Suffolk Bancorp..................................................................................39
Directors and Officers -- The Suffolk County National Bank.................................................................40
Directory of Offices and Departments........................................................................Inside Back Cover
</TABLE>
<PAGE> 15
CORPORATE PROFILE
Suffolk Bancorp does commercial banking through its wholly owned subsidiary,
The Suffolk County National Bank. "SCNB" is a full-service, nationally
chartered commercial bank. Organized in 1890, SCNB is the second largest
independent commercial bank headquartered on Long Island. Most of SCNB's
revenue comes from net interest income, and the remainder from charges for a
variety of services. SCNB has built a good reputation for personal, attentive
service. This has developed a loyal and growing clientele. SCNB operates 26
full-service offices throughout Suffolk County, New York.
The staff at SCNB works hard to develop and maintain ties to the communities it
serves. Most of SCNB's business is retail, and includes loans to individual
consumers, to professionals, and to small and medium-sized commercial
enterprises. It has special expertise in indirect retail lending, evaluating
and buying loans generated by automobile dealers. In recent years, however,
commercial loans of all types have increased as a percentage of the loan
portfolio and have made substantial contributions to SCNB's profitability.
SCNB's primary market is Long Island, New York. Long Island is home to more
than 2.6 million people outside of the limits of New York City and is
increasingly suburban in nature. Nassau County and the western end of Suffolk
County are a center for commerce and are highly developed, supporting a
diversified economy. The eastern end of Long Island is supported by retirement,
tourism, and agriculture. Together, they generate family incomes greater than
the national average, providing Suffolk Bancorp with a steady and growing
demand for loans and other services, and a reliable, reasonably priced supply
of deposits.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(dollars in thousands, except ratios, share, and per-share information)
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS FOR THE YEAR Net income $ 13,129 $ 11,903
Net-interest income 46,787 44,410
Net income-per-share 2.16 1.95
Cash dividends-per-share 0.84 0.72
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT YEAR END Assets $ 980,799 $ 909,432
Net loans 720,255 640,565
Investment securities 165,370 151,201
Deposits 877,303 826,564
Equity 77,334 71,846
Shares outstanding 6,055,580 6,080,856
Book value per common share $ 12.77 $ 11.81
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS Return on average equity 17.91 % 17.66 %
Return on average assets 1.41 1.37
Average equity to average assets 7.87 7.77
Net-interest margin (taxable-equivalent) 5.66 5.77
Efficiency Ratio 57.49 59.36
Net charge-offs to average net loans 0.11 0.08
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUFFOLK BANKCORP ANNUAL MEETING
Tuesday, April 11, 2000, 1:00 P.M.
East Wind
Route 25A
Wading River, New York
S.E.C. FORM 10-K
The Annual Report to the Securities and Exchange Commission on Form 10-K and
documents incorporated by reference can be obtained, without charge, by writing
to the Secretary, Suffolk Bancorp, 6 West Second Street, Riverhead, New York
11901, or call (631) 727-5667, fax to (631) 727-3214, or send e-mail to
[email protected].
TRADING
Suffolk Bancorp's common stock is traded over-the-counter,and is listed on the
NASDAQ National Market System under the symbol "SUBK."
REGISTRAR AND TRANSFER AGENT
Any questions about the registration or transfer of shares, the payment,
reinvestment, or direct deposit of dividends can be answered by:
American Stock Transfer & Trust Co.
40 Wall Street, 46th Floor
New York, New York 10269-0436
1-800-937-5449
1
<PAGE> 16
[THOMAS S. KOHLMANN PHOTO]
DEAR SHAREHOLDER:
Nineteen-ninety-nine was another successful year for Suffolk Bancorp and for
its wholly owned subsidiary, The Suffolk County National Bank.
It was a profitable year in nearly all respects. Net income was $13,129,000, up
10.3 percent from $11,903,000 last year. Earnings-per-share were $2.16 compared
to $1.95, an increase of 10.8 percent. Each is a record. Assets at year-end
totaled 980,799,000, compared to $909,432,000, up 7.8 percent. Shareholders'
equity amounted to $77,334,000, up 7.6 percent from $71,846,000. Book
value-per-share was $12.77, up 8.1 percent from $11.81 the previous year.
Dividends-per-share were $0.84, increased 16.7 percent from $0.72. Average net
loans increased by 9.3 percent, to $676,810,000, from $619,025,000. Average
deposits increased by 6.8 percent, to $835,175,000 from $781,927,000.
Net-interest income increased by 5.4 percent to $46,787,000 from $44,410,000.
Income other than from interest decreased by 16.9 percent, to $6,771,000 from
$8,148,000. Expense other than for interest decreased by 1.3 percent, to
$30,789,000 from $31,200,000, and our efficiency ratio was 57.49 percent.
Return on average common equity increased to 17.91 percent from 17.66 percent.
Return on assets increased to 1.41 percent from 1.37 percent.
Our success during 1999 is attributable to a number of incremental refinements
in the way we manage our business, aided by a strong economy. Net interest
income increased year to year, primarily due to increases in volume. One
significant change in the balance sheet was the addition of a portfolio of
government agency-backed collateralized mortgage obligations that enabled us to
improve the yield on our investments, while preserving asset quality by means
of the government guarantee. By choosing the issues carefully, we were also
able to moderate the risk of changing rates of interest to our net interest
income. We also improved our leverage, shifting from selling federal funds last
year, to a modest position of short-term borrowings. Savings, N.O.W.s, and
money market accounts, which are moderately priced, grew faster than other
deposits.
2
<PAGE> 17
Non-interest income and expense declined, owing largely to the sale of a
merchant services portfolio that affected both sides of the income statement.
After removing the effect of that transaction, non-interest expense was
essentially flat, an accomplishment as average assets grew by 7.4 percent. As
a percentage of the previous year, net charge-offs increased, but in absolute
terms, they remain modest, at 11 basis points of total loans, and the
allowance for possible loan losses is substantial.
"Accumulated Other Comprehensive Income, Net of Tax," which is primarily the
difference between the book and market values of our investments available
for sale, went into negative territory as would be expected when interest
rates climb as they did last year. However, that effect on equity was offset
partially by increases in net interest income because Suffolk's assets
repriced upward faster than its liabilities.
OUR EVOLVING CUSTOMER
Our focus, however, is always on the future, and on identifying not only who
our customers are today, but on who they will be tomorrow. During the current
economic expansion, our primary market area has changed more than during any
similar period in Suffolk's long history.
A generation ago, we were bankers to farmers, fisherman, and the occasional
tourist or retiree. Today, we serve a growing, dynamic region with a diverse
mix of traditional and high-tech companies that rely on the services of a wide
range of professionals to support and advise their businesses. We have
undertaken to reach out to those business people and professionals with an eye
to meeting their special needs, while at the same time satisfying the
requirements of our long-established, retail customers.
Toward this end, we have tailored our offices to the communities and the
customers they serve. Thus, in Riverhead, where we are the retail banker of
choice, we have two high-volume branch offices and two lending offices. In
Smithtown, a highly competitive market for basic banking, we differentiate
ourselves from that market completely, offering comprehensive banking services
at a desk rather than a teller line to business and professional customers who
want personal service and are willing to pay for it. This kind of tailored
approach makes the most of the resources available to a financial institution
of our size.
E-BANKING AND THE FUTURE
You, our shareholders, our customers, and our staff have had to wade through a
lot of "e-hype" during the past year or two, but there is no question that
electronic banking will be a big part of our future and yours. The first
glimpse of that future came more than 15 years ago with the introduction of the
automatic teller machine, now the primary source of cash for many customers.
But the growth of the Internet has transformed the possibilities, and the
responsibilities of a bank to its customers.
Suffolk is ready, with an inclusive web-site at www.SCNB.com; Internet banking
that permits customers to inquire about their accounts, make transfers among
their accounts, and download information about their accounts into popular
financial management software; and our electronic bill payment service.
MANAGEMENT AT SUFFOLK BANCORP
As you know, I am still new to the position of CEO, although I've been with the
company since 1992, serving most recently as Executive Vice President and Chief
Lending Officer. The circumstances under which I assumed my duties were not
happy, coming after the decline and passing of my predecessor in office, John
F. Hanley. Our management team saw us through that difficult period, for which
I am eternally grateful. Events of the past year and the way my colleagues
responded to them gave me a new appreciation of the depth of their experience
and their understanding of your company and its strategic needs. Their
expertise and cohesion will serve us, and you, well into the future.
I'd like to encourage you to read "Management's Discussion and Analysis," which
starts on page 5. We hope that it will help you appreciate the fundamental
value inherent in your shares of Suffolk Bancorp.
It has been quite a year here at Suffolk. Real value is built day by day, year
in and year out, in the relationships we build with real customers. We don't
take your support as shareholders for granted. We work to earn it every day. We
hope that you share in our satisfaction with Suffolk's achievements and see
them, as I do, as the foundation for a long, profitable future.
Sincerely,
/S/ THOMAS S. KOHLMANN
Thomas S. Kohlmann
President &
Chief Executive Officer
3
<PAGE> 18
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Suffolk's common stock is traded in the over the counter market, and is quoted
on the NASDAQ National Market System under the symbol "SUBK." Following are
quarterly high and low prices of Suffolk's common stock as reported by NASDAQ.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1999 High Low Dividends 1998 High Low Dividends
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 29.00 $ 24.00 $ 0.21 First Quarter $ 33.00 $ 28.50 $ 0.18
Second Quarter 28.25 22.88 $ 0.21 Second Quarter 34.00 29.75 $ 0.18
Third Quarter 28.50 26.00 $ 0.21 Third Quarter 35.25 27.88 $ 0.18
Fourth Quarter 29.00 26.00 $ 0.21 Fourth Quarter 29.75 19.88 $ 0.18
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At February 3, 2000, there were approximately 1,900 equity holders of record of
the Company's common stock.
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY: (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
- --------------------------------------------------------------------------------------------------------------------------------
For the years 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 67,908 $ 65,874 $ 64,129 $ 60,529 $ 59,312
Interest expense 21,121 21,464 20,970 19,372 20,331
- --------------------------------------------------------------------------------------------------------------------------------
Net-interest income 46,787 44,410 43,159 41,157 38,981
Provision for possible loan losses 1,070 900 1,059 1,120 530
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 45,717 43,510 42,100 40,037 38,451
Other income 6,771 8,148 7,646 7,286 6,702
Other expense 30,789 31,200 30,303 28,967 30,135
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 21,699 20,458 19,443 18,356 15,018
Provision for income taxes 8,570 8,555 8,141 7,709 5,929
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 13,129 $ 11,903 $ 11,302 $ 10,647 9,089
================================================================================================================================
BALANCE AT DECEMBER 31:
Federal funds sold $ - $ 17,800 $ 18,500 $ 1,500 $ 32,500
Investment securities -- available for sale 132,484 129,348 120,878 104,649 137,043
Investment securities -- held to maturity 32,886 21,853 26,048 30,704 44,923
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 165,370 151,201 146,926 135,353 181,966
Net loans 720,255 640,565 604,864 578,883 510,015
Total assets 980,799 909,432 864,913 804,379 805,794
Total deposits 877,303 826,564 777,595 711,018 727,060
Other borrowings 13,500 - - 7,200 -
Stockholders' equity $ 77,334 $ 71,846 $ 65,140 $ 72,750 $ 70,046
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity 17.91% 17.66% 16.96% 15.12% 11.56%
Return on average assets 1.41 1.37 1.37 1.35 1.15
Net interest margin (taxable-equivalent) 5.66 5.77 5.84 5.84 5.49
Efficiency Ratio 57.49 59.36 59.65 59.80 65.96
Average equity to average assets 7.87 7.77 8.05 8.96 9.91
Dividend pay-out ratio 37.48 36.87 38.34 38.49 36.83
Asset quality:
Non-performing assets to total loans
(net of discount) 0.22 0.34 0.59 1.02 1.33
Non-performing assets to total assets 0.16 0.24 0.41 0.74 0.85
Allowance to non-performing assets 451.55 319.33 182.29 127.12 77.38
Allowance to loans, net of discount 1.00 1.07 1.07 1.05 1.15
Net charge-offs to average net loans 0.11 0.08 0.11 0.17 0.16
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income (basic) 2.16 1.95 1.79 1.60 1.22
Cash dividends 0.84 0.72 0.69 0.62 0.45
Book value at year-end 12.77 11.81 10.69 11.04 10.28
Highest market value 29.00 35.25 33.00 19.88 18.75
Lowest market value 22.88 19.88 19.13 14.75 13.00
Average shares outstanding 6,068,778 6,094,826 6,306,299 6,682,064 7,478,946
- --------------------------------------------------------------------------------------------------------------------------------
Number of full-time-equivalent employees
at year-end 389 391 378 372 400
Number of branch offices at year-end 26 26 25 23 22
Number of automatic teller machines 18 18 16 16 15
================================================================================================================================
</TABLE>
4
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion that follows analyzes Suffolk Bancorp's ("Suffolk") operations
for each of the past three years and its financial condition as of December 31,
1999 and 1998, respectively. Selected tabular data are presented for each of
the past five years.
SUFFOLK'S BUSINESS
Nearly all of Suffolk's business is to provide banking services to its
commercial and retail customers in Suffolk County, on Long Island, New York.
Suffolk is a one-bank holding company. Its banking subsidiary, The Suffolk
County National Bank (the "Bank"), operates 26 full-service offices in Suffolk
County, New York. It offers a full line of domestic, retail, and commercial
banking services, and trust services. The Bank's primary lending area includes
all of Suffolk County, New York. The Bank also makes loans for automobiles in
Nassau County, New York. The Bank serves as an indirect lender to the customers
of many automobile dealers. The Bank also lends to small manufacturers,
wholesalers, builders, farmers, and retailers, and finances dealers' inventory.
The Bank makes loans secured by real estate, including residential mortgages,
of which most are sold to investors; real estate construction loans; and loans
that are secured by commercial real estate and float with the prime rate, or
that 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 plans for repayment.
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, collateralized mortgage obligations, and stock in
the Federal Reserve Bank and the Federal Home Loan Bank of New York required as
a condition of membership.
The Bank finances most of its activities with deposits, including 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
interbank, overnight loans and, when needed, sale-repurchase agreements.
GENERAL ECONOMIC CONDITIONS
Growth in Long Island's economy was steady during 1999. Increased demand for
finance, information, transportation, and tourism were offset by 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 1999, interest rates were stable
throughout the year, and there was less difference between short and long-term
rates than in previous years.
RESULTS OF OPERATIONS
NET INCOME
Net income was $13,129,000 compared to $11,903,000 last year and $11,302,000 in
1997. These figures represent increases of 10.3 percent and 5.3 percent,
respectively. Basic earnings-per-share were $2.16, compared to $1.95 last year
and $1.79 in 1997.
NET INTEREST INCOME
Net-interest income during 1999 was $46,787,000, up 5.4 percent from
$44,410,000 and up 2.9 percent from $43,159,000 in 1998 and 1997, respectively.
Net-interest income is the most important part of the net income of Suffolk.
The effective-interest-rate-differential, on a taxable-equivalent basis, was
5.66 percent in 1999, 5.77 percent during 1998, and 5.84 percent in 1997.
Average rates on average interest-earning assets decreased to 8.19 percent in
1999, from 8.53 percent in 1998 and 8.65 percent in 1997. Average rates on
average interest-bearing liabilities decreased to 3.47 percent in 1999, from
3.70 percent in 1998 and 3.69 percent in 1997. The interest rate differential
decreased slightly in 1999 from 1998, as it did in 1998 from 1997. Also, demand
deposits increased slightly from year to year as a percentage of total
liabilities.
5
<PAGE> 20
AVERAGE ASSETS, LIABILITIES, STOCKHOLDERS' EQUITY,
RATE SPREAD,
AND EFFECTIVE INTEREST RATE DIFFERENTIAL
(ON A TAXABLE-EQUIVALENT BASIS)
The following table illustrates the average composition of Suffolk'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, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 47,033 $ 2,570 5.47% $ 85,808 $ 5,382
Obligations of states & political subdivisions 17,592 1,120 6.36 15,875 1,016
U.S. govt. agency obligations 70,019 4,085 5.83 26,365 1,790
Corporate bonds & other securities 3,358 225 6.70 807 38
Federal funds sold & securities purchased
under agreements to resell 19,318 977 5.06 29,329 1,547
Loans, including non-accrual loans $676,810 59,364 8.77 619,025 56,554
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $834,130 $ 68,341 8.19% $777,209 $ 66,327
====================================================================================================================================
Cash & due from banks $ 58,744 $ 56,190
Other non-interest-earning assets 37,999 33,648
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $930,873 $867,047
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & money market deposits $347,817 $ 7,939 2.28% $321,143 $ 7,373
Time deposits 255,911 12,926 5.05 256,120 13,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 603,728 20,865 3.46 577,263 21,311
Federal funds purchased & securities
sold under agreement to repurchase 4,173 205 4.91 2,551 153
Other borrowings 1,188 51 4.29 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $609,089 $ 21,121 3.47% $579,814 $ 21,464
====================================================================================================================================
Rate spread 4.72%
Non-interest-bearing deposits $231,447 $204,664
Other non-interest-bearing liabilities 17,037 15,184
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $857,573 $799,662
Stockholders' equity 73,300 67,385
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $930,873 $867,047
Net-interest income (taxable-equivalent basis)
& effective interest rate differential $47,220 5.66% $44,863
Less: taxable-equivalent basis adjustment (433) (453)
- ------------------------------------------------------------------------------------------------------------------------------------
Net-interest income $46,787 $44,410
====================================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average
Rate Balance Interest Rate
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities 6.27% $101,151 $ 6,557 6.48%
Obligations of states & political subdivisions 6.41 10,940 744 6.80
U.S. govt. agency obligations 6.79 23,921 1,597 6.68
Corporate bonds & other securities 4.71 638 38 5.96
Federal funds sold & securities purchased
under agreements to resell 5.27 20,683 1,128 5.45
Loans, including non-accrual loans 9.14 588,686 54,448 9.25
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 8.53% $746,019 $ 64,512 8.65%
============================================================================================================================
Cash & due from banks $ 43,759
Other non-interest-earning assets 38,020
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $827,798
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & money market deposits 2.30% $323,105 $ 7,567 2.34%
Time deposits 5.44 237,520 12,966 5.46
- ----------------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 3.69 560,625 20,533 3.66
Federal funds purchased & securities
sold under agreement to repurchase 6.00 7,792 425 5.45
Other borrowings - 165 12 7.27
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3.70% $568,582 $ 20,970 3.69%
============================================================================================================================
Rate spread 4.83% 4.96%
Non-interest-bearing deposits $183,894
Other non-interest-bearing liabilities 8,690
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities $761,166
Stockholders' equity 66,632
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $827,798
Net-interest income (taxable-equivalent basis)
& effective interest rate differential 5.77% $ 43,542 5.84%
Less: taxable-equivalent basis adjustment (383)
- ----------------------------------------------------------------------------------------------------------------------------
Net-interest income $ 43,159
============================================================================================================================
</TABLE>
Interest income on a taxable-equivalent basis includes the additional amount of
interest income that would have been earned if Suffolk's investment in
nontaxable 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
percent for federal income taxes and 9 percent for New York State income taxes
for all periods. For each of the years 1999, 1998, and 1997, $1.00 of
nontaxable income from obligations of states and political subdivisions equates
to fully taxable income of $1.52. In addition, in 1999, 1998, and 1997, $1.00
of nontaxable income on U.S. Treasury securities equates to $1.02 of fully
taxable income. The amortization of loan fees is included in interest income.
6
<PAGE> 21
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The table below presents a summary 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 numerous, simultaneous changes in volume and rate during the period, it is
not possible to allocate precisely the changes between volumes and rates. In
this table changes not due solely to volume or to rate have been allocated to
these categories based on percentage changes in average volume and average rate
as they compare to each other: (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
In 1999 over 1998 In 1998 over 1997
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 $(2,188) $(624) (2,812) $(967) $(208) (1,175)
Obligations of states & political subdivisions 109 (5) 104 317 (45) 272
U.S. govt. agency obligations 2,579 (284) 2,295 166 27 193
Corporate bonds & other securities 165 22 187 10 (10) -
Federal fund sold & securities purchased
under agreement to resell (509) (61) (570) 457 (38) 419
Loans, including non-accrual loans 5,132 (2,322) 2,810 2,778 (672) 2,106
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 5,288 $(3,274) $ 2,014 $2,761 $(946) $ 1,815
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & money market deposits $ 609 $ (43) $ 566 $(46) $(148) $ (194)
Time deposits (11) (1,001) (1,012) 1,012 (40) 972
Federal funds purchased & securities
sold under agreement to repurchase 84 (32) 52 (311) 39 (272)
Other borrowings 26 25 51 (6) (6) (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 708 $(1,051) $ (343) $649 $(155) $ 494
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net-interest income (taxable-equivalent basis) $ 4,580 $(2,223) $ 2,357 $2,112 $(791) $ 1,321
===================================================================================================================================
</TABLE>
INTEREST INCOME
Interest income increased to $67,908,000 in 1999, from $65,874,000 in 1998, and
$64,129,000 in 1997 increases of 3.1 and 2.7 percent, respectively.
INVESTMENT SECURITIES
Average investment in U.S. Treasury securities decreased to $47,033,000 from
$85,808,000 in 1998, and $101,151,000 in 1997, a decrease of 45.2 and 15.2
percent, respectively. These securities are Suffolk's primary source of
liquidity. These balances decreased as funds were shifted into collateralized
mortgage obligations as the spread between Treasury and non-Treasury yields
widened during the period. U.S. Treasury, U.S. government agency,
collateralized mortgage obligations, and municipal securities provide
collateral for various liabilities to municipal depositors.
The following table summarizes Suffolk's investment securities available for
sale and held to maturity as of the dates indicated: (in thousands)
<TABLE>
- ------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities available for sale, at fair value:
U.S. Treasury securities $31,060 $67,023 $107,140
U.S. government agency debt securities 38,930 43,366 13,738
Collateralized mortgage obligations 62,494 18,959 -
- ------------------------------------------------------------------------------------------------------------
Total investment securities available for sale 132,484 129,348 120,878
- ------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. Treasury securities - - -
Obligations of states & political subdivisions 27,835 16,231 18,371
U.S. govt. agency obligations 1,583 2,382 7,039
Corporate bonds & other securities 3,468 3,240 638
- ------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity 32,886 21,853 26,048
- ------------------------------------------------------------------------------------------------------------
Total investment securities $165,370 $151,201 $146,926
============================================================================================================
Fair value of investment securities held to maturity $32,723 $22,015 $ 26,213
Unrealized gains 21 162 170
Unrealized losses 184 - 5
============================================================================================================
</TABLE>
7
<PAGE> 22
The amortized cost, maturities, and approximate weighted average yields, on a
taxable-equivalent basis, at December 31, 1999 are as follows: (in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
- ----------------------------------------------------------------------------------------------------------------------
U.S. Collateralized
U.S. Treasury Govt.Agency Mortgage
Securities Debt Obligations(1)
- ----------------------------------------------------------------------------------------------------------------------
Fair Fair Fair
Maturity (in years) Value Yield Value Yield Value Yield
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Within 1 $ 5,994 5.35% $ - - % $ - - %
After 1 but within 5 25,066 5.40 38,930 5.72 - -
After 5 but within 10 - - - - - -
After 10 - - - - 62,494 6.40
Other securities - - - - - -
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $ 31,060 5.39% $ 38,930 5.72% $ 62,494 6.40%
======================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY
- ---------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Corporate Bonds
States & Political Govt. Agency &
Subdivisions Debt Other Securities
- ---------------------------------------------------------------------------------------------------------------------------------
Amortized Amortized Amortized
Maturity (in years) Cost Yield Cost Yield Cost Yield Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Within 1 $ 24,203 3.84% $ - - % $ - - $ 30,197
After 1 but within 5 340 5.38 1,583 7.91 - - $ 65,919
After 5 but within 10 492 5.53 - - - - $ 492
After 10 2,800 6.50 - - - - $ 65,294
Other securities - - - - 3,468 $ 3,468
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 27,835 4.16% $ 1,583 7.91% $ 3,468 $ 165,370
=================================================================================================================================
</TABLE>
As a member of the Federal Reserve System, the Bank owns Federal Reserve Bank
stock with a book value of $638,000. Being an equity investment, the stock has
no maturity. There is no public market for this investment. The last dividend
was 6 percent.
As a member of the Federal Home Loan Bank of New York, the Bank owns Federal
Home Loan Bank of New York stock with a book value of $2,730,000. Being an
equity investment, the stock has no maturity. There is no public market for
this investment. The last declared dividend was 6.75 percent.
LOAN PORTFOLIO
Loans, net of unearned discounts but before the allowance for possible loan
losses, totaled $727,525,000.
Consumer loans are the largest component of the Suffolk's loan portfolio. Net of
unearned discounts, they totaled $309,653,000 at the end of 1999, up 8.8 percent
from $284,697,000 at the year-end 1998. Consumer loans include primarily
indirect, dealer-generated automobile loans. Competition among commercial banks
and with captive finance companies of automobile manufacturers has reduced
yields. Commercial real estate mortgages closed the year at $162,321,000, up
25.9 percent from $128,923,000 last year. Commercial and industrial loans
followed at $131,429,000, up 6.5 percent from $123,463,000 at the end of 1998.
As commerce on Long Island continued to expand, both commercial mortgages and
loans offered the greatest opportunity for growth, although competition forced
concessions on rates in order to maintain the quality of Suffolk's commercial
portfolio. These loans are made to small local businesses throughout Suffolk
County. Loan balances are seasonal, particularly in the Hamptons where retail
inventories rise in the spring and fall by autumn.
The remaining, significant components of the loan portfolio are residential
mortgages at $82,411,000, up 11.7 percent from $73,754,000, home equity loans
at $20,834,000, down 5.2 percent from $21,980,000, and construction loans at
$17,956,000, up 43.6 percent from $12,500,000.
The following table categorizes total loans (net of unearned discounts) at
December 31: (in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial & agricultural loans $ 131,429 $ 123,463 $ 111,575 $ 102,263
Commercial real estate mortgages 162,321 128,923 127,994 113,501
Real estate -- construction loans 17,956 12,500 9,823 9,437
Residential mortgages (1st and 2nd liens) 82,411 73,754 67,061 64,093
Home equity loans 20,834 21,980 26,201 28,974
Consumer loans 309,653 284,697 266,244 265,039
Lease finance - - 7 98
Other loans 2,921 2,203 2,483 1,592
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned discounts) $ 727,525 $ 647,520 $ 611,388 $ 584,997
==================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------
1995
- ------------------------------------------------------------------
<S> <C>
Commercial, financial & agricultural loans $ 78,730
Commercial real estate mortgages 99,940
Real estate -- construction loans 7,946
Residential mortgages (1st and 2nd liens) 55,047
Home equity loans 26,869
Consumer loans 245,317
Lease finance 311
Other loans 1,778
- ------------------------------------------------------------------
Total loans (net of unearned discounts) $ 515,938
==================================================================
</TABLE>
8
<PAGE> 23
NON-PERFORMING LOANS
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 90 days past due. When a loan stops accruing
interest, all interest accrued 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
start accruing interest again when they become current as to principal and
interest, and when, in the opinion of management, they can be collected in
full. All non-performing loans, of a material amount, are reflected in the
foregoing tables.
The following table shows non-accrual, past due, and restructured loans at
December 31: (in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accruing but past due contractually
90 days or more $ 1,741 $ 2,168 $ 1,941 $ 975 $ 2,584
Loans not accruing interest 1,132 1,546 2,491 3,834 5,071
Restructured loans 275 291 426 208 532
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $ 3,148 $ 4,005 $ 4,858 $ 5,017 $ 8,187
=========================================================================================================================
</TABLE>
Interest on loans that are restructured or are no longer accruing interest
would have amounted to about $105,000 for 1999 under the contractual terms of
those loans. Suffolk 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 1999, 1998, and 1997. Suffolk
has a formal procedure for internal credit review to more precisely identify
risk and exposure in the loan portfolio.
SUMMARY OF LOAN LOSSES AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is determined by continuous analysis of
the loan portfolio. That analysis includes changes in the size and composition
of the portfolio, historical loan losses, industry-wide losses, current and
anticipated economic trends, and details about individual loans. It also
includes estimates of the actual value of collateral and other possible sources
of repayment. There can be no assurance that the allowance is, in fact,
adequate. When a loan, in full or in part, is deemed uncollectible, it is
charged against the allowance. This happens when it is well past due and the
borrower has not shown the ability or intent to make the loan current, or the
borrower does not have enough assets to pay the debt, or the value of the
collateral is less than the balance of the loan and not likely to improve in
the near future. Residential real estate and consumer loans are not analyzed
individually because of the large number of loans, small balances, and
historically low losses. In the future, the provision for loan losses may
change as a percentage of total loans. The percentage of net charge-offs to
average net loans during 1999 was 0.11, compared to 0.08 percent in 1998, and
0.11 percent during 1997. The ratio of the allowance for possible loan losses
to loans, net of discounts, was 1.00 percent at the end of 1999, 1.07 percent
in 1998, and 1.07 percent in 1997. The allowance for possible loan losses has
seven major categories. A summary of transactions follows: (in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR POSSIBLE LOAN LOSSES, JANUARY 1, $ 6,955 $ 6,524 $ 6,113 $ 5,923 $ 6,214
LOANS CHARGED-OFF:
Commercial, financial & agricultural loans 320 176 278 322 346
Commercial real estate mortgages - - - 369 271
Real estate -- construction loans - - - - -
Residential mortgages (1st and 2nd liens) 9 1 - - -
Home equity loans - - 76 47 28
Consumer loans 605 494 480 518 539
Lease finance - 2 - - -
Other loans - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS $ 934 $ 673 834 1,256 1,184
================================================================================================================================
</TABLE>
9
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Loans recovered after being charged-off
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial & agricultural loans 22 52 35 111 89
Commercial real estate mortgages - - - 4 16
Real estate -- construction loans - - - - -
Residential mortgages (1st and 2nd liens) 1 1 - - -
Home equity loans - - - - -
Consumer loans 156 145 151 209 258
Lease finance - 6 - - -
Other loans - - - 2 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total recoveries $ 179 $ 204 $ 186 $ 326 $ 363
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 755 469 648 930 821
Provision for possible loan losses 1,070 900 1,059 1,120 530
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses, December 31, $ 7,270 $ 6,955 $ 6,524 $ 6,113 $ 5,923
===================================================================================================================================
</TABLE>
The following table presents information concerning loan balances and asset
quality: (dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of discounts:
Average $ 676,810 $ 619,025 $ 588,686 $ 544,258 $ 520,139
At end of period 727,525 647,520 611,388 584,997 515,938
Non-performing assets/total loans (net of discounts) 0.22 % 0.34 % 0.04 % 1.02 % 1.33 %
Non-performing assets/total assets 0.16 0.24 0.36 0.74 0.85
Ratio of net charge-offs/average net loans 0.11 0.08 0.11 0.17 0.16
Net charge-offs/net loans at December 31, 0.10 0.07 0.11 0.16 0.16
Allowance for possible loan losses/loans, net of discounts 1.00 1.07 1.07 1.05 1.15
===================================================================================================================================
</TABLE>
INTEREST EXPENSE
Interest expense in 1999 was $21,121,000 down 1.6 percent from $21,464,000 the
year before, which was up 2.4 percent from $20,970,000 during 1997. Most
interest was paid for the deposits of individuals, businesses, and various
governments and their agencies. Short-term borrowings, including federal funds
purchased (short-term lending by other banks), securities sold under agreements
to repurchase, and Federal Home Loan Bank borrowings were used occasionally.
Short-term borrowings averaged $5,361,000 during 1999, $2,551,000 during 1998,
and $7,957,000 during 1997.
DEPOSITS
Average interest-bearing deposits increased to $603,728,000 in 1999, up 4.6
percent from $577,263,000 in 1998. Savings, N.O.W., and money market deposits
increased during 1999, averaging $347,817,000, up 8.3 percent from 1998 when
they averaged $321,143,000. Average time certificates of less than $100,000,
totaled $232,254,000, up 0.5 percent from $231,143,000 in 1998. Average time
certificates of $100,000 or more totaled $23,657,000, down 5.3 percent from
$24,977,000, during 1998.
The following table classifies average deposits for each of the periods
indicated: (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Rate Paid Rate Paid Rate Paid
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 231,447 $ 204,664 $ 183,894
Savings deposits 227,906 2.59 % 197,091 2.54 % 190,301 2.59 %
N.O.W. & money market deposits 119,911 1.70 124,052 1.91 132,804 1.99
Time certificates of $100,000 or more 23,657 4.79 24,977 5.17 23,926 4.63
Other time deposits 232,254 5.08 231,143 5.47 213,594 5.55
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 835,175 $ 781,927 $ 744,519
===================================================================================================================================
</TABLE>
10
<PAGE> 25
At December 31, 1999, the remaining maturities of time certificates of $100,000
or more were as follows: (in thousands)
<TABLE>
- ---------------------------------------------------------------------------------
<S> <C>
3 months or less $ 12,827
Over 3 through 6 months 3,525
Over 6 through 12 months 5,772
Over 12 months 1,334
- ---------------------------------------------------------------------------------
Total $ 23,458
=================================================================================
</TABLE>
SHORT-TERM BORROWINGS
Occasionally, Suffolk uses short-term funding. This includes lines of credit
for federal funds with correspondent banks, retail sale-repurchase agreements,
the Federal Reserve Bank discount window, and the Federal Home Loan Bank.
Average balances of federal funds purchased were $1,868,000 and $1,411,000 for
1999 and 1998, respectively. Average balances of Federal Home Loan Bank
borrowings were $1,188,000 during 1999 and none during 1998. Retail repurchase
agreements averaged $2,305,000 during 1999 and $1,140,000 during 1998.
OTHER INCOME
Other income decreased to $6,771,000 during 1999, down 16.9 percent from
$8,148,000 during 1998 and up 6.6 percent $7,646,000 during 1997. Service
charges on deposit accounts were up 2.8 percent from 1998 to 1999, and down
10.7 percent from 1997 to 1998. Other service charges were down 56.6 percent
and up 11.2 percent for the same periods. Fiduciary fees in 1999 totaled
$702,000, up 24.0 percent from 1998 when they amounted to $566,000 and up 19.4
percent from 1997, at $474,000.
OTHER EXPENSE
Other expense during 1999 was $30,789,000, down 1.3 percent from 1998 when it
was $31,200,000, up 3.0 percent from $30,303,000 in 1997. During 1998,
equipment and other operating expense increased as the result of a conversion
to a new, client-server core data-processing system during the first quarter.
The primary reason for the decrease from 1998 to 1999 was the sale of a
merchant services portfolio during 1998 which reduced both non-interest income
and non-interest expense. Without this transaction, non-interest expense was
almost flat from 1998 to 1999, while the core business grew by approximately 7
percent, resulting in a modest improvement in efficiency.
INTEREST RATE SENSITIVITY
Interest rate "sensitivity" is determined by the date when each asset and
liability in Suffolk's portfolio can be repriced. Sensitivity increases when
the interest-earning assets and interest-bearing liabilities cannot be repriced
at the same time. While this analysis presents the volume of assets and
liabilities repricing in each period of time, it does not consider how quickly
various assets and liabilities might actually be repriced in response to
changes in interest rates. Management reviews its interest rate sensitivity
regularly and adjusts its asset/liability strategy accordingly. Because the
interest rates of assets and liabilities vary according to their maturity,
management may selectively mismatch the repricing of assets and liabilities to
take advantage of temporary or projected differences between short- and
long-term interest rates. The following table reflects the sensitivity of
Suffolk's assets and liabilities at December 31, 1999: (dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MATURITY: Less than 3 to 6 7 to 12 More Than Not Rate
3 Months Months Months 1 Year Sensitive Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Domestic loans (1) (net of unearned discount) $ 190,170 $ 66,759 $ 110,497 $ 356,052 $ 4,047 $ 727,525
Investment securities (2) 3,917 24,030 7,720 126,231 3,468 165,366
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 194,087 $ 90,789 $ 118,217 $ 482,283 $ 7,515 $ 892,891
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS AND INTEREST-BEARING LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits (3) $ 12,186 $ 12,186 $ 24,372 $ 193,653 $ - $ 242,397
N.O.W. & money market accounts (4) 6,344 6,344 12,688 101,502 - 126,878
Borrowings 13,500 13,500
Interest-bearing deposits (5) 87,058 57,267 75,637 288,022 - 507,984
- --------------------------------------------------------------------------------------------------------------------------------
Total demand deposits & interest-bearing
liabilities $ 119,088 $ 75,797 $ 112,697 $ 583,177 $ - $ 890,759
================================================================================================================================
Gap 74,999 14,992 5,520 (100,894) 7,515 2,132
================================================================================================================================
Cumulative difference between interest-earning
assets and interest-bearing liabilities 74,999 89,991 95,511 (5,383) 2,132
================================================================================================================================
Cumulative difference/total assets 7.65% 9.18% 9.74% (0.55%) 0.22%
================================================================================================================================
</TABLE>
11
<PAGE> 26
FOOTNOTES TO INTEREST RATE SENSITIVITY
(1) Based on contractual maturity and instrument repricing date, if applicable;
projected prepayments and prepayments of principal based on experience.
(2) Based on contractual maturity, and projected prepayments based on
experience. FRB and FHLB stock is not considered rate-sensitive.
(3) Based on experience of historical stable core deposit relationships.
(4) N.O.W. and money market accounts are assumed to decline over a period of
five years.
(5) Fixed-rate deposits and deposits with fixed pricing intervals are reflected
as maturing in the period of contractual maturity. Savings accounts are
assumed to decline over a period of five years.
As of December 31, 1999, interest-earning assets with maturities of less than
one year exceed interest-bearing liabilities of similar maturity. This
cumulative gap might result in increased net interest income if interest rates
increase. If interest rates decline, net interest income might decrease.
MARKET RISK
Market risk is the risk that a financial instrument will lose value as the
result of adverse changes in market prices, interest rates, foreign currency
exchange rates, commodity prices, or the prices of equity securities. Suffolk's
primary exposure to market risk is to changing interest rates.
Monitoring and managing this risk is an important part of Suffolk's
asset/liability management process. It is governed by policies established by
its Board of Directors. These policies are reviewed and approved annually. The
Board delegates responsibility for asset/liability management to the
Asset/Liability Committee ("ALCO"). ALCO then develops guidelines and
strategies to implement the policy.
INTEREST RATE RISK
Interest rate risk is the sensitivity of earnings to changes in interest rates.
As interest rates change, interest income and expense also change, thereby
changing net interest income ("NII"). NII is the primary component of Suffolk's
earnings. ALCO uses a detailed and dynamic model to quantify the effect of
sustained changes in interest rates on NII. While ALCO routinely monitors
simulated NII sensitivity two years into the future, it uses other tools to
monitor longer term interest rate risk.
The model measures the effect of changing interest rates on both interest
income and interest expense for all assets and liabilities, as well as for
derivative financial instruments that do not appear on the balance sheet. The
results are compared to ALCO policy limits that specify a maximum effect on NII
one year in the future, assuming no growth in assets or liabilities, and a 2
percent or 200 basis point (bp) change in interest rates, either upward or
downward. Following is Suffolk's NII sensitivity as of December 31, 1999.
Suffolk's board has approved a policy limit of 12.5 percent.
ESTIMATED NII
RATE CHANGE SENSITIVITY
+200 basis point rate shock 0.49%
-200 basis point rate shock (0.95%)
This estimate should not be interpreted as Suffolk's forecast, and should not
be considered as indicative of management's expectations for operating
results. These are hypothetical estimates that are based on many assumptions
including: the nature and time of changes in interest rates, the shape of the
"yield curve" (variations in interest rates for financial instruments of
varying maturity at a given moment in time), prepayments on loans and
securities, deposit outflows, pricing on loans and deposits, the reinvestment
of cash flows from assets and liabilities, among others. While these
assumptions are based on management's best estimate of current economic
conditions, Suffolk cannot give any assurance that these will actually predict
results, nor can they anticipate how the behavior of customers and competitors
may change in the future.
12
<PAGE> 27
Factors that may affect actual results include: prepayment and refinancing of
loans other than as assumed, interest rate change caps and floors, repricing
intervals on adjustable rate instruments, changes in debt service on adjustable
rate loans, and early withdrawal of deposits. Actual results may also be
affected by actions ALCO takes in response to changes in interest rates, actual
or anticipated.
When appropriate, ALCO may use off-balance-sheet instruments such as interest
rate floors, caps, and swaps to hedge its position with regard to interest rate
risk. The Board of Directors has approved a hedging policy statement that
governs the use of such instruments. As of December 31, 1999, there were no
derivative financial instruments outstanding.
The following table illustrates the contractual 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 $4,053,000 at
December 31, 1999: (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
After 1 but After
INTEREST RATE PROVISION Within 5 Years 5 Years Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predetermined rates $ 241,002 $ 23,795 $ 264,797
Floating or adjustable rates 89,517 - 89,517
- -----------------------------------------------------------------------------------------------
Total $ 330,519 $ 23,795 $ 354,314
===============================================================================================
</TABLE>
The following table illustrates the contractual sensitivity to changes in
interest rates on the Company's commercial, financial, agricultural, and real
estate construction loans not including non-accrual loans totaling
approximately $206,000 at December 31,1999: (in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Due Within After 1 but After
1 Year Before 5 Years 5 Years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial & agricultural $ 125,327 $ 17,344 $ 676 $ 143,347
Real estate construction 13,646 - - 13,646
- ---------------------------------------------------------------------------------------------------------------------
Total $ 138,973 $ 17,344 $ 676 $ 156,993
=====================================================================================================================
</TABLE>
ASSET/LIABILITY MANAGEMENT & LIQUIDITY
The asset/liability management committee reviews Suffolk's financial
performance and compares it to the asset/liability management policy. The
committee includes two outside directors, executive management, the
comptroller, and the heads of commercial lending, retail lending, and retail
banking. It uses computer simulations to quantify interest rate risk and to
project liquidity. The simulations also help the committee to develop
contingent strategies to increase net-interest income. The committee always
assesses the impact of any change in strategy on Suffolk's ability to make
loans and repay deposits. Only strategies and policies that meet regulatory
guidelines and that are appropriate under the economic and competitive
circumstances are considered by the committee. Suffolk has not used forward
contracts or interest rate swaps to manage interest rate risk.
READINESS FOR THE YEAR 2000 AND ACTUAL EXPERIENCE
Well in advance of December 31, 1999, Suffolk established a formal program to
identify and assess the effect of the year 2000 on its software, hardware, and
Suffolk's business. Much of Suffolk's data-processing is done by outside
vendors, and Suffolk was dependent on them to evaluate and address problems
that may arise when computers cannot distinguish between the years with the
same final two digits in the current century and in the next. Based on its
experience since January 1, 2000, management believes that these vendors
modified both software and hardware successfully as no operating problems
related to the date have occurred. The expense of modifying systems to identify
the year 2000 correctly did not have a significant effect on Suffolk's results
of operation, financial condition, or liquidity, in 1999, nor is it expected to
affect results in the future.
CAPITAL RESOURCES
Primary capital, including stockholders' equity, not including the net
unrealized gain on securities available for sale, net of tax, and the allowance
for possible loan losses, amounted to $86,442,000 compared to $78,768,000 at
year-end 1998 and $71,210,000 at year-end 1997. During 1999, Suffolk
repurchased 25,276 shares for an aggregate price of $674,000. Management
determined that this would increase leverage while preserving capital ratios
well above regulatory requirements.
13
<PAGE> 28
The following table presents Suffolk's capital ratio, and other related ratios,
for each of the past five years: (dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary capital at year-end $ 86,442 $ 78,768 $ 71,210 $ 78,405 $ 75,271
Primary capital at year-end as a percentage of year-end:
Total assets plus allowance for possible loan losses 8.75% 8.60% 8.17% 9.67% 9.27%
Loans, net of unearned discounts 11.88% 12.16% 11.65% 13.40% 14.59%
Total deposits 9.85% 9.53% 9.16% 10.95% 10.35%
===============================================================================================================================
</TABLE>
(1) Capital ratios do not include the effect of SFAS No. 115 "Accounting for
Certain Investments in Debt and Investment Securities."
Suffolk measures how effectively it uses capital by two widely accepted
performance ratios -- return on average assets and return on average common
stockholders' equity. The returns in 1999 on average assets of 1.41 percent
and average common equity of 17.91 percent increased from 1998 when returns
were 1.37 percent and 17.66 percent, respectively.
All dividends must conform to applicable statutory requirements. Suffolk
Bancorp's ability to pay dividends depends on The Suffolk County National
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 the bank's 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 approximately $13,227,000.
RISK-BASED CAPITAL AND LEVERAGE GUIDELINES
The Federal Reserve Bank's risk-based capital guidelines call for bank holding
companies to 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. All bank holding companies must meet 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,
1999, Suffolk's ratios of core capital and total qualifying capital (core
capital plus Tier 2 capital) to risk-weighted assets were 10.15 percent and
11.05 percent, respectively.
DISCUSSION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation.
In June of 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." This statement deferred the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000, with early application
encouraged. Suffolk is in the process of determining the impact, if any, the
implementation of SFAS No. 133 and SFAS No. 137 will have on its results of
operations.
BUSINESS RISKS AND UNCERTAINTIES
This annual report contains some statements that look to the future. These
statements may be based on assumptions and are subject to a variety of risks
and uncertainties. Suffolk's actual results of operations could differ
materially from what the reader may infer from this report. Because Suffolk is
in the commercial banking business, it is sensitive to two primary factors.
They are that (1) interest rates could change more quickly or by a greater
amount than management expects; and (2) the economy could change in an
unexpected way that would affect either the demand for loans or the ability of
borrowers to repay or to make deposits, as well as their willingness to pay for
other banking services. Further, it could take Suffolk longer than anticipated
to implement its strategic plans to increase revenue and manage non-interest
expense, or it may not be possible to implement those plans at all. Finally,
new and unanticipated legislation, regulation, or accounting standards may
require Suffolk to change its practices in ways that materially change the
results of operation.
14
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 53,452,328 $ 58,298,278
Federal Funds Sold - 17,800,000
Investment Securities:
Available for Sale, at Fair Value 132,483,969 129,347,697
Held to Maturity (Fair Value of $32,723,000 and $22,015,000, respectively)
U.S. Government Agency Obligations 1,583,659 2,381,588
Obligations of States and Political Subdivisions 27,834,795 16,231,220
Corporate Bonds and Other Securities 3,467,949 3,240,249
------------ ------------
Total Investment Securities 165,370,372 151,200,754
Total Loans 728,620,876 649,006,822
Less: Unearned Discounts 1,095,396 1,486,875
Allowance for Possible Loan Losses 7,270,063 6,954,993
------------ ------------
Net Loans
720,255,417 640,564,954
Premises and Equipment, Net 14,344,706 15,249,549
Other Real Estate Owned, Net 202,889 340,962
Accrued Interest Receivable, Net 5,870,990 5,364,743
Excess of Cost Over Fair Value of Net Assets Acquired 1,538,309 1,900,241
Other Assets 19,763,933 18,712,805
------------ ------------
TOTAL ASSETS $980,798,944 $909,432,286
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits $242,396,732 $234,048,398
Savings, N.O.W.'s and Money Market Deposits 369,920,992 333,098,106
Time Certificates of $100,000 or more 23,458,239 25,861,028
Other Time Deposits 241,526,628 233,556,330
------------ ------------
Total Deposits 877,302,591 826,563,862
Federal Home Loan Bank Borrowings 13,500,000 -
Dividend Payable on Common Stock 1,273,142 1,096,804
Accrued Interest Payable 2,462,829 2,866,853
Other Liabilities 8,926,158 7,058,968
------------ ------------
TOTAL LIABILITIES 903,464,720 837,586,487
------------ ------------
Commitments and Contingent Liabilities (see note 10)
STOCKHOLDERS' EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized, 6,055,580
and 6,080,856 shares outstanding at December 31, 1999 & 1998, respectively) 19,026,050 19,026,050
Surplus 18,456,432 18,456,432
Undivided Profits 45,576,295 38,155,116
Treasury Stock at Par (1,554,840 shares and 1,529,564 shares, respectively) (3,887,104) (3,823,914)
Accumulated Other Comprehensive Income (Loss), Net of Tax (1,837,449) 32,115
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 77,334,224 71,845,799
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $980,798,944 $909,432,286
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
15
<PAGE> 30
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME
Federal Funds Sold $ 976,553 $ 1,547,366 $ 1,128,226
United States Treasury Securities 2,520,067 5,275,913 6,248,190
Obligations of States and Political Subdivisions (tax exempt) 736,671 668,630 489,265
U.S. Government Agency Obligations 2,235,815 1,789,543 1,597,169
Mortgage-Backed Securities 1,849,481 - -
Corporate Bonds and Other Securities 225,019 38,271 38,271
Loans 59,364,038 56,554,262 54,627,628
-------------------- -------------------- --------------------
Total Interest Income 67,907,644 65,873,985 64,128,749
INTEREST EXPENSE
Savings, N.O.W.'s and Money Market Deposits 7,938,325 7,373,572 7,566,736
Time Certificates of $100,000 or more 1,132,984 1,292,356 1,106,956
Other Time Deposits 11,793,155 12,645,571 11,858,867
Federal Funds Purchased 205,121 152,771 100,377
Interest on Other Borrowings 50,965 - 336,833
-------------------- -------------------- --------------------
Total Interest Expense 21,120,550 21,464,270 20,969,769
Net Interest Income 46,787,094 44,409,715 43,158,980
Provision for Possible Loan Losses 1,070,000 900,000 1,059,000
-------------------- -------------------- --------------------
Net Interest Income After Provision for Possible Loan Losses 45,717,094 43,509,715 42,099,980
OTHER INCOME
Service Charges on Deposit Accounts 4,063,678 3,954,639 4,427,931
Other Service Charges, Commissions & Fees 1,186,676 2,733,446 2,457,955
Fiduciary Fees 701,800 565,628 474,000
Other Operating Income 819,191 894,707 286,301
-------------------- -------------------- --------------------
Total Other Income 6,771,345 8,148,420 7,646,187
OTHER EXPENSE
Salaries & Employee Benefits 17,048,043 16,533,586 16,368,974
Net Occupancy Expense 2,391,873 2,487,646 2,528,459
Equipment Expense 2,375,113 2,316,824 2,087,664
Outside Services 1,623,096 2,486,712 2,688,718
FDIC Assessments 95,977 90,379 87,954
Amortization of Excess Cost
Over Fair Value of Net Assets Acquired 361,932 361,932 361,932
Other Operating Expense 6,892,988 6,922,516 6,179,108
-------------------- -------------------- --------------------
Total Other Expense 30,789,022 31,199,595 30,302,809
Income Before Provision for Income Taxes 21,699,417 20,458,540 19,443,358
Provision for Income Taxes 8,570,356 8,555,575 8,140,801
-------------------- -------------------- --------------------
NET INCOME $ 13,129,061 $ 11,902,965 $ 11,302,557
-------------------- -------------------- --------------------
Average: Common Shares Outstanding 6,068,778 6,094,826 6,306,299
Dilutive Stock Options 6,907 9,097 609
-------------------- -------------------- --------------------
Average Total Common Shares and Dilutive Options 6,075,685 6,103,923 6,306,908
EARNINGS PER COMMON SHARE Basic $ 2.16 $ 1.95 $ 1.79
Diluted $ 2.16 $ 1.95 $ 1.79
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 31
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Income,
Common Undivided Treasury (Loss)
Stock Surplus Profits Stock Net of Tax
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $19,026,050 $18,456,432 $ 37,353,193 $ (2,543,825) $ 457,726
Net Income - - 11,302,557 - -
Return of Dividend, Prior Period - - 2,000 - -
Dividend - - (4,332,886) - -
Purchase of Treasury Stock - - (13,333,170) (1,243,839) -
Net Change in Unrealized Gain on
Securities Available for Sale - - - - (3,771)
Comprehensive Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 19,026,050 18,456,432 30,991,694 (3,787,664) 453,955
Net Income - - 11,902,965 - -
Dividend - - (4,388,296) - -
Purchase of Treasury Stock - - (351,247) (36,250) -
Net Change in Unrealized Gain on
Securities Available for Sale - - - - (421,840)
Comprehensive Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $19,026,050 $18,456,432 $ 38,155,116 $ (3,823,914) $ 32,115
Net Income - - 13,129,061 - -
Dividend - - (5,096,978) - -
Purchase of Treasury Stock - - (610,904) (63,190) -
Net Change in Unrealized Gain (Loss) on
Securities Available for Sale - - - - (1,869,564)
Comprehensive Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $19,026,050 $18,456,432 $ 45,576,295 $ (3,887,104) $ (1,837,449)
<CAPTION>
Comprehensive
Total Income
- -----------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1996 $ 72,749,576
Net Income 11,302,557 $ 11,302,557
Return of Dividend, Prior Period 2,000
Dividend (4,332,886)
Purchase of Treasury Stock (14,577,009)
Net Change in Unrealized Gain on
Securities Available for Sale (3,771) (3,771)
-----------
Comprehensive Income $11,298,786
- -----------------------------------------------------------------------------
Balance, December 31, 1997 65,140,467
Net Income 11,902,965 $11,902,965
Dividend (4,388,296)
Purchase of Treasury Stock (387,497)
Net Change in Unrealized Gain on
Securities Available for Sale (421,840) (421,840)
-----------
Comprehensive Income $11,481,125
- -----------------------------------------------------------------------------
Balance, December 31, 1998 $ 71,845,799
Net Income 13,129,061 $13,129,061
Dividend (5,096,978)
Purchase of Treasury Stock (674,094)
Net Change in Unrealized Gain (Loss) on
Securities Available for Sale (1,869,564) (1,869,564)
-----------
Comprehensive Income $11,259,497
- -----------------------------------------------------------------------------
Balance, December 31, 1999 $ 77,334,224
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years ended December 31,
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 1997
NET INCOME $ 13,129,061 $ 11,902,965 $ 11,302,557
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses 1,070,000 900,000 1,059,000
Depreciation and Amortization 2,073,649 1,936,784 1,336,273
Amortization of Cost Over Fair Value of Net Assets Acquired 361,932 361,932 361,932
Accretion of Discounts (757,095) (1,013,601) (829,589)
Amortization of Premiums 721,463 206,152 291,941
(Increase) Decrease in Accrued Interest Receivable (506,247) 183,159 (325,719)
Increase in Other Assets (1,006,128) (2,117,516) (722,360)
(Decrease) Increase in Accrued Interest Payable (404,024) (207,789) 1,495,291
Increase (Decrease) in Income Taxes Payable 1,192,942 (642,355) -
Increase (Decrease) in Other Liabilities 850,587 (10,304,608) 7,261,522
---------- ----------- ----------
Net Cash Provided by Operating Activities 16,726,140 1,205,123 21,230,848
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities 894,423 4,710,692 4,898,415
Maturities of Investment Securities; Available for Sale 15,932,250 102,815,000 45,500,000
Purchases of Investment Securities; Available for Sale (27,757,283) (111,244,932) (61,253,203)
Maturities of Investment Securities; Held to Maturity 109,000,000 16,620,750 16,333,259
Purchases of Investment Securities; Held to Maturity (115,372,114) (17,089,190) (16,520,750)
Loan Disbursements and Repayments, Net (79,637,629) (36,397,474) (27,528,198)
Purchases of Premises and Equipment, Net (1,168,806) (1,004,681) (4,316,746)
Disposition of Other Real Estate Owned 93,073 350,856 1,795,018
----------- ----------- ------------
Net Cash Used in Investing Activities (98,016,086) (41,238,979) (41,092,205)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts 50,738,729 48,969,042 66,577,164
Increase (Decrease) in Federal Funds Purchased 13,500,000 - (7,200,000)
Dividends Paid to Shareholders (4,920,639) (4,388,656) (4,323,549)
Treasury Shares Acquired (674,094) (387,497) (14,577,009)
----------- ----------- ------------
Net Cash Provided by Financing Activities 58,643,996 44,192,889 40,476,606
----------- ----------- ------------
Net (Decrease) Increase in Cash and Cash Equivalents (22,645,950) 4,159,033 20,615,249
Cash and Cash Equivalents Beginning of Year 76,098,278 71,939,245 51,323,996
----------- ----------- ----------
Cash and Cash Equivalents End of Year $ 53,452,328 $ 76,098,278 $ 71,939,245
=========== =========== ----------
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest $ 67,401,397 $ 66,057,144 $ 63,803,030
=========== =========== ==========
Cash Paid During the Year for:
Interest $ 21,524,575 $ 21,672,059 $ 19,474,478
Income Taxes 7,078,929 9,197,930 8,863,325
----------- ----------- ------------
Total Cash Paid During Year for Interest & Income Taxes $ 28,603,504 $ 30,869,989 $ 28,337,803
=========== =========== ===========
Non-Cash Investing and Financing (loans re-classified as
"other real estate owned," including foreclosures) $ 138,073 $ 94,848 $ 453,414
Decrease in Market Value of Investments (3,059,888) (712,129) (6,392)
Decrease in Deferred Tax Liability Related to Market Value
of Investments Available for Sale 1,299,189 291,973 2,621
Dividends Declared But Not Paid 1,273,142 1,096,804 1,097,164
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Suffolk Bancorp and its subsidiary
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 Suffolk and its wholly owned subsidiary, The Suffolk County National Bank
(the "Bank"). In 1998, the Bank formed a Real Estate Investment Trust named Suf
folk Greenway, Inc. All intercompany transactions have been eliminated in
consolidation.
(B) INVESTMENT SECURITIES -- Suffolk reports 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, Suffolk classified all of its
holdings of debt securities and mortgage-backed securities as either "held to
maturity," or "available for sale." At the time a security is purchased, a
determination is 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 respective
security using a method that 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 that approximate a level yield. Recognition of interest income is
discontinued when reasonable doubt exists as to whether interest due 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 start accruing interest
again 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.
In accordance with Statement of Financial Accounting Standards No. 114 ("SFAS
114"), titled "Accounting by Creditors for Impairment of a Loan," as amended by
Statement No. 118, titled "Accounting by Creditors for Impairment of
Loan-Income Recognition and Disclosures," an allowance is maintained for
impaired loans to reflect the difference, if any, between the principal balance
of the loan and the present value of projected cash flows, observable fair
value, or collateral value. SFAS 114 defines an impaired loan as a loan for
which it is probable that the lender will not collect all amounts due under the
contractual terms of the loan.
(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"), 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.
(G) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED -- The excess of cost
over fair value of net assets acquired (goodwill) is being amortized over ten
years.
19
<PAGE> 34
(H) INCOME TAXES -- Suffolk uses an asset and liability approach to accounting
for income taxes. 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. Deferred tax assets are recognized if it is more likely than
not that a future benefit will be realized. It is management's position that no
valuation allowance is necessary against any of Suffolk's deferred tax assets.
(I) SUMMARY OF RETIREMENT BENEFITS ACCOUNTING -- Suffolk's retirement plan is
noncontributory and covers substantially all eligible employees. The plan
conforms to the provisions of the Employee Retirement Income Security Act of
1974, as amended. Suffolk'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 are amortized
over a period that reflects the long-term nature of pension expense used in
estimating pension costs.
Suffolk accrues for post-retirement benefits other than pensions by accruing
the cost of providing those benefits to an employee during the years that the
employee serves.
(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) TREASURY STOCK -- The balance of treasury stock is computed at par value.
The excess cost over par is subtracted from undivided profits.
(L) Stock Split -- On May 15, 1997, the common stock was split 2-for-1, and par
value was changed from $5.00 to $2.50. All share and per share information has
been restated to reflect the split.
(M) Earnings Per Share -- Basic earnings per share is computed by dividing net
income by the number of weighted average shares outstanding during the period.
Diluted earnings per share reflect the dilution that would occur if stock
options were exercised in return for common stock that would then share in
Suffolk's earnings. It is computed by dividing net income by the sum of the
weighted-average number of common shares outstanding and the weighted-average
number of stock options exercisable during the period. Suffolk has no other
securities that could be converted into common stock, nor any contracts that
would result in the issuance of common stock.
(N) COMPREHENSIVE INCOME -- Comprehensive income includes net income and all
other changes in equity during a period except those resulting from investments
by owners and distributions to owners. Other comprehensive income includes
revenues, expenses, gains, and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net income.
Comprehensive income and accumulated other comprehensive income are reported
net of related income taxes. Accumulated other comprehensive income for the
Bank consists solely of unrealized holding gains or losses on available-for-sale
securities.
(O) 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.
20
<PAGE> 35
NOTE 2 -- INVESTMENT SECURITIES
The amortized cost, estimated fair values, and gross unrealized gains and losses
of Suffolk's investment securities available for sale and held to maturity at
December 31, 1999 and 1998 were: (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 31,329 $ 31,060 $ - $ (269)
U.S. gov't. agency debt 40,217 38,930 - (1,287)
Collateralized mortgage obligations 64,053 62,494 8 (1,567)
- -----------------------------------------------------------------------------------------------------
Balance at end of year 135,599 132,484 8 (3,123)
- -----------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of states and
political subdivisions 27,835 27,658 7 (184)
U.S. govt. agency obligations 1,583 1,597 14 -
Other securities 3,468 3,468 - -
- -----------------------------------------------------------------------------------------------------
Balance at end of year 32,886 32,723 21 (184)
- -----------------------------------------------------------------------------------------------------
Total investment securities $168,485 $165,207 $ 29 $ (3,307)
=====================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 66,777 $ 67,023 $ 246 $ -
U.S. gov't. agency debt 43,421 43,366 61 (116)
Collateralized mortgage obligations 19,093 18,959 16 (150)
- -------------------------------------------------------------------------------------------------
Balance at end of year 129,291 129,348 323 (266)
- -------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of states and
political subdivisions 16,231 16,315 84 -
U.S. govt. agency obligations 2,382 2,460 78 -
Other securities 3,240 3,240 - -
- -------------------------------------------------------------------------------------------------
Balance at end of year 21,853 22,015 162 -
- -------------------------------------------------------------------------------------------------
Total investment securities $151,144 $151,363 $ 485 $ (266)
=================================================================================================
</TABLE>
U.S. government agency obligations are mortgage-backed securities, which
represent participating interest in pools of first mortgage loans. The
amortized cost, maturities, and approximate fair value at December 31, 1999 are
as follows: (in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------------------------------------------------------------
U.S. Collateralized
U.S. Treasury Govt. Agency Mortgage
Securities Debt Obligations(1)
- ---------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Maturity (in years) Cost Value Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Within 1 $ 6,003 $ 5,994 $ - $ - $ - $ -
After 1 but within 5 25,326 25,066 40,217 38,930 - -
After 5 but within 10 - - - - - -
After 10 - - - - 64,053 62,494
Other Securities - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Total $ 31,329 $ 31,060 $ 40,217 $ 38,930 $ 64,053 $ 62,494
=====================================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
- --------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Total
States & Political Govt. Agency Other Amortized
Subdivisions Obligations Securities Cost
- --------------------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Maturity (in years) Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 $ 24,203 $ 24,146 $ - $ - $ - $ - $ 30,206
After 1 but within 5 340 342 1,583 1,597 - - $ 67,466
After 5 but within 10 492 488 - - - - $ 492
After 10 2,800 2,682 - - - - $ 66,853
Other Securities - - - - 3,468 3,468 $ 3,468
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 27,835 $ 27,658 $ 1,583 $ 1,597 $ 3,468 $ 3,468 $168,485
================================================================================================================================
</TABLE>
(1) Maturities shown are stated maturities. Securities backed by mortgages are
expected to have substantial periodic prepayments resulting in weighted
average lives considerably less than what would be surmised from the table
above.
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.
As a member of the Federal Home Loan Bank of New York, the bank owns Federal
Home Loan Bank of New York stock with a book value of $2,730,000. 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 and because the issuer can call the
security before it is due.
At December 31, 1999 and 1998, investment securities carried at $108,000,000 and
$96,007,000, respectively, were pledged to secure trust deposits and public
funds on deposit. No securities have been sold during the past three years.
21
<PAGE> 36
NOTE 3 -- LOANS
At December 31, 1999 and 1998, loans included the following: (in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $131,429 $123,463
Commercial real estate 162,321 128,923
Real estate construction loans 17,956 12,500
Residential mortgages (1st and 2nd liens) 82,411 73,754
Home equity loans 20,834 21,980
Consumer loans 310,748 286,184
Lease finance - -
Other loans 2,921 2,203
- ------------------------------------------------------------------------------------------------
728,620 649,007
Unearned discounts (1,095) (1,487)
Allowance for possible loan losses (7,270) (6,955)
- ------------------------------------------------------------------------------------------------
Balance at end of year $720,255 $640,565
================================================================================================
</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 $3,148,000 and $4,005,000 at December 31, 1999 and 1998,
respectively. Interest on loans that have been restructured or are no longer
accruing interest would have amounted to $105,000 during 1999, $143,000 during
1998, and $256,000 during 1997, under the contractual terms of those loans.
Interest income recognized on restructured and non-accrual loans was immaterial
for the years 1999, 1998, and 1997.
Suffolk makes loans to its directors and executives, as well as to other
related parties in the ordinary course of its business. Loans made to directors
and executives, either directly or indirectly, which exceed $60,000 in
aggregate for any one director, totaled $6,336,000 and $12,164,000 at December
31, 1999 and 1998, respectively. Unused portions of lines of credit to
directors and executives, directly or indirectly, totaled $8,197,000 and
$1,862,000. New loans totaling $31,612,000 were granted and payments of
$37,140,000 were received during 1999.
NOTE 4 -- ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the changes in the Allowance for Possible Loan Losses follows:
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 6,955 $ 6,524 $ 6,113
Provision for possible loan losses 1,070 900 1,059
Loans charged-off (934) (673) (834)
Recoveries on loans 179 204 186
- --------------------------------------------------------------------------------
Balance at end of year $ 7,270 $ 6,955 $ 6,524
================================================================================
</TABLE>
At December 31, 1999 and 1998, respectively, the Bank's
recorded investment in impaired loans and the related
valuation allowance calculated under SFAS No. 114 and
SFAS No. 118 are as follows: (in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Recorded investment $ 170 $ 426
Valuation allowance 98 294
- -------------------------------------------------------------------------------
</TABLE>
This allowance is included in the allowance for loan losses
on the statements of condition.
The average investment in impaired loans in 1999 was
$401,000, compared to $599,000 in 1998.
NOTE 5 -- PREMISES AND EQUIPMENT
The following table details premises and equipment: (in
thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,333 $ 3,333
Premises 7,791 7,911
Furniture, fixtures & equipment 17,337 16,296
Leasehold improvements 1,292 1,122
- --------------------------------------------------------------------------------------------------
29,753 28,662
Accumulated depreciation
and amortization (15,408) (13,412)
- --------------------------------------------------------------------------------------------------
Balance at end of year $ 14,345 $ 15,250
==================================================================================================
</TABLE>
Depreciation and amortization charged to operations
amounted to $2,074,000, $1,937,000, and $1,336,000 during
1999, 1998, and 1997, respectively.
NOTE 6 -- SHORT-TERM BORROWINGS
Presented below is information concerning short-term
interest-bearing liabilities, principally Federal Home Loan
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 year 1999 and
1998: (dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Daily average outstanding $ 5,361 $ 2,551
Total interest cost 256 153
Average interest rate paid 4.78% 5.99%
Maximum amount outstanding at any
month-end $40,616 $ 4,500
December 31, balance 13,500 -
Weighted-average interest rate
on balances outstanding at December 31 5.10% -
========================================================================
</TABLE>
Suffolk has no assets pledged as collateral to the Federal Reserve Bank as of
December 31, 1999. Assets pledged as collateral to the Federal Home Loan Bank as
of December 31, 1999 totaled $16,505,000.
22
<PAGE> 37
NOTE 7 -- STOCKHOLDERS' EQUITY
Suffolk has a Dividend Reinvestment Plan. Stockholders can reinvest dividends in
common stock of Suffolk at a 3 percent discount from market value on newly
issued shares. Share holders may also make additional cash purchases. No shares
were issued in 1999, 1998, or 1997.
At the end of December 31, 1999, Suffolk has a Stock Option Plan ("the Plan")
under which 600,000 shares of Suffolk's common stock were reserved 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 canceled. 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 forth in the option agreement. The
exercise of stock appreciation rights is treated as the exercise of the
underlying option.
Options vest after one year and expire after ten years. The following table
presents the options granted, exercised, or expired during each of the past
three years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Shares Wtd. Avg. Exercise
- ----------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 27,800 $19.50
Options granted 9,500 30.00
Options exercised - -
Options expired or terminated (2,600) 19.50
- ----------------------------------------------------------------
Balance at December 31, 1997 34,700 22.37
Options granted - -
Options exercised - -
Options expired or terminated - -
- ----------------------------------------------------------------
Balance at December 31, 1998 34,700 22.37
Options granted 11,000 26.25
Options exercised - -
Options expired or terminated - -
- ----------------------------------------------------------------
Balance at December 31, 1999 45,700 $23.30
================================================================
</TABLE>
Options outstanding at December 31, 1999 have a weighted-average exercise price
of $23.30 and a remaining contractual life of 8.09 years; 34,700 of these
options were exercisable. The weighted-average, fair value of the options
granted during 1999 was $5.26. The fair value of each option was estimated on
the date granted using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for grants in 1999: risk-free interest
rate of 4.63 percent; expected dividend yield of 3.42 percent; expected life of
ten years; and expected volatility of 20.70 percent. The weighted-average, fair
value of the options granted during 1997 was $9.39. The fair value of each
option was estimated on the date granted using the Black-Scholes option pricing
model. The following weighted-average assumptions were used for grants in 1997:
risk-free interest rate of 5.7 percent; expected dividend yield of 2.8 percent;
expected life of ten years; and expected volatility of 24.9 percent. The
weighted-average fair value of the options granted during 1996 was $6.55. The
following weighted-average assumptions were used for grants in 1996: risk-free
interest rate of 6.3 percent; expected dividend yield of 3.5; expected life of
ten years; and expected volatility of 32.2 percent.
Suffolk accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, Suffolk's net income and
earnings per share would have been reduced to the following pro forma amounts:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income: As Reported $ 13,129 $ 11,903 $ 11,303
Pro Forma 13,096 11,876 11,275
- ------------------------------------------------------------------------------
Basic EPS: As Reported 2.16 1.95 1.79
Pro Forma 2.16 1.95 1.79
- ------------------------------------------------------------------------------
</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 the bank's net profits for the current year combined with retained
net profits (net profits minus dividends paid during that period) from the prior
two years. At December 31, 1999, approximately $13,227,000 was available for
dividends from the Bank to Suffolk Bancorp without prior approval of the OCC.
On October 23, 1995, the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend of one right per common share. Each right, if made
exercisable by certain events, entitles the holder to acquire one-half of a
share of common stock for $35, adjustable to prevent dilution. The rights expire
in 2005 if they are not redeemed before then. The Plan protects stockholders
from possible, unsolicited attempts to acquire Suffolk. In the event of the
acquisition by any potential acquirer of 10 percent of the outstanding stock,
the rights then entitle the holder to purchase the acquiring company's stock at
a 50 percent discount upon a subsequent merger with that acquirer. In the event
of the acquisition of 20 percent or more of Suffolk's common stock, they entitle
the holder to purchase Suffolk's common stock at a 50 percent discount.
Following the acquisition of 20 percent but less than 50 percent of the common
shares, the Board can exchange one-half of a share of Suffolk for each valid
right.
23
<PAGE> 38
NOTE 8 -- INCOME TAXES
The following table presents the provision for income taxes in the consolidated
statements of income which is comprised of the following: (in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 7,242 $ 6,571 $ 5,920
State 1,478 1,674 1,853
- -------------------------------------------------------------
8,720 8,245 7,773
Deferred: Federal 205 247 538
State (355) 63 (170)
- -------------------------------------------------------------
(150) 310 368
- -------------------------------------------------------------
Total $ 8,570 $ 8,555 $ 8,141
=============================================================
</TABLE>
The total tax expense was greater than the amounts computed by applying the
Federal income tax rate because of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense
at statutory rates 34% 34% 34%
Tax exempt interest (1%) (1%) (1%)
Amortization of excess cost over
fair value of net assets acquired 1% 1% 1%
State income taxes net of
federal benefit 5% 6% 7%
Other 0% 2% 1%
- ----------------------------------------------------------------------
Total 39% 42% 42%
======================================================================
</TABLE>
The effect of temporary differences between tax and financial accounting that
create significant deferred-tax assets and liabilities at December 31, 1999 and
1998, and the recognition of income and expense for purposes of tax and
financial reporting, that resulted in net increases to Suffolk's net deferred
tax asset for the years ended December 31, 1999 and 1998 are presented below:
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1999 1998 Change
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Provision for possible
loan losses $ 2,977 $ 2,848 $ 129
Securities available for sale 1,277 - 1,277
Depreciation 357 326 31
Post-retirement benefits 540 524 16
Deferred compensation 593 515 78
Purchase accounting 275 361 (86)
Other 123 351 (228)
- ---------------------------------------------------------------------------
Total deferred tax assets
before valuation allowance 6,142 4,925 1,217
Valuation allowance - - -
- ---------------------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 6,142 4,925 1,217
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Pension 1,390 1,410 (20)
Securities available for sale - 22 (22)
- ---------------------------------------------------------------------------
Total deferred tax liabilities 1,390 1,432 (42)
- ---------------------------------------------------------------------------
Net deferred tax asset $ 4,752 $ 3,493 $ 1,259
===========================================================================
</TABLE>
NOTE 9 -- EMPLOYEE BENEFITS
(A) RETIREMENT PLAN -- Suffolk has a noncontributory defined benefit 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 plan is governed by the rules and
regulations in the Prototype Plan of the New York Bankers Association Retirement
System and the Retirement System Adoption Agreement executed by the Bank. For
purpose of investment, the plan contributions are pooled with those of other
participants in the system.
The following tables set forth the status of Suffolk Bancorp's combined plan as
of September 30, 1999 and September 30, 1998, the time at which the annual
valuation of the plan is made.
The following table sets forth the Plan's change in benefit obligation:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation at beginning of year $ 11,130,492 $ 9,805,633
Service cost 706,713 624,093
Interest cost 761,401 744,645
Actuarial loss 272,009 623,492
Benefits paid (627,210) (667,371)
- ------------------------------------------------------------------------------
Benefit Obligation at end of year $ 12,243,405 $ 11,130,492
==============================================================================
</TABLE>
The following table sets forth the Plan's change in Plan Assets:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of Plan Assets at beginning of year $ 14,653,280 $ 13,649,517
Actual return on Plan Assets 2,267,636 465,201
Employer contribution - 896,555
Benefits paid (627,210) (667,371)
- -------------------------------------------------------------------------------------
Fair value of Plan Assets at end of year $ 16,293,706 $ 14,343,902
=====================================================================================
</TABLE>
The following table summarizes the funded status of the Plan:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Funded status $ 4,050,301 $ 3,213,410
Unrecognized net transition (liability) asset (280,340) 233,929
Unrecognized prior service cost (52,494) (56,473)
Unrecognized net (gain) loss (532,011) (334,328)
- -----------------------------------------------------------------------------------
Prepaid cost $ 3,185,456 $ 3,056,538
===================================================================================
</TABLE>
The following table summarizes the net periodic pension cost:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 773,131 $ 706,713 $ 624,093
Interest cost on projected
benefit obligations 839,619 761,401 744,645
Expected return on plan assets (1,397,643) (1,229,687) (1,176,041)
Net amortization & deferral (57,967) (57,967) (57,967)
- --------------------------------------------------------------------------------------
Net periodic pension cost $ 157,140 $ 180,460 $ 134,730
======================================================================================
</TABLE>
24
<PAGE> 39
The weighted-average discount rate for purposes of determining net periodic
pension cost was 7.0 percent in 1999 and 7.75 percent in 1998 and 1997. The rate
of increase in future compensation levels used in determining these amounts was
4.0 percent in 1999 and 1998, and 5.0 percent in 1997. The expected long-term
rate of return on assets is 7.5 percent for 1999 and 8.5 percent in 1998 and
1997.
(B) DIRECTOR'S RETIREMENT INCOME AGREEMENT OF THE BANK OF THE HAMPTONS -- On
April 11, 1994, Suffolk acquired Hamptons Bancshares, Inc., which had a
director's deferred compensation plan. The liability for this plan was
approximately $551,000 and $579,000 on December 31, 1999 and 1998. Interest
(approximately $54,000 in 1999 and 1998) is accrued over the term of the plan.
In 1999, the Bank paid approximately $79,000 to participants.
(C) DEFERRED COMPENSATION PLAN -- During 1986, the Board approved a deferred
compensation plan. Under the plan, certain employees and Directors of Suffolk
elected to defer compensation aggregating approximately $177,000 in exchange for
stated future payments to be made at specified dates. The rate of return on the
initial deferral was guaranteed. For purposes of financial reporting, interest
(approximately $204,000 in 1999, $191,000 in 1998, and $268,000 in 1997) at the
plan's contractual rate is being accrued on the deferral amounts over the
expected plan term. During 1999, Suffolk made payments of approximately $74,000
to participants of the plan.
Suffolk 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.
Suffolk is the named beneficiary on the policies. Net insurance income related
to the policies aggregated approximately $33,000, $36,000, and $31,000, in
1999, 1998, and 1997, respectively.
(D) POST-RETIREMENT BENEFITS OTHER THAN PENSION -- The following table sets
forth the post-retirement benefit liability included in other liabilities in the
accompanying consolidated statements of condition as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligation
(the "APBO")
Retirees $ (745,693) $ (363,820)
Fully eligible active plan participants (547,413) (206,589)
Other active participants (766,463) (1,224,459)
- -----------------------------------------------------------------------------------
Total APBO $(2,059,569) $(1,794,868)
Unrecognized net loss 119,018 64,337
Unrecognized transition obligation 11,006 11,914
- -----------------------------------------------------------------------------------
Post-retirement benefit liability $(1,929,545) $(1,718,617)
===================================================================================
</TABLE>
Net periodic post-retirement benefit cost (the "net periodic cost") for the
years ended December 31, 1999, 1998, and 1997 includes the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 85,169 $ 80,746 $125,975
Interest cost on liability 131,389 114,118 142,316
Unrecognized loss 908 908 15,804
Unrecognized service liability - - 9,004
- ----------------------------------------------------------------------------
Net periodic cost $217,466 $195,772 $293,099
============================================================================
</TABLE>
The average health-care, cost-trend rate assumption significantly affects the
amounts reported. For example, a 1 percent increase in this rate would have
increased the accumulated benefit obligation by $158,000 at December 31, 1999,
and increased the net periodic cost by $24,000 for the year. The post-retirement
benefit cost components for 1999 were calculated assuming average health-care,
cost-trend rates going up 8 percent and decreasing 2 percent after
approximately four years.
(E) DEFERRED BONUS PLANS -- During 1998, the Board approved a non-qualified
deferred compensation plan. Under this plan, certain employees and Directors of
Suffolk may elect to defer some or all of their compensation in exchange for a
future payment of the compensation deferred, with accrued interest, at
retirement. During 1999 participants deferred compensation totaling $201,000. No
payments have been made to any of the participants.
NOTE 10 -- 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. Suffolk is contingently liable under standby letters-of-credit in
the amount of $4,054,000, and $5,144,000 at December 31, 1999 and 1998,
respectively. Suffolk has commitments to make or to extend credit in the form of
revolving open-end lines secured by 1 to 4 family residential properties,
commercial real estate, construction and land development loans, and lease
financing arrangements in the amount of $34,145,000 and $29,369,000, and
commercial loans of $13,160,000 and $10,107,000 as of December 31, 1999 and
1998, respectively.
In the opinion of management, based upon legal counsel, liabilities arising from
legal proceedings against Suffolk would not have a significant effect on the
financial position of Suffolk.
During 1999, Suffolk was required to maintain balances with the Federal Reserve
Bank of N.Y. for reserve and clearing requirements. These balances averaged
$13,741,000 in 1999.
25
<PAGE> 40
Total rental expense for the years ended December 31, 1999, 1998, and 1997
amounted to $603,000, $592,000, and $637,000, respectively.
At December 31, 1999, Suffolk was obligated under a number of noncancelable
operating leases for land and buildings used for bank purposes. Minimum annual
rentals, exclusive of taxes and other charges under noncancelable operating
leases, are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------
Minimum Annual Rentals
- --------------------------------------------------
<S> <C>
2000 $ 597
2001 440
2002 349
2003 290
2004 and thereafter 634
==================================================
</TABLE>
NOTE 11 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital requirements that involve quantitative measures of the Bank's assets,
liabilities, and certain off balance-sheet items calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Comptroller of
the Currency categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. Management believes that since that
notification no circumstances have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the following
table: (in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Action Provisions
Amount Ratio Amount Ratio Amount Ratio
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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%
===========================================================================================================================
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>
NOTE 12 -- CREDIT CONCENTRATIONS
Suffolk's principal investments are loans and 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 42.6 percent of Suffolk's
loan portfolio and 31.7 percent of assets. A majority are indirect
dealer-generated loans secured by automobiles. Most of these loans are made to
residents of Suffolk's primary lending area. Each loan is small in amount.
Borrowers represent a cross-section of the population and are employed in a
variety of industries. The risk presented by any one loan is correspondingly
small, and therefore, the risk that this portion of the portfolio presents to
Suffolk depends on the financial stability of the population as a whole, not
any one entity or industry. Loans secured by real estate comprise 39.0 percent
of the portfolio and 28.8 percent of assets, 22.3 percent of which are for
26
<PAGE> 41
commercial real estate. Commercial real estate loans present greater risk than
residential mortgages. Suffolk has at tempted to minimize the risks of these
loans by considering several factors, including the creditworthiness of the
borrower, location, condition, value, and the business prospects for the
security property. Commercial, financial, and agricultural loans, unsecured or
secured by collateral other than real estate, comprise 18.0 percent of the loan
portfolio and 13.4 percent of assets. 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. Suffolk
obtains, whenever possible, both the personal guarantees of the principal(s),
and also cross-guarantees among the principals' business enterprises. U.S.
Treasury securities represented 18.8 percent of the investment portfolio and
3.2 percent of assets. U.S. government agency debt securities represented 23.5
percent of the investment portfolio and 4.0 percent of assets. Collateralized
mortgage obligations represented 37.8 percent of the investment portfolio and
6.4 percent of assets. These offer little or no financial risk. Municipal
obligations constitute 16.8 percent of the investment portfolio and 2.8 percent
of assets. These obligations present slightly greater risk than U.S. Treasury
securities, or those secured by the U.S. government, but significantly less
risk than loans because they are backed by the full faith and taxing power of
the issuer, each of which is located in the state of New York. Suffolk's policy
is to hold these securities to maturity.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of Suffolk's
financial instruments. 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 sale or liquidation: (in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash & cash equivalents $ 53,452 $ 53,452 $ 76,098 $ 76,098
Investment securities
available for sale 132,484 132,484 129,348 129,348
Investment securities
held to maturity 32,886 32,723 21,853 22,015
Loans 720,255 716,727 649,007 654,402
Accrued interest receivable 5,871 5,871 5,365 5,365
Deposits 877,303 877,499 826,564 827,100
Accrued interest payable 2,463 2,463 2,867 2,867
=======================================================================================
</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 that
are subjective in nature. The methods and assumptions used to produce the fair
value estimates follow.
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 term 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, and savings
accounts; accrued interest payable, and other borrowings.
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 of the loan. Estimated maturity is
based on the Bank's history of repayments for each type of loan, and an estimate
of the effect 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.
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.
27
<PAGE> 42
The carrying amount and fair value of loans were as follows at December 31, 1999
and 1998: (in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
& agricultural $131,429 $129,810 $123,463 $123,614
Commercial real estate 162,321 161,807 128,923 132,665
Real estate
construction loans 17,956 19,580 12,500 13,113
Residential mortgages
(1st & 2nd liens) 82,411 81,118 73,754 75,222
Home equity loans 20,834 20,835 21,980 21,976
Consumer loans 310,748 307,926 286,184 285,605
Other loans 2,921 2,921 2,203 2,207
- ----------------------------------------------------------------------------------
Totals $728,620 $723,997 $649,007 $654,402
==================================================================================
</TABLE>
DEPOSIT LIABILITIES
The fair value of certificates of deposit less than $100,000 was calculated by
discounting cash flows with applicable origination rates. At December 31, 1999,
the fair value of certificates of deposit less than $100,000 totaling
$241,155,000 had a carrying value of $241,527,000. At December 31, 1998, the
fair value of certificates of deposit more than $100,000 totaling $24,028,000
had a carrying value of $23,458,000.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND WRITTEN FINANCIAL
GUARANTEES
The fair value of commitments to extend credit was estimated by either
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
current 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. The contractual
amounts of these commitments were $17,214,000 and $15,251,000 at December 31,
1999 and 1998. The fees charged for the commitments were not material in amount.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The comparative results for the four quarters of 1999 and 1998 are as follows:
(in thousands of dollars except for share and pershare data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 16,362 $ 16,573 $ 17,367 $ 17,606
Interest expense 5,201 5,110 5,333 5,477
- --------------------------------------------------------------------------------------------------------
Net-interest income 11,161 11,463 12,034 12,129
Provision for possible loan losses 270 225 275 300
- --------------------------------------------------------------------------------------------------------
Net-interest income after provision
for possible loan losses 10,891 11,238 11,759 11,829
Other income 1,465 1,679 1,782 1,845
Other expense 7,452 7,595 7,629 8,113
Provision for income taxes 1,881 2,115 2,330 2,244
- --------------------------------------------------------------------------------------------------------
Net income $ 3,023 $ 3,207 $ 3,582 $ 3,317
========================================================================================================
Basic per-share data:
- --------------------------------------------------------------------------------------------------------
Net income $ 0.50 $ 0.53 $ 0.59 $ 0.54
Cash dividends $ 0.210 $ 0.210 $ 0.210 $ 0.210
Average shares 6,076,842 6,070,080 6,065,596 6,062,352
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 16,392 $ 16,247 $ 16,882 $ 16,353
Interest expense 5,659 5,291 5,291 5,223
- -------------------------------------------------------------------------------------------------------
Net-interest income 10,733 10,956 11,591 11,130
Provision for possible loan losses 300 300 300 -
- -------------------------------------------------------------------------------------------------------
Net-interest income after provision
for possible loan losses 10,433 10,656 11,291 11,130
Other income 1,918 2,021 2,210 1,999
Other expense 7,250 7,492 7,998 8,460
Provision for income taxes 2,195 2,280 2,429 1,651
- -------------------------------------------------------------------------------------------------------
Net income $ 2,906 $ 2,905 $ 3,074 $ 3,018
=======================================================================================================
Basic per-share data:
- -------------------------------------------------------------------------------------------------------
Net income $ 0.48 $ 0.47 $ 0.51 $ 0.49
Cash dividends $ 0.180 $ 0.180 $ 0.180 $ 0.180
Average shares 6,095,356 6,095,356 6,095,356 6,093,253
- -------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 43
NOTE 15 - SUFFOLK BANCORP (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Due From Banks $ 1,388 $ 1,343 $ 1,476
Investment in Subsidiaries: SCNB 77,289 71,566 64,707
Other Assets 145 74 71
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 78,822 $ 72,983 $ 66,254
===================================================================================================================
Liabilities and Stockholders' Equity
Dividends Payable $ 1,273 $ 1,097 $ 1,097
Other Liabilities 215 40 17
Stockholders' Equity 77,334 71,846 65,140
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 78,822 $ 72,983 $ 66,254
===================================================================================================================
<CAPTION>
Condensed Statements of Income for the Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends From Subsidiary Bank $ 5,635 $ 4,775 $ 18,910
- -------------------------------------------------------------------------------------------------------------------
5,635 4,775 18,910
Expense
Other Expense 275 153 146
- -------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Net Income of Subsidiaries 5,360 4,622 18,764
Equity in Undistributed Earnings of Subsidiaries 7,769 7,281 (7,462)
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 13,129 $ 11,903 $ 11,302
===================================================================================================================
<CAPTION>
Condensed Statements of Cash Flows for the Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 13,129 $ 11,903 $ 11,302
Less: Equity in Undistributed Earnings of Subsidiaries (7,769) (7,281) 7,462
Other, Net 280 20 3
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,640 4,642 18,767
- -------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Repurchase of Common Stock (674) (387) (14,577)
Dividends Paid (4,921) (4,388) (4,324)
- -------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Financing Activities (5,595) (4,775) (18,901)
Net Increase (Decrease) in Cash and Cash Equivalents 45 (133) (134)
Cash and Cash Equivalents, Beginning of Year 1,343 1,476 1,610
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,388 $ 1,343 $ 1,476
===================================================================================================================
</TABLE>
Note: No income tax provision has been recorded on the books of Suffolk Bancorp
since it files a return consolidated with its subsidiaries.
29
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Suffolk Bancorp:
We have audited the accompanying consolidated statements of condition of
Suffolk Bancorp and its subsidiary (the Company) as of December 31, 1999 and
1998 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
auditing standards generally accepted in the United States of America.
ARTHUR ANDERSEN LLP
New York, New York
January 17, 2000
REPORT OF MANAGEMENT
To the Stockholders and Board of Directors of 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 auditing standards
generally accepted in the United States of America, 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 keeps reliable financial records for
preparing financial statements. Internal audits are conducted to continually
evaluate the adequacy and effectiveness of such internal controls, policies,
and procedures.
The examination 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 management
to discuss audit and internal accounting controls, regulatory audits, and
financial reporting matters.
Thomas S. Kohlmann J. Gordon Huszagh
President & Chief Executive Officer Executive Vice President
& Chief Financial Officer
Riverhead, New York
January 17, 2000
30
<PAGE> 1
SUFFOLK BANCORP
EXHIBIT 3.(i)
CERTIFICATE OF
INCORPORATION
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
SUFFOLK BANCORP
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
We, the undersigned, being persons of the age of eighteen years or
older, for the purpose of forming a corporation pursuant to Section 402 of the
Business Corporation Law of New York, do hereby certify:
FIRST
NAME
The name of the corporation is Suffolk Bancorp.
SECOND
Business Purposes
The purposes for which this corporation is formed are as follows:
a. Holding the stock of The Suffolk County National Bank,
Riverhead, New York, and managing the affairs of said Bank.
b. To engage in any lawful act or activity for which a
corporation may be organized under the New York Business
Corporation Law, provided that it is not formed to engage in
any act or activity requiring the consent or approval of any
State Official, department, board, agency or any State
Official, department, board, agency or other body, unless such
approval is obtained.
c. To do everything necessary, proper, advisable or convenient
for the accomplishment of the purposes hereinabove set forth,
and to do all other things incidental thereto or connected
therewith, which are not forbidden by the laws under which
this corporation is organized, by other laws, or by this
Certificate of Incorporation.
THIRD
Corporate Office
The office of the corporation is to be located within the Town of
Riverhead, County of Suffolk, State of New York.
<PAGE> 3
Certificate of Incorporation Suffolk Bancorp
Page 2
FOURTH
Agent
Section 1. The Secretary of State is designated as the agent of the
corporation upon whom process may be served. The post office address to which
the Secretary of State shall mail a copy of any process against the corporation
served upon him is: c/o The Suffolk County National Bank, 6 West Second Street,
Riverhead, New York 11901.
Section 2. The name and address of the registered agent which is to be
the agent of the corporation upon whom process against it may be served, is The
Suffolk County National Bank, a corporation organized under the laws of the
United States, located at 6 West Second Street, Riverhead, New York 11901.
FIFTH
Capital Stock
The aggregate number of shares which this corporation shall have
authority to issue is 15,000,000 shares, par value $2.50 each, which shall be
known as "common stock".
(amended by shareholders April 1997)
a. The holders of the common stock shall be entitled to receive
dividends when and as legally declared by the Board of
Directors.
b. The Board of Directors shall have the power to issue shares of
stock of the corporation for cash, services, property, the
securities or assets of other business enterprises, and to
deter attempts to gain control over the corporation, as it may
from time to time deem expedient.
c. No holder of stock of the corporation shall have any
preferential, preemptive or other rights of subscription to
any shares of any class of stock of the corporation allotted
or sold or to be allotted or sold now or hereafter authorized,
or to any obligations convertible into the stock of the
corporation of any class, or any right of subscription to any
part thereof.
SIXTH
Board of Directors
Section 1. The management and conduct of the business of the
Corporation shall be vested in a Board of Directors, which shall consist of such
number of directors, not less than the minimum permitted by law, as shall be
fixed in the Bylaws, or in the absence of such provision in the Bylaws, as shall
be determined by the shareholders at any annual or special meeting thereof.
<PAGE> 4
Certificate of Incorporation Suffolk Bancorp
Page 3
Section 2. The Board of Directors shall be divided into three classes,
Class I, Class II, and Class III which shall be as nearly equal in number as
possible. Each director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall hold office until
the annual meeting of stockholders in 1985; and each initial director in Class
II shall hold office until the annual meeting of stockholders in 1986, and each
initial director in Class III shall hold office until the annual meeting of
stockholders in 1987.
Section 3. In the event of any increase or decrease in the authorized
number of directors (i) each director then serving as such shall nevertheless
continue as a director of the class of which he is a member until the expiration
of his current term, or his prior death, retirement, resignation or removal for
cause, (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors between the
three classes of directors so as to maintain such classes as nearly equal as
possible, and (iii) when the number of directors is increased by the board and
any newly created directorships are filled by the board, there shall be no
classification of the additional directors until the next annual meeting of
shareholders.
Section 4. Notwithstanding any of the foregoing provisions of this
Article, each director shall serve until his successor is elected and qualified
or until his death, retirement, resignation or removal for cause. Should a
vacancy occur or be created, whether arising through death, resignation or
removal for cause of a director or through an increase in the number of
directors of any class, such vacancy shall be filled by a majority vote of the
remaining directors of the class in which such vacancy occurs, or by the sole
remaining director of that class if only one such director remains, or by the
majority vote of the remaining directors of the other classes if there is no
remaining member of the class in which the vacancy occurs. A director so elected
to fill a vacancy shall serve until the next meeting of stockholders at which
the election of directors is in the regular order of business, and until his
successor has been duly elected and qualified.
Section 5. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the corporation, any directors or the entire
Board of Directors of the corporation may be removed at any time, but only for
cause. As used herein, "cause" shall mean either (i) a felony conviction no
longer subject to appeal; (ii) a final adjudication of negligent or improper
conduct in the performance of the director's duty to the corporation; or (iii) a
final order of removal from office no longer subject to review, duly issued by
the appropriate federal banking agency.
Section 6. The Board of Directors may oppose a tender offer on the
basis of factors other than economic benefit to shareholders such as: the impact
the acquisition of the corporation would have on the community; the effect of
the acquisition upon employees, depositors and customers; and the reputation and
business practices of the tender offerer.
Section 7. The Affirmative vote of the holders of seventy percent (70%)
or more of the outstanding shares of the corporation entitled to vote shall be
required to amend, alter, change or repeal this Article Sixth of this
Certificate of Incorporation.
SEVENTH
<PAGE> 5
Certificate of Incorporation Suffolk Bancorp
Page 4
Shareholder Meetings
Section 1. A quorum for any meeting of shareholders to transact
business of this corporation except as otherwise specifically provided herein or
by law shall be the presence in person or by proxy of the holders of a majority
of the shares of common stock of the corporation of record on the record date
set for the meeting.
Section 2. A special meeting of the shareholders may be held at any
time and for any purpose and may only be called by the Chairman, President or
the Board of Directors of the corporation.
Section 3. The affirmative votes of the holders of seventy percent
(70%) of the stock entitled to vote shall be necessary to effect a dissolution
or a bulk sale of corporate assets, or for any merger or consolidation of this
corporation or any of its subsidiaries with other corporations.
EIGHTH
Amendment
Subject to the special provisions set forth in the forgoing Articles of
this Certificate of Incorporation, the provisions contained herein may be
amended solely upon the approval of the Board of Directors followed by the
affirmative vote of the holders of seventy percent (70%) of the stock entitled
to vote thereon; provided, however, that any of the following changes may be
authorized by or pursuant to authorization by the Board of Directors alone:
a. To specify or change the location of the corporation's office.
b. To specify or change the post office address to which the
Secretary of State shall mail a copy of any process against
the corporation served upon him.
c. To make, revoke or change the designation of a registered
agent.
d. To make further changes for which the Board of Directors is
authorized pursuant to the laws of the State of New York to
act alone.
IN WITNESS WHEREOF, the undersigned have set their hands this 29th day
of June 1984.
/s/ Hallock Luce III
- -------------------------
/s/ Richard J. Carey
- -------------------------
/s/ Howard M. Finkelstein
- -------------------------
/s/ Raymond A. Mazgulski
- -------------------------
/s/ J. Douglas Stark
- -------------------------
/s/ Morris E. Raff
- -------------------------
/s/Edward J. Merz
- -------------------------
/s/ W. Bruce Stark
- -------------------------
<PAGE> 6
Certificate of Incorporation Suffolk Bancorp
Page 5
<PAGE> 7
Certificate of Incorporation Suffolk Bancorp
Page 6
STATE OF NEW YORK COUNTY OF SUFFOLK
On this 29th day of June, 1984, before me personally came Hallock
Luce III, Raymond A. Mazgulski, Richard J. Carey, J. Douglas Stark,
Howard M. Finkelstein, Morris E. Raff, Edward J. Merz, W. Bruce
Stark, to me personally known and known to me to be the same
persons described in and who executed the foregoing instrument, and
they acknowledged to me that executed the same
/s/ Harold E. Burns
-------------------
Notary Public
<PAGE> 1
SUFFOLK BANCORP
EXHIBIT 3.(ii)
BYLAWS
<PAGE> 2
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 1
BY-LAWS
OF
SUFFOLK BANCORP
ARTICLE I - OFFICES
The principal office of the corporation shall be in the Town of
Riverhead, County of Suffolk, State of New York. The corporation may also have
offices at such other places within or without the State of New York as the
board may from time to time determine or the business of the corporation may
require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such place within or without the State of New York as the
board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held on the second
Tuesday of April at 12:30 P.M. in each year if not a legal holiday, and, if a
legal holiday, then on the next business day following at the same hour, when
the shareholders shall elect a board and transact such other business as my
properly come before the meeting.
3. SPECIAL MEETING.
Special meetings of the shareholders may be called by the board, the
chairman or the president, and shall be called by the president or the secretary
at the request in writing of a majority of the board or at the request in
writing by shareholders owning a majority in amount of the shares issued and
outstanding. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at a special meeting shall be confined to the
purposes stated in the notice.
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of such meeting, nor more than fifty days prior to
any other action. If no
<PAGE> 3
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 2
record date is fixed, it shall be determined in accordance with the provisions
of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose
or purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten nor more than fifty days before the
date of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice is given when
deposited in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
6. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the holders
of a majority of the shares entitled to vote thereat shall constitute a quorum
at a meeting of shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of
a quorum.
8. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
9. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one
<PAGE> 4
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 3
vote for every share standing in his name on the record of shareholders, unless
otherwise provided in the certificate of incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation which requires the affirmative vote of 70% or more.
(a) directors shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election;
(b) all other corporate action shall be authorized by a majority of the
votes cast.
11. INSPECTORS AT SHAREHOLDERS' MEETINGS.
The board of directors, in advance of any shareholders' meeting, may
appoint one or more inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at a shareholders'
meeting may, and on the request of any shareholder entitled to vote thereat
shall appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, the validity
and effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote as certified
by them.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation the
business of the corporation shall be managed by its board of directors, each of
whom shall be at least 18 years of age and shall be shareholders.
2. NUMBER OF DIRECTORS.
The number of directors shall be eight (8). The number of directors may
be increased or decreased by action of a majority of the entire board subject to
the limitation that no
<PAGE> 5
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 4
decrease shall shorten the term of any incumbent director.
3. ELECTION AND TERM OF DIRECTORS.
The Board of Directors shall be divided into three classes, Class I,
Class II, and Class III which shall be as nearly equal in number as possible.
Each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall hold office until
the annual meeting of shareholders in 1985; and each initial director in Class
II shall hold office until the annual meeting of shareholders in 1986; and each
initial director in Class III shall hold office until the annual meeting of
stockholders in 1987. At each annual meeting of stockholders, the stockholders
shall elect directors of the class then terminating to hold office until the
third annual meeting thereafter.
4. NOMINATIONS FOR DIRECTORS.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any stockholder entitled to vote for the election of
directors. Nominations, other than those made by or on behalf of the existing
Board, shall be made in writing and shall be delivered or mailed to the
President not less than 14 days nor more than 50 days prior to any meeting of
stockholders called for the election of directors, provided, however, that if
less than 21 days' notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the President not later than the
close of business on the seventh day following the day on which the notice of
meeting was mailed. Such notification shall contain the following information to
the extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
total number of shares of capital stock that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholders; and
(e) the number of shares of capital stock owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his discretion, be
disregarded by the chairman of the meeting, and upon his instructions, the
inspectors of election may disregard all votes cast for each such nominee.
5. NEWLY CREATED OR DECREASED DIRECTORSHIPS.
In the event of any increase or decrease in the authorized number of
directors (i) each director then serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his prior death, retirement, resignation or removal for cause,
(ii) the newly created or eliminated directorship resulting from such increase
or decrease shall be apportioned by the Board of Directors between the three
classes of directors so as to maintain such classes as nearly equal as possible,
and (iii) when the number of directors is increased by the board and any newly
created directorships are filled by the board, there shall be no classification
of the additional directors until the next annual meeting of stockholders.
6. REMOVAL OF DIRECTORS AND VACANCIES.
<PAGE> 6
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 5
a) Each director shall serve until his successor is elected and
qualified or until his death, retirement, resignation or removal for cause.
Should a vacancy occur or be created, whether arising through death, resignation
or removal for cause of a director or through an increase in the number of
directors of any class, such vacancy shall be filled by a majority vote of the
remaining directors of the class in which such vacancy occurs, or by the sole
remaining director of that class if only one such director remains, or by the
majority vote of the remaining directors of the other classes if there is no
remaining member of the class in which the vacancy occurs. A director so elected
to fill a vacancy shall serve until the next meeting of stockholders at which
the election of directors is in the regular order of business, and until his
successor has been duly elected and qualified.
b) Any director or the entire Board of Directors of the corporation may
be removed at any time, but only for cause. As used herein, "cause" shall mean
either (i) a felony conviction no longer subject to appeal; (ii) a final
adjudication of negligent or improper conduct in the performance of the
director's duty to the corporation; or (iii) a final order of removal from
office no longer subject to review, duly issued by the appropriate federal
banking agency.
7. RESIGNATION.
A director may resign at any time by giving written notice to the
board, the chairman, the president or the secretary of the corporation. Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the board or such officer, and the acceptance of the
resignation shall not be necessary to make it effective.
8. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, a
majority of the entire board shall constitute a quorum for the transaction of
business or of any specified item of business.
9. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the board. Each director present shall have one vote regardless of
the number shares, if any which he may hold.
10. PLACE AND TIME OF BOARD MEETINGS.
The board may hold its meetings at the office of the corporation or at
such other places, either within or without the State of New York, as it may
from time to time determine.
11. REGULAR ANNUAL MEETING.
A regular annual meeting of the board shall be on the day of the annual
meeting of shareholders or as soon thereafter as practicable.
<PAGE> 7
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 6
12. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
a) Regular meetings of the board may be held without notice at such
time and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to the directors and may be called by the
chairman upon three days notice to each director either personally or by mail or
by wire; special meetings shall be called by the chairman or by the secretary in
a like manner on written request of two directors. Notice of a meeting need not
be given to any director who submits a waiver of notice whether before or after
the meeting or who attends the meeting without protesting prior thereto or at
its commencement, the lack of notice to him.
b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
13. CHAIRMAN.
At all meetings of the board, the chairman, or in his absence, the
president, shall preside.
14. EXECUTIVE AND OTHER COMMITTEES.
Examining and Audit Committee. There shall be an Examining Committee
composed of not fewer than three independent Directors who are and were not also
employees nor officers of the company within the past twelve months, nor
beneficial owners of ten percent or more of the stock of the company within the
past year. They shall be appointed by the Board annually or more often. The
duties of the committee shall be described in the Audit Charter. The Committee
may, at its option, retain counsel independently of the Board of Directors.
(as amended November 22, 1993)
The board, by resolution adopted by a majority of the entire board, may
designate from among its members an executive committee and other committees,
each consisting of three or more directors. Each such committee shall serve at
the pleasure of the board.
15. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for actual
attendance, at each regular or special meeting of the board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV - OFFICERS
<PAGE> 8
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 7
1. OFFICES, ELECTION, TERM.
a) Unless otherwise provided for in the certificate of incorporation,
the board may elect or appoint a chairman, president, one or more
vice-presidents, a comptroller, a secretary and a treasurer, and such other
officers as it may determine, who shall have such duties, powers and functions
as hereinafter provided.
b) All officers shall be elected or appointed to hold office until the
meeting of the board following the annual meeting of shareholders.
c) Each officer shall hold office for the term for which he is elected
or appointed and until his successor has been elected or appointed and
qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
a) Any officer elected or appointed by the board may be removed by the
board with or without cause.
b) In the event of the death, resignation or removal of an officer, the
board in its discretion may select or appoint a successor to fill the unexpired
term.
c) Any two or more offices may be held by the same person, except the
offices of chairman and secretary or president and secretary.
d) The salaries of all officers shall be fixed by the board.
e) The directors may require any officer to give security for the
faithful performance of his duties.
3. CHAIRMAN.
The chairman shall preside at all meetings of the shareholders and of
the board.
(as amended January 25, 1988)
4. PRESIDENT.
The Board of Directors shall appoint one of its members to be
President. In the absence of the chairman, he shall preside at any meeting of
the Board. The president shall be the chief executive officer and have general
executive and administrative powers. He shall manage the business of the
corporation and shall see that all orders and resolutions of the board are
carried into effect. He shall have and may exercise any and all other powers and
duties pertaining by law, regulation, or practice, to the office of president,
or imposed by these Bylaws. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned to him
by the Board of Directors.
(as amended January 25, 1988)
5. VICE-PRESIDENTS.
<PAGE> 9
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 8
During the absence or disability of the president, the vice-president,
or if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
6. SECRETARY.
The secretary shall:
a) attend all meetings of the board and of the shareholders;
b) record all votes and minutes of all proceedings in a book to be kept
for that purpose;
c) give or cause to be given notice of all meetings of shareholders and
of special meetings of the board;
d) keep in safe custody the seal of the corporation and affix it to any
instrument when authorized by the board;
e) when required, prepare or cause to be prepared and available at each
meeting of shareholders a certified list in alphabetical order of the
names of shareholders entitled to vote thereat, including the number of
shares of each respective class held by each;
f) keep all the documents and records of the corporation as required by
law or other wise in a proper and safe manner.
g) perform such other duties as may be prescribed by the board.
7. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by the
secretary or by the board, shall have all the powers and functions of the
secretary.
8. TREASURER.
The treasurer shall:
a) have the custody of the corporate funds and securities.
b) keep full and accurate accounts of receipts and disbursements
in the corporate books;
c) deposit all money and other valuables in the name and to the
credit of the corporation in such depositories as may be
designated by the board;
<PAGE> 10
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 9
d) disburse the funds of the corporation as may be ordered and
authorized by the board and preserve proper vouchers for such
disbursements;
e) render to the chairman, president and board at the regular
meetings of the board, or whenever they require it, an account
of all his transactions as treasurer and of the financial
condition of the corporation;
f) render a full financial report at the annual meeting of the
shareholders if so' requested,
g) be furnished by all corporate officers and agents at his
request with such reports and statements as he may require as
to all financial transactions of the corporation;
h) perform such other duties as are given to him by these by-laws
or as from time to time are assigned to him by the board or
the president.
9. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
secretary or by the board, shall have all the powers and functions of the
treasurer.
10. SURETIES AND BONDS.
In case the board shall so require, any officer or agent of the
corporation shall execute to the corporation a bond in such sum and with such
surety or sureties as the board may direct, conditioned upon the faithful
performance of his duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates.
They shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the chairman, president or a vice-president and the treasurer or
the secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the
<PAGE> 11
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 10
board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
3. TRANSFER OF SHARES.
a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholders' meeting, or (2) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (3) any date fixed for the payment of a dividend or any other form
of distribution, and only those shareholders of record at the time the transfer
books are closed, shall be recognized as such for the purpose of (1) receiving
notice of or voting at such meeting, or (2) allowing them to take appropriate
action, or (3) entitling them to receive any dividend or other form of
distribution.
ARTICLE VI - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding shares of the corporation may be
declared in such amounts and at such time or times as the board may determine.
Before payment of any dividend, there may be set aside out of the net profits of
the corporation available for dividends such sum or sums as the board from time
to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the board shall think
conducive to the interest of the corporation, and the board may modify or
abolish any such reserve.
ARTICLE VII - CORPORATE SEAL
<PAGE> 12
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 11
The seal of the corporation shall be circular in form and bear the name
of the corporation, the year of its organization and the words "Corporate Seal,
New York". The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on the certificates for shares or on any corporate obligation for the
payment of money shall be a facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers or
other person or persons as the board may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year shall begin the first day of January in each year.
ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in these by-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - INDEMNIFICATION OF OFFICERS AND DIRECTORS
Subject to conditions and qualifications set forth in the Business
Corporation Law of the State of New York, the corporation shall indemnify any
person, made a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he (or she), his (or
her) testator or intestate, is or was a director or officer of the corporation,
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of such action, or in
connection with an appeal therein, except in relation to matters as to which
such director or officer is adjudged to have breached his duty to the
corporation, as such duty is defined in Section 717 or Section 715(h) of the
Business Corporation Law. Subject to the conditions and qualifications set forth
in the Business Corporation Law of the State of New York, the corporation shall
also indemnify any person, made, or threatened to be made, a party to an action
or proceeding other than one by or in the right of the corporation to procure a
judgment in its favor, whether civil or criminal, including an action by or in
the right of any other corporation, domestic or foreign, which he served in any
capacity at the request of the corporation by reason of the fact, that he (or
she), his (or her) testator or intestate was a director or officer of the
corporation or served it in any capacity against judgments, fines, amounts paid
in settlement, and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in the best interests of the corporation and, in
criminal actions or proceedings, in addition, had
<PAGE> 13
By-Laws - Suffolk Bancorp
as amended November 22, 1993
Page 12
no reasonable cause to believe that his conduct was unlawful.
ARTICLE XII - BY-LAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
a) Except as otherwise provided in the certificate of incorporation the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote in the election of any directors. By-laws may also
be amended, repealed or adopted by the board but any by-law adopted by the board
may be amended by the shareholders entitled to vote thereon as hereinabove
provided.
b) If any by-law regulating an impending election of directors is
adopted, amended or repealed by the board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 53,452
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,484
<INVESTMENTS-CARRYING> 32,886
<INVESTMENTS-MARKET> 32,723
<LOANS> 727,528
<ALLOWANCE> 7,270
<TOTAL-ASSETS> 980,799
<DEPOSITS> 877,303
<SHORT-TERM> 13,500
<LIABILITIES-OTHER> 12,662
<LONG-TERM> 0
0
0
<COMMON> 77,334
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 980,799
<INTEREST-LOAN> 59,364
<INTEREST-INVEST> 7,567
<INTEREST-OTHER> 977
<INTEREST-TOTAL> 67,908
<INTEREST-DEPOSIT> 20,865
<INTEREST-EXPENSE> 21,121
<INTEREST-INCOME-NET> 46,787
<LOAN-LOSSES> 1,070
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 30,789
<INCOME-PRETAX> 21,699
<INCOME-PRE-EXTRAORDINARY> 21,699
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,124
<EPS-BASIC> 2.16
<EPS-DILUTED> 2.16
<YIELD-ACTUAL> 5.83
<LOANS-NON> 1,132
<LOANS-PAST> 1,741
<LOANS-TROUBLED> 275
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,955
<CHARGE-OFFS> 934
<RECOVERIES> 179
<ALLOWANCE-CLOSE> 7,270
<ALLOWANCE-DOMESTIC> 7,270
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
SUFFOLK BANCORP
EXHIBIT 99.A
SHAREHOLDER RIGHTS
PLAN
<PAGE> 2
SUFFOLK BANCORP
and
AMERICAN STOCK TRANSFER & TRUST CO
Rights Agent
Rights Agreement
Dated as of October 23, 1995
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions.................................. 1
Section 2. Appointment of Rights Agent.......................... 9
Section 3. Issue of Right Certificates.......................... 9
Section 4. Form of Right Certificates........................... 13
Section 5. Countersignature and Registration.................... 14
Section 6. Transfer, Split Up, Combination and Exchange
of Right Certificates; Mutilated, Destroyed,
Lost of Stolen Right Certificates ................... 15
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights ........................... 17
Section 8. Cancellation and Destruction of Right
Certificates ........................................ 19
Section 9. Availability of Common Shares ....................... 19
Section 10. Common Shares Record Date ........................... 21
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights .......................... 22
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares .................................... 35
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power .......................... 35
Section 14. Fractional Rights and Fractional Shares ............. 38
Section 15. Rights of Action .................................... 40
Section 16. Agreement of Right Holders .......................... 41
Section 17. Right Certificate Holder Not Deemed a
Stockholder ......................................... 42
Section 18. Concerning the Rights Agent ......................... 42
Section 19. Merger or Consolidation or Change of Name
of Rights Agent ..................................... 44
Section 20. Duties of Rights Agent .............................. 45
Section 21. Change of Rights Agent .............................. 49
Section 22. Issuance of New Right Certificates .................. 51
Section 23. Redemption .......................................... 51
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 24. Exchange ............................................ 53
Section 25. Notice of Certain Events ............................ 56
Section 26. Notices ............................................. 58
Section 27. Supplements and Amendments .......................... 59
Section 28. Successors .......................................... 59
Section 29. Benefits of this Agreement .......................... 60
Section 30. Severability ........................................ 60
Section 31. Governing Law ....................................... 60
Section 32. Counterparts ........................................ 61
Section 33. Descriptive Headings ................................ 61
Signatures ............................................................ 61
</TABLE>
Exhibit A - Form of Right Certificate
Exhibit B - Summary of Rights to Purchase Common Shares
iii
<PAGE> 5
RIGHTS AGREEMENT
Agreement, dated as of October 23, 1995, between Suffolk Bancorp, a New
York corporation (the "Company"), and American Stock Transfer & Trustco, a New
York corporation (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one common share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on November 2, 1995 (the
"Record Date"). Each Right representing the right to purchase one-half of a
Common Share, upon the terms and subject to the conditions herein set forth, and
has further authorized and directed the issuance of one Right with respect to
each Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a)(i) "Ten Percent Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 10% or more of the
Common Shares of the Company then outstanding, but shall not include the
Company, any Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become a
<PAGE> 6
"Ten Percent Acquiring Person" as the result of an acquisition of Common Shares
by the Company which, by reducing the number of shares outstanding, increases
the proportionate number of shares beneficially owned by such Person to 10% or
more of the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 10% or more of the Common
Shares of the Company then outstanding by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Shares of the Company, then such
Person shall be deemed to be a "Ten Percent Acquiring Person". Notwithstanding
the foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be a "Ten Percent Acquiring Person", as
defined pursuant to the foregoing provisions of this paragraph (a)(i), has
become such inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be a "Ten
Percent Acquiring Person," as defined pursuant to the foregoing provisions of
this paragraph (a)(i), then such Person shall not be deemed to be a "Ten Percent
Acquiring Person" for any purposes of this Agreement.
(ii) "Twenty Percent Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding, but shall not include the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become a "Twenty Percent
Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Company then outstanding; provided, however, that if
a Person shall become the Beneficial Owner of 20% or more of the Common Shares
of the Company then outstanding by reason of share purchases by the Company and
shall, after such share
2
<PAGE> 7
purchases by the Company, become the Beneficial Owner of any additional Common
Shares of the Company, then such Person shall be deemed to be a "Twenty Percent
Acquiring Person". Notwithstanding the foregoing, if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be a
"Twenty Percent Acquiring Person", as defined pursuant to the foregoing
provisions of this paragraph (a)(ii), has become such inadvertently, and such
Person divests as promptly as practicable a sufficient number of Common Shares
so that such Person would no longer be a "Twenty Percent Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a)(ii), then
such Person shall not be deemed to be a "Twenty Percent Acquiring Person" for
any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
(c) A person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made
3
<PAGE> 8
by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when use with
reference to a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
4
<PAGE> 9
(e) "Close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(f) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $5.00 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(h) "Final Expiration Date" shall have the meaning set forth in Section
7 hereof.
(i) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(j) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(k)(i) "Ten Percent Shares Acquisition Date" shall mean the first date
of public announcement by the Company or a Ten Percent Acquiring Person that a
Ten Percent Acquiring Person has become such.
(ii) "Twenty Percent Shares Acquisition Date" shall mean the
first date of public announcement by the Company or a Twenty Percent
Acquiring Person that a Twenty Percent Acquiring Person has become
such.
5
<PAGE> 10
(l) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. Until the earlier of (i) the
tenth day after the Twenty Percent Shares Acquisition Date, (ii) the tenth
business day (or such later date as may be determined by the action of the Board
of Directors prior to such time as any Person becomes a Twenty Percent Acquiring
Person) after the date of the commencement by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) to commence, a tender or exchange offer the consummation of which
would result in any Person becoming the Beneficial Owner of Common Shares
aggregating 20% or more of the then outstanding Common Shares, (iii) such date
as may be determined by action of the Board of Directors after the Ten Percent
Shares Acquisition Date, or (iv) the date upon which any Ten Percent Acquiring
Person enters into any agreement with the Company to undertake a transaction of
the type described in
6
<PAGE> 11
Section 13 hereof (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights; the earlier of such dates
being herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced (subject to the provisions of Section 3(b) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Right Certificates) and not by separate
Right Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Common Shares, in
substantially the form of Exhibit B hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Final Expiration
Date), the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with the Common Shares
7
<PAGE> 12
represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
Suffolk Bancorp and American Stock Transfer & Trustco, dated as
of October 23, 1995 (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of Suffolk
Bancorp. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. Suffolk Bancorp will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. As described in the
Rights Agreement, Rights issued to any Person who becomes a
Twenty Percent Acquiring Person (as defined in the Rights
Agreement) shall become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificate alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Common Shares and of assignment to be printed on
the reverse thereof) shall be substantially the same
8
<PAGE> 13
as Exhibit A hereto and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of Common Shares as
shall be set forth therein at the price per Common Shares set forth therein (the
"Purchase Price"), but the number of such Common Shares and the Purchase Price
shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificates may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
9
<PAGE> 14
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of Common Shares as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
10
<PAGE> 15
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each Common Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on October
23, 2005 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each whole Common Share purchasable pursuant
to the exercise of a Right shall initially be $140 (or $70 for each one-half
Common Share), and shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be
11
<PAGE> 16
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Right Certificate in accordance with Section 9 hereof by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall thereupon promptly (i) requisition from any
transfer agent of the Common Shares certificates for the number of Common Shares
to be purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt, deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right
12
<PAGE> 17
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Common Shares. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Common Shares or any Common Shares held in its treasury,
the number of Common Shares that will be sufficient to permit the exercise in
full of all outstanding Rights in accordance with section 7. The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Common Shares delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Common Shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Common Shares upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates for the Common Shares in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates for Common
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Common Shares Record Date. Each person in whose name any
certificate for Common Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of
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<PAGE> 18
record of the Common Shares represented thereby on, and such certificate shall
be dated, the date upon which the Right Certificate evidencing such Rights was
duly surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Common Shares transfer books of the Company are
closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Common Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Common Shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Common Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares into a smaller number of Common Shares or (D) issue any shares of
its capital stock in a reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of capital
stock issuable on such date, shall be proportionately adjusted so that the
holder of any Right
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<PAGE> 19
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Common Shares transfer
books of the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event that
any Person should become a Twenty Percent Acquiring Person, each holder
of a Right shall thereafter have a right to receive, upon exercise
thereof at a price equal to the then current Purchase Price multiplied
by the number of Common Shares for which a Right is then exercisable,
in accordance with the terms of this Agreement, such number of Common
Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of Common
Shares for which a Right is then exercisable and dividing that product
by (y) 50% of the then current per share market price of the Company's
Common Shares (determined pursuant to Section 11(d) hereof) on the date
of the occurrence of such event. In the event that any Person shall
become a Twenty Percent Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action, which would
eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Twenty Percent
Acquiring Person (or any Associate or Affiliate of such Twenty Percent
Acquiring Person) shall be void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights
15
<PAGE> 20
beneficially owned by a Twenty Percent Acquiring Person, whose Rights
would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time
upon the transfer of any Rights to a Twenty Percent Acquiring Person,
whose Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof or to any nominee of such Twenty Percent
Acquiring Person. Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to a Twenty Percent
Acquiring Person, whose Rights would be void pursuant to the preceding
sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit
the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be
necessary to authorize additional Common Shares for issuance upon
exercise of the Rights.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Common Shares entitling them (for
a period expiring within 45 calendar days after such record date) to subscribe
for or purchase Common Shares or securities convertible into Common Shares at a
price per Common Shares (or having a conversion price per share, if a security
convertible into Common Shares) less than the then current per share market
price of the Common Shares (as defined in Section 11(d)) on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be
16
<PAGE> 21
offered) would purchase at such current market price and the denominator of
which shall be the number of Common Shares outstanding on such record date plus
the number of additional Common Shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Common Shares owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Common Shares) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Common Shares on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to
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be distributed or of such subscription rights or warrants applicable to one
Common Share and the denominator of which shall be such current per share market
price of the Common Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per
share market price" of the Common Shares on any date shall be deemed to be the
average of the daily closing prices per share of such Common Shares for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date; provided, however, that in the event that the current per share
market price of the Common Shares is determined during a period following the
announcement by the issuer of such Common Shares of (A) a dividend or
distribution on such Common Shares payable in shares of such Common Shares or
securities convertible into such shares, or (B) any subdivision, combination or
reclassification of such Common Shares and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per Common Share. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Shares are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities
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<PAGE> 23
listed on the principal national securities exchange on which the Common Shares
are listed or admitted to trading or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Common Shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Shares selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Common Shares are
listed or admitted to trading is open for the transaction of business or, if the
Common Shares are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Shares are not publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten-thousandth of a
share as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
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(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Common Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Shares contained in Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10 and 13 with respect to the Common Shares shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Common Shares
(calculated to the nearest one ten-thousandth of a share) obtained by (i)
multiplying (x) the number of shares covered by a Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number
20
<PAGE> 25
of Common Shares for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of Common Shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in the
initial Right Certificates issued hereunder.
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<PAGE> 26
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Common Shares
issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Common Shares
at such adjusted Purchase Price
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Common Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Common Shares and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Common Shares, issuance
wholly for cash of any Common Shares at less than the current market price,
issuance wholly for cash of Common Shares or securities which by their terms are
convertible into or exchangeable for Common Shares, dividends on Common Shares
payable in Common Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Common Shares shall not be taxable to
22
<PAGE> 27
such stockholders.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares a copy of
such certificate and c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time after a Person
has become a Ten Percent Acquiring Person (a) the Company shall consolidate
with, or merge with and into, such Ten Percent Acquiring Person (b) such Ten
Percent Acquiring Person shall consolidate with the Company, or merge with and
into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for stock or other
securities of such Ten Percent Acquiring Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to such Ten
Percent Acquiring Person, then, and in each such case, proper provision shall be
made so that (i) each holder of a Right (except as otherwise provided herein)
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of Common
Shares for which a Right is then exercisable, in accordance with the terms of
this Agreement, such number of Common Shares of such Ten Percent Acquiring
Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by
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<PAGE> 28
the number of Common Shares for which a Right is then exercisable and dividing
that product by (B) 50% of the then current per share market price of the Common
Shares of such Ten Percent Acquiring Person (determined pursuant to Section
11(d) hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. The Company shall
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole
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<PAGE> 29
Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter-market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Common
Shares upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Common Share. For the purposes of this Section
14(b), the current market value of a Common Share shall be the closing price of
a Common Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
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(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
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<PAGE> 31
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this
27
<PAGE> 32
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the
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<PAGE> 33
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to
29
<PAGE> 34
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith, or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
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<PAGE> 35
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Common Shares will, when
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent
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shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares by registered or certified mail, and to the holders
of the Right Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other state of the United States
so long as such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having an office in the
State of New York, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its
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appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares,
and mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provision of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. The Board of Directors of the Company may, at
its option, at any time prior to such time as any Person becomes a Ten Percent
Acquiring Person, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). In addition, the Board of Directors of the Company may, at its option,
at any time after such time as any Person becomes a Ten Percent Acquiring Person
but prior to such time as any Person becomes
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a Twenty Percent Acquiring Person, redeem all but not less than all the then
outstanding Rights at the Redemption Price, in connection with the consummation
of a merger or consolidation of the Company with a Person other than a Ten
Percent Acquiring Person, or a sale or transfer (in one or more transactions) of
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to a Person other than a
Ten Percent Acquiring Person; provided, however, that no such redemption shall
be made at the direction of any Ten Percent Acquiring Person or to facilitate
any transaction with any Ten Percent Acquiring Person. The redemption of the
Rights by the Board of Directors may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice, which is mailed in the manner herein provided, shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with
34
<PAGE> 39
the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange. The Board of Directors of the Company may, at its
option, at any time after any Person becomes a Twenty Percent Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one-half of a Common
Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any such Subsidiary, or any
entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at the last addresses
as they appear upon the registry books of the Rights Agent. Any notice, which is
mailed in the manner herein provided, shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares for Rights will be effected
35
<PAGE> 40
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. In case the Company shall propose
(i) to pay any dividend payable in stock of any class to the holders of its
Common Shares or to make any other distribution to the holders of its Common
Shares (other than a regular quarterly cash dividend), (ii) to offer to the
holders of its Common Shares rights or warrants to subscribe for or to purchase
any additional Common Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Common Shares (other than a reclassification involving only the subdivision of
outstanding Common Shares), (iv) to effect any consolidation or merger
36
<PAGE> 41
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, then in each such case,
the Company shall give to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, or distribution of rights
or warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Common Shares for purposes of such action, and in
the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Suffolk Bancorp
37
<PAGE> 42
6 West Second St.
Riverhead, New York 11901
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
American Stock Transfer & Trustco
40 Wall Street, 46th Floor
New York, New York 10269-0436
Attention: Executive Vice President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes a
Ten Percent Acquiring Person, the provisions of this Agreement shall not be
amended in any manner which would adversely affect the benefits and protections
intended to be afforded the holders of Rights under Section 13 of this Agreement
and from and after such time as any Person becomes a Twenty Percent Acquiring
Person, this Agreement shall not be amended in any manner which would adversely
affect the
38
<PAGE> 43
interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
39
<PAGE> 44
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
SUFFOLK BANCORP
Attest:
By /s/ Douglas Ian Shaw By /s/Edward J. Merz
-------------------------- --------------------------
Title: Title:
AMERICAN STOCK TRANSFER & TRUSTCO
Attest:
By /s/Susan Silber By /s/ Herbert J. Lemmer
-------------------------- --------------------------
Title: Title:
40
<PAGE> 1
SUFFOLK BANCORP
EXHIBIT 99.B
1999 STOCK OPTION
PLAN
<PAGE> 2
SUFFOLK BANCORP 1999
STOCK OPTION PLAN
Adopted January 22, 1999
<PAGE> 3
SUFFOLK BANCORP 1999
STOCK OPTION PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Purpose.............................................................................................. 1
2. Shares Subject to the Plan........................................................................... 1
3. Administration of the Plan........................................................................... 2
4. Eligibility and Grant of Options Under the Plan...................................................... 2
5. Terms and Conditions of Options Granted Under the Plan............................................... 2
(a) Option Period................................................................................. 2
(b) Exercise of Option............................................................................ 3
(i) By an Optionee During Continuous Employment........................................... 3
(ii) Exercise in the Event of Death or Termination of Employment........................... 3
(c) Option Price.................................................................................. 4
(d) Payment of Purchase Price upon Exercise....................................................... 4
(e) Nontransferability............................................................................ 4
[(f) Additional Rules for Incentive Stock Options.................................................. 4
6. Stock Appreciation Right............................................................................. 5
7. Fair Market Value.................................................................................... 5
8. Change in Control Provisions......................................................................... 5
(a) Impact of Event................................................................................. 5
(b) Definition of Change in Control................................................................. 5
9. Amendment and Discontinuance......................................................................... 7
10. Effective Date....................................................................................... 7
</TABLE>
-i-
<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
11. General Provisions................................................................................... 7
(a) Investment Representation; Compliance with Other Laws and Regulations......................... 8
(b) No Rights as a Shareholder.................................................................... 8
(c) No Rights to Continued Employment............................................................. 8
(d) Effect of the Plan on Other Stock Plans....................................................... 8
(e) Unfunded Status of Plan....................................................................... 8
(f) Withholding................................................................................... 8
(g) Governing Law................................................................................. 8
</TABLE>
-ii-
<PAGE> 5
SUFFOLK BANCORP 1999
STOCK OPTION PLAN
1. Purpose.
The purpose of the Suffolk Bancorp 1999 Stock Option Plan (the
"Plan") is to provide a means by which Suffolk Bancorp (the "Corporation"),
through the grant of stock options to eligible employees, may attract and retain
persons of ability as employees and motivate such employees to exert their best
efforts on behalf of the Corporation and any subsidiary corporation of the
Corporation. For the purposes of the Plan, the term "Subsidiary Corporation"
means a subsidiary corporation as defined by Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Shares Subject to the Plan.
The maximum number of shares of common stock, par value $2.50
per share, of the Corporation ("Common Stock") that may be delivered to
participants and their beneficiaries under the Plan shall be 600,000, which
number includes the 578,706 shares of Common Stock remaining available for
awards as of the effective date of this Plan under the Corporation's 1989
Incentive Stock Option Plan and 1989 Non-Qualified Stock Option Plan. No
participant may be granted options covering in excess of 50,000 shares of Common
Stock in any calendar year. The reserved shares may be authorized and unissued
shares or treasury shares of the Corporation or any combination of both as
determined by the Board of Directors of the Corporation (the "Board"). If an
option granted under the Plan ceases to be exercisable or is forfeited or
canceled, in whole or in part, the shares of Common Stock representing such
option shall no longer be available for issuance in connection with awards under
the Plan. If any option (and related stock appreciation right, if any)
terminates, expires or lapses without being exercised, shares of Common Stock
subject to such option shall again be available for distribution in connection
with awards under the Plan.
In the event of any change in corporate capitalization
(including, but not limited to, a change in the number of shares of Common Stock
outstanding), such as a stock split or a corporate transaction, such as any
merger, consolidation, separation, including a spin-off, or other distribution
of stock or property of the Corporation, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code), any partial or complete liquidation of the Corporation, the Committee or
Board may make such substitution or adjustments in the aggregate number and kind
of shares reserved for issuance under the Plan, and the maximum limitation upon
options to be granted to any participant, in the number, kind and option price
of shares subject to outstanding options and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion [to prevent substantial dilution or enlargement of the rights granted
to, or available for, an optionee under the Plan]; provided, however, that the
number of shares of Common Stock subject to any option shall always be a whole
number.
<PAGE> 6
3. Administration of the Plan.
The Plan shall be administered by the Personnel Committee of
the Board (the "Committee"), which Committee shall consist of not less than
three directors of the Corporation. Members of the Committee shall be appointed
by and shall serve at the pleasure of the Board. Any vacancies in the membership
of the Committee shall be filled by an appointment by the Board.
The Committee shall keep minutes of its meetings. All actions
of the Committee shall be taken by a majority of its members. Any act approved
in writing by a majority of the Committee members shall be fully effective as if
it had been taken by a vote of a majority of the members at a meeting duly
called and held.
Subject to and not inconsistent with the provisions of the
Plan, the Committee shall have complete authority in its discretion to interpret
all provisions of the Plan consistently with the law, to determine the number of
shares of Common Stock to be covered by each option granted hereunder, to
determine the terms and conditions of any option granted hereunder, to prescribe
the form of the instrument evidencing any option granted hereunder, to adopt,
amend and rescind general and special rules and regulations for the
administration of the Plan and to make all other determinations necessary or
advisable for the administration of the Plan.
4. Eligibility and Grant of Options Under the Plan.
Options may be granted to such employees, including officers
and directors who are also employees, of the Corporation or of a Subsidiary
Corporation that the Committee deems to be key employees who in the judgment of
the Committee are considered important to the future of the Corporation or a
Subsidiary Corporation. Options may be granted at such times, in such amounts,
and to the extent not inconsistent with the Plan, on such terms as the Committee
shall determine. Options may be granted alone or with a related stock
appreciation right and may be of two types: (a) an incentive stock option which
is an option designated as, and qualified as, an "incentive stock option" within
the meaning of Section 422 of the Code, and (b) a non-qualified stock option
which is an option that is not an incentive stock option. To the extent that any
option is not designated as an incentive stock option or even if so designated
does not qualify as an incentive stock option on or subsequent to its grant
date, it shall constitute a non-qualified stock option.
5. Terms and Conditions of Options Granted Under the Plan.
Each option granted under the Plan shall be evidenced by an
agreement in a form determined by the Committee. Such agreement shall be subject
to the following terms and conditions, and such other terms and conditions as
the Committee may deem appropriate.
(a) Option Period. Each option agreement shall specify the
period for which the option thereunder is granted and shall provide that the
option shall expire at the end of such period, provided that in no event shall
an incentive stock option be exercisable more than 10 years from the date of
grant of such option.
(b) Exercise of Option.
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<PAGE> 7
(i) By an Optionee During Continuous Employment.
Except as otherwise provided herein, options shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions,
in whole or in part, based on such factors as the Committee may
determine. In addition, the Committee may at any time accelerate the
exercisability of any option.
(ii) Exercise in the Event of Death or Termination of
Employment.
A. If an optionee shall die (1) while an employee of
the Corporation or a Subsidiary Corporation or (2) within three months
after termination of such optionee's employment with the Corporation or
a Subsidiary Corporation because of disability, his or her options may
be exercised, to the extent that the optionee shall have been entitled
to do so on the date of death or such termination of employment, by the
person or persons to whom the optionee's right under the option pass by
will or applicable law, or, if no such person has such right, by his or
her executors or administrators, at any time or from time to time, but
not later than the expiration date specified in Section 5(a) or two
years after the optionee's death, whichever date is earlier.
B. If an optionee's employment by the Corporation or a
Subsidiary Corporation shall terminate because of disability and such
optionee has not died within the following three months, such optionee
may exercise his or her options, to the extent that such optionee shall
have been entitled to do so at the date of termination of his or her
employment, at any time or from time to time, but not later than the
expiration date specified in Section 5(a) or one year after termination
of employment, whichever date is earlier.
C. If an optionee's employment shall terminate by
reason of retirement in accordance with the terms of the Corporation's
tax-qualified retirement plans or with the consent of the Committee or
involuntarily other than for cause (as defined herein), such optionee
may exercise his or her options, to the extent that the optionee shall
have been entitled to do so on the date of termination of employment,
at any time or from time to time, but not later than the expiration
date specified in Section 5(a) or three months after termination of
employment, whichever date is earlier.
D. If an optionee's employment shall terminate
voluntarily or involuntarily for any reason other than death,
disability, or retirement, the right to exercise all options, whether
vested or unvested, shall terminate at the date of such termination of
employment. For purposes of the Plan, termination for "cause" shall
mean termination of employment by reason of the optionee's commission
of a felony, fraud, or willful misconduct which has resulted, or is
likely to result, in substantial and material damage to the Corporation
or a Subsidiary Corporation, all as the Committee in its sole
discretion, may determine.
E. [Notwithstanding any other provision of this Plan
to the contrary, in the event an optionee incurs a termination of
employment other than for cause during the 24-month
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<PAGE> 8
period following a Change in Control, any option held by such optionee
may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such termination, or on such accelerated
basis, for (x) the longer of (i) [one] year from such date of
termination or (ii) such other period as may be provided in the Plan
for such termination of employment or as the Committee may provide in
the option agreement, or (y) until expiration of the stated term of
such option, whichever period is the shorter.]
F. If an option intended to qualify as an incentive
stock option is exercised after the expiration of the post-termination
exercise periods that apply for purposes of Section 422 of the Code,
such option will thereafter be treated as a non-qualified stock option.
(c) Option Price. The option price per share of Common Stock
purchasable under an option shall be determined by the Committee and set forth
in the option agreement, and shall not be less than 100% of the Fair Market
Value (as that term is defined in Section 7) of the Common Stock subject to such
option on the date of grant.
(d) Payment of Purchase Price upon Exercise. Each option shall
provide that the purchase price of shares of Common Stock for which an option
may be exercised shall be paid to the Corporation at the time of exercise in
cash or by certified or bank check or such other instrument as the Corporation
may accept. If approved by the Committee, payment, in full or in part, may also
be made in the form of unrestricted Common Stock (by delivery of such shares or
by attestation) already owned by the optionee of the same class as the Common
Stock subject to the option (based on the Fair Market Value of the Common Stock
on the date the option is exercised); provided, however, that, in the case of an
incentive stock option, the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
option may be authorized only at the time the option is granted and; provided,
further, that such already owned shares have been held by the optionee for at
least six months at the time of exercise or had been purchased on the open
market.
(e) Nontransferability. No option granted under the Plan shall
be transferable other than by a will of an optionee or by the laws of descent
and distribution. During an optionee's lifetime, an option shall be exercisable
only by the optionee or by the optionee's attorney-in-fact or conservator,
unless such exercise by the attorney-in-fact or conservator, would disqualify
the option as an incentive stock option.
(f) Additional Rules for Incentive Stock Options.
Notwithstanding anything contained herein to the contrary, no option which is
intended to qualify as an incentive stock option may be granted to any eligible
employee who at the time of such grant owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Corporation or of
any Subsidiary Corporation, unless at the time such option is granted the option
price is at least 110% of the Fair Market Value of a share of Common Stock and
such option by its terms is not exercisable after the expiration of five years
from the date such option is granted. In addition, the aggregate Fair Market
Value of the Common Stock (determined at the time an option for the Common Stock
is granted) for which incentive stock options are exercisable for the first time
by an optionee during any calendar year, under all of the incentive stock option
plans of the Corporation and of any Subsidiary Corporation, may not exceed
$100,000.
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<PAGE> 9
6. Stock Appreciation Right.
An option agreement may provide that the optionee may from
time to time elect to cancel all or any portion of an option then subject to
exercise, in which event the Corporation's obligation in respect of such option
may be discharged by the issuance or transfer to the optionee of shares of
Common Stock with a Fair Market Value at such time equal to the excess, if any,
of the Fair Market Value of the shares of Common Stock subject to the option at
the time of the cancellation or the portion thereof so cancelled, over the
aggregate option price for such shares of Common Stock as set forth in the
option agreement. In the event of such a cancellation, the number of shares of
Common Stock as to which such option was cancelled shall no longer be available
for use under the Plan. Any such stock appreciation right will expire no later
than the expiration of the related options. Any such stock appreciation right
shall be transferrable only by will or by the laws of descent and distribution
and can only be transferred with the underlying option. During the lifetime of
the optionee, a stock appreciation right shall be exercisable only by such
optionee.
7. Fair Market Value.
For purposes of the Plan, "Fair Market Value", as of any given
date with respect to a share of Common Stock, means:
(a) the average of the high and low quoted sales prices on the
date of grant (or if there is no reported sale on such date, on the last
preceding date on which any reported sale occurred) on the principal United
States securities exchange on which the Common Stock is listed or admitted to
trading; or
(b) if the Common Stock is not listed or admitted to trading
on any such exchange, the closing bid quotation with respect to a share of
Common Stock on such date on the National Association of Securities Dealers,
Inc. Automated Quotation System, or if no such quotation is provided, on another
similar system, selected by the Committee, then in use; or
(c) if paragraphs (a) and (b) are not applicable, the fair
market value of a share of Common Stock on the date of grant as the Committee
may determine.
8. Change in Control Provisions.
(a) Impact of Event. Notwithstanding any other provision of
the Plan to the contrary, in the event of a Change in Control, any options
outstanding as of the date such Change in Control is determined to have
occurred, and which are not then exercisable and vested, shall become fully
exercisable and vested to the full extent of the original grant. The Committee
may also make additional adjustments and/or settlements of outstanding awards as
it deems appropriate and consistent with the Plan's purposes.
(b) Definition of Change in Control. For purposes of the Plan,
a "Change in Control" shall mean the happening of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the
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<PAGE> 10
"Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities"); provided, however,
that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (1) any acquisition directly
from the Corporation, (2) any acquisition by the Corporation, (3) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or any corporation controlled by the
Corporation or (4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 8(b); or
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the Corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities,
as the case may be, (B) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Com-
-6-
<PAGE> 11
bination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
9. Amendment and Discontinuance.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would impair the
rights of an optionee under an option theretofore granted without the optionee's
consent, except such an amendment made to comply with applicable law, stock
exchange rules or accounting rules. In addition, no such amendment shall be made
without the approval of the Corporation's stockholders to the extent such
approval is required by applicable law or stock exchange rules. The Committee
may amend the terms of any option, prospectively or retroactively, but no such
amendment shall impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or option to comply with
applicable law, stock exchange rules or accounting rules.
Subject to the above provisions, the Board shall have
authority to amend the Plan to take into account changes in law and tax and
accounting rules as well as other developments, and to grant options which
qualify for beneficial treatment under such rules without stockholder approval.
10. Effective Date.
The effective date of the Plan shall be January [22], 1999,
subject to the approval by stockholders of the Corporation holding not less than
a majority of the shares present and voting at its 1999 Annual Meeting.
11. General Provisions.
(a) Investment Representation; Compliance with Other Laws and
Regulations. The Committee may require each person purchasing or receiving share
of Common Stocks pursuant to an award to represent to and agree with the
Corporation in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer. The Plan, the grant and exercise of options under the Plan, and the
obligation of the Corporation to sell and deliver shares under such options
shall be subject to all applicable federal and state laws, rules and
regulations. Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
1. Listing or approval for listing upon notice of issuance,
of such shares on the New York Stock Exchange, Inc., or
such other securities exchange as may at the time be the
principal market for the Common Stock;
-7-
<PAGE> 12
2. Any registration or other qualification of such shares of
the Corporation under any state or federal law or
regulation, or the maintaining in effect of any such
registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
3. Obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Committee
shall, in its absolute discretion after receiving the
advice of counsel, determine to be necessary or advisable.
(b) No Rights as a Shareholder. No optionee shall have any
rights as a shareholder with respect to any shares of Common Stock subject to an
option prior to the date of issuance of a certificate or certificates for such
shares.
(c) No Rights to Continued Employment. The Plan and any option
granted under the Plan shall neither confer upon any optionee any right with
respect to continuance of employment by the Corporation or by any subsidiary of
the Corporation, nor shall it interfere in any way with the right of an employer
to terminate the optionee's employment at any time.
(d) Effect of the Plan on Other Stock Plans. The adoption of
the Plan shall have no effect on awards made or to be made pursuant to other
stock plans covering employees of the Corporation, a Subsidiary Corporation, a
parent corporation or any predecessors or successors thereto.
(e) Unfunded Status of Plan. It is presently intended that the
Plan constitute an "unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock; provided, however,
that unless the Committee otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
(f) Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the participant for federal
income tax purposes with respect to any award under the Plan, the participant
shall pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding the payment of, any federal, state, local or foreign taxes
of any kind required by law to be withheld with respect to such amount. [Unless
otherwise determined by the Corporation, withholding obligations may be settled
with Common Stock, including Common Stock that is part of the award that gives
rise to the withholding requirement.] The obligations of the Corporation under
the Plan shall be conditional on such payment or arrangements, and the
Corporation and its Subsidiary Corporations shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment otherwise due to
the participant. [The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.]
(g) Governing Law. The Plan and all awards made and actions
taken thereunder shall be governed by and construed in accordance with the laws
of the State of New York, without reference to principles of conflict of laws.
-8-
<PAGE> 1
SUFFOLK BANCORP
EXHIBIT 99.C
FORM OF EMPLOYMENT
AGREEMENT
<PAGE> 2
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 31st day of December, 1999 by and between The
Suffolk County National Bank (hereinafter) referred to as "Bank"), a National
Banking Association having its principal place of business at 6 West Second
Street, Riverhead, New York, a wholly owned subsidiary of Suffolk Bancorp
(hereinafter referred to as "Company") a New York Corporation having its
principal place of business at 6 West Second Street, Riverhead, New York and
Name of Executive ("Executive"), an individual residing at Address of Executive.
WHEREAS, The Executive is employed at the pleasure of the Bank and
Company at a salary and terms mutually agreeable and fixed from time to time by
the Bank or Company, and,
WHEREAS, the Bank and Company do not anticipate a sale, merger or
takeover but desire to protect Executive against dismissal or loss of status in
the event of a "change in control" (as hereinafter defined) of the Bank or
Company, prior to January 1, 2005, and,
WHEREAS, such period of protection shall extend for a term not to
exceed three years after such "change in control,"
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, it is agreed as follows:
1. Employment. No Right to continuation of employment, compensation or
benefits prior to a "change in control" is hereby conferred upon the Executive
except that he shall not be dismissed or suffer a loss in status within 36
months of after a "change in control".
<PAGE> 3
2. Termination. Upon the occurrence of an "event of termination", as
defined in paragraph 2C below, during the period of Executive's employment, the
provisions of this paragraph 2 shall apply.
(A) Termination Payments. Upon the occurrence of an "event of
termination", the Bank or Company shall pay Executive monthly, or if Executive
is deceased, his beneficiary or beneficiaries or estate, as the case may be, a
sum equal to the monthly rate of salary paid to Executive 30 days before such
occurrence plus an amount equal to 1/12th of all bonuses paid in the preceding
12 months. These payments shall commence on the last day of the month following
the date of the occurrence of the "event of termination" and shall, along with
the then Bank's or Company's health benefits, continue for 36 months thereafter
less such monthly payments Executive may have received after the "change in
control".
(B) Mitigation of Payments to Executive. Executive shall not be
required to mitigate the amount of any payment provided in this paragraph 2 by
seeking other employment or otherwise. To the extent that Executive receives
salary and benefits from sources other than his capital investments during the
payment period described in paragraph 2(A) the payments under 2(A), shall be
correspondingly reduced. Bank or Company shall make the payments in the amounts
and at the times for these payments had the termination not occurred until
Executive furnishes the Bank and Company with reports of salary and benefits
earned by him from sources other than the Bank and Company, at which time the
Bank and Company may offset the amount of salary and benefits earned by
Executive from such other sources against the next payment due to Executive.
Executive shall first start providing such reports to the Bank and Company at
the time Executive first starts receiving salary and benefits earned by him from
other sources. Executive shall continue to provide such reports on the dates
prescribed by this Agreement for the payments by Bank or Company to Executive
with respect to continuation of salary and benefits.
<PAGE> 4
(C) Definition of Termination. For the purposes of this paragraph 8,
the term "event of termination" shall mean either of the following:
i. The voluntary termination by Executive within 3 years of
direct or indirect "change in control" of the Bank or Company by reason of any
material change by the Bank or the Company in the Executive's salary, function,
duties* or responsibilities which causes the Executive's position with the Bank
and Company to be of less dignity, responsibility, importance or scope from the
position and attributes thereof immediately prior to the "change in control," or
any significant change in geographic location of Executive's place of employment
following a "change in control", or
ii. The Bank's and/or Company's termination of Executive for
any reason, within three years after a direct or indirect "change in control" of
the Bank or Company.
* Executive serves as Title in charge of the Function. In this Executive Officer
capacity his/her responsibilities include duties. Executive reports directly to
the Supervising Officer.
<PAGE> 5
(D) Change in Control. For the purpose of this Agreement, a "change in
control" shall mean:
I. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) OR 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange
Act) of 25% or more of either (a) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (b) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a change in control: (a) any
acquisition directly from the Company, (b) any acquisition by the Company, (c)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or, (d)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (a), (b) and (c) or subsection (iii) of this Section D; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reasons to constitute at least a
majority of the board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business
<PAGE> 6
Combination"), in each case, unless, following such Business Combination, (a)
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all the Company's
assets either directly or through one of more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (b) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly 25% or
more of, respectively, the then outstanding shares of common stock of the
Corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (c)
at lease a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(E) Reduction of Payments in Certain Circumstances. Total payments due
Executive under this agreement will be reduced to the extent necessary to avoid
the provisions of Sections 280G and 4999 of the Internal Revenue Code of 1986,
being applied to the payments under this agreement and any other agreement
providing for
<PAGE> 7
payments to Executive. Such reduction will be accomplished by having such
earlier termination date for such payments due Executive under this or any other
agreement (assuming no mitigation of payments under subparagraph 2(B) hereof)
discounted under Internal Revenue Code Section 1274(b)(2), using the applicable
federal rates as of the "event of termination" does not exceed three times the
base amount as determined under Internal Revenue Code Section 280G. To the
extent actual payments are later reduced as a result of subparagraph 2(B) hereof
actual payment may continue past such earlier termination date, but not beyond
the normal termination provided for in paragraph 2 hereof, so long as such
additional payments do not exceed the amount of such reduction under
subparagraph 2(B). In the event this Agreement and the payments herder are
exempt from the provisions of Section 280G as a result of the provisions of
Section 280G(b)(5) or otherwise, the provisions of the subparagraph 2(D).
3. Joint and Several Liability. The obligations of the Bank and Company
hereunder shall be joint and several provided, however, as long as the Bank is
legally and financially able to make the payments provided for under paragraph 2
hereunder it shall do so rather than the Company.
4. Modification and Waiver.
(A) Amendment of Agreement. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto.
(B) Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
<PAGE> 8
5. Severability. If, for any reason, any provision of this Agreement is
held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall, to the full
extent consistent with law, continue in full force and effect. If any provision
shall be held invalid in part, such invalidity shall in no way affect the rest
of such provision not held so invalid, and the rest of such provision, together
with all other provisions of this Agreement, shall to the full extent consistent
with the law continue in full force and effect. If this Agreement is held
invalid as to either the Bank or Company, it shall continue in effect as to the
other party hereto and to the full extent consistent with the law in full force
and effect as to the other party hereto.
6. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any other provisions of this Agreement.
7. Governing Law. This Agreement has been executed and delivered in the
State of New York, and its validity, interpretation, performance and enforcement
shall be governed by the laws of said State.
8. Binding Agreement. This Agreement shall be binding upon, and insure
to the benefit of the Executive, the Bank and the Company and their respective
permitted successors and assigns.
9. This Agreement shall only be effective for a "change in Control"
which takes place prior to January 1, 2005.
<PAGE> 9
IN WITNESS WHEREOF, the Bank and Company have caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first written.
THE SUFFOLK COUNTY NATIONAL BANK
BY:______________________________________
SUFFOLK BANCORP
BY:______________________________________
Executive
Title
_________________________________________
