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SUFFOLK [LOGO] BANCORP
2000 ANNUAL REPORT on FORM 10-K
[FULL-PAGE PHOTO OF MOUNT SINAI HARBOR AND CEDAR BEACH]
[PHOTO OF MOUNT SINAI HARBOR AND CEDAR BEACH]
On The Cover
Mount Sinai Harbor and Cedar Beach
The land under the historic town of Mount Sinai, New York, was purchased from
native tribes in 1664. Its Indian name was "Nonawantuck." Mount Sinai Harbor was
later famous during the Revolutionary War as a landing place for rebel troops
from Connecticut in 1780. As late as 1874, the town included three stores, a
windmill, two churches, and a school building, serving a population of 280.
Cedar Beach separates the harbor from Long Island Sound, and is a major
recreational resource for the area, providing boaters, fishermen, and
beachcombers access to the Sound. It is the last navigable harbor for nearly 25
miles to the east on Long Island's north shore. Now a residential community with
a number of upscale homes overlooking the water, Mount Sinai is located between
Miller Place, in the foreground, and Port Jefferson, in the background, where
Suffolk maintains full-service branch offices.
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
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
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 economy on eastern Long Island is based on services that support 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.
Financial Highlights
(dollars in thousands, except ratios, share, and per-share information)
- ------------------------------------------------------------------------------------------------------
EARNINGS FOR THE YEAR December 31, 2000 1999
- ------------------------------------------------------------------------------------------------------
Net income $ 16,232 $ 13,129
Net interest income 52,505 46,787
Net income-per-share 2.70 2.16
Cash dividends-per-share 0.92 0.84
- ------------------------------------------------------------------------------------------------------
BALANCES AT YEAR END Assets $ 1,049,580 $ 980,799
Net loans 768,248 720,255
Investment securities 165,971 165,370
Deposits 942,436 877,303
Equity 88,053 77,334
Shares outstanding 5,959,964 6,055,580
Book value per common share $ 14.77 $ 12.77
- ------------------------------------------------------------------------------------------------------
RATIOS Return on average equity 20.42% 17.91%
Return on average assets 1.60 1.41
Average equity to average assets 7.86 7.87
Net interest margin (taxable-equivalent) 5.84 5.66
Efficiency ratio 53.06 57.49
Net charge-offs to average net loans 0.10 0.11
- ------------------------------------------------------------------------------------------------------
Suffolk Bancorp Annual Meeting
Tuesday, April 10, 2001, 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 e-mail to
invest@suffolkbancorp.com.
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.
59 Maiden Lane
New York, New York 10038
1-800-937-5449
Independent Auditors
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
General Counsel
Smith, Finkelstein, Lundberg,
Isler & Yakaboski
456 Griffing Avenue
Riverhead, New York 11901
FDIC Rules and Regulations, Part 350.4(d)
This statement has not been reviewed,
or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
Dear Shareholder:
The year 2000 was another successful year for Suffolk Bancorp and for its wholly
owned subsidiary, The Suffolk County National Bank.
Net income and earnings per share set records, the highest in the company's 111
year history. Average assets exceeded $1 billion for the first time. Net income
was $16,232,000, up fully 23.6 percent from last year. Earnings-per-share were
$2.70 compared to $2.16, an increase of 25.0 percent. Assets at year-end total
$1,049,580,000 compared to $980,799,000, up 7.0 percent. Shareholders' equity
was $88,053,000, up 13.9 percent from $77,334,000. Book value-per-share was
$14.77, up 15.7 percent from $12.77 the previous year. Dividends-per-share were
$0.92, increasing 9.5 percent from $0.84. Average net loans increased by 8.7
percent, to $735,721,000 from $676,810,000. Average deposits increased by 6.0
percent, to $885,625,000 from $835,175,000. Net interest income increased by
12.2 percent to $52,505,000 from $46,787,000. Income other than from interest
increased by 15.4 percent, to $7,813,000 from $6,771,000. Expense other than for
interest increased by 3.9 percent, to $32,002,000 from $30,789,000, and our
efficiency ratio improved to 53.06 percent from 57.49 percent. Return on average
common equity increased to 20.42 percent from 17.91 percent. Return on assets
increased to 1.60 percent from 1.41 percent.
Our performance during 2000 is the result of four basic factors. The first is
the particularly low cost of our core funding, in the bottom tenth in the
industry. This is partly because of the demographics of our service area, with a
large number of customers who prefer the liquidity of traditional savings and
money market accounts. We also have achieved an unusually high proportion of
demand deposits to total deposits, an extraordinary 30.6 percent at December 31,
2000, as we continue to develop relationships with small businesses and
professionals. We seek to meet as many of their financial needs as possible,
either directly or through partnerships with selected providers of non-banking
financial products.
A second factor was the restructuring of our portfolio of earning assets. While
diversifying the loan portfolio into more profitable credits, we have also
increased our position in government-backed collateralized mortgage obligations
to take advantage of greater yields than treasury securities while maintaining
an acceptable risk profile. By careful selection of the "tranches" of these
securities, we have also been able to mitigate the possible effects of a
downward turn in interest rates, building a steadier margin for the future.
Third, a general upswing in interest rates in combination with the propensity of
our assets to re-price more quickly than our liabilities has produced our
unusually broad net interest margin.
Finally, we have held growth in non-interest expense to about 56 percent of the
rate of growth in assets. By consolidating internal operations, we do
considerably more business with only modestly more in resources.
Asset quality is, and remains, good. Net charge-offs continue at only 0.12
percent of average net loans for the fourth or latest quarter, 0.10 percent for
the year. Although net charge-offs increased from year to year, they remain low
in comparison to 26 basis points for the industry last quarter. The allowance
for possible loan losses stands at 1.0 percent of total loans, or 2.87 times
non-performing assets. Suffolk continues to lend within its service area, to its
traditional customers, underwriting to conservative standards.
Banking in the New Millenium
Two thousand was the first year that our assets averaged more than $1 billion.
How did we get there? Banking is an incremental business. As I have remarked
throughout this year, getting the details right is what makes for a strong bank.
Clearly, we were helped by a strong economy, but the key to our success has
been, and will continue to be, strategic
2
discipline. Core value is the result of a series of small decisions made right,
and each decision is tested against our larger strategic objectives. Bit by bit,
we have maximized our margin, leveraged our resources, satisfied our customers,
and rewarded our shareholders. We continue to serve our traditional customers,
even as we work to identify tomorrow's customer. We always look ahead. At the
moment, we have two main strategic objectives.
Market Segmentation
Suffolk, like many banking companies, faces the challenge of retaining its
traditional customers, while at the same time remaining relevant to a new
generation as a provider of financial services. Today, on Long Island, we serve
an expanding, dynamic economy, vastly more diverse than it was even a decade
ago. The days of commercial banking as all things to all people are passing
rapidly. We have determined that it is essential to identify a segment of each
market that we can serve better than our competitors, and stay sharply focused
on it. This focus may vary by location or office, but in general, our efforts
are directed towards small business and professional clients with whom we can
develop a well-rounded relationship, and whom we can serve more personally and
effectively than our larger regional competitors. For that reason, this past
June, we established a private banking division to work with this clientele to
coordinate lending, deposit, trust, and investment relationships throughout the
bank.
Electronic Banking
While much of the initial hype about electronic banking and the Internet has
cooled during the past year, the fact remains that digital banking is the
future. In 1998 we processed 57,522 electronic transactions; in 1999, 295,156;
and in 2000, 1,696,843. For convenience, speed, and accuracy it simply cannot be
beaten, and for our younger customers (and some of the older ones as well),
automatic teller machines, debit cards, Internet banking, electronic bill
payment, and web-based information are an essential part of their banking
experience. We still offer customers such traditional products as passbook
savings, but electronic banking is our farm system for customers in the years to
come, and the most efficient means of delivery.
Suffolk has made substantial investments in the new world of banking. We
currently offer every service mentioned above, and we are committed to staying
with the front of the pack.
Leadership at Suffolk Bancorp
In closing, I would like to honor former directors Raymond A. Mazgulski and
Hallock Luce III, who retired at the 2000 annual meeting. Ray Mazgulski served
SCNB since 1949, in a variety of positions including Chairman and CEO. Bud Luce
had been a director since 1967. Yet again, we forged ahead with an eye to the
future! In November of 2000, Susan V. B. O'Shea joined our board. An
accomplished businesswoman with 20 years' experience in commercial real estate,
her counsel and contacts will be invaluable as we expand to the west.
It is a pleasure to report on a year like 2000. Please take some time to read
"Management's Discussion and Analysis," which starts on page 5. It details our
progress here at Suffolk. As always, I thank you as shareholders for your loyal,
consistent support.
Sincerely,
/s/ Thomas S. Kohlmann
- -----------------------------
Thomas S. Kohlmann
President &
Chief Executive Officer
3
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.
- ----------------------------------------------------------------------------------------------------
2000 High Low Dividends 1999 High Low Dividends
- ----------------------------------------------------------------------------------------------------
First Quarter $ 29.00 $ 25.75 $ 0.23 First Quarter $ 29.00 $ 24.00 $ 0.21
Second Quarter 27.75 25.63 $ 0.23 Second Quarter 28.25 22.88 $ 0.21
Third Quarter 28.75 27.00 $ 0.23 Third Quarter 28.50 26.00 $ 0.21
Fourth Quarter 31.38 27.00 $ 0.23 Fourth Quarter 29.00 26.00 $ 0.21
- ----------------------------------------------------------------------------------------------------
At February 2, 2001, there were approximately 1,900 equity holders of record of
the Company's common stock.
SUMMARY OF SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY: (dollars in thousands except per-share amounts)
- ----------------------------------------------------------------------------------------------------------------
For the years 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Interest income $ 76,853 $ 67,908 $ 65,874 $ 64,129 $ 60,529
Interest expense 24,348 21,121 21,464 20,970 19,372
- ----------------------------------------------------------------------------------------------------------------
Net interest income 52,505 46,787 44,410 43,159 41,157
Provision for possible loan losses 1,200 1,070 900 1,059 1,120
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision 51,305 45,717 43,510 42,100 40,037
Other income 7,813 6,771 8,148 7,646 7,286
Other expense 32,002 30,789 31,200 30,303 28,967
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 27,116 21,699 20,458 19,443 18,356
Provision for income taxes 10,884 8,570 8,555 8,141 7,709
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 16,232 $ 13,129 $ 11,903 $ 11,302 $ 10,647
================================================================================================================
BALANCE AT DECEMBER 31:
Federal funds sold $ 3,700 $ -- $ 17,800 $ 18,500 $ 1,500
Investment securities -- available for sale 149,186 132,484 129,348 120,878 104,649
Investment securities -- held to maturity 16,785 32,886 21,853 26,048 30,704
- ----------------------------------------------------------------------------------------------------------------
Total investment securities 165,971 165,370 151,201 146,926 135,353
Net loans 768,248 720,255 640,565 604,864 578,883
Total assets 1,049,580 980,799 909,432 864,913 804,379
Total deposits 942,436 877,303 826,564 777,595 711,018
Other borrowings -- 13,500 -- -- 7,200
Stockholders' equity $ 88,053 $ 77,334 $ 71,846 $ 65,140 $ 72,750
- ----------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity 20.42% 17.91% 17.66% 16.96% 15.12%
Return on average assets 1.60 1.41 1.37 1.37 1.35
Net interest margin (taxable-equivalent) 5.84 5.66 5.77 5.84 5.84
Efficiency Ratio 53.06 57.49 59.36 59.65 59.80
Average equity to average assets 7.86 7.87 7.77 8.05 8.96
Dividend pay-out ratio 33.41 37.48 36.87 38.34 38.49
Asset quality:
Non-performing assets to total
loans (net of discount) 0.35 0.22 0.34 0.59 1.02
Non-performing assets to total assets 0.26 0.16 0.24 0.41 0.74
Allowance to non-performing assets 287.00 451.55 319.33 182.29 127.12
Allowance to loans, net of discount 1.00 1.00 1.07 1.07 1.05
Net charge-offs to average net loans 0.10 0.11 0.08 0.11 0.17
- ----------------------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income (basic) 2.70 2.16 1.95 1.79 1.60
Cash dividends 0.92 0.84 0.72 0.69 0.62
Book value at year-end 14.77 12.77 11.81 10.69 11.04
Highest market value 31.38 29.00 35.25 33.00 19.88
Lowest market value 25.63 22.88 19.88 19.13 14.75
Average shares outstanding 6,007,956 6,068,778 6,094,826 6,306,299 6,682,064
- ----------------------------------------------------------------------------------------------------------------
Number of full-time-equivalent
employees at year-end 388 389 391 378 372
Number of branch offices at year-end 26 26 26 25 23
Number of automatic teller machines 20 18 18 16 16
================================================================================================================
4
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,
2000 and 1999, 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
The economy on Long Island continued to grow during 2000, but slowed toward
year-end. Volatility and decreases in the stock market were balanced by
increased demand for finance, information, transportation, and tourism, which
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 2000, interest
rates rose and fell, and spreads between long- and short-term rates remained
closer than long-term averages.
Results of Operations
Net Income
Net income was $16,232,000 compared to $13,129,000 last year and $11,903,000 in
1998. These figures represent increases of 23.6 percent and 10.3 percent,
respectively. Basic earnings-per-share were $2.70, compared to $2.16 last year
and $1.95 in 1998.
Net Interest Income
Net interest income during 2000 was $52,505,000, up 12.2 percent from
$46,787,000, which was up 5.4 percent from $44,410,000 in 1999 and 1998,
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 5.84 percent in 2000, 5.66 percent during 1999, and 5.77 percent in
1998. Average rates on average interest-earning assets increased to 8.52 percent
in 2000 from 8.19 percent in 1999, and decreased from 8.53 percent in 1998.
Average rates on average interest-bearing liabilities increased to 3.75 percent
in 2000, from 3.47 percent in 1999 and 3.70 percent in 1998. The interest rate
differential increased slightly in 2000 from 1999 and decreased in 1999 from
1998. Also, demand deposits increased slightly from year to year as a percentage
of total liabilities.
5
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 31,104 $ 1,776 5.71% $ 47,033 $ 2,570 5.47% $ 85,808 $ 5,382 6.27%
Collateralized mortgage obligations 67,445 4,888 7.25 42,644 2,236 5.24 1,108 64 5.78
Obligations of states &
political subdivisions 22,331 1,494 6.69 17,592 1,120 6.36 15,875 1,016 6.41
U.S. government agency obligations 40,281 2,243 5.57 27,375 1,849 6.75 25,257 1,726 6.83
Corporate bonds & other securities 4,440 285 6.42 3,358 225 6.70 807 38 4.71
Federal funds sold & securities purchased
under agreements to resell 7,166 424 5.92 19,318 977 5.06 29,329 1,547 5.27
Loans, including non-accrual loans $ 735,721 66,289 9.01 676,810 59,364 8.77 619,025 56,554 9.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 908,488 $ 77,399 8.52% $834,130 $68,341 8.19% $777,209 $ 66,327 8.53%
====================================================================================================================================
Cash & due from banks $ 60,389 $ 58,744 $ 56,190
Other non-interest-earning assets 42,965 37,999 33,648
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,011,842 $930,873 $867,047
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Saving, N.O.W. & money market deposits $ 370,555 $ 8,998 2.43% $347,817 $ 7,939 2.28% $321,143 $ 7,373 2.30%
Time deposits 264,415 14,460 5.47 255,911 12,926 5.05 256,120 13,938 5.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 634,970 23,458 3.69 603,728 20,865 3.46 577,263 21,311 3.69
Federal funds purchased & securities
sold under agreements to repurchase 3,773 239 6.33 4,173 205 4.91 2,551 153 6.00
Other borrowings 10,299 651 6.32 1,188 51 4.29 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 649,042 $ 24,348 3.75% $609,089 $21,121 3.47% $579,814 $ 21,464 3.70%
====================================================================================================================================
Rate spread 4.77% 4.72% 4.83%
Non-interest-bearing deposits $ 250,655 $231,447 $204,664
Other non-interest-bearing liabilities 32,642 17,037 15,184
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 932,339 $857,573 $799,662
Stockholders' equity 79,503 73,300 67,385
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $1,011,842 $930,873 $867,047
Net interest income (taxable-equivalent
basis) & effective interest
rate differential $ 53,051 5.84% $47,220 5.66% $ 44,863 5.77%
Less: taxable-equivalent basis adjustment (546) (433) (453)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 52,505 $46,787 $ 44,410
====================================================================================================================================
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 2000, 1999, and 1998, $1.00 of nontaxable income
from obligations of states and political subdivisions equates to fully taxable
income of $1.52. In addition, in 2000, 1999, and 1998, $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
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)
- ---------------------------------------------------------------------------------------------------------------
In 2000 over 1999 In 1999 over 1998
Changes Due to Changes Due to
Volume Rate Net Change Volume Rate Net Change
- ---------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ---------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ (905) $ 111 $ (794) $(2,188) $ (624) $(2,812)
Collateralized mortgage obligations 1,600 1,052 2,652 2,178 (6) 2,172
Obligations of states & political subdivisions 315 59 374 109 (5) 104
U.S. government agency obligations 761 (367) 394 143 (20) 123
Corporate bonds & other securities 70 (10) 60 165 22 187
Federal funds sold & securities purchased
under agreement to resell (697) 144 (553) (509) (61) (570)
Loans, including non-accrual loans 5,274 1,651 6,925 5,132 (2,322) 2,810
- ---------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 6,418 $ 2,640 $ 9,058 $ 5,030 $(3,016) $ 2,014
- ---------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
Saving, N.O.W., & money market deposits $ 537 $ 522 $ 1,059 $ 609 $ (43) $ 566
Time deposits 440 1,094 1,534 (11) (1,001) (1,012)
Federal funds purchased & securities
sold under agreements to repurchase (21) 55 34 84 (32) 52
Other borrowings 484 116 600 26 25 51
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 1,440 $ 1,787 $ 3,227 $ 708 $(1,051) $ (343)
- ---------------------------------------------------------------------------------------------------------------
Net change in net interest income
(taxable-equivalent basis) $ 4,978 $ 853 $ 5,831 $ 4,322 $(1,965) $ 2,357
===============================================================================================================
Interest Income
Interest income increased to $76,853,000 in 2000, from $67,908,000 in 1999 and
$65,874,000 in 1998, increases of 13.2 and 3.1 percent, respectively.
Investment Securities
Average investment in U.S. Treasury securities decreased to $31,104,000 from
$47,033,000 in 1999, and $85,808,000 in 1998, a decrease of 33.9 and 45.2
percent, respectively. These balances decreased as funds were shifted into
collateralized mortgage obligations as the spread between Treasury and
non-Treasury yields widened during the period. Average balances of CMO's
increased to $67,445,000 in 2000 from $42,644,000 in 1999, and $1,108,000 in
1998. U.S. Treasury, U.S. government agency, collateralized mortgage
obligations, and municipal securities provide collateral for various liabilities
to municipal depositors. Securities are Suffolk's primary source of liquidity.
The following table summarizes Suffolk's investment securities available for
sale and held to maturity as of the dates indicated: (in thousands)
- -------------------------------------------------------------------------------------------------
December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------
Investment securities available for sale, at fair value:
U.S. Treasury securities $ 31,194 $ 31,060 $ 67,023
U.S. government agency debt securities 34,926 38,930 43,366
Collateralized mortgage obligations 82,049 62,494 18,959
Equity securities 1,017 -- --
- -------------------------------------------------------------------------------------------------
Total investment securities available for sale 149,186 132,484 129,348
- -------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Obligations of states & political subdivisions 13,317 27,835 16,231
U.S. government agency obligations -- 1,583 2,382
Corporate bonds & other securities 3,468 3,468 3,240
- -------------------------------------------------------------------------------------------------
Total investment securities held to maturity 16,785 32,886 21,853
- -------------------------------------------------------------------------------------------------
Total investment securities $165,971 $165,370 $151,201
=================================================================================================
Fair value of investment securities held to maturity $ 17,218 $ 32,723 $ 22,015
Unrealized gains 434 21 162
Unrealized losses 1 184 --
=================================================================================================
7
The amortized cost, maturities, and approximate weighted average yields, on a
taxable-equivalent basis, at December 31, 2000 are as follows: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
--------------------Available for Sale--------------------- Held-to-Maturity
- ------------------------------------------------------------------------------------------------------------------------------
Obligations of Corporate
U.S. Collateralized States & Bonds &
U.S. Treasury Govt. Agency Mortgage Equity Political Other
Securities Debt Obligations Securities Subdivisons Securities
- ------------------------------------------------------------------------------------------------------------------------------
Fair Fair Fair Fair Amortized Amortized
Maturity (in years) Value Yield Value Yield Value Yield Value Cost Yield Cost Yield Total
- ------------------------------------------------------------------------------------------------------------------------------
Within 1 $25,100 5.40% $ 4,960 6.54% $ -- -- % $ -- $ 9,765 4.46% $ -- -- $ 39,825
After 1 but within 5 6,094 6.81 29,966 5.67 -- -- -- 300 5.55 -- -- $ 36,360
After 5 but within 10 -- -- -- -- -- -- -- 507 5.56 -- -- $ 507
After 10 -- -- -- -- 82,049 7.11 -- 2,745 6.50 -- -- $ 84,794
Other securities -- -- -- -- -- 1,017 -- -- 3,468 $ 4,485
- ------------------------------------------------------------------------------------------------------------------------------
Total $31,194 5.68% $34,926 5.79% $82,049 7.11% $1,017 $13,317 4.95% $3,468 $165,971
==============================================================================================================================
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 7.32 percent.
Loan Portfolio
Loans, net of unearned discounts but before the allowance for possible loan
losses, totaled $775,997,000.
Consumer loans are the largest component of Suffolk's loan portfolio. Net of
unearned discounts, they totaled $335,679,000 at the end of 2000, up 8.4 percent
from $309,653,000 at the year-end 1999. 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 $158,443,000, down
2.4 percent from $162,321,000 last year. Commercial and industrial loans
followed at $133,524,000, up 1.6 percent from $131,429,000 at the end of 1999.
As commerce on Long Island continued to expand, both commercial mortgages and
loans offered opportunity, 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 $89,337,000, up 8.4 percent from $82,411,000; home equity loans at
$21,824,000, up 4.8 percent from $20,834,000; and construction loans at
$34,393,000, up 91.5 percent from $17,956,000.
The following table categorizes total loans (net of unearned discounts) at
December 31: (in thousands)
- -------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans $133,524 $131,429 $123,463 $111,575 $102,263
Commercial real estate mortgages 158,443 162,321 128,923 127,994 113,501
Real estate -- construction loans 34,393 17,956 12,500 9,823 9,437
Residential mortgages (1st and 2nd liens) 89,337 82,411 73,754 67,061 64,093
Home equity loans 21,824 20,834 21,980 26,201 28,974
Consumer loans 335,679 309,653 284,697 266,244 265,039
Lease finance -- -- -- 7 98
Other loans 2,797 2,921 2,203 2,483 1,592
- -------------------------------------------------------------------------------------------------
Total loans (net of unearned discounts) $775,997 $727,525 $647,520 $611,388 $584,997
=================================================================================================
8
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)
- --------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Loans accruing but past due
contractually 90 days or more $ 949 $1,741 $2,168 $1,941 $ 975
Loans not accruing interest 2,469 1,132 1,546 2,491 3,834
Restructured loans 56 275 291 426 208
- --------------------------------------------------------------------------------
Total $3,474 $3,148 $4,005 $4,858 $5,017
================================================================================
Interest on loans that are restructured or are no longer accruing interest would
have amounted to about $264,000 for 2000 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 2000, 1999, and 1998. 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 2000 was 0.10, compared to 0.11 percent in 1999, and 0.08 percent
during 1998. The ratio of the allowance for possible loan losses to loans, net
of discounts, was 1.00 percent at the end of 2000 as it was in 1999, and 1.07
percent in 1998. The allowance for possible loan losses has seven major
categories. A summary of transactions follows: (in thousands)
- -------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------
Allowance for possible loan losses, January 1, $7,270 $6,955 $6,524 $6,113 $5,923
Loans charged-off:
Commercial, financial & agricultural loans 130 320 176 278 322
Commercial real estate mortgages -- -- -- -- 369
Real estate -- construction loans -- -- -- -- --
Residential mortgages (1st and 2nd liens) -- 9 1 -- --
Home equity loans -- -- -- 76 47
Consumer loans 750 605 494 480 518
Lease finance -- -- 2 -- --
Other loans 17 -- -- -- --
- -------------------------------------------------------------------------------------------
Total Charge-offs $ 897 $ 934 $ 673 $ 834 $1,256
- -------------------------------------------------------------------------------------------
9
- -------------------------------------------------------------------------------------------------------
Loans recovered after being charged-off
- -------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans 25 22 52 35 111
Commercial real estate mortgages -- -- -- -- 4
Real estate -- construction loans -- -- -- -- --
Residential mortgages (1st and 2nd liens) -- 1 1 -- --
Home equity loans 9 -- -- -- --
Consumer loans 142 156 145 151 209
Lease finance -- -- 6 -- --
Other loans -- -- -- -- 2
- -------------------------------------------------------------------------------------------------------
Total recoveries $ 176 $ 179 $ 204 $ 186 $ 326
- -------------------------------------------------------------------------------------------------------
Net loans charged-off 721 755 469 648 930
Provision for possible loan losses 1,200 1,070 900 1,059 1,120
- -------------------------------------------------------------------------------------------------------
Allowance for possible loan losses, December 31, $7,749 $7,270 $6,955 $6,524 $6,113
=======================================================================================================
The following table presents information concerning loan balances and asset
quality: (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Loans, net of discounts:
Average $735,721 $676,810 $619,025 $588,686 $544,258
At end of period 775,997 727,525 647,520 611,388 584,997
Non-performing assets/total loans (net of discounts) 0.35% 0.22% 0.34% 0.04% 1.02%
Non-performing assets/total assets 0.26 0.16 0.24 0.36 0.74
Ratio of net charge-offs/average net loans 0.10 0.11 0.08 0.11 0.17
Net charge-offs/net loans at December 31, 0.09 0.10 0.07 0.11 0.16
Allowance for possible loan losses/loans, net of discounts 1.00 1.00 1.07 1.07 1.05
=====================================================================================================================
Interest Expense
Interest expense in 2000 was $24,348,000, up 15.3 percent from $21,121,000 the
year before, which was down 1.6 percent from $21,464,000 during 1998. Most
interest was paid for the deposits of individuals, businesses, and various
governments and their agencies. Short-term borrowings, which may include federal
funds purchased (short-term lending by other banks), securities sold under
agreements to repurchase, Federal Home Loan Bank borrowings, and the Federal
Reserve Bank discount window, were used occasionally. Short-term borrowings
averaged $14,072,000 during 2000, $5,361,000 during 1999, and $2,551,000 during
1998.
Deposits
Average interest-bearing deposits increased to $634,970,000 in 2000, up 5.2
percent from $603,728,000 in 1999. Savings, N.O.W., and money market deposits
increased during 2000, averaging $370,555,000, up 6.5 percent from 1999 when
they averaged $347,817,000. Average time certificates of less than $100,000
totaled $239,484,000, up 3.1 percent from $232,254,000 in 1999. Average time
certificates of $100,000 or more totaled $24,931,000, up 5.4 percent from
$23,657,000 during 1999.
The following table classifies average deposits for each of the periods
indicated: (in thousands)
- -----------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Rate Paid Rate Paid Rate Paid
- -----------------------------------------------------------------------------------------------------------
Demand deposits $ 250,655 $ 231,447 $ 204,664
Savings deposits 249,442 2.78% 227,906 2.59% 197,091 2.54%
N.O.W. & money market deposits 121,113 1.70 119,911 1.70 124,052 1.91
Time certificates of $100,000 or more 24,931 5.50 23,657 4.79 24,977 5.17
Other time deposits 239,484 5.47 232,254 5.08 231,143 5.47
- -----------------------------------------------------------------------------------------------------------
Total deposits $ 885,625 $ 835,175 $ 781,927
===========================================================================================================
10
At December 31, 2000, the remaining maturities of time certificates of $100,000
or more were as follows: (in thousands)
- --------------------------------------------------------------------------------
3 months or less $ 9,561
Over 3 through 6 months 11,778
Over 6 through 12 months 1,289
Over 12 months 547
- --------------------------------------------------------------------------------
Total $ 23,175
================================================================================
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 $3,773,000 and $1,868,000 for 2000 and
1999, respectively. Average balances of Federal Home Loan Bank borrowings were
$10,299,000 during 2000 and $1,188,000 during 1999. There were no retail
repurchase agreements during 2000, and average balances were $2,305,000 during
1999.
Other Income
Other income increased to $7,813,000 during 2000, up 15.4 percent from
$6,771,000 during 1999 and down 16.9 percent from $8,148,000 during 1998.
Service charges on deposit accounts were up 16.4 percent from 1999 to 2000, and
up 2.8 percent from 1998 to 1999. Other service charges were up 22.1 percent and
down 56.6 percent for the same periods, respectively. Fiduciary fees in 2000
totaled $813,000, up 15.8 percent from 1999 when they amounted to $702,000 and
up 24.0 percent from 1998, at $566,000.
Other Expense
Other expense during 2000 was $32,002,000, up 3.9 percent from 1999 when it was
$30,789,000 and down 1.3 percent from $31,200,000 in 1998. During 2000,
non-interest expense grew at 3.9% while average assets grew by 8.7% further
increasing efficiency. 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, 2000: (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
MATURITY: Less than 3 to 6 7 to 12 More Than Not Rate
3 Months Months Months 1 Year Sensitive Total
- ---------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ---------------------------------------------------------------------------------------------------------------
Domestic loans (1) (net of
unearned discount) $192,625 $ 67,153 $114,147 $ 398,104 $3,968 $775,997
Investment securities (2) 16,794 19,282 13,519 111,890 3,468 164,953
Federal Funds Sold 3,700 -- -- -- -- 3,700
- ---------------------------------------------------------------------------------------------------------------
Total interest-earning assets $213,119 $ 86,435 $127,666 $ 509,994 $7,436 $944,650
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS AND INTEREST-BEARING
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
Demand deposits (3) $ 14,543 $ 14,543 $ 29,087 $ 231,542 $ -- $289,715
N.O.W. & money market accounts (4) 6,275 6,275 12,550 100,397 -- 125,497
Borrowings -- -- -- -- -- --
Interest-bearing deposits (5) 94,155 52,462 77,153 303,754 -- 527,524
- ---------------------------------------------------------------------------------------------------------------
Total demand deposits & interest-bearing
liabilities $114,973 $ 73,280 $118,790 $ 635,693 $ -- $942,736
===============================================================================================================
Gap 98,146 13,155 8,876 (125,699) 7,436 1,914
===============================================================================================================
Cumulative difference between interest-
earning assets and interest-bearing
liabilities 98,146 111,301 120,177 (5,522) 1,914
===============================================================================================================
Cumulative difference/total assets 9.35% 10.60% 11.45% (0.53)% 0.18%
===============================================================================================================
11
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, 2000, 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, 2000. Suffolk's Board has
approved a policy limit of 12.5 percent.
Estimated NII
Rate Change Sensitivity
+200 basis point rate shock 1.17%
-200 basis point rate shock (1.49)%
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 they will actually predict results, nor can they anticipate how the
behavior of customers and competitors may change in the future.
12
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, 2000, 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 $5,266,000 at
December 31, 2000: (in thousands)
- --------------------------------------------------------------------------------
After 1 but After
INTEREST RATE PROVISION Within 5 Years 5 Years Total
- --------------------------------------------------------------------------------
Predetermined rates $244,385 $48,102 $292,487
Floating or adjustable rates 104,215 4,093 108,308
- --------------------------------------------------------------------------------
Total $348,600 $52,195 $400,795
================================================================================
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
$350,000 at December 31, 2000: (in thousands)
- -------------------------------------------------------------------------------------------
Due Within After 1 but After
1 Year Before 5 Years 5 Years Total
- -------------------------------------------------------------------------------------------
Commercial, financial & agricultural $ 99,169 $17,179 $16,826 $133,174
Real estate construction 34,393 -- -- 34,393
- -------------------------------------------------------------------------------------------
Total $133,562 $17,179 $16,826 $167,567
===========================================================================================
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
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.
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 $94,978,000, compared to $86,442,000 at
year-end 1999 and $78,768,000 at year-end 1998. During 2000, Suffolk repurchased
95,616 shares for an aggregate price of $2,640,949. Management determined that
this would increase leverage while preserving capital ratios well above
regulatory requirements.
The following table presents Suffolk's capital ratio and other related ratios
for each of the past five years: (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
2000(1) 1999(1) 1998(1) 1997(1) 1996(1)
- ---------------------------------------------------------------------------------------------------------------------
Primary capital at year-end $ 94,978 $ 86,442 $ 78,768 $ 71,210 $ 78,405
Primary capital at year-end as a percentage of year-end:
Total assets plus allowance for possible loan losses 8.98% 8.75% 8.60% 8.17% 9.67%
Loans, net of unearned discounts 12.24% 11.88% 12.16% 11.65% 13.40%
Total deposits 10.08% 9.85% 9.53% 9.16% 10.95%
=====================================================================================================================
(1) Capital ratios do not include the effect of SFAS No. 115 "Accounting for
Certain Investments in Debt and Investment Securities."
13
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 2000 on average assets of 1.60 percent and
average common equity of 20.42 percent increased from 1999 when returns were
1.41 percent and 17.91 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 the Bank currently
has available to pay dividends is approximately $31,318,000.
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, 2000,
Suffolk's ratios of core capital and total qualifying capital (core capital plus
Tier 2 capital) to risk-weighted assets were 10.03 percent and 10.93 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. Management has determined that the implementation of SFAS No. 133
and SFAS No. 137 will not be material to 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
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
2000 1999
ASSETS
Cash and Due From Banks $ 69,584,106 $ 53,452,328
Federal Funds Sold 3,700,000 --
Investment Securities:
Available for Sale, at Fair Value 149,185,819 132,483,969
Held to Maturity (Fair Value of $17,218,000 and $32,723,000, respectively)
U.S. Government Agency Obligations -- 1,583,659
Obligations of States and Political Subdivisions 13,317,050 27,834,795
Corporate Bonds and Other Securities 3,467,949 3,467,949
--------------- -------------
Total Investment Securities 165,970,818 165,370,372
Total Loans 777,284,069 728,620,876
Less: Unearned Discounts 1,287,394 1,095,396
Allowance for Possible Loan Losses 7,748,513 7,270,063
--------------- -------------
Net Loans 768,248,162 720,255,417
Premises and Equipment, Net 13,445,252 14,344,706
Other Real Estate Owned, Net 175,114 202,889
Accrued Interest Receivable 6,298,134 5,870,990
Excess of Cost Over Fair Value of Net Assets Acquired 1,176,377 1,538,309
Other Assets 20,981,605 19,763,933
--------------- -------------
TOTAL ASSETS $ 1,049,579,568 $ 980,798,944
=============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits $ 288,656,448 $ 242,396,732
Saving, N.O.W., and Money Market Deposits 378,212,374 369,920,992
Time Certificates of $100,000 or more 23,175,261 23,458,239
Other Time Deposits 252,392,058 241,526,628
--------------- -------------
Total Deposits 942,436,141 877,302,591
Federal Home Loan Bank Borrowings -- 13,500,000
Dividend Payable on Common Stock 1,373,091 1,273,142
Accrued Interest Payable 3,324,560 2,462,829
Other Liabilities 14,393,244 8,926,158
--------------- -------------
TOTAL LIABILITIES 961,527,036 903,464,720
--------------- -------------
Commitments and Contingent Liabilities (see note 10)
STOCKHOLDERS' EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized, 5,959,964
and 6,055,580 shares outstanding at December 31, 2000 & 1999, respectively) 19,026,050 19,026,050
Surplus 18,456,432 18,456,432
Undivided Profits 53,873,370 45,576,295
Treasury Stock at Par (1,650,456 shares and 1,554,840 shares, respectively) (4,126,144) (3,887,104)
Accumulated Other Comprehensive Income (Loss), Net of Tax 822,824 (1,837,449)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 88,052,532 77,334,224
--------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,049,579,568 $ 980,798,944
=============== =============
See accompanying notes to consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF INCOME
For the Years ended December 31,
2000 1999 1998
INTEREST INCOME
Federal Funds Sold $ 423,490 $ 976,553 $ 1,547,366
United States Treasury Securities 1,741,538 2,520,067 5,275,913
Obligations of States and Political Subdivisions (tax exempt) 982,822 736,671 668,630
Mortgage-Backed Securities 4,887,822 1,849,481 --
U.S. Government Agency Obligations 2,243,358 2,235,815 1,789,543
Corporate Bonds and Other Securities 284,566 225,019 38,271
Loans 66,289,111 59,364,038 56,554,262
----------- ----------- -----------
Total Interest Income 76,852,707 67,907,644 65,873,985
INTEREST EXPENSE
Saving, N.O.W., and Money Market Deposits 8,997,810 7,938,325 7,373,572
Time Certificates of $100,000 or more 1,371,397 1,132,984 1,292,356
Other Time Deposits 13,088,266 11,793,155 12,645,571
Federal Funds Purchased 239,634 205,121 152,771
Interest on Other Borrowings 651,064 50,965 --
----------- ----------- -----------
Total Interest Expense 24,348,171 21,120,550 21,464,270
Net Interest Income 52,504,536 46,787,094 44,409,715
Provision for Possible Loan Losses 1,200,000 1,070,000 900,000
----------- ----------- -----------
Net Interest Income After Provision for Possible Loan Losses 51,304,536 45,717,094 43,509,715
OTHER INCOME
Service Charges on Deposit Accounts 4,729,846 4,063,678 3,954,639
Other Service Charges, Commissions & Fees 1,449,168 1,186,676 2,733,446
Fiduciary Fees 812,565 701,800 565,628
Other Operating Income 822,166 819,191 894,707
----------- ----------- -----------
Total Other Income 7,813,745 6,771,345 8,148,420
OTHER EXPENSE
Salaries & Employee Benefits 17,711,469 17,048,043 16,533,586
Net Occupancy Expense 2,589,307 2,391,873 2,487,646
Equipment Expense 2,568,947 2,375,113 2,316,824
Outside Services 1,497,943 1,623,096 2,486,712
FDIC Assessments 180,011 95,977 90,379
Amortization of Excess Cost
Over Fair Value of Net Assets Acquired 361,932 361,932 361,932
Net Loss on Sale of Securities 25,517 -- --
Other Operating Expense 7,067,305 6,892,988 6,922,516
----------- ----------- -----------
Total Other Expense 32,002,431 30,789,022 31,199,595
Income Before Provision for Income Taxes 27,115,850 21,699,417 20,458,540
Provision for Income Taxes 10,883,424 8,570,356 8,555,575
=========== =========== ===========
NET INCOME $16,232,426 $13,129,061 $11,902,965
=========== =========== ===========
Average: Common Shares Outstanding 6,007,956 6,068,778 6,094,826
Dilutive Stock Options 7,490 6,907 9,097
------------ ----------- -----------
Average Total Common Shares and Dilutive Options 6,015,446 6,075,685 6,103,923
EARNINGS PER COMMON SHARE Basic $ 2.70 $ 2.16 $ 1.95
Diluted $ 2.70 $ 2.16 $ 1.95
See accompanying notes to consolidated financial statements.
16
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other Comprehensive
Income,
Common Undivided Treasury Gain (Loss) Comprehensive
Stock Surplus Profits Stock Net of Tax Total Income
====================================================================================================================================
Balance, December 31, 1997 $19,026,050 $18,456,432 $ 30,991,694 $(3,787,664) $ 453,955 $ 65,140,467
Net Income -- -- 11,902,965 -- -- 11,902,965 $ 11,902,965
Dividend -- -- (4,388,296) -- -- (4,388,296)
Purchase of Treasury Stock -- -- (351,247) (36,250) -- (387,497)
Net Change in Unrealized
Loss on Securities Available
for Sale -- -- -- -- (421,840) (421,840) (421,840)
------------
Comprehensive Income $ 11,481,125
====================================================================================================================================
Balance, December 31, 1998 $19,026,050 $18,456,432 $ 38,155,116 $(3,823,914) $ 32,115 $ 71,845,799
Net Income -- -- 13,129,061 -- -- 13,129,061 $ 13,129,061
Dividend -- -- (5,096,978) -- -- (5,096,978)
Purchase of Treasury Stock -- -- (610,904) (63,190) -- (674,094)
Net Change in Unrealized Loss on
Securities Available for Sale -- -- -- -- (1,869,564) (1,869,564) (1,869,564)
------------
Comprehensive Income $ 11,259,497
====================================================================================================================================
Balance, December 31, 1999 $19,026,050 $18,456,432 $ 45,576,295 $(3,887,104) $(1,837,449) $ 77,334,224
Net Income -- -- 16,232,426 -- -- 16,232,426 $ 16,232,426
Dividend -- -- (5,521,878) -- -- (5,521,878)
Purchase of Treasury Stock -- -- (2,401,909) (239,040) -- (2,640,949)
Other -- -- (11,564) -- -- (11,564)
Net Change in Unrealized
Gain on Securities Available
for Sale -- -- -- -- 2,660,273 2,660,273 2,660,273
------------
Comprehensive Income $ 18,892,699
====================================================================================================================================
Balance, December 31, 2000 $19,026,050 $18,456,432 $ 53,873,370 $(4,126,144) $ 822,824 $ 88,052,532
See accompanying notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31,
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 16,232,426 $ 13,129,061 $ 11,902,965
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses 1,200,000 1,070,000 900,000
Depreciation and Amortization 2,041,386 2,073,649 1,936,784
Amortization of Cost Over Fair Value of Net Assets Acquired 361,932 361,932 361,932
Accretion of Discounts (284,241) (757,095) (1,013,601)
Amortization of Premiums 594,291 721,463 206,152
(Increase) Decrease in Accrued Interest Receivable (427,144) (506,247) 183,159
Increase in Other Assets (1,189,897) (1,006,128) (2,117,516)
Increase (Decrease) in Accrued Interest Payable 861,731 (404,024) (207,789)
Increase (Decrease) in Income Taxes Payable 809,253 1,192,942 (642,355)
Increase (Decrease) in Other Liabilities 3,001,809 850,587 (10,304,608)
Net Loss on Sale of Securities 25,517 850,587 (10,304,608)
------------ ------------- -------------
Net Cash Provided by Operating Activities 23,227,063 16,726,140 1,205,123
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities 2,171,050 894,423 4,710,692
Proceeds from Sale of Investment Securities; Available for Sale 10,425,483 -- --
Maturities of Investment Securities; Available for Sale 6,000,000 15,932,250 102,815,000
Purchases of Investment Securities; Available for Sale (29,546,220) (27,757,283) (111,244,932)
Maturities of Investment Securities; Held to Maturity 30,698,583 109,000,000 16,620,750
Purchases of Investment Securities; Held to Maturity (16,185,500) (115,372,114) (17,089,190)
Loan Disbursements and Repayments, Net (49,387,421) (79,637,629) (36,397,474)
Purchases of Premises and Equipment, Net (1,141,932) (1,168,806) (1,004,681)
Disposition of Other Real Estate Owned -- 93,073 350,856
------------ ------------- -------------
Net Cash Used in Investing Activities (46,965,957) (98,016,086) (41,238,979)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts 65,133,550 50,738,729 48,969,042
(Decrease) Increase in Federal Funds Purchased (13,500,000) 13,500,000 --
Dividends Paid to Shareholders (5,421,929) (4,920,639) (4,388,656)
Treasury Shares Acquired (2,640,949) (674,094) (387,497)
------------ ------------- -------------
Net Cash Provided by Financing Activities 43,570,672 58,643,996 44,192,889
------------ ------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 19,831,778 (22,645,950) 4,159,033
Cash and Cash Equivalents Beginning of Year 53,452,328 76,098,278 71,939,245
------------ ------------- -------------
Cash and Cash Equivalents End of Year $ 73,284,106 $ 53,452,328 $ 76,098,278
============ ============= =============
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest $ 76,425,563 $ 67,401,397 $ 66,057,144
============ ============= =============
Cash Paid During the Year for:
Interest $ 23,486,440 $ 21,524,575 $ 21,672,059
Income Taxes 10,074,171 7,078,929 9,197,930
------------ ------------- -------------
Total Cash Paid During Year for Interest & Income Taxes $ 33,560,611 $ 28,603,504 $ 30,869,989
============ ============= =============
Non-Cash Investing and Financing (loans re-classified as
"other real estate owned," including foreclosures) $ -- $ 138,073 $ 94,848
Increase (Decrease) in Market Value of Investments 4,282,863 (3,059,888) (712,129)
(Increase) Decrease in Deferred Tax Liability Related to Market Value
of Investments Available for Sale (1,755,974) 1,299,189 291,973
Dividends Declared But Not Paid 1,373,091 1,273,142 1,096,804
18
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
Suffolk 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
(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) 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.
(M) 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 securities available
for sale.
(N) 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
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, 2000 and 1999 were: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
---------------------2000--------------------- 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Gross Gross Estimated Gross Gross
Amortized Fair Unrealized Unrealized Amortized Fair Unrealized Unrealized
Cost Value Gains Losses Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury securities $ 31,115 $ 31,194 $ 107 $ (28) $ 31,329 $ 31,060 $ -- $ (269)
U.S. government agency debt 34,997 34,926 -- (71) 40,217 38,930 -- (1,287)
Collateralized mortgage obligations 80,889 82,049 1,226 (66) 64,053 62,494 8 (1,567)
Equity securities 797 1,017 220 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 147,798 149,186 1,553 (165) 135,599 132,484 8 (3,123)
- ------------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of states and
political subdivisions 13,317 13,750 434 (1) 27,835 27,658 7 (184)
U.S. govt. agency obligations -- -- -- -- 1,583 1,597 14 --
Other securities 3,468 3,468 -- -- 3,468 3,468 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 16,785 17,218 434 (1) 32,886 32,723 21 (184)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $164,583 $166,404 $1,987 $(166) $168,485 $165,207 $ 29 $(3,307)
====================================================================================================================================
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 of Suffolk's investment securities
at December 31, 2000 are as follows: (in thousands)
- --------------------------------------------------------------------------------------------------
Available for Sale
- --------------------------------------------------------------------------------------------------
U.S. Collateralized
U.S. Treasury Govt. Agency Mortgage Equity
Securities Debt Obligations(1) Securities
- --------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Maturity (in years) Cost Value Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------
Within 1 $25,129 $25,100 $ 4,960 $ 4,960 $ -- $ -- $ -- $ --
After 1 but within 5 5,986 6,094 30,037 29,966 -- -- -- --
After 5 but within 10 -- -- -- -- -- -- -- --
After 10 -- -- -- -- 80,889 82,049 -- --
Other Securities -- -- -- -- -- -- 797 1,017
- --------------------------------------------------------------------------------------------------
Total $31,115 $31,194 $34,997 $34,926 $80,889 $82,049 $ 797 $1,017
==================================================================================================
- --------------------------------------------------------------------------------
Held to Maturity
- --------------------------------------------------------------------------------
Obligations of Total
States & Political Other Amortized
Subdivisions Securities Cost
- --------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------
Within 1 $ 9,765 $ 9,768 $ -- $ -- $ 39,854
After 1 but within 5 300 309 -- -- $ 36,323
After 5 but within 10 507 537 -- -- $ 507
After 10 2,745 3,136 -- -- $ 83,634
Other Securities -- -- 3,468 3,468 $ 4,265
- --------------------------------------------------------------------------------
Total $13,317 $13,750 $3,468 $3,468 $164,583
================================================================================
(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 collateralized mortgage obligations will differ from
contractual maturities because the mortgage-loan borrowers have the right to
prepay obligations with or without penalties. Actual maturities of U.S.
government agency obligations will differ from contractual maturities because
the issuer can call the security before it is due.
At December 31, 2000 and 1999, investment securities carried at $130,484,000 and
$108,000,000, respectively, were pledged to secure trust deposits and public
funds on deposit.
During 2000, proceeds from sales of securities available for sale were
$10,451,000, resulting in realized gains of $88,000 and realized losses of
$113,000.
21
Note 3 -- Loans
At December 31, 2000 and 1999, loans included the following: (in thousands)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Commercial, financial, and agricultural $ 133,524 $ 131,429
Commercial real estate 158,443 162,321
Real estate construction loans 34,393 17,956
Residential mortgages (1st and 2nd liens) 89,337 82,411
Home equity loans 22,010 20,834
Consumer loans 336,780 310,748
Other loans 2,797 2,921
- --------------------------------------------------------------------------------
777,284 728,620
Unearned discounts (1,287) (1,095)
Allowance for possible loan losses (7,749) (7,270)
- --------------------------------------------------------------------------------
Balance at end of year $ 768,248 $ 720,255
================================================================================
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 $3,474,000 and $3,148,000 at December 31, 2000 and 1999, respectively.
Interest on loans that have been restructured or are no longer accruing interest
would have amounted to $264,000 during 2000, $105,000 during 1999, and $143,000
during 1998, under the contractual terms of those loans. Interest income
recognized on restructured and non-accrual loans was immaterial for the years
2000, 1999, and 1998.
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 $15,110,000 and $6,336,000 at December 31, 2000 and
1999, respectively. Unused portions of lines of credit to directors and
executives, directly or indirectly, totaled $12,136,000 and $8,197,000. New
loans totaling $31,000,000 were granted and payments of $22,226,000 were
received during 2000.
Note 4 -- Allowance For Possible Loan Losses
An analysis of the changes in the Allowance for Possible Loan Losses follows:
(in thousands)
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Balance at beginning of year $ 7,270 $ 6,955 $ 6,524
Provision for possible loan losses 1,200 1,070 900
Loans charged-off (897) (934) (673)
Recoveries on loans 176 179 204
- --------------------------------------------------------------------------------
Balance at end of year $ 7,749 $ 7,270 $ 6,955
================================================================================
At December 31, 2000 and 1999, 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)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Recorded investment $ 1,868 $ 170
Valuation allowance 1,091 98
- --------------------------------------------------------------------------------
This valuation allowance is included in the allowance for loan losses on the
statements of condition.
The average investment in impaired loans in 2000 was $1,039,000, compared to
$401,000 in 1999.
Note 5 -- Premises And Equipment
The following table details premises and equipment: (in thousands)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Land $ 3,399 $ 3,333
Premises 8,118 7,791
Furniture, fixtures & equipment 15,668 17,337
Leasehold improvements 1,321 1,292
- --------------------------------------------------------------------------------
28,506 29,753
Accumulated depreciation
and amortization (15,061) (15,408)
- --------------------------------------------------------------------------------
Balance at end of year $ 13,445 $ 14,345
================================================================================
Depreciation and amortization charged to operations amounted to $2,041,000,
$2,074,000, and $1,937,000 during 2000, 1999, and 1998, 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 2000 and 1999: (dollars in
thousands)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Daily average outstanding $14,072 $ 5,361
Total interest cost 890 256
Average interest rate paid 6.32% 4.78%
Maximum amount outstanding at any
month-end $56,500 $40,616
December 31, balance -- 13,500
Weighted-average interest rate
on balances outstanding at December 31 -- % 5.10%
================================================================================
Suffolk has no assets pledged as collateral to the Federal Reserve Bank as of
December 31, 2000. Assets pledged as collateral to the Federal Home Loan Bank as
of December 31, 2000 totaled $51,530,000.
22
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. Shareholders may also make additional cash purchases. No shares
were issued in 2000, 1999, or 1998.
At the end of December 31, 2000, 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:
- --------------------------------------------------------------------------------
Shares Wtd. Avg. Exercise
- --------------------------------------------------------------------------------
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
Options granted 9,500 26.25
Options exercised -- --
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 2000 55,200 $ 23.81
================================================================================
Options outstanding at December 31, 2000 have a weighted-average exercise price
of $23.81 and a remaining contractual life of 7.38 years; 45,700 of these
options were exercisable. The weighted-average, fair value of the options
granted during 2000 was $7.72. 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 2000: risk-free interest
rate of 6.73 percent; expected dividend yield of 2.78 percent; expected life of
ten years; and expected volatility of 19.10 percent.
Options outstanding at December 31, 1999 had 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.
No options were granted during 1998.
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)
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Net Income: As Reported $ 16,232 $ 13,129 $ 11,903
Pro Forma 16,192 13,096 11,876
- --------------------------------------------------------------------------------
Basic EPS: As Reported 2.70 2.16 1.95
Pro Forma 2.70 2.16 1.95
- --------------------------------------------------------------------------------
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, 2000, approximately $31,318,000 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
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)
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Current: Federal $ 8,653 $ 7,242 $ 6,571
State 1,711 1,478 1,674
- --------------------------------------------------------------------------------
10,364 8,720 8,245
Deferred: Federal 643 205 247
State (124) (355) 63
- --------------------------------------------------------------------------------
519 (150) 310
- --------------------------------------------------------------------------------
Total $ 10,883 $ 8,570 $ 8,555
================================================================================
The total tax expense was greater than the amounts computed by applying the
federal income tax rate because of the following:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Federal income tax expense
at statutory rates 35% 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 4% 5% 6%
Other 1% 0% 2%
- --------------------------------------------------------------------------------
Total 40% 39% 42%
================================================================================
The effect of temporary differences between tax and financial accounting that
create significant deferred-tax assets and liabilities at December 31, 2000 and
1999, and the recognition of income and expense for purposes of tax and
financial reporting, that resulted in a net decrease to Suffolk's net deferred
tax asset for the years ended December 31, 2000 and 1999 are presented below:
(in thousands)
- --------------------------------------------------------------------------------
2000 1999 Change
- --------------------------------------------------------------------------------
Deferred tax assets:
Provision for possible
loan losses $3,217 $2,977 $ 240
Securities available for sale -- 1,277 (1,277)
Post-retirement benefits 895 540 355
Deferred compensation 865 593 272
Other 777 755 22
- --------------------------------------------------------------------------------
Total deferred tax assets
before valuation allowance 5,754 6,142 (388)
Valuation allowance -- -- --
- --------------------------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 5,754 6,142 (388)
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Pension 1,742 1,390 352
Securities available for sale 1,756 -- 1,756
- --------------------------------------------------------------------------------
Total deferred tax liabilities 3,498 1,390 2,108
- --------------------------------------------------------------------------------
Net deferred tax asset $2,256 $4,752 $(2,496)
================================================================================
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, 2000 and September 30, 1999, the time at which the annual
valuation of the plan is made.
The following table sets forth the Plan's change in benefit obligation:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 12,243,405 $ 11,130,492
Service cost 773,131 706,713
Interest cost 839,619 761,401
Actuarial (gain) loss (511,677) 272,009
Benefits paid (625,782) (627,210)
- --------------------------------------------------------------------------------
Benefit Obligation at end of year $ 12,718,696 $ 12,243,405
================================================================================
The following table sets forth the Plan's change in Plan Assets:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Fair value of Plan Assets at beginning of year $ 16,293,706 $ 14,653,280
Actual return on Plan Assets 1,675,077 2,267,636
Employer contribution 958,944 --
Benefits paid (625,782) (627,210)
- --------------------------------------------------------------------------------
Fair value of Plan Assets at end of year $ 18,301,945 $ 16,293,706
================================================================================
The following table summarizes the funded status of the Plan:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Funded status $ 5,583,249 $ 4,050,301
Unrecognized net transition liability (226,352) (280,340)
Unrecognized prior service cost (48,515) (52,494)
Unrecognized net gain (1,321,122) (532,011)
- --------------------------------------------------------------------------------
Prepaid cost $ 3,987,260 $ 3,185,456
================================================================================
The following table summarizes the net periodic pension cost:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 777,608 $ 773,131 $ 706,713
Interest cost on projected
benefit obligations 903,010 839,619 761,401
Expected return on plan assets (1,532,959) (1,397,643) (1,229,687)
Net amortization & deferral (57,967) (57,967) (57,967)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 89,692 $ 157,140 $ 180,460
================================================================================
24
The weighted-average discount rate for purposes of determining net periodic
pension cost was 7.25 percent in 2000, 7.0 percent in 1999, and 7.75 in 1998.
The rate of increase in future compensation levels used in determining these
amounts was 4.25 percent in 2000 and 4.0 percent in 1999 and 1998. The expected
long-term rate of return on assets is 8.5 percent for 2000, 7.5 percent for
1999, and 8.5 percent for 1998.
(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 $529,000 and $551,000 on December 31, 2000 and 1999. Interest
(approximately $39,000 in 2000 and $54,000 in 1999) is accrued over the term of
the plan. In 2000, the Bank paid approximately $67,000 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 $199,000 in 2000, $204,000 in 1999, and $191,000 in 1998) at the
plan's contractual rate is being accrued on the deferral amounts over the
expected plan term. During 2000, Suffolk made payments of approximately $111,000
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 $21,000, $33,000, and $36,000, in 2000,
1999, and 1998, 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, 2000 and
1999:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation (the "APBO"):
Retirees $ (594,472) $ (745,693)
Fully eligible active plan participants (520,426) (547,413)
Other active participants (490,275) (766,463)
- --------------------------------------------------------------------------------
Total APBO $(1,605,173) $(2,059,569)
Unrecognized net (gain) loss (490,425) 119,018
Unrecognized transition obligation 10,098 11,006
- --------------------------------------------------------------------------------
Post-retirement benefit liability $(2,085,500) $(1,929,545)
================================================================================
Net periodic post-retirement benefit cost (the "net periodic cost") for the
years ended December 31, 2000, 1999, and 1998 includes the following components:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Service cost of benefits earned $ 67,587 $ 85,169 $ 80,746
Interest cost on liability 106,755 131,389 114,118
Unrecognized (gain) loss (12,276) 908 908
- --------------------------------------------------------------------------------
Net periodic cost $ 162,066 $217,466 $195,772
================================================================================
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 $118,000 at December 31, 2000,
and increased the net periodic cost by $17,000 for the year. The post-retirement
benefit cost components for 2000 were calculated assuming average health-care,
cost-trend rates going up 7.5 percent and decreasing 1.5 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 2000 participants deferred compensation totaling $212,000. 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 $7,062,000, and $4,054,000 at December 31, 2000 and 1999,
respectively. Suffolk has commitments to make or to extend credit in the form of
revolving open-end lines secured by one to four family residential properties,
commercial real estate, construction and land development loans, and lease
financing arrangements in the amount of $28,281,000 and $34,145,000, and
commercial loans of $12,781,000 and $13,160,000 as of December 31, 2000 and
1999, 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 2000, Suffolk was required to maintain balances with the Federal Reserve
Bank of N.Y. for reserve and clearing requirements. These balances averaged
$16,258,000 in 2000.
25
Total rental expense for the years ended December 31, 2000, 1999, and 1998
amounted to $685,000, $603,000, and $592,000, respectively.
At December 31, 2000, 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)
- --------------------------------------------------------------------------------
Minimum Annual Rentals
- --------------------------------------------------------------------------------
2001 $ 712
2002 612
2003 555
2004 571
2005 and thereafter 2,196
================================================================================
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, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, 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)
- ------------------------------------------------------------------------------------------------------------------------
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Action Provisions
Amount Ratio Amount Ratio Amount Ratio
========================================================================================================================
As of December 31, 2000
Total Capital (to risk-weighted assets) $ 93,676 10.93% $ 68,540 8.00% $ 85,675 10.00%
Tier 1 Capital (to risk-weighted assets) 85,927 10.03% 34,270 4.00% 51,405 6.00%
Tier 1 Capital (to average assets) 85,927 8.51% 40,407 4.00% 50,509 5.00%
========================================================================================================================
As of December 31, 1999
Total Capital (to risk-weighted assets) $ 88,615 11.05% $ 64,138 8.00% $ 80,172 10.00%
Tier 1 Capital (to risk-weighted assets) 81,345 10.15% 32,069 4.00% 48,103 6.00%
Tier 1 Capital (to average assets) 81,345 8.73% 37,271 4.00% 46,589 5.00%
========================================================================================================================
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 43.3 percent of Suffolk's
loan portfolio and 32.0 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 39.2 percent of
the portfolio and 29.0 percent of assets, 20.4 percent of which are for
commercial real estate. Commercial real estate loans
26
present greater risk than residential mortgages. Suffolk has attempted 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 17.2
percent of the loan portfolio and 12.7 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 cross-guarantees among the principals' business
enterprises. U.S. Treasury securities represented 18.8 percent of the investment
portfolio and 3.0 percent of assets. U.S. government agency debt securities
represented 21.0 percent of the investment portfolio and 3.3 percent of assets.
Collateralized mortgage obligations represented 49.4 percent of the investment
portfolio and 7.8 percent of assets. These offer little or no financial risk.
Municipal obligations constitute 8.0 percent of the investment portfolio and 1.3
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)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Cash & cash equivalents $ 69,584 $ 69,584 $ 53,452 $ 53,452
Investment securities
available for sale 149,186 149,186 132,484 132,484
Investment securities
held to maturity 16,785 17,218 32,886 32,723
Loans, net 768,248 773,470 720,255 716,727
Accrued interest receivable 6,298 6,298 5,871 5,871
Deposits 942,436 944,664 877,303 877,499
Accrued interest payable 3,325 3,325 2,463 2,463
================================================================================
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. The carrying
amount and fair value of loans were as follows at December 31, 2000 and 1999:
(in thousands)
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Commercial, financial
& agricultural $133,524 $135,240 $131,429 $129,810
Commercial real estate 158,443 159,755 162,321 161,807
Real estate
construction loans 34,393 34,161 17,956 19,580
Residential mortgages
(1st & 2nd liens) 89,337 90,836 82,411 81,118
Home equity loans 22,010 21,831 20,834 20,835
Consumer loans 336,780 334,462 310,748 307,926
Other loans 2,797 2,797 2,921 2,921
- --------------------------------------------------------------------------------
Totals $777,284 $779,082 $728,620 $723,997
================================================================================
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
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, 2000,
the fair value of certificates of deposit less than $100,000 totaling
$253,085,000 had a carrying value of $252,392,000. At December 31, 2000, the
fair value of certificates of deposit more than $100,000 totaling $23,255,000
had a carrying value of $23,175,000.
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 $19,843,000 and $17,214,000 at December 31,
2000 and 1999. 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 2000 and 1999 are as follows:
(in thousands of dollars except for share and per-share data)
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 18,347 $ 19,017 $ 19,385 $ 20,104 $ 16,362 $ 16,573 $ 17,367 $ 17,606
Interest expense 5,890 6,169 6,044 6,245 5,201 5,110 5,333 5,477
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,457 12,848 13,341 13,859 11,161 11,463 12,034 12,129
Provision for possible loan losses 300 300 300 300 270 225 275 300
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 12,157 12,548 13,041 13,559 10,891 11,238 11,759 11,829
Other income 1,929 1,841 1,974 2,069 1,465 1,679 1,782 1,845
Other expense 7,965 7,621 7,899 8,517 7,452 7,595 7,629 8,113
Provision for income taxes 2,492 2,693 2,856 2,843 1,881 2,115 2,330 2,244
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,629 $ 4,075 $ 4,260 $ 4,268 $ 3,023 $ 3,207 $ 3,582 $ 3,317
====================================================================================================================================
Basic per-share data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.60 $ 0.68 $ 0.71 $ 0.71 $ 0.50 $ 0.53 $ 0.59 $ 0.54
Cash dividends $ 0.23 $ 0.23 $ 0.23 $ 0.23 $ 0.21 $ 0.21 $ 0.21 $ 0.21
Average shares 6,049,206 6,010,506 5,995,064 5,997,525 6,076,842 6,070,080 6,065,596 6,062,352
====================================================================================================================================
28
Note 15 -- Suffolk Bancorp (Parent Company Only) Condensed Financial Statements
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Due From Banks $ 1,455 $ 1,388 $ 1,343
Investment in Subsidiaries: SCNB 87,283 77,289 71,566
Other Assets 1,166 145 74
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 89,904 $ 78,822 $ 72,983
====================================================================================================================================
Liabilities and Stockholders' Equity
Dividends Payable $ 1,373 $ 1,273 $ 1,097
Other Liabilities 478 215 40
Stockholders' Equity 88,053 77,334 71,846
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 89,904 $ 78,822 $ 72,983
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Income for the Years Ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Income
Net Security Gains 88 -- --
Other Income 20 -- --
Dividends From Subsidiary Bank $ 8,965 $ 5,635 $ 4,775
- ------------------------------------------------------------------------------------------------------------------------------------
9,073 5,635 4,775
Expense
Other Expense 320 275 153
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Net Income of Subsidiaries 8,753 5,360 4,622
Equity in Undistributed Earnings of Subsidiaries 7,479 7,769 7,281
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 16,232 $ 13,129 $ 11,903
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows for the Years Ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income $ 16,232 $ 13,129 $ 11,903
Less: Equity in Undistributed Earnings of Subsidiaries (7,479) (7,769) (7,281)
Other, Net 173 280 20
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 8,926 5,640 4,642
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of Investment Securities; Available for Sale (1,247) -- --
Maturities of Investment Securities; Available for Sale 451 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (796) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Repurchase of Common Stock (2,641) (674) (387)
Dividends Paid (5,422) (4,921) (4,388)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (8,063) (5,595) (4,775)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 67 45 (133)
Cash and Cash Equivalents, Beginning of Year 1,388 1,343 1,476
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,455 $ 1,388 $ 1,343
====================================================================================================================================
Note: No income tax provision has been recorded on the books of Suffolk Bancorp
since it files a return consolidated with its subsidiaries.
29
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, 2000 and 1999 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,
2000. 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,
2000 and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
ARTHUR ANDERSEN LLP
New York, New York
January 22, 2001
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 22, 2001
30
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, 2000 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:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $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 [ ]
Class of Common Stock Number of Shares Outstanding as of February 2, 2001
--------------------- ---------------------------------------------------
$2.50 Par Value 5,959,964
The aggregate market value of the Registrant's Common Stock (based on the most
recent sale at $31.63 on February 2, 2001) held by non-affiliates was
approximately $178,993,000.
31
PART I
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held April 10, 2001, filed on March 9, 2001. (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 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 363 full-time and 49 part-time employees on
December 31, 2000.
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.
32
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 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
33
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 Bank.
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.
34
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, 120 days thereafter, permitted 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 is 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 in 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 or 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 a new facility on
property already owned by the Bank in Riverhead, New York, in the interest of
operational efficiency. The precise financial impact of such a facility has not
yet been determined, although management anticipates that costs will 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, however, evaluates future needs continuously
and anticipates other changes in its facilities during the next several years.
35
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, 2000. At December 31, 2000 there were approximately 1,900 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, 2000.
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, 2000.
ITEM 8. Financial Statements and Supplementary Data
Pages 15 - 29 of this Annual Report to Shareholders for the fiscal year ended
December 31, 2000.
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 10, 2001 is incorporated herein by reference.
Executive Officers
NAME AGE POSITION BUSINESS EXPERIENCE
---- --- -------- -------------------
Thomas S. Kohlmann 54 President and Chief Executive Officer Oct-99 - Present President, CEO, and Director, Suffolk Bancorp
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 47 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.
36
Victor F. Bozuhoski, Jr. 62 Executive Vice President Jan-97 - Present EVP, Suffolk Bancorp
Retail Banking Jan-97 - Present EVP, Retail Banking, SCNB
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 58 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 51 Executive Vice President Apr-00 - Present EVP, Suffolk Bancorp
Chief Lending Officer Apr-00 - Present EVP and Chief Lending Officer, SCNB
Oct-99 - Apr-00 SVP and Chief Lending Officer, SCNB
Dec-88 - Oct-99 SVP, Commercial Loans, SCNB
Dec-82 - Apr-88 VP, Commercial Loans, SCNB
1965 - 1980 Security National Bank/Chemical Bank
Employed by The Suffolk County National Bank since January 1980.
ITEM 11. Executive Compensation
Pages 4 - 8 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 10, 2001 is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Pages 2, 6, 7, and 9 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 10, 2001 is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Page 8 of Registrant's Proxy Statement for its Annual Meeting of Shareholders to
be held on April 10, 2001 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 pages 15 through
30 inclusive.
Financial Statements (Consolidated)
Statements of Condition -- December 31, 2000 and 1999
Statements of Income -- For the years ended December 31, 2000, 1999, and 1998
Statements of Changes in Stockholders' Equity -- For the years ended
December 31, 2000, 1999, and 1998 Statements of Cash Flows -- For the
years ended December 31, 2000, 1999, and 1998 Notes to Consolidated
Financial Statements
37
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 sending a request in writing to
Secretary, Suffolk Bancorp, 6 West Second Street, Riverhead, New York 11901.
A. Certificate of Incorporation of Suffolk Bancorp (filed by incorporation by
reference to Suffolk Bancorp's Form 10-K for the fiscal year ended December
31, 1999, filed March 10, 2000)
B. 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)
C. 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)
D. 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)
E. 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 report was filed on Form 8-K for the three-month period ended
December 31, 2000:
November 28, 2000
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 9, 2001
(Registrant)
By: /s/ EDWARD J. MERZ
---------------------------------
Edward J. Merz
Chairman
Director
By: /s/ THOMAS S. KOHLMANN
---------------------------------
Thomas S. Kohlmann
President and
Chief Executive Officer
Director
By: /s/ J. GORDON HUSZAGH
---------------------------------
J. Gordon Huszagh
Executive Vice President and
Chief Financial Officer
By: /s/ JOSEPH A. DEERKOSKI
---------------------------------
Joseph A. Deerkoski
Director
By: /s/ HOWARD M. FINKELSTEIN
---------------------------------
Howard M. Finkelstein
Director
By: /s/ EDGAR F. GOODALE
---------------------------------
Edgar F. Goodale
Director
By: /s/ TERENCE X. MEYER
---------------------------------
Terence X. Meyer
Director
By: /s/ SUSAN V.B. O'SHEA
---------------------------------
Susan V.B. O'Shea
Director
By: /s/ J. DOUGLAS STARK
---------------------------------
J. Douglas Stark
Director
By: /s/ PETER VAN DE WETERING
---------------------------------
Peter Van de Wetering
Director
38
SUFFOLK [LOGO] BANCORP
Directors
Edward J. Merz
Chairman
Bruce Collins Terence X. Meyer
Retired Managing Partner, Meyer, Meyer,
Metli & Keneally, Esqs. L.L.P.
Joseph A. Deerkoski (attorneys)
President, Neefus-Stype, Inc.
(general insurance) Susan V. B. O'Shea
Managing Partner, L.I. Commercial
Howard M. Finkelstein Industrial Corp.
Partner, Smith, Finkelstein, Lundberg, (commercial real estate)
Isler & Yakaboski (attorneys)
J. Douglas Stark
Edgar F. Goodale President, Stark Mobile Homes, Inc.
President, Riverhead Building
Supply Corp. Peter Van de Wetering
President, Van de Wetering
Thomas S. Kohlmann Greenhouses, Inc.
President & Chief Executive Officer (wholesale nursery)
Officers
Thomas S. Kohlmann
President & Chief Executive Officer
J. Gordon Huszagh
Executive Vice President & Chief Financial Officer
Victor F. Bozuhoski, Jr.
Executive Vice President
Robert C. Dick
Executive Vice President
Augustus C. Weaver
Executive Vice President
Douglas Ian Shaw
Vice President & Corporate Secretary
39
SUFFOLK COUNTY
[LOGO] --------------
NATIONAL BANK
DIRECTORS
Edward J. Merz
Chairman of the Board
Bruce Collins
Joseph A. Deerkoski
Howard M. Finkelstein
Edgar F. Goodale
Thomas S. Kohlmann
Terence X. Meyer
Susan V. B. O'Shea
J. Douglas Stark
Peter Van de Wetering
EXECUTIVE OFFICERS
Thomas S. Kohlmann
President &
Chief Executive Officer
J. Gordon Huszagh
Executive Vice President &
Chief Financial Officer
Victor F. Bozuhoski, Jr.
Executive Vice President
Retail Banking
Augustus C. Weaver
Executive Vice President &
Chief Information Officer
Robert C. Dick
Executive Vice President &
Chief Lending Officer
LOANS
Phillip D. Ammirato
Senior Vice President
Lawrence Milius
Senior Vice President
Peter M. Almasy
Vice President
Joan Brigante
Vice President
David T. De Vito
Vice President
John Dunleavy
Vice President
Robert T. Ellerkamp
Vice President
John J. Reilly
Vice President
Frederick J. Weinfurt
Vice President
AUDIT LIAISON & SECURITY
Alexander B. Doroski
Senior Vice President
COMPLIANCE
Jeanne P. Hamilton
Senior Vice President
BRANCH ADMINISTRATION
Robert H. Militscher
Senior Vice President &
Branch Administrator
Richard J. Micallef
Vice President
William K. Miller
Vice President
Bohemia Office
Dean S. Kupinsky
Vice President
Center Moriches Office
Thomas R. Columbus, Sr.
Vice President
Cutchogue Office
Richard J. Noncarrow
Vice President
East Hampton Pantigo Office
John McGregor
Manager
East Hampton Village Office
Jill James
Vice President
Hampton Bays Office
David Barczak
Assistant Vice President
Mattituck Office
Janet V. Stewart
Vice President
Medford Office
Paul E. Vaas
Vice President
Miller Place Office
Michele Fenning
Assistant Vice President
Montauk Harbor Office
Montauk Village Office
John Soyars
Manager
Port Jefferson Office
Peter A. Poten
Vice President
Riverhead, Ostrander
Avenue Office
Linda C. Zarro
Vice President
Riverhead, Second Street Office
Barbara A. Scesny
Regional Vice President
Sag Harbor Office
Jane P. Markowski
Assistant Vice President
Sayville
Pamela Werner
Manager
Shoreham Office
Wendy A. Stapon
Manager
Smithtown Office
William K. Soriano
Vice President
Southampton Office
Patricia Bolomey
Vice President
Wading River Office
Anita Nigrel
Regional Vice President
Water Mill Office
Joanne Goodwin
Assistant Branch Manager
West Babylon Office
Charles F. Bivona
Assistant Vice President
Westhampton Beach Office
Charles E. Johnson
Vice President
TRUST
Dan A. Cicale
Senior Vice President
& Trust Officer
William C. Araneo
Vice President
Lori E. Thompson
Vice President
PRIVATE BANKING
Richard B. Smith
Senior Vice President
Benjamin Mancuso
Vice President
Margaret Lupardo
Vice President
COMPTROLLER
William Cassara
Vice President
CORPORATE SERVICES
Douglas Ian Shaw
Vice President &
Corporate Secretary
FACILITIES
Charles E. Anderson
Manager
HUMAN RESOURCES
Pamela L. Palleschi
Vice President
Richard Montenegro
Vice President
DATA PROCESSING
Mark J. Drozd
Senior Vice President
OPERATIONS
Dennis F. Orski
Senior Vice President
MARKETING
Brenda B. Sujecki
Vice President
40
Directory of Offices and Departments
Area Code (631)
ON THE WEB AT: WWW.SCNB.COM Telephone FAX
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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 244 Old Country Road, Riverhead, N.Y. 11901 727-2701 727-5798
3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 580-0181 580-0183
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
Compliance 322 Roanoke Avenue, Riverhead, N.Y. 11901 727-3800 727-2638
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 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 285-6600 285-6610
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
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
Private Banking 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-6660 585-6398
Residential Mortgage Loans 1149 Old Country Road, Riverhead, N.Y. 11901 727-5000 369-2468
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
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