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[LOGO OF SUFFOLK BANCORP]
2002 ANNUAL REPORT on FORM 10-K
[PHOTO] On The Cover
East Hampton, L. I., N. Y.
East Hampton Town was purchased in 1648 by Theophilus Eaton and Edward Hopkins,
Governors respectively of the Colonies of New Haven and Connecticut. It was
first named for the English town of Maidstone. That name survives to this day,
shared by the golf club featured in the foreground, as well as an assortment of
local businesses. Visible behind are the rooftops of the Village of East
Hampton, and beyond are the bays, inlets, and islands of the Peconic estuary;
Long Island's north fork; and on the horizon, far across Long Island Sound, the
hills of coastal Connecticut from whence East Hampton's first settlers came.
Today, East Hampton retains its New England charm, and has become home to many
famous entertainers, artists, and authors. SCNB maintains two full-service
offices in East Hampton.
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 ............................................15
Consolidated Statements of Condition ........................................16
Consolidated Statements of Income ...........................................17
Consolidated Statements of Changes in Stockholders' Equity ..................18
Consolidated Statements of Cash Flows .......................................19
Notes to Consolidated Financial Statements ..................................20
Reports of Independent Public Accountants ..................................31
Report of Management ........................................................32
Annual Report on Form 10-K ..................................................33
Directors and Officers -- Suffolk Bancorp ...................................41
Directors and Officers -- The Suffolk County National Bank ..................42
Directory of Offices and Departments ........................................44
Corporate Profile
Suffolk Bancorp does commercial banking through its wholly owned subsidiary,
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, resulting in a
loyal and growing clientele. SCNB operates 27 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)
- --------------------------------------------------------------------------------------------
December 31, 2002 2001
- --------------------------------------------------------------------------------------------
EARNINGS FOR THE YEAR Net income $ 21,269 $ 18,685
Net interest income 62,340 55,223
Net income-per-share 1.82 1.58
Cash dividends-per-share 0.68 0.56
- --------------------------------------------------------------------------------------------
BALANCES AT YEAR END Assets $ 1,272,717 $ 1,164,947
Net loans 779,862 787,285
Investment securities 376,886 254,620
Deposits 1,142,582 1,051,712
Equity 108,793 96,837
Shares outstanding 11,489,481 11,770,596
Book value per common share $ 9.47 $ 8.23
- --------------------------------------------------------------------------------------------
RATIOS Return on average equity 21.12% 20.55%
Return on average assets 1.72 1.73
Average equity to average assets 8.13 8.41
Net interest margin (taxable-equivalent) 5.45 5.62
Efficiency ratio 49.36 49.88
Net charge-offs to average net loans 0.19 0.06
- --------------------------------------------------------------------------------------------
Suffolk Bancorp Annual Meeting Trading Independent Auditors
Tuesday, April 8, 2003, 1:00 P.M. Suffolk Bancorp's common stock is Grant Thornton LLP
Suffolk County National Bank traded over-the-counter, and is listed on Two Commerce Square
Lending & Administrative Center the NASDAQ National Market System Suite 3100
Lower Level under the symbol "SUBK." 2001 Market Street
Four West Second Street Philadelphia, Pennsylvania 19103
Riverhead, New York Registrar and Transfer Agent
General Counsel
S.E.C. Form 10-K Any questions about the registration or
transfer of shares, the payment, Smith, Finkelstein, Lundberg,
The Annual Report to the Securities reinvestment, or direct deposit of Isler & Yakaboski
and Exchange Commission on Form dividends can be answered by: 456 Griffing Avenue
10-K and documents incorporated by Riverhead, New York 11901
reference can be obtained, without American Stock Transfer
charge, by writing to the Secretary, & Trust Co. FDIC Rules and Regulations, Part
Suffolk Bancorp, 4 West Second Street, 350.4(d)
Riverhead, New York 11901, or call 59 Maiden Lane
(631) 727-5667, fax to (631) 727-3214, New York, New York 10038 This statement has not been reviewed,
or e-mail to 1-800-937-5449 or confirmed for accuracy or relevance,
invest@suffolkbancorp.com by the Federal Deposit Insurance
Corporation.
1
Dear Shareholder:
The year 2002 was another successful year for Suffolk Bancorp and for its wholly
owned subsidiary, Suffolk County National Bank.
Net income and earnings-per-share were the highest in the company's 113-year
history. Net income was $21,269,000, up 13.8 percent from last year.
Earnings-per-share were $1.82 compared to $1.58, an increase of 15.2 percent.
Net interest income increased by 12.9 percent, to $62,340,000, from $55,223,000.
Income other than from interest increased by 5.5 percent, to $10,073,000 from
$9,548,000. Expense other than for interest increased by 10.6 percent, to
$35,744,000 from $32,307,000. Our efficiency ratio improved slightly to 49.36
percent from 49.88 percent. Return on assets decreased slightly to 1.72 percent
from 1.73 percent. Finally, our return on average common equity increased to
21.12 percent from 20.55 percent.
We continued to reshape our balance sheet during the past year. Investment
securities increased by 48.0 percent, to $376,886,000 from $254,620,000 as we
positioned Suffolk to ride out a period of lower loan demand. This accounted for
most of the growth in total assets, which at year-end totaled $1,272,717,000
compared to $1,164,947,000, up 9.3 percent. Shareholders' equity was
$108,793,000, up 12.3 percent from $96,837,000. Book value-per-share was $9.47,
up 15.1 percent from $8.23 the previous year. Dividends-per-share were $0.68,
increasing 21.4 percent from $0.56. Average net loans increased by .6 percent,
to $781,521,000 from $776,936,000. Average deposits increased by 16.7 percent,
to $1,113,851,000 from $954,704,000, as customers moved their funds to cash, in
part because of declines in the stock market, and in part because of continuing
political and economic uncertainty.
We are pleased with what we have been able to accomplish during the past several
years. Suffolk remains among the best performing companies in our industry.
I generally refrain from making "forward-looking" remarks in this message. This
year, however, I think it is important to devote some time to sharing our best
understanding of recent changes in the economy, the effect these changes may
have on your investment in Suffolk Bancorp, and some of the steps we have and
will continue to take to respond to these conditions. We want to assure you that
we are alert to developments, and planning actively to mitigate any negative
effects they may have on your company.
The political and economic environment in which we find ourselves is
unprecedented, at least in my career. Interest rates are lower than they have
been since the early 1960's. Major indices in the stock market have declined for
three years. Capital investment is slack because of overcapacity developed
during the late 1990's. Consumers have grown increasingly wary of their economic
prospects. Federal surpluses are now deficits, and state and municipal budgets
are under pressure. Finally, there are questions about the outcome of current
foreign policy and its effect on the world economy.
For the foreseeable future, much of what we will be able to accomplish will be
influenced not only by the management of your company and the strength of the
Long Island market, but by broader economic and legislative issues, and the
outcome of other global issues. At this writing, there are a number of proposals
for major changes in tax policy at both the state and national levels about
which there is broad disagreement. Our influence over these factors is limited.
The largest challenge facing any business in 2003 is uncertainty.
2
So what do we think the practical effect of this environment will be during the
coming year?
We believe there will be continued pressure on our net interest margin. Interest
rates are at historic lows, and even given our modest cost of funds, our ability
to price loans to maintain our historic margins is constrained. The continuation
of "zero-zero" financing programs among the captive finance divisions of major
automobile manufacturers has and will reduce consumer loan volume. Moreover,
charge-offs, at 19 basis points of average net loans for the year almost
exclusively in the consumer portfolio, have increased as the economy has
stagnated. They remain, however, slightly below recent industry averages, and
well below banking companies of our size.
Our prospects in the commercial portfolio appear considerably better, and we are
pleased with how that segment of the business has performed. Barring an
extraordinary event, we expect that this trend will continue.
As we have noted before, we have shifted substantial assets into our investment
portfolio, up 82.4 percent for the quarter on average from year to year. This
portfolio is structured carefully, with laddered investments in high-quality
collateralized mortgage obligations. These securities increase yield and hedge
against further reductions in interest rates, while providing cash flow to
respond to upturns in loan demand, should that occur.
During uncertain economic times, we will continue to manage the company
intelligently, with the long term in view. We will not stretch for yield by
easing our credit standards. Given even modest improvements in the economy,
Suffolk should benefit. We believe that we are correctly positioned to benefit
from the recovery which may or may not materialize during the coming year.
Our organization has matured over the years, and we believe that we have
competent, qualified, and experienced management. We also operate in a resilient
marketplace. That strength has been evident across various business cycles. Long
Island's economy has diversified steadily since the days when it was dominated
by a few, large defense contractors. There is much more small business than
there was, and well-established small businesses are a principal focus for our
bank.
We are pleased with the initiatives we have taken to expand our branch network.
New offices in Manorville and Southold have met or exceeded our expectations,
and we are planning several more. We will continue to invest in our business.
Finally, we believe that our reporting is straightforward, simple, and factual.
Suffolk has never restated earnings, nor changed how it accounts for its
business. More than any other, banking is a business based on trust. Our goal is
to be worthy of yours. As in the past, we are grateful for your support
Please take some time to study Management's Discussion and Analysis of Financial
Condition and Results of Operations, which starts on page 5.
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.
- -------------------------------------------------------------------------------------------
2002 High Low Dividends 2001 High Low Dividends
- -------------------------------------------------------------------------------------------
First Quarter $39.60 $26.50 $0.17 First Quarter $18.13 $15.13 $0.14
Second Quarter 37.60 28.50 0.17 Second Quarter 25.13 17.25 0.14
Third Quarter 36.40 28.25 0.17 Third Quarter 24.48 21.05 0.14
Fourth Quarter 36.11 30.50 0.17 Fourth Quarter 29.13 21.13 0.14
- -------------------------------------------------------------------------------------------
At February 1, 2003, there were 1,950 equity holders of record and approximately
1,700 beneficial shareholders of the Company's common stock.
SUMMARY OF SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY: (dollars in thousands except per-share amounts)
- ----------------------------------------------------------------------------------------------------------------------------
For the years 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Interest income $ 78,428 $ 79,565 $ 76,853 $ 67,908 $ 65,874
Interest expense 16,088 24,342 24,348 21,121 21,464
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 62,340 55,223 52,505 46,787 44,410
Provision for possible loan losses 1,380 1,544 1,200 1,070 900
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 60,960 53,679 51,305 45,717 43,510
Other income 10,073 9,548 7,788 6,771 8,148
Other expense 35,744 32,307 31,977 30,789 31,200
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 35,289 30,920 27,116 21,699 20,458
Provision for income taxes 14,020 12,235 10,884 8,570 8,555
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 21,269 $ 18,685 $ 16,232 $ 13,129 $ 11,903
============================================================================================================================
BALANCE AT DECEMBER 31:
Federal funds sold $ 17,500 $ 17,600 $ 3,700 $ -- $ 17,800
Investment securities -- available for sale 359,903 241,061 149,186 132,484 129,348
Investment securities -- held to maturity 16,983 13,559 16,785 32,886 21,853
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 376,886 254,620 165,971 165,370 151,201
Net loans 779,862 787,285 768,248 720,255 640,565
Total assets 1,272,717 1,164,947 1,049,580 980,799 909,432
Total deposits 1,142,582 1,051,712 942,436 877,303 826,564
Other borrowings -- -- -- 13,500 --
Stockholders' equity $ 108,793 $ 96,837 $ 88,053 $ 77,334 $ 71,846
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity 21.12% 20.55% 20.42% 17.91% 17.66%
Return on average assets 1.72 1.73 1.60 1.41 1.37
Net interest margin (taxable-equivalent) 5.45 5.62 5.84 5.66 5.77
Efficiency ratio 49.36 49.88 53.04 57.49 59.36
Average equity to average assets 8.13 8.41 7.86 7.87 7.77
Dividend pay-out ratio 34.70 33.89 33.41 37.48 36.87
Asset quality:
Non-performing assets to total loans (net of discount) 0.22 0.25 0.35 0.22 0.34
Non-performing assets to total assets 0.14 0.17 0.26 0.16 0.24
Allowance to non-performing assets 494.60 448.42 287.00 451.55 319.33
Allowance to loans, net of discount 1.10 1.11 1.00 1.00 1.07
Net charge-offs to average net loans 0.19 0.06 0.10 0.11 0.08
- ----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income (basic) 1.82 1.58 1.35 1.08 0.975
Cash dividends 0.68 0.56 0.46 0.42 0.36
Book value at year-end 9.47 8.23 7.39 6.39 5.91
Highest market value 39.60 29.13 15.69 14.50 17.63
Lowest market value 26.50 15.13 12.82 11.44 9.94
Average shares outstanding 11,657,984 11,822,452 12,015,912 12,137,556 12,189,652
- ----------------------------------------------------------------------------------------------------------------------------
Number of full-time-equivalent employees at year-end 391 381 388 389 391
Number of branch offices at year-end 27 26 26 26 26
Number of automatic teller machines 23 20 20 18 18
============================================================================================================================
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,
2002 and 2001, 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 27 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 and Queens Counties, 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 which 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,
mortgage-backed securities, 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 decline during 2002 following the
attacks of September 11, 2001. During the year, interest rates reached 40-year
lows. Volatility and decreases in the share prices in the stock market continued
for the third straight year. Demand for finance, information, transportation,
and tourism leveled off, and there were more layoffs resulting from corporate
consolidations and downsizing, as well as economic contraction nationwide. 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. In general, Long Island's economy seems
to have been more stable than the national economy, owing in part to its
comparative diversity, although reliable and accurate data are difficult to
develop.
Results of Operations
Net Income
Net income was $21,269,000 compared to $18,685,000 last year and $16,232,000 in
2000. These figures represent increases of 13.8 percent and 15.1 percent,
respectively. Basic earnings-per-share were $1.82, compared to $1.58 last year
and $1.35 in 2000.
Net Interest Income
Net interest income during 2002 was $62,340,000, up 12.9 percent from
$55,223,000, which was up 5.2 percent from $52,505,000 in 2001 and 2000,
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 5.45 percent in 2002, 5.62 percent during 2001, and 5.84 percent in
2000. Average rates on average interest-earning assets decreased to 6.84 percent
in 2002 from 8.08 percent in 2001, and 8.52 percent in 2000. Average rates on
average interest-bearing liabilities decreased to 2.01 percent in 2002, from
3.50 percent in 2001, and 3.75 percent in 2000. The interest rate differential
decreased slightly in 2002 from 2001 and 2000. Demand deposits remained a
significant source of funds 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, 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 9,958 $ 481 4.83% $ 18,769 $ 1,113 5.93%
Collateralized mortgage obligations 215,506 11,651 5.41 93,778 6,245 6.66
Mortgage backed securities 9,928 492 4.95 487 27 5.54
Obligations of states & political subdivisions 14,730 862 5.85 11,149 805 7.22
U.S. government agency obligations 74,052 2,895 3.91 42,230 2,218 5.26
Corporate bonds & other securities 2,057 84 4.09 2,757 183 6.64
Federal funds sold & securities purchased
under agreements to resell 42,674 707 1.66 42,644 1,261 2.96
Loans, including non-accrual loans
Commercial, financial & agricultural loans 132,841 8,427 6.34 134,850 11,375 8.43
Commercial real estate mortgages 177,543 14,876 8.38 162,396 14,557 8.96
Real estate construction loans 33,253 3,144 9.46 29,924 3,088 10.32
Residential mortgages (1st and 2nd liens) 90,003 6,989 7.77 89,258 7,777 8.71
Home equity loans 35,224 2,101 5.97 24,955 2,002 8.02
Consumer loans 308,401 26,023 8.44 334,450 29,210 8.73
Other loans 4,256 -- -- 1,103 -- --
- ------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $1,150,426 $78,732 6.84% $ 988,750 $79,861 8.08%
==================================================================================================================
Cash & due from banks $ 50,512 $ 52,873
Other non-interest-earning assets 37,533 39,419
- ------------------------------------------------------------------------------------------------------------------
Total assets $1,238,471 $1,081,042
- ------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ------------------------------------------------------------------------------------------------------------------
Saving, N.O.W. & money market deposits $ 514,839 $ 6,645 1.29% $ 387,893 $ 8,492 2.19%
Time deposits 287,064 9,442 3.29 296,281 15,203 5.13
- ------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 801,903 16,087 2.01 684,174 23,695 3.46
Federal funds purchased & securities
sold under agreements to repurchase 34 1 1.83 2,129 98 4.60
Other borrowings -- -- -- 9,888 548 5.54
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 801,937 $16,088 2.01% $ 696,191 $24,341 3.50%
==================================================================================================================
Rate spread 4.83% 4.58%
Non-interest-bearing deposits $ 311,948 $ 270,530
Other non-interest-bearing liabilities 23,862 23,386
- ------------------------------------------------------------------------------------------------------------------
Total liabilities $1,137,747 $ 990,107
Stockholders' equity 100,724 90,935
- ------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $1,238,471 $1,081,042
Net interest income (taxable-equivalent basis)
& effective interest rate differential $62,644 5.45% $55,520 5.62%
Less: taxable-equivalent basis adjustment (304) (297)
- ------------------------------------------------------------------------------------------------------------------
Net interest income $62,340 $55,223
==================================================================================================================
- --------------------------------------------------------------------------------
Year ended December 31, 2000
- --------------------------------------------------------------------------------
Average Average
Balance Interest Rate
- --------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- --------------------------------------------------------------------------------
U.S. Treasury securities $ 31,104 $ 1,776 5.71%
Collateralized mortgage obligations 67,445 4,888 7.25
Mortgage backed securities -- -- --
Obligations of states & political subdivisions 22,331 1,494 6.69
U.S. government agency obligations 40,281 2,243 5.57
Corporate bonds & other securities 4,440 285 6.42
Federal funds sold & securities purchased
under agreements to resell 7,166 424 5.92
Loans, including non-accrual loans
Commercial, financial & agricultural loans 130,512 12,802 9.81
Commercial real estate mortgages 153,071 13,705 8.95
Real estate construction loans 29,383 2,965 10.09
Residential mortgages (1st and 2nd liens) 85,098 7,749 9.11
Home equity loans 19,964 2,104 10.54
Consumer loans 315,971 26,964 8.53
Other loans 1,722 -- --
- --------------------------------------------------------------------------------
Total interest-earning assets $ 908,488 $77,399 8.52%
================================================================================
Cash & due from banks $ 60,389
Other non-interest-earning assets 42,965
- --------------------------------------------------------------------------------
Total assets $1,011,842
- --------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- --------------------------------------------------------------------------------
Saving, N.O.W. & money market deposits $ 370,555 $ 8,998 2.43%
Time deposits 264,415 14,460 5.47
- --------------------------------------------------------------------------------
Total savings & time deposits 634,970 23,458 3.69
Federal funds purchased & securities
sold under agreements to repurchase 3,773 239 6.33
Other borrowings 10,299 651 6.32
- --------------------------------------------------------------------------------
Total interest-bearing liabilities $ 649,042 $24,348 3.75%
================================================================================
Rate spread 4.77%
Non-interest-bearing deposits $ 250,655
Other non-interest-bearing liabilities 32,642
- --------------------------------------------------------------------------------
Total liabilities $ 932,339
Stockholders' equity 79,503
- --------------------------------------------------------------------------------
Total liabilities & stockholders' equity $1,011,842
Net interest income (taxable-equivalent basis)
& effective interest rate differential $53,051 5.84%
Less: taxable-equivalent basis adjustment (546)
- --------------------------------------------------------------------------------
Net interest income $52,505
================================================================================
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 2002, 2001, and 2000, $1.00 of nontaxable income
from obligations of states and political subdivisions equates to fully taxable
income of $1.52. In addition, in 2002, 2001, and 2000, $1.00 of
6
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.
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 2002 over 2001 In 2001 over 2000
Changes Due to Changes Due to
Volume Rate Net Change Volume Rate Net Change
- --------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- --------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ (453) $ (179) $ (632) $ (729) $ 66 $ (663)
Collateralized mortgage obligations 6,774 (1,368) 5,406 1,780 (424) 1,356
Mortgage-backed securities 468 (3) 465 27 -- 27
Obligations of states & political subdivisions 228 (171) 57 (799) 110 (689)
U.S. government agency obligations 1,352 (675) 677 106 (131) (25)
Corporate bonds & other securities (39) (60) (99) (111) 10 (101)
Federal funds sold & securities purchased
under agreement to resell 1 (555) (554) 1,145 (308) 837
Loans, including non-accrual loans 399 (6,848) (6,449) 3,644 (1,924) 1,720
- --------------------------------------------------------------------------------------------------------------
Total interest-earning assets $8,730 $(9,859) $(1,129) $5,063 $(2,601) $2,462
- --------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- --------------------------------------------------------------------------------------------------------------
Saving, N.O.W., & money market deposits $2,273 $(4,120) $(1,847) $ 408 $ (914) $ (506)
Time deposits (459) (5,302) (5,761) 1,672 (928) 744
Federal funds purchased & securities
sold under agreements to repurchase (71) (26) (97) (87) (54) (141)
Other borrowings (274) (274) (548) (25) (79) (104)
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,469 $(9,722) $(8,253) $1,968 $(1,975) $ (7)
- --------------------------------------------------------------------------------------------------------------
Net change in net interest income
(taxable-equivalent basis) $7,261 $ (137) $ 7,124 $3,095 $ (626) $2,469
==============================================================================================================
Interest Income
Interest income decreased to $78,428,000 in 2002, down 1.4 percent from
$79,565,000 in 2001, which increased from 76,853,000 in 2000, an increase of 3.5
percent.
Investment Securities
Average investment in U. S. Treasury securities decreased to $9,958,000 from
$18,769,000 in 2001, and $31,104,000 in 2000, a decrease of 46.9 and 39.7
percent, respectively. These balances decreased as funds were shifted into
collateralized mortgage obligations ("CMO's") as the spread between Treasury and
non-Treasury yields widened during the period. Average balances of CMO's
increased to $215,506,000 in 2002 from $93,778,000 in 2001, and $67,445,000 in
2000. 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, 2002 2001 2000
- -----------------------------------------------------------------------------------------
Investment securities available for sale, at fair value:
U.S. Treasury securities $ 10,020 $ 9,805 $ 31,194
U.S. government agency debt securities 74,740 48,970 34,926
Collateralized mortgage obligations agency issues 249,914 148,327 60,334
Collateralized mortgage obligations private issues 6,307 23,309 21,715
Mortgage-backed securities 15,361 9,364 --
Equity securities -- -- 1,017
Obligations of states & political subdivisions 3,561 1,286 --
- -----------------------------------------------------------------------------------------
Total investment securities available for sale 359,903 241,061 149,186
- -----------------------------------------------------------------------------------------
Investment securities held to maturity:
Obligations of states & political subdivisions 14,884 11,709 13,317
Corporate bonds & other securities 2,099 1,850 3,468
- -----------------------------------------------------------------------------------------
Total investment securities held to maturity 16,983 13,559 16,785
- -----------------------------------------------------------------------------------------
Total investment securities $376,886 $254,620 $165,971
=========================================================================================
Fair value of investment securities held to maturity $ 17,643 $ 13,872 $ 17,218
Unrealized gains 660 388 434
Unrealized losses -- 75 1
=========================================================================================
7
The amortized cost, maturities, and approximate weighted average yields, on a
taxable-equivalent basis, at December 31, 2002 are as follows: (in thousands)
- ---------------------------------------------------------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------------------------------------------------------
U.S. Obligations of
U.S. Treasury Govt. Agency States & Political
Securities Debt Subdivisions
- ---------------------------------------------------------------------------------------------------------------
Fair Fair Fair
Maturity (in years) Value Yield Value Yield Value Yield
- ---------------------------------------------------------------------------------------------------------------
Within 1 $ -- -- $ -- -- $ -- --
After 1 but within 5 10,020 5.01% 55,449 4.45% -- --
After 5 but within 10 -- -- -- -- -- --
After 10 -- -- 19,291 5.83% 3,561 5.13%
Other securities -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Subtotal $10,020 5.01% $74,740 1.50% $3,561 5.13%
Collateralized mortgage obligations
Mortgage-backed securities
- ---------------------------------------------------------------------------------------------------------------
Total $10,020 5.01% $74,740 1.50% $3,561 5.13%
===============================================================================================================
- --------------------------------------------------------------------------------------------------------------
Held to Maturity
- --------------------------------------------------------------------------------------------------------------
Obligations of Corporate Bonds
States & Political &
Subdivisions Other Securities
- --------------------------------------------------------------------------------------------------------------
Amortized Amortized
Maturity (in years) Cost Yield Cost Yield Total Yield
- --------------------------------------------------------------------------------------------------------------
Within 1 $ 9,850 2.25% $ -- -- $ 9,850 2.25%
After 1 but within 5 370 3.81% -- -- $ 65,839 4.53
After 5 but within 10 -- -- -- -- $ -- --
After 10 4,664 5.18% -- -- $ 27,516 5.63
Other securities -- -- 2,099 -- $ 2,099 --
- --------------------------------------------------------------------------------------------------------------
Subtotal $14,884 3.21% $2,099 -- $105,304 2.17%
Collateralized mortgage obligations 256,221 5.85
Mortgage-backed securities 15,361 3.89
- --------------------------------------------------------------------------------------------------------------
Total $14,884 3.21% $2,099 -- 376,886 4.74%
==============================================================================================================
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 6.00 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 $1,361,000. Being an
equity investment, the stock has no maturity. There is no public market for this
investment. The last declared dividend was 5.58 percent.
Loan Portfolio
Loans, net of unearned discounts but before the allowance for possible loan
losses, totaled $788,557,000.
Consumer loans are the largest component of Suffolk's loan portfolio. Net of
unearned discounts, they totaled $277,633,000 at the end of 2002, down 17.1
percent from $334,849,000 at year-end 2001. Consumer loans include primarily
indirect, dealer-generated automobile loans. Competition among commercial banks
and with captive finance companies of automobile manufacturers has reduced
yields and volume. Commercial real estate mortgages closed the year at
$183,501,000, up 6.0 percent from $173,092,000 last year. Commercial and
industrial loans followed at $150,130,000, up 12.8 percent from $133,076,000 at
the end of 2001. As commerce on Long Island stagnated, commercial mortgages, and
to a lesser extent, commercial loans, offered continuing opportunity. However,
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 decline by autumn.
The remaining, significant components of the loan portfolio are residential
mortgages at $94,864,000, down .6 percent from $95,424,000; home equity loans at
$44,349,000, up 39.9 percent from $31,699,000; and construction loans at
$36,558,000, up 33.6 percent from $27,365,000.
The following table categorizes total loans (net of unearned discounts) at
December 31: (in thousands)
- -------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans $150,130 $133,076 $133,524 $131,429 $123,463
Commercial real estate mortgages 183,501 173,092 158,443 162,321 128,923
Real estate -- construction loans 36,558 27,365 34,393 17,956 12,500
Residential mortgages (1st and 2nd liens) 94,864 95,424 89,337 82,411 73,754
Home equity loans 44,349 31,699 21,824 20,834 21,980
Consumer loans 277,633 334,849 335,679 309,653 284,697
Other loans 1,522 605 2,797 2,921 2,203
- -------------------------------------------------------------------------------------------------
Total loans (net of unearned discounts) $788,557 $796,110 $775,997 $727,525 $647,520
=================================================================================================
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)
- --------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------
Loans accruing but past due contractually
90 days or more $ 349 $1,505 $ 949 $1,741 $2,168
Loans not accruing interest 1,560 1,912 2,469 1,132 1,546
Restructured loans 198 56 56 275 291
- --------------------------------------------------------------------------------------
Total $2,107 $3,473 $3,474 $3,148 $4,005
======================================================================================
Interest on loans that are restructured or are no longer accruing interest would
have amounted to about $129,000 for 2002 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 2002, 2001, and 2000. 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 soon.
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 2002 was
0.19, compared to 0.06 percent in 2001, and 0.10 percent during 2000. The ratio
of the allowance for possible loan losses to loans, net of discounts, was 1.10
percent at the end of 2002, down from 1.11 percent in 2001 and up from 1.00
percent in 2000. A summary of transactions follows: (in thousands)
- ---------------------------------------------------------------------------------------------
Year ended December 31, 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Allowance for possible loan losses, January 1, $8,825 $7,749 $7,270 $6,955 $6,524
Loans charged-off:
Commercial, financial & agricultural loans 27 111 130 320 176
Commercial real estate mortgages -- -- -- -- --
Real estate -- construction loans -- -- -- -- --
Residential mortgages (1st and 2nd liens) -- -- -- 9 1
Home equity loans -- -- -- -- --
Consumer loans 1,826 691 750 605 494
Lease finance -- -- -- -- 2
Other loans -- 4 17 -- --
- ---------------------------------------------------------------------------------------------
Total Charge-offs $1,853 $ 806 $ 897 $ 934 $ 673
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Loans recovered after being charged-off 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans 33 178 25 22 52
Commercial real estate mortgages -- -- -- -- --
Real estate -- construction loans -- -- -- -- --
Residential mortgages (1st and 2nd liens) -- -- -- 1 1
Home equity loans -- -- 9 -- --
Consumer loans 310 160 142 156 145
Lease finance -- -- -- -- 6
Other loans -- -- -- -- --
- ---------------------------------------------------------------------------------------------
Total recoveries $ 343 $ 338 $ 176 $ 179 $ 204
- ---------------------------------------------------------------------------------------------
Net loans charged-off 1,510 468 721 755 469
Provision for possible loan losses 1,380 1,544 1,200 1,070 900
- ---------------------------------------------------------------------------------------------
Allowance for possible loan losses, December 31, $8,695 $8,825 $7,749 $7,270 $6,955
=============================================================================================
9
The following table summarizes the allowance for loan losses allocated by loan
type: (dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
As of December 31, 2002 Total 2001 Total 2000 Total 1999 Total 1998 Total
- -------------------------------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans $3,315 38.1% $3,994 45.3% $1,863 24.0% $1,666 22.9% $1,947 28.0%
Commercial real estate mortgages 2,731 31.4% 2,235 25.3% 3,592 46.4% 2,665 36.7% 1,740 25.0%
Real estate -- construction loans 305 3.5% 202 2.3% 235 3.0% 135 1.9% 102 1.5%
Residential mortgages (1st and 2nd liens) 136 1.6% 132 1.5% 129 1.7% 87 1.2% 95 1.4%
Home equity loans 411 4.7% 377 4.3% 337 4.3% 312 4.3% 333 4.8%
Consumer loans 1,589 18.3% 1,858 21.1% 1,573 20.3% 1,750 24.1% 1,306 18.8%
Unallocated allowance 208 2.4% 27 0.3% 20 0.3% 655 9.0% 1,432 20.6%
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses $8,695 100.0% $8,825 100.0% $7,749 100.0% $7,270 100.0% $6,955 100.0%
===============================================================================================================================
The following table presents information concerning loan balances and asset
quality: (dollars in thousands)
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Loans, net of discounts:
Average $781,521 $776,936 $735,721 $676,810 $619,025
At end of period 788,557 796,110 775,997 727,525 647,520
Non-performing assets/total loans (net of
discounts) 0.22% 0.25% 0.35% 0.22% 0.34%
Non-performing assets/total assets 0.14 0.17 0.26 0.16 0.24
Ratio of net charge-offs/average net loans 0.19 0.06 0.10 0.11 0.08
Net charge-offs/net loans at December 31, 0.19 0.06 0.09 0.10 0.07
Allowance for possible loan losses/loans, net of
discounts 1.10 1.11 1.00 1.00 1.07
=======================================================================================================
Interest Expense
Interest expense in 2002 was $16,088,000, down from $24,342,000 the year before,
which was down slightly from $24,348,000 during 2000. 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 $34,000
during 2002, $12,017,000 during 2001, and $14,072,000 during 2000.
Deposits
Average interest-bearing deposits increased to $801,903,000 in 2002, up 17.2
percent from $684,174,000 in 2001. Savings, N.O.W., and money market deposits
increased during 2002, averaging $514,839,000, up 32.7 percent from 2001 when
they averaged $387,893,000. Average time certificates of less than $100,000
totaled $256,316,000, down 4.1 percent from $267,303,000 in 2001. Average time
certificates of $100,000 or more totaled $30,748,000, up 6.1 percent from
$28,978,000 during 2001. Each of the Bank's demand deposit accounts has a
related non-interest-bearing sweep account. The sole purpose of the sweep
accounts is to reduce the non-interest-bearing reserve balances that the Bank is
required to maintain with the Federal Reserve Bank, and thereby increase funds
available for investment. Although the sweep accounts are classified as savings
accounts for regulatory purposes, they are included in demand deposits in the
accompanying consolidated statements of condition.
The following table classifies average deposits for each of the periods
indicated: (in thousands)
- ------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Average Average Average
Average Rate Paid Average Rate Paid Average Rate Paid
- ------------------------------------------------------------------------------------------------------------
Demand deposits $ 311,948 $270,530 $250,655
Savings deposits 349,141 1.36% 273,565 2.48% 249,442 2.78%
N.O.W. & money market deposits 165,698 1.14 114,328 1.50 121,113 1.70
Time certificates of $100,000 or more 30,748 2.75 28,978 4.89 24,931 5.50
Other time deposits 256,316 3.35 267,303 5.16 239,484 5.47
- ------------------------------------------------------------------------------------------------------------
Total deposits $1,113,851 $954,704 $885,625
============================================================================================================
10
At December 31, 2002, the remaining maturities of time certificates of $100,000
or more were as follows: (in thousands)
- -------------------------------------------------------------------------------
3 months or less $10,132
Over 3 through 6 months 9,126
Over 6 through 12 months 1,459
Over 12 months 2,778
- -------------------------------------------------------------------------------
Total $23,495
===============================================================================
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 $34,000 and $2,129,000 for 2002 and
2001, respectively. Average balances of Federal Home Loan Bank borrowings were
$9,888,000 during 2001.There were no Federal Home Loan Bank borrowings and
retail repurchase agreements during 2002.
Other Income
Other income increased to $10,073,000 during 2002, up 5.5 percent from
$9,548,000 during 2001 and up 22.6 percent from $7,788,000 during 2000. Service
charges on deposit accounts were up 7.8 percent from 2001 to 2002, and up 11.6
percent from 2000 to 2001. Other service charges were up 27.5 percent and up
12.6 percent for the same periods, respectively. Fiduciary fees in 2002 totaled
$1,141,000, up 2.3 percent from 2001 when they amounted to $1,115,000 and up
37.1 percent from 2000, at $813,000.
Other Expense
Other expense during 2002 was $35,744,000, up 10.6 percent from 2001 when it was
$32,307,000 and up 1.0 percent from $31,977,000 in 2000. Increases were
primarily due to increase in compensation expense, up 12.8 percent from 2001 to
2002. During 2002, non-interest expense grew at 10.6 percent while average
assets grew by 14.6 percent, further increasing 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
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, 2002: (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Less than 3 to 6 7 to 12 More Than Not Rate
MATURITY: 3 Months Months Months 1 Year Sensitive Total
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
Domestic loans (1) (net of unearned discount) $245,774 $ 75,875 $110,305 $ 353,751 $ 2,852 $ 788,557
Investment securities (2) 18,364 27,546 44,639 284,238 2,099 376,886
Federal funds sold 17,500 -- -- -- -- 17,500
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $281,638 $103,421 $154,944 $ 637,989 $ 4,951 $1,182,943
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS AND INTEREST-BEARING LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
Demand deposits (3) $ 15,736 $ 15,736 $ 31,471 $ 251,771 $ -- $ 314,714
N.O.W. & money market accounts (4) 9,802 9,802 19,603 156,826 -- 196,033
Borrowings -- -- -- -- -- --
Interest-bearing deposits (5) 82,272 46,651 68,153 434,759 -- 631,835
- ---------------------------------------------------------------------------------------------------------------------------
Total demand deposits & interest-bearing liabilities $107,810 $ 72,189 $119,227 $ 843,356 $ -- $1,142,582
===========================================================================================================================
Gap $173,828 $ 31,232 $ 35,717 $(205,367) $ 4,951 $ 40,361
===========================================================================================================================
Cumulative difference between interest-earning
assets and interest-bearing liabilities $173,828 $205,060 $240,777 $ 35,410 $40,361
===========================================================================================================================
Cumulative difference/total assets 13.66% 16.11% 18.92% 2.78% 3.17%
===========================================================================================================================
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, 2002, 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 upward and a 1 percent or 100 basis
point change in interest rates downward. Following is Suffolk's NII sensitivity
as of December 31, 2002. Suffolk's Board has approved a policy limit of 12.5
percent.
Estimated NII
Rate Change Sensitivity
- --------------------------- -------------
+200 basis point rate shock 1.75%
- -100 basis point rate shock (1.11%)
These estimates should not be interpreted as Suffolk's forecast, and should not
be considered as indicative of management's expectations for operating results.
They 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, and the reinvestment of cash flows from assets
and liabilities, among other things. 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.
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, 2002, there were no
derivative financial instruments outstanding.
12
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 $2,852,000 at
December 31, 2002: (in thousands)
- ---------------------------------------------------------------------------------------
Due Within After 1 but After
INTEREST RATE PROVISION 1 Year Before 5 Years 5 Years Total
- ---------------------------------------------------------------------------------------
Predetermined rates $170,000 $211,678 $19,292 $400,970
Floating or adjustable rates 263,284 120,828 3,475 387,587
- ---------------------------------------------------------------------------------------
Total $433,284 $332,506 $22,767 $788,557
=======================================================================================
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
$353,000 at December 31, 2002: (in thousands)
- ---------------------------------------------------------------------------------------
Due Within After 1 but After
1 Year Before 5 Years 5 Years Total
- ---------------------------------------------------------------------------------------
Commercial, financial & agricultural $135,776 $14,125 $229 $150,130
Real estate construction 36,558 -- -- 36,558
- ---------------------------------------------------------------------------------------
Total $172,334 $14,125 $229 $186,688
=======================================================================================
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 $109,103,000, compared to $104,566,000 at
year-end 2001 and $94,978,000 at year-end 2000. During 2002, Suffolk repurchased
283,796 shares for an aggregate price of $8,917,481. 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)
- ---------------------------------------------------------------------------------------------------------------
2002(1) 2001(1) 2000(1) 1999(1) 1998(1)
- ---------------------------------------------------------------------------------------------------------------
Primary capital at year-end $109,103 $104,566 $94,978 $86,442 $78,768
Primary capital at year-end as a percentage of year-end:
Total assets plus allowance for possible loan losses 8.51% 8.91% 8.98% 8.75% 8.60%
Loans, net of unearned discounts 13.84% 13.13% 12.24% 11.88% 12.16%
Total deposits 9.55% 9.94% 10.08% 9.85% 9.53%
===============================================================================================================
(1) Capital ratios do not include the effect of SFAS No. 115 "Accounting for
Certain Investments in Debt and Investment Securities."
In 2000, the Board adopted a policy whereby management will maximize both return
on average equity and earnings-per-share, and therefore shareholder value, while
maintaining the regulatory standard of "well-capitalized." That standard is 10
percent Total Risk-based Capital, 6 percent Tier 1 Capital, and 5 percent
Leverage Capital. When capital exceeds that standard by more than a small
cushion over what is expected to be required to maintain the "well-capitalized"
standard during the current quarter, shares may be repurchased as they become
available at prices that remain accretive to earnings per share in transactions
under SEC rule 10-b 18 and in private purchases. When capital expected to be
required during the current quarter does not exceed the standard, repurchases
will not be made. Further, the dividend reinvestment program will automatically
follow the same standard, purchasing shares in the market when Suffolk is in the
market to repurchase shares, and issuing from the reserve when it is not. Each
of these replaces the prior practice of authorizing the repurchase of a specific
number of shares by Suffolk, or the purchase or issuance of shares by the
dividend reinvestment program without specific reference to capital ratios.
13
The following table details repurchases during 2002:
- ---------------------------------------------------------------------------------------
Period ending Total shares repurchased Average price per share Aggregate cost
- ---------------------------------------------------------------------------------------
December 31, 2002 283,796 $31.42 $8,917,481.00
=======================================================================================
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 2002 on average assets of 1.72 percent and
average common equity of 21.12 percent fluctuated slightly from 2001 when
returns were 1.73 percent and 20.55 percent, respectively.
All dividends must conform to applicable statutory requirements. Suffolk
Bancorp's ability to pay dividends depends on 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 $38,576,000.
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, 2002,
Suffolk's ratios of core capital and total qualifying capital (core capital plus
Tier 2 capital) to risk-weighted assets were 12.28 percent and 11.29 percent,
respectively.
Discussion of New Accounting Pronouncements
In June 1999, 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 either as assets or as liabilities in the statement of financial
condition 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 2000, 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, 2001, with early application
encouraged. The Bank adopted SFAS No. 133 and SFAS No. 137, effective on January
1, 2001, with no material effect on the results of operations.
In June of 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement addressed financial accounting and reporting for business combinations
and requires that all business combinations be accounted for by a single method:
the purchase method. The single-method approach used in this statement reflects
the conclusion that virtually all business combinations are acquisitions and
thus all business combinations should be accounted for in the same way as are
the acquisitions of other assets: based on the values exchanged. The Bank
adopted SFAS No. 141 effective January 1, 2002, with no material effect on the
results of operations.
14
In July of 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement requires that goodwill and certain other intangible
assets having indefinite lives no longer be amortized to earnings, but instead
be subject to periodic testing for impairment. The Bank adopted SFAS No. 142
effective January 1, 2002, with no material effect on the results of operations.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions," an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9, which removes acquisitions of financial institutions from
the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions." SFAS No. 147 also requires that the acquisition of less
than a whole financial institution, such as a branch, be accounted for as a
business combination if the transferred assets and activities constitute a
business. The adoption of SFAS No. 147 did not have a material impact on the
Bank's financial position or results of operations.
Business Risks and Uncertainties
This annual report contains some statements that look to the future. These may
include remarks about Suffolk Bancorp, the banking industry, and the economy in
general. Factors affecting Suffolk Bancorp include particularly, but are not
limited to: changes in interest rates; increases or decreases in retail and
commercial economic activity in Suffolk's market area; variations in the ability
and propensity of consumers and businesses to borrow, repay, or deposit money,
or to use other banking and financial 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 operations. Each of the factors may change in ways that
management does not now foresee. These remarks are based on current plans and
expectations. They are subject, however, to a variety of uncertainties that
could cause future results to vary materially from Suffolk's historical
performance, or from current expectations.
15
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-------------------------------
2002 2001
-------------- --------------
ASSETS
Cash and Due From Banks $ 48,000,138 $ 60,925,542
Federal Funds Sold 17,500,000 17,600,000
Investment Securities:
Available for Sale, at Fair Value 359,902,409 241,061,300
Held to Maturity (Fair Value of $17,643,000 and $13,872,000, respectively)
Obligations of States and Political Subdivisions 14,884,444 11,708,925
Federal Reserve Bank Stock 637,849 637,849
Federal Home Loan Bank Stock 1,361,000 1,111,700
Corporate Bonds and Other Securities 100,000 100,000
-------------- --------------
Total Investment Securities 376,885,702 254,619,774
Total Loans 788,835,165 796,642,339
Less: Unearned Discounts 277,799 531,937
Allowance for Possible Loan Losses 8,695,408 8,825,289
-------------- --------------
Net Loans 779,861,958 787,285,113
Premises and Equipment, Net 20,437,150 13,801,145
Accrued Interest Receivable 5,945,568 5,556,925
Excess of Cost Over Fair Value of Net Assets Acquired 814,445 814,445
Other Assets 23,272,229 24,344,542
-------------- --------------
TOTAL ASSETS $1,272,717,190 $1,164,947,486
============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits $ 314,714,256 $ 294,189,709
Saving, N.O.W., and Money Market Deposits 557,967,262 453,922,043
Time Certificates of $100,000 or more 23,495,058 30,037,710
Other Time Deposits 246,405,358 273,562,547
-------------- --------------
Total Deposits 1,142,581,934 1,051,712,009
Dividend Payable on Common Stock 1,956,187 1,647,883
Accrued Interest Payable 1,334,336 2,513,445
Other Liabilities 18,052,041 12,237,369
-------------- --------------
TOTAL LIABILITIES 1,163,924,498 1,068,110,706
-------------- --------------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized, 11,489,481
and 11,770,596 shares outstanding at December 31, 2002 & 2001,
respectively) 33,838,045 33,825,545
Surplus 19,230,182 19,165,182
Undivided Profits 52,453,451 47,149,368
Treasury Stock at Par (2,045,737 shares and 1,759,622 shares, respectively) (5,114,347) (4,399,059)
Accumulated Other Comprehensive Income, Net of Tax 8,385,361 1,095,744
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 108,792,692 96,836,780
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,272,717,190 $1,164,947,486
============== ==============
See accompanying notes to consolidated financial statements
16
CONSOLIDATED STATEMENTS OF INCOME
For the Years ended December 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
INTEREST INCOME
Federal Funds Sold $ 706,856 $ 1,260,540 $ 423,490
United States Treasury Securities 471,611 1,091,359 1,741,538
Obligations of States and Political Subdivisions (tax exempt) 567,214 529,737 982,822
Mortgage-Backed Securities 12,143,135 6,244,987 4,887,822
U.S. Government Agency Obligations 2,895,198 2,245,450 2,243,358
Corporate Bonds and Other Securities 84,189 183,266 284,566
Loans 61,559,406 68,009,265 66,289,111
----------- ----------- -----------
Total Interest Income 78,427,609 79,564,604 76,852,707
INTEREST EXPENSE
Saving, N.O.W., and Money Market Deposits 6,645,241 8,492,498 8,997,810
Time Certificates of $100,000 or more 846,096 1,417,903 1,371,397
Other Time Deposits 8,596,137 13,785,445 13,088,266
Federal Funds Purchased 625 98,077 239,634
Interest on Other Borrowings -- 547,937 651,064
----------- ----------- -----------
Total Interest Expense 16,088,099 24,341,860 24,348,171
Net Interest Income 62,339,510 55,222,744 52,504,536
Provision for Possible Loan Losses 1,380,000 1,544,000 1,200,000
----------- ----------- -----------
Net Interest Income After Provision for Possible Loan Losses 60,959,510 53,678,744 51,304,536
OTHER INCOME
Service Charges on Deposit Accounts 5,690,926 5,277,701 4,729,846
Other Service Charges, Commissions & Fees 2,081,541 1,632,279 1,449,168
Fiduciary Fees 1,141,024 1,115,377 812,565
Other Operating Income 1,160,121 1,127,383 822,166
Net Gain (Losses) on Sale of Securities Available for Sale -- 395,294 (25,517)
----------- ----------- -----------
Total Other Income 10,073,612 9,548,034 7,788,228
OTHER EXPENSE
Salaries & Employee Benefits 20,788,300 18,424,087 17,711,469
Net Occupancy Expense 2,788,880 2,849,827 2,589,307
Equipment Expense 2,616,714 2,320,014 2,568,947
Outside Services 1,699,879 1,552,769 1,497,943
FDIC Assessments 184,208 176,759 180,011
Amortization of Excess Cost
Over Fair Value of Net Assets Acquired -- 361,932 361,932
Other Operating Expense 7,666,297 6,621,820 7,067,305
----------- ----------- -----------
Total Other Expense 35,744,278 32,307,208 31,976,914
Income Before Provision for Income Taxes 35,288,844 30,919,570 27,115,850
Provision for Income Taxes 14,020,154 12,234,773 10,883,424
----------- ----------- -----------
NET INCOME $21,268,690 $18,684,797 $16,232,426
=========== =========== ===========
Average: Common Shares Outstanding 11,657,984 11,822,452 12,015,912
Dilutive Stock Options 42,457 16,750 14,980
----------- ----------- -----------
Average Total Common Shares and Dilutive Options 11,700,441 11,839,202 12,030,892
EARNINGS PER COMMON SHARE Basic $ 1.82 $ 1.58 $ 1.35
Diluted $ 1.82 $ 1.58 $ 1.35
See accompanying notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Undivided Treasury
Stock Surplus Profits Stock
- -----------------------------------------------------------------------------------------
Balance, December 31, 1999 $19,026,050 $18,456,432 $ 45,576,295 $(3,887,104)
Net Income -- -- 16,232,426 --
Dividend -- -- (5,521,878) --
Purchase of Treasury Stock -- -- (2,401,909) (239,040)
Other -- -- (11,564) --
Net Change in Unrealized Gain on
Securities Available for Sale -- -- -- --
Comprehensive Income
- -----------------------------------------------------------------------------------------
Balance, December 31, 2000 $19,026,050 $18,456,432 $ 53,873,370 $(4,126,144)
Net Income -- -- 18,684,797 --
Dividend - Cash -- -- (6,607,498) --
Dividend - Stock 14,713,245 -- (14,713,245) --
Purchase of Treasury Stock -- -- (3,486,027) (234,880)
Stock Options Exercised 86,250 708,750 (602,029) (38,035)
Net Change in Unrealized Gain on
Securities Available for Sale -- -- -- --
Comprehensive Income
- -----------------------------------------------------------------------------------------
Balance, December 31, 2001 $33,825,545 $19,165,182 $ 47,149,368 $(4,399,059)
Net Income -- -- 21,268,690 --
Dividend - Cash -- -- (7,684,592) --
Purchase of Treasury Stock -- -- (8,207,991) (709,490)
Stock Options Exercised 12,500 65,000 (71,680) (5,798)
Other -- -- (344) --
Net Change in Unrealized Gain on
Securities Available for Sale -- -- -- --
Comprehensive Income
- -----------------------------------------------------------------------------------------
Balance, December 31, 2002 $33,838,045 $19,230,182 $ 52,453,451 $(5,114,347)
Accumulated
Other Comprehensive
Income,
Gain (Loss) Comprehensive
Net of Tax Total Income
- -------------------------------------------------------------------------------------
Balance, December 31, 1999 $(1,837,449) $ 77,334,224
Net Income -- 16,232,426 $16,232,426
Dividend -- (5,521,878)
Purchase of Treasury Stock -- (2,640,949)
Other -- (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 $ 822,824 $ 88,052,532
Net Income -- 18,684,797 $18,684,797
Dividend - Cash -- (6,607,498)
Dividend - Stock -- --
Purchase of Treasury Stock -- (3,720,907)
Stock Options Exercised -- 154,936
Net Change in Unrealized Gain on
Securities Available for Sale 272,920 272,920 272,920
-----------
Comprehensive Income $18,957,717
- --------------------------------------------------------------------------===========
Balance, December 31, 2001 $ 1,095,744 $ 96,836,780
Net Income -- 21,268,690 $21,268,690
Dividend - Cash -- (7,684,592)
Purchase of Treasury Stock -- (8,917,481)
Stock Options Exercised -- 22
Other -- (344)
Net Change in Unrealized Gain on
Securities Available for Sale 7,289,617 7,289,617 7,289,617
-----------
Comprehensive Income $28,558,307
- --------------------------------------------------------------------------===========
Balance, December 31, 2002 $ 8,385,361 $108,792,692
See accompanying notes to consolidated financial statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31,
--------------------------------------------
2002 2001 2000
------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 21,268,690 $ 18,684,797 $ 16,232,426
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses 1,380,000 1,544,000 1,200,000
Depreciation and Amortization 2,282,028 2,005,021 2,041,386
Amortization of Cost Over Fair Value of Net Assets Acquired -- 361,932 361,932
Accretion of Discounts (569,557) (564,956) (284,241)
Amortization of Premiums 2,545,950 533,577 594,291
(Increase) Decrease in Accrued Interest Receivable (388,643) 741,209 (427,144)
Decrease (Increase) in Other Assets 1,072,313 (3,362,937) (1,189,897)
(Decrease) Increase in Accrued Interest Payable (1,179,110) (811,115) 861,731
(Decrease) Increase in Income Taxes Payable (702,142) (242,622) 809,253
Increase (Decrease) in Other Liabilities 1,454,142 (2,108,511) 3,001,809
Net (Gain) Loss on Sale of Securities -- (395,294) 25,517
------------- ------------- ------------
Net Cash Provided by Operating Activities 27,163,671 16,385,101 23,227,063
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities 31,962,165 6,855,533 2,171,050
Proceeds from Sale of Investment Securities; Available for Sale -- 7,856,398 10,425,483
Maturities of Investment Securities; Available for Sale 6,000,000 83,250,000 6,000,000
Purchases of Investment Securities; Available for Sale (146,425,841) (188,943,787) (29,546,220)
Maturities of Investment Securities; Held to Maturity 6,241,000 11,833,400 30,698,583
Purchases of Investment Securities; Held to Maturity (9,664,300) (8,605,650) (16,185,500)
Loan Disbursements and Repayments, Net 6,043,155 (20,580,950) (49,387,421)
Purchases of Premises and Equipment, Net (8,918,033) (2,360,914) (1,141,932)
Disposition of Other Real Estate Owned -- 175,114 --
------------- ------------- ------------
Net Cash Used in Investing Activities (114,761,854) (110,520,856) (46,965,957)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts 90,869,926 109,275,868 65,133,550
Decrease in Federal Funds Purchased -- -- (13,500,000)
Dividends Paid to Shareholders (7,379,688) (6,332,706) (5,421,929)
Stock Options Exercised 22 154,936 --
Treasury Shares Acquired (8,917,481) (3,720,907) (2,640,949)
------------- ------------- ------------
Net Cash Provided by Financing Activities 74,572,779 99,377,191 43,570,672
------------- ------------- ------------
Net (Decrease) Increase in Cash and Cash Equivalents (13,025,404) 5,241,436 19,831,778
Cash and Cash Equivalents Beginning of Year 78,525,542 73,284,106 53,452,328
------------- ------------- ------------
Cash and Cash Equivalents End of Year $ 65,500,138 $ 78,525,542 $ 73,284,106
============= ============= ============
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest $ 78,038,966 $ 80,305,813 $ 76,425,563
============= ============= ============
Cash Paid During the Year for:
Interest $ 17,267,209 $ 25,152,975 $ 23,486,440
Income Taxes 15,162,619 12,974,528 10,074,171
------------- ------------- ------------
Total Cash Paid During Year for Interest & Income Taxes $ 32,429,828 $ 38,127,503 $ 33,560,611
============= ============= ============
Non-Cash Investing and Financing:
Increase in Market Value of Investments 12,355,283 688,652 4,282,863
Increase in Deferred Tax Liability Related to Market Value
of Investments Available for Sale (5,065,666) (282,347) (1,755,974)
Dividends Declared But Not Paid 1,956,187 1,647,883 1,373,091
Stock Options Exercised for Stock 77,500 369,500 --
Stock Dividends Declared But Not Paid -- 14,713,245 --
See accompanying notes to consolidated financial statements.
19
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, 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.
The Bank accounts for its transfers and servicing of financial assets in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended. In September
2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued which replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS 140 revises the standards for accounting for the
securitizations and other transfers of financial assets and collateral. This new
standard also requires certain disclosures, but carries over most of the
provisions of SFAS No. 125. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The adoption of this statement did not have a material impact on
the Bank's financial statements.
20
In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues." SAB No. 102 provides guidance on the development,
documentation, and application of a systematic methodology for determining the
allowance for loans and leases in accordance with US GAAP and is effective upon
issuance. The adoption of SAB No. 102 did not have a material impact on the
Bank's financial position or results of operations.
(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 and Other Intangible
Assets -- Through December 31, 2001, the excess of cost over fair value of net
assets acquired (goodwill) is amortized on a straight-line basis over a period
of ten years. Effective with the adoption of FASB No. 142, "Goodwill and Other
Intangible Assets," on January 1, 2002, the Bank ceased amortizing goodwill and,
instead, tests goodwill for impairment on a periodic basis.
(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) Stock-Based Compensation -- At December 31, 2002, the Bank had one
stock-based employee compensation plan, which is more fully described in Note 7.
The bank accounts for that plan under the recognition and measurement principles
of APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as an accepted alternative under FASB No. 123, "Accounting for
Stock-Based Compensation." All options granted under the plan had an exercise
price equal to the market value of the underlying common stock on the date of
grant.
(L) Treasury Stock -- The balance of treasury stock is computed at par value.
The excess cost over par is subtracted from undivided profits.
(M) Stock Dividend -- On November 26, 2001, Suffolk declared a 2-for-1 stock
split in the form of a 100 percent stock dividend, to shareholders of record on
December 14, 2001, payable on January 2, 2002. All share and per-share
information has been restated to reflect the split.
(N) 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.
(O) 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.
21
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.
(P) Segment Reporting -- SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," requires that public companies report
certain information about operating segments. It also requires that public
companies report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Suffolk is a
regional bank, which offers a wide array of products and services to its
customers. Pursuant to its banking strategy, emphasis is placed on building
relationships with its customers, as opposed to building specific lines of
business. As a result, at December 31, 2002 and 2001, Suffolk is not organized
around discernable lines of business and prefers to work as an integrated unit
to customize solutions for its customers, with business line emphasis and
product offerings changing over time as needs and demands change. Thus, all
necessary requirements of SFAS No. 131 have been met by Suffolk as of December
31, 2002.
(Q) 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.
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, 2002 and 2001 were: (in thousands)
- ----------------------------------------------------------------------------------------
2002
- ----------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
- ----------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury securities $ 9,393 $ 10,020 $ 627 $ --
U.S. government agency debt 69,250 74,740 5,490 --
Collateralized mortgage obligations
agency issue 242,167 249,914 7,920 (173)
Collateralized mortgage obligations
private issue 6,218 6,307 89 --
Mortgage-backed securities 15,168 15,361 193 --
Obligations of states and political
subdivisions 3,494 3,561 82 (15)
- ----------------------------------------------------------------------------------------
Balance at end of year 345,690 359,903 14,401 (188)
- ----------------------------------------------------------------------------------------
Held to maturity:
Obligations of states and
political subdivisions 14,884 15,544 660 --
Other securities 2,099 2,099 -- --
- ----------------------------------------------------------------------------------------
Balance at end of year 16,983 17,643 660 --
- ----------------------------------------------------------------------------------------
Total investment securities $362,673 $377,546 $15,061 $(188)
========================================================================================
- ----------------------------------------------------------------------------------------
2001
- ----------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
- ----------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury securities $ 9,649 $ 9,805 $ 156 $ --
U.S. government agency debt 47,782 48,970 1,188 --
Collateralized mortgage obligations
agency issue 148,427 148,327 1,847 (1,947)
Collateralized mortgage obligations
private issue 22,550 23,309 759 --
Mortgage-backed securities 9,446 9,364 -- (82)
Obligations of states and political
subdivisions 1,350 1,286 -- (64)
- ----------------------------------------------------------------------------------------
Balance at end of year 239,204 241,061 3,950 (2,093)
- ----------------------------------------------------------------------------------------
Held to maturity:
Obligations of states and
political subdivisions 11,709 12,022 388 (75)
Other securities 1,850 1,850 -- --
- ----------------------------------------------------------------------------------------
Balance at end of year 13,559 13,872 388 (75)
- ----------------------------------------------------------------------------------------
Total investment securities $252,763 $254,933 $4,338 $(2,168)
========================================================================================
22
The amortized cost, maturities, and approximate fair value of Suffolk's
investment securities at December 31, 2002 are as follows: (in thousands)
- ----------------------------------------------------------------------------------------------------
Available for Sale
- ----------------------------------------------------------------------------------------------------
U.S. Obligations of
U.S. Treasury Govt. Agency States & Political
Securities Debt Subdivisions
- ----------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
(1) Maturity (in years) Cost Value Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------
Within 1 $ -- $ -- $ -- $ -- $ --
After 1 but within 5 9,393 10,020 52,115 55,449 -- --
After 5 but within 10 -- -- -- -- -- --
After 10 -- -- 17,135 19,291 3,494 3,561
Other Securities -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------
Subtotal $9,393 $10,020 $69,250 $74,740 $3,494 $3,561
Collateralized mortgage obligations
Mortgage-backed securities
- ----------------------------------------------------------------------------------------------------
Total
====================================================================================================
- -----------------------------------------------------------------------------------------------------
Held to Maturity
- -----------------------------------------------------------------------------------------------------
Obligations of Total Total
States & Political Other Amortized Fair
Subdivisions Securities Cost Value
- -----------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
(1) Maturity (in years) Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
Within 1 $9,850 $ 5,990 $ -- $ -- $ 9,850 $ 5,990
After 1 but within 5 370 405 -- -- $ 61,878 $ 65,874
After 5 but within 10 -- -- -- $ -- $ --
After 10 4,664 9,149 -- -- $ 25,293 $ 32,001
Other Securities -- -- 2,099 2,099 $ 2,099 $ 2,099
- -----------------------------------------------------------------------------------------------------
Subtotal $14,884 $15,544 $2,099 $2,099 $ 99,120 $105,964
Collateralized mortgage obligations $248,385 $256,221
Mortgage-backed securities $ 15,168 $ 15,361
- -----------------------------------------------------------------------------------------------------
Total $362,673 $377,546
=====================================================================================================
(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 $1,361,000. The stock has
no maturity and there is no public market for the investment.
At December 31, 2002 and 2001, investment securities carried at $189,496,000 and
$108,795,000, respectively, were pledged to secure trust deposits and public
funds on deposit.
During 2002, there were no sales of securities available for sale.
During 2001, proceeds from sales of securities available for sale were
$7,856,000, resulting in realized gains of $395,000.
Note 3 -- Loans
At December 31, 2002 and 2001, loans included the following: (in thousands)
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Commercial, financial, and agricultural $150,130 $133,076
Commercial real estate 183,501 173,092
Real estate construction loans 36,558 27,365
Residential mortgages (1st and 2nd liens) 94,864 95,424
Home equity loans 44,349 31,699
Consumer loans 277,911 335,381
Other loans 1,522 605
- -------------------------------------------------------------------------------
788,835 796,642
Unearned discounts (278) (532)
Allowance for possible loan losses (8,695) (8,825)
- -------------------------------------------------------------------------------
Balance at end of year $779,862 $787,285
===============================================================================
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 $2,107,000 and $3,473,000 at December 31, 2002 and 2001, respectively.
Interest on loans that have been restructured or are no longer accruing interest
would have amounted to $129,000 during 2002, $214,000 during 2001, and $264,000
during 2000, under the contractual terms of those loans. Interest income
recognized on restructured and non-accrual loans was immaterial for the years
2002, 2001, and 2000.
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 $17,368,000 and $16,097,000 at December 31, 2002 and
2001, respectively. Unused portions of lines of credit to directors and
executives, directly or indirectly, totaled $12,035,000 and $13,776,000. New
loans totaling $31,092,000 were granted and payments of $29,821,000 were
received during 2002.
23
Note 4 -- Allowance for Possible Loan Losses
An analysis of the changes in the allowance for possible loan losses follows:
(in thousands)
- -------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
Balance at beginning of year $ 8,825 $7,749 $7,270
Provision for possible loan losses 1,380 1,544 1,200
Loans charged-off (1,853) (806) (897)
Recoveries on loans 343 338 176
- -------------------------------------------------------------------------------
Balance at end of year $ 8,695 $8,825 $7,749
===============================================================================
At December 31, 2002 and 2001, 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)
- --------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------
Recorded investment $476 $629
Valuation allowance 109 290
- --------------------------------------------------------------------
This valuation allowance is included in the allowance for loan losses on the
statements of condition. The average investment in impaired loans in 2002 was
$557,000, compared to $1,346,000 in 2001.
Note 5 -- Premises and Equipment
The following table details premises and equipment: (in thousands)
- -------------------------------------------------------------------------------
Estimated
Useful Lives 2002 2001
- -------------------------------------------------------------------------------
Land Indefinite $ 3,399 $3,399
Premises 30 - 40 years 15,281 9,068
Furniture, fixtures & equipment 3 - 7 years 18,834 16,522
Leasehold improvements 1 - 15 years 1,356 1,374
- -------------------------------------------------------------------------------
38,870 30,363
Accumulated depreciation
and amortization (18,433) (16,562)
- -------------------------------------------------------------------------------
Balance at end of year $ 20,437 $13,801
===============================================================================
Depreciation and amortization charged to operations amounted to $2,282,000,
$2,005,000, and $2,041,000 during 2002, 2001, and 2000, respectively.
The Bank adopted FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," on January 1, 2002. SFAS No. 144 retains the
existing requirements to recognize and measure the impairment of long-lived
assets to be held and used or to be disposed of by sale. However, SFAS No. 144
makes changes to the scope and certain measurement requirements of existing
accounting guidance. SFAS No. 144 also changes the requirements relating to
reporting the effects of a disposal or discontinuation of a segment of a
business. The adoption of this statement did not have a material impact on the
financial condition or results of operations of the Bank.
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 2002, and 2001: (dollars in
thousands)
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Daily average outstanding $ 34 $12,017
Total interest cost 1 646
Average interest rate paid 1.83% 5.38%
Maximum amount outstanding at any
month-end $ -- $44,900
December 31, balance -- --
Weighted-average interest rate
on balances outstanding at December 31 --% --%
===============================================================================
Suffolk has no assets pledged as collateral to the Federal Reserve Bank as of
December 31, 2002. Assets pledged as collateral to the Federal Home Loan Bank as
of December 31, 2002 totaled $45,370,000.
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 2002, 2001, or 2000.
At December 31, 2002, 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 that 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.
Compensation expense related to stock appreciation rights amounted to
approximately $309,000, $259,000, and $171,000 for the years ended December 31,
2002, 2001, and 2000, respectively.
24
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, 1999 91,400 $11.65
Options granted 19,000 13.13
Options exercised -- --
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 2000 110,400 $11.65
Options granted 40,000 15.50
Options exercised (69,000) 11.52
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 2001 81,400 $14.00
Options granted --
Options exercised (5,000) 15.50
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 2002 76,400 $13.90
================================================================================
The following table presents additional information:
- -------------------------------------------------------------------------------
At, or during, year ended December 31, 2002 2001 2000
- -------------------------------------------------------------------------------
Average remaining
contractual life in years: 7.34 7.89 7.38
Exercisable options (vested): 81,400 41,400 91,400
Weighted average fair value of options
(Black-Scholes model) at date of grant: na $ 3.40 $ 3.86
Black-Scholes Assumptions:
Risk-free interest rate na 5.17% 6.73%
Expected dividend yield na 2.93% 2.78%
Expected life in years na 10 10
Expected volatility na 14.80% 19.10%
===============================================================================
No options were granted during 2002.
Suffolk accounts for these plans under APB Opinion No. 25 under which no
compensation cost has been recognized for the fair value of stock options
granted. The following table illustrates the effect on net income and
earnings-per-share if the Bank had applied the fair value recognition provisions
of FASB No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation: (in thousands, except per-share amounts)
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Net Income: As Reported $21,269 $18,685 $16,232
Pro Forma 21,242 18,656 16,218
- --------------------------------------------------------------------------------
Basic EPS: As Reported 1.82 1.58 1.35
Pro Forma 1.82 1.58 1.35
- --------------------------------------------------------------------------------
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, 2002, approximately $38,576,000 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 $17.50, 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.
On November 26, 2001, Suffolk split the stock 2-for-1 in the form of a 100
percent stock dividend to shareholders of record on December 14, 2001, effective
on January 2, 2002. All share and per-share information have been restated to
reflect this split.
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)
- -------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
Current: Federal $11,909 $10,556 $ 8,653
State 3,143 2,240 1,711
- -------------------------------------------------------------------------------
15,052 12,796 10,364
Deferred: Federal 159 (25) 643
State (1,191) (536) (124)
- -------------------------------------------------------------------------------
(1,032) (561) 519
- -------------------------------------------------------------------------------
Total $14,020 $12,235 $10,883
===============================================================================
The total tax expense was greater than the amounts computed by applying the
federal income tax rate because of the following:
- -------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
Federal income tax expense at statutory rates 35% 35% 35%
Tax-exempt interest (1%) (1%) (1%)
Amortization of excess cost over fair value of net
assets acquired 0% 1% 1%
State income taxes net of federal benefit 5% 4% 4%
Other 1% 1% 1%
- -------------------------------------------------------------------------------
Total 40% 40% 40%
===============================================================================
25
The effects of temporary differences between tax and financial accounting that
create significant deferred-tax assets and liabilities at December 31, 2002 and
2001, and the recognition of income and expense for purposes of tax and
financial reporting, that resulted in a net increase to Suffolk's net deferred
tax (liability) asset for the years ended December 31, 2002, 2001, and 2000 are
presented below: (in thousands)
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Provision for possible loan losses $3,610 $3,607 $3,217
Post-retirement benefits 915 881 895
Deferred compensation 1,603 913 865
Other 820 633 777
- --------------------------------------------------------------------------------
Total deferred tax assets
before valuation allowance 6,948 6,034 5,754
Valuation allowance -- -- --
- --------------------------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 6,948 6,034 5,754
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Pension 1,604 1,722 1,742
Securities available for sale 5,827 761 1,756
- --------------------------------------------------------------------------------
Total deferred tax liabilities 7,431 2,483 3,498
- --------------------------------------------------------------------------------
Net deferred tax (liability) asset $ (483) $3,551 $2,256
================================================================================
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, 2002 and September 30, 2001, the time at which the annual
valuation of the plan is made.
The following table sets forth the plan's change in benefit obligation:
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Benefit obligation at beginning of year $14,614,955 $12,718,696
Service cost 881,106 1,153,567
Interest cost 966,983 903,010
Actuarial loss (gain) 933,816 526,896
Benefits paid (680,196) (687,214)
- -------------------------------------------------------------------------------
Benefit obligation at end of year $16,716,664 $14,614,955
===============================================================================
The following table sets forth the plan's change in plan assets:
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Fair value of plan assets at beginning of
year $16,376,205 $18,301,945
Actual return on plan assets (886,316) (1,467,460)
Employer contribution 125,068 228,934
Benefits paid (680,196) (687,214)
- -------------------------------------------------------------------------------
Fair value of plan assets at end of year $14,934,761 $16,376,205
===============================================================================
The following table summarizes the funded status of the plan:
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Funded status $(1,781,903) $ 1,395,894
Unrecognized net transition liability (118,376) (172,364)
Unrecognized prior service cost (40,557) 331,423
Unrecognized net loss 5,717,337 2,571,549
- -------------------------------------------------------------------------------
Prepaid cost $ 3,776,501 $ 4,126,502
===============================================================================
The following table summarizes the net periodic pension cost:
- -------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
Service cost $ 969,625 $ 901,874 $ 777,608
Interest cost on projected
benefit obligations 1,105,458 991,645 903,010
Expected return on plan assets (1,262,701) (1,373,214) (1,532,959)
Net amortization & deferral 195,855 22,691 (57,967)
- -------------------------------------------------------------------------------
Net periodic pension cost $ 1,008,237 $ 542,996 $ 89,692
===============================================================================
The weighted-average discount rate for purposes of determining net periodic
pension cost was 6.75 percent in 2002 and 2001, and 7.25 in 2000. The rate of
increase in future compensation levels used in determining these amounts was
4.00 percent in 2002 and 2001, and 4.25 percent in 2000. The expected long-term
rate of return on assets is 8.5 percent for 2002, 2001, and 2000.
(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 $357,000 and $504,000 on December 31, 2002 and 2001. Interest
(approximately $36,000 in 2002 and $37,000 in 2001) is accrued over the term of
the plan. In 2002, the Bank paid approximately $80,000 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 $279,000 in 2002, $280,000 in 2001, and $199,000 in 2000) at the
plan's contractual rate is being accrued on the deferral amounts over the
expected plan term. During 2002, Suffolk made payments of approximately $157,000
to participants of the plan.
26
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 (expense) income
related to the policies aggregated approximately ($56,000), $58,000, and
$21,000, in 2002, 2001, and 2000, 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, 2002 and
2001:
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation
(the "APBO"):
Retirees $ (625,953) $ (567,831)
Fully eligible active plan participants (434,491) (159,761)
Other active participants (165,898) (104,304)
- -------------------------------------------------------------------------------
Total APBO $(1,226,342 $ (831,896)
Unrecognized net gain (901,633) (1,252,145)
Unrecognized transition obligation 8,282 9,190
- -------------------------------------------------------------------------------
Post-retirement benefit liability $(2,119,693 $(2,074,851)
===============================================================================
The decrease in post-retirement benefit expense reflects the fact that the
health portion of the plan was closed as of January 1, 1998, and Suffolk's only
cost per participant is fixed at $13.65 per month.
Net periodic post-retirement benefit cost (the "net periodic cost") for the
years ended December 31, 2002, 2001, and 2000 includes the following components:
- -------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
Service cost of benefits earned $ 27,950 $ 13,740 $ 67,587
Interest cost on liability 74,954 54,435 106,755
Unrecognized (gain) loss (52,129) (73,074) (12,276)
- -------------------------------------------------------------------------------
Net periodic cost $ 50,775 $ (4,899) $162,066
===============================================================================
Benefit assumptions are based on sponsor contributions of $13.65 per month per
retiree for medical expenses and $0.27 per participant per month per $1,000 of
life insurance. The retiree is responsible for the premiums calculated, less
sponsor contributions.
(E) Deferred Bonus Plans -- During 1999, 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 2002 participants deferred compensation totaling $384,000. 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 $8,471,000 and $9,538,000 at December 31, 2002 and 2001,
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 $61,639,000 and $51,806,000, and
commercial loans of $18,560,000 and $13,031,000 as of December 31, 2002 and
2001, 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 2002, Suffolk was required to maintain balances with the Federal Reserve
Bank of New York for reserve and clearing requirements. These balances averaged
$4,029,000 in 2002.
Total rental expense for the years ended December 31, 2002, 2001, and 2000
amounted to $807,000, $756,000, and $685,000, respectively.
At December 31, 2002, 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 Rentals
- ----------------------------------------
2003 $ 639
2004 597
2005 535
2006 511
2007 and thereafter 1,980
========================================
27
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, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 2002, 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: (dollars 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, 2002
Total Capital (to risk-weighted assets) $117,251 13.39% $70,079 8.00% $87,599 10.00%
Tier 1 Capital (to risk-weighted assets) 108,556 12.39% 35,039 4.00% 52,559 6.00%
Tier 1 Capital (to average assets) 108,556 8.77% 49,490 4.00% 61,863 5.00%
=======================================================================================================
As of December 31, 2001
Total Capital (to risk-weighted assets) $105,136 11.91% $70,641 8.00% $88,301 10.00%
Tier 1 Capital (to risk-weighted assets) 96,311 10.91% 35,320 4.00% 52,980 6.00%
Tier 1 Capital (to average assets) 96,311 8.92% 43,194 4.00% 53,992 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, corporations, and mortgage-backed
securities and CMO's.
Consumer loans, net of unearned discounts, comprised 35.2 percent of Suffolk's
loan portfolio and 21.8 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 45.6 percent of
the portfolio and 28.2 percent of assets, 23.3 percent of which are for
commercial real estate. Commercial real estate loans 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 19.0 percent of the loan
portfolio and 11.8 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 2.7 percent of the investment portfolio and .8 percent of
assets. U.S. government agency debt securities represented 19.8 percent of the
investment portfolio and 5.9 percent of assets. These offer little or no
financial risk. Collateralized mortgage obligations represented 68.0 percent of
the investment portfolio and 20.1 percent of assets. Mortgage-backed securities
represented 4.1 percent of the investment portfolio and 1.2 percent of assets.
Municipal obligations constitute 4.9 percent of the investment portfolio and 1.4
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
usually holds these securities to maturity.
28
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)
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
Cash & cash equivalents $ 48,000 $ 48,000 $ 60,926 $ 60,926
Investment securities
available for sale 359,903 359,903 241,061 241,061
Investment securities
held to maturity 16,983 17,643 13,559 13,872
Loans, net 779,862 802,586 787,285 796,005
Accrued interest receivable 5,946 5,946 5,557 5,557
Deposits 1,142,582 1,148,007 1,051,712 1,054,996
Accrued interest payable 1,334 1,334 2,513 2,513
===============================================================================
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, 2002 and 2001:
(in thousands)
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Commercial, financial
& agricultural $150,130 $129,055 $133,076 $134,080
Commercial real estate 183,501 200,475 173,092 175,380
Real estate
construction loans 36,558 27,686 27,365 27,306
Residential mortgages
(1st & 2nd liens) 94,864 96,493 95,424 94,873
Home equity loans 44,349 44,673 31,699 31,355
Consumer loans 277,911 302,682 335,381 339,625
Other loans 1,522 1,522 605 605
- --------------------------------------------------------------------------------
Totals $788,835 $802,586 $796,642 $803,224
================================================================================
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.
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, 2002,
the fair value of certificates of deposit less than $100,000 totaling
$249,210,000 had a carrying value of $246,405,000. At December 31, 2002, the
fair value of certificates of deposit more than $100,000 totaling $24,046,000
had a carrying value of $23,495,000.
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 $27,031,000 and $22,569,000 at December 31,
2002 and 2001. The fees charged for the commitments were not material in amount.
29
Note 14-- Selected Quarterly Financial Data (Unaudited)
The comparative results for the four quarters of 2002 and 2001 are as follows:
(in thousands of dollars except for share and per-share data)
- -------------------------------------------------------------------------------------------
2002
- -------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -------------------------------------------------------------------------------------------
Interest income $ 19,460 $ 19,722 $ 19,830 $ 19,416
Interest expense 4,465 4,235 3,943 3,445
- -------------------------------------------------------------------------------------------
Net interest income 14,995 15,487 15,887 15,971
Provision for possible loan losses 300 360 360 360
- -------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 14,695 15,127 15,527 15,611
Other income 2,220 2,315 2,807 2,731
Other expense 8,514 8,647 9,091 9,492
Provision for income taxes 3,340 3,501 3,666 3,513
- -------------------------------------------------------------------------------------------
Net income $ 5,061 $ 5,294 $ 5,577 $ 5,337
===========================================================================================
Basic per-share data:
- -------------------------------------------------------------------------------------------
Net income $ 0.43 $ 0.45 $ 0.48 $ 0.46
Cash dividends $ 0.17 $ 0.17 $ 0.17 $ 0.17
Average shares 11,767,980 11,715,577 11,632,079 11,519,318
===========================================================================================
- -------------------------------------------------------------------------------------------
2001
- -------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -------------------------------------------------------------------------------------------
Interest income $ 19,893 $ 19,973 $ 19,995 $ 19,704
Interest expense 6,543 6,396 5,985 5,418
- -------------------------------------------------------------------------------------------
Net interest income 13,350 13,577 14,010 14,286
Provision for possible loan losses 405 405 405 329
- -------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 12,945 13,172 13,605 13,957
Other income 2,173 2,456 2,357 2,562
Other expense 7,928 7,679 8,068 8,632
Provision for income taxes 2,787 3,121 3,134 3,193
- -------------------------------------------------------------------------------------------
Net income $ 4,403 $ 4,828 $ 4,760 $ 4,694
===========================================================================================
Basic per-share data:
- -------------------------------------------------------------------------------------------
Net income $ 0.37 $ 0.41 $ 0.40 $ 0.40
Cash dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
Average shares 11,900,940 11,820,294 11,799,620 11,770,640
===========================================================================================
Note 15-- Suffolk Bancorp (Parent Company Only) Condensed Financial Statements
(in thousands)
- ----------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Assets
Due From Banks $ 1,973 $ 1,758 $ 1,455
Investment in Subsidiaries: SCNB 109,370 97,125 87,283
Other Assets 386 264 1,166
- ----------------------------------------------------------------------------------------------
Total Assets $111,729 $99,147 $89,904
==============================================================================================
Liabilities and Stockholders' Equity
Dividends Payable $ 1,956 $ 1,648 $ 1,373
Other Liabilities 980 662 478
Stockholders' Equity 108,793 96,837 88,053
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $111,729 $99,147 $89,904
==============================================================================================
- ----------------------------------------------------------------------------------------------
Condensed Statements of Income for the Years Ended December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Income
Net Security Gains $ -- $ 208 $ 88
Other Income 2 14 20
Dividends From Subsidiary Bank 16,706 9,350 8,965
- ----------------------------------------------------------------------------------------------
16,708 9,572 9,073
Expense
Other Expense 394 312 320
- ----------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Net Income of Subsidiaries 16,314 9,260 8,753
Equity in Undistributed Earnings of Subsidiaries 4,955 9,425 7,479
- ----------------------------------------------------------------------------------------------
Net Income $21,269 $18,685 $16,232
==============================================================================================
30
- -----------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows for the Years Ended December 31, 2002 2001 2000
- -----------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income $ 21,269 $ 18,685 $ 16,232
Less: Equity in Undistributed Earnings of Subsidiaries (4,955) (9,425) (7,479)
Other, Net 198 146 173
- -----------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 16,512 9,406 8,926
- -----------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of Investment Securities; Available for Sale -- -- (1,247)
Maturities of Investment Securities; Available for Sale -- 796 451
- -----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities -- 796 (796)
- -----------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Stock Options Exercised -- 155 --
Repurchase of Common Stock (8,917) (3,721) (2,641)
Dividends Paid (7,380) (6,333) (5,422)
- -----------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (16,297) (9,899) (8,063)
- -----------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 215 303 67
Cash and Cash Equivalents, Beginning of Year 1,758 1,455 1,388
- -----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,973 $ 1,758 $ 1,455
=====================================================================================================
Note: No income tax provision has been recorded on the books of Suffolk Bancorp
since it files a return consolidated with its subsidiaries.
Report of Independent Public Accountants
Board of Directors
Suffolk Bancorp
We have audited the accompanying consolidated statement of condition of
Suffolk Bancorp and its subsidiary as of December 31, 2002 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 2002. 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 audit. The financial
statements of Suffolk Bancorp as of December 31, 2001 and for the years ended
December 31, 2001 and 2000, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated January 16, 2002.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Suffolk Bancorp
as of December 31, 2002, and the consolidated results of its operations and its
consolidated cash flows for the year ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
GRANT THORNTON, LLP
Philadelphia, Pennsylvania
January 10, 2003
31
The following Report of Independent Public Accountants dated January 16, 2002 is
a copy of the previously issued report. Arthur Andersen, LLP has not reissued
the report.
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, 2001 and 2000 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,
2001. 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,
2001 and 2000 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
ARTHUR ANDERSEN LLP
New York, New York
January 16, 2002
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 10, 2003
32
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, 2002 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.)
4 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 6, 2003
- --------------------- ---------------------------------------------------
$2.50 Par Value 11,309,481
The aggregate market value of the Registrant's Common Stock (based on the most
recent sale at $31.94 on February 6, 2003) held by non-affiliates was
approximately $344,472,000.
33
PART I
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held April 8, 2003, filed on March 7, 2003. (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 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 Suffolk County National Bank.
Suffolk's chief competition includes local banks with main or branch offices in
the service area of 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 364 full-time and 54 part-time employees on
December 31, 2002.
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, Hauppauge,
Manorville, Mattituck, Medford, Miller Place, Montauk, Port Jefferson,
Riverhead, Sag Harbor, Sayville, Shoreham, Smithtown, Southampton, Southold,
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 serving 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.
AVAILABLE INFORMATION
Suffolk files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Proxy Statements on Form 14(a), and any amendments
to those reports, with the United States Securities and Exchange Commission
("SEC"). The public may read and copy any of these materials at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on
the operation of the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330 (1-800-732-0330). The SEC also maintains an Internet site
(http:// www.sec.gov) that contains reports, proxy, and information statements,
and other information regarding issuers, including Suffolk, that file
electronically with the SEC. Suffolk also makes these reports available free of
charge through its Internet website (http:// www.suffolkbancorp.com) as soon as
practicably possible after Suffolk files these reports electronically with the
SEC.
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.
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 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.
Suffolk is a bank holding company registered under the Bank Holding Company Act
("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.
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
34
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. If 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 "Gramm-Leach-Bliley Act" 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 non-banking 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, as of December 31, 2002, 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 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
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
beginning September 29, 1995, bank holding companies may acquire banks in any
state subject to limited restrictions including bank age and deposit
concentration limits, notwithstanding contrary state law. All banks owned in
common by a bank holding company may act as agents for one another. An agent
bank may receive deposits, renew time deposits, accept payments, and
35
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 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 of up to $1 million per day, issue cease-and-desist or removal
orders, seek injunctions, and publicly disclose such actions.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act, effective on March 11, 2000, permits 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, is 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 specified 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.
In July of 2001, provisions of the Gramm-Leach-Bliley Act became effective that
impose additional requirements on financial institutions with respect to
customer privacy. These provisions generally prohibit disclosure of customer
information to non-affiliated third parties unless the customer has been given
the opportunity to object, and has not objected, to such disclosure. Financial
36
institutions are also required to disclose their privacy policies to customers
annually and may be required to comply with provisions of applicable state law
if such provisions are more protective of customer privacy than those contained
in the Gramm-Leach-Bliley Act.
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, availability of credit, deposit balances,
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 4 West Second Street, Riverhead, New York.
Bank
The Bank's main office campus, with three buildings, is located at 6 West Second
Street, Riverhead, New York, title to which is held by the Town of Riverhead,
New York Industrial Development Agency for reasons of tax abatement, but to
which the Bank has all other rights of ownership. The Bank also owns a total of
12 properties with 12 buildings in fee, and holds 15 buildings under lease
agreements. The decision was made to consolidate a number of offices housing
central operations in the new campus facility on property then already owned by
the Bank in Riverhead, New York, in the interest of operational efficiency.
Construction began late in 2001 under a contract with a guaranteed maximum price
of $8,837,000. Capitalized costs through December 31, 2002 totaled $6,933,000.
Depreciation will commence during the first quarter of 2003. Management
anticipates that costs will exceed recent 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.
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, 2002.
At February 1, 2003, there were 1,950 equity holders of record and approximately
1,700 beneficial shareholders of the Company's common stock.
ITEM 6. Selected Quarterly Financial Data
Page 30 of this Annual Report to Shareholders for the fiscal year ended December
31, 2002.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 5 - 15 of this Annual Report to Shareholders for the fiscal year ended
December 31, 2002.
ITEM 7a. Quantitative and Qualitative Disclosure about Market Risk
Page 12 of this Annual Report to Shareholders for the fiscal year ended December
31, 2002.
ITEM 8. Financial Statements and Supplementary Data
Pages 16 - 31 of this Annual Report to Shareholders for the fiscal year ended
December 31, 2002.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
37
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 8, 2003 is incorporated herein by reference.
Executive Officers
NAME AGE POSITION BUSINESS EXPERIENCE
---- --- -------- -------------------
Thomas S. Kohlmann 56 President and Chief Executive Oct-99 - Present President, CEO, and Director, Suffolk Bancorp
Officer Oct-99 - Present President, CEO, and Director, SCNB
Jan-98 - Oct-99 EVP, Suffolk Bancorp
Jan-96 - Oct-99 EVP and Chief Lending Officer
Feb-92 - Dec-95 SVP, SCNB
1980 - Feb-92 Marine Midland Bank
Employed by Suffolk County National Bank since February 1992.
J. Gordon Huszagh 49 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 Suffolk County National Bank since January 1983.
Victor F. Bozuhoski, Jr. 64 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 Suffolk County National Bank since September 1965.
Robert C. Dick 53 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 Suffolk County National Bank since January 1980.
Augustus C. Weaver 60 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 Suffolk County National Bank since January 1996.
ITEM 11. Executive Compensation
Pages 4 - 8 of Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 8, 2003 is incorporated herein by reference.
38
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 8, 2003 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 8, 2003 is incorporated herein by reference.
ITEM 14. Controls and Procedures
Suffolk's Chief Executive Officer and Chief Financial Officer (collectively, the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for Suffolk. Based upon their evaluation of
these controls and procedures as of a date within 90 days of the filing of this
report, the Certifying Officers have concluded that Suffolk's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by Suffolk in this report is accumulated and communicated to Suffolk's
management, including its principal executive officers as appropriate, to allow
timely decisions regarding required disclosure.
The Certifying Officers also have indicated that there were no significant
changes in Suffolk's internal controls or other factors that could significantly
affect these controls subsequent to the date of their evaluation, and there were
no corrective actions with regard to signficant deficiencies and material
weaknesses.
PART IV
ITEM 15. 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, are included on pages 16
through 31 inclusive.
Financial Statements (Consolidated)
Statements of Condition-- December 31, 2002 and 2001
Statements of Income -- For the years ended December 31, 2002, 2001, and
2000
Statements of Changes in Stockholders' Equity -- For the years ended
December 31, 2002, 2001, and 2000
Statements of Cash Flows -- For the years ended December 31, 2002, 2001,
and 2000
Notes to Consolidated Financial Statements
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
the Corporate Secretary, Suffolk Bancorp, 4 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)
39
Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month period ended
December 31, 2002.
SIGNATURES
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 7, 2003
(Registrant)
By: /s/ EDWARD J. MERZ
--------------------------------------------------------
Edward J. Merz
Chairman of the Board, 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/ BRUCE COLLINS
--------------------------------------------------------
Bruce Collins
Director
By: /s/ JAMES E. DANOWSKI
--------------------------------------------------------
James E. Danowski
Director
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
CERTIFICATION OF PERIODIC REPORT
I, Thomas S. Kohlmann, Chief Executive Officer of the Company, certify that:
1. I have reviewed this annual report on Form 10-K of Suffolk Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: March 7, 2003
/s/ THOMAS S. KOHLMANN
- -----------------------------------
Thomas S. Kohlmann
President & Chief Executive Officer
40
CERTIFICATION OF PERIODIC REPORT
I, J. Gordon Huszagh, Chief Financial Officer of the Company, certify that:
1. I have reviewed this annual report on Form 10-K of Suffolk Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: March 7, 2003
/s/ J. GORDON HUSZAGH
- ---------------------
J. Gordon Huszagh
Executive Vice President & Chief Financial Officer
[LOGO OF SUFFOLK BANCORP]
DIRECTORS
Edward J. Merz
Chairman
Bruce Collins
Retired
James E. Danowski
Partner; Coughlin, Foundotos, Cullen & Danowski
(accounting firm)
Joseph A. Deerkoski
Consultant; Neefus-Stype, Inc.
(general insurance)
Howard M. Finkelstein
Partner; Smith, Finkelstein, Lundberg, Isler & Yakaboski
(attorneys)
Edgar F. Goodale
President; Riverhead Building Supply Corp.
(building supply distributor)
Thomas S. Kohlmann
President & Chief Executive Officer
Terence X. Meyer
Managing Partner; Meyer, Meyer, Metli & Keneally, Esqs. L.L.P.
(attorneys)
Susan V. B. O'Shea
Managing Partner; L. I. Commercial Industrial Corp.
(commercial real estate)
J. Douglas Stark
President; Stark Mobile Homes, Inc.
(manufactured housing)
Peter Van de Wetering
President; Van de Wetering
Greenhouses, Inc.
(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
41
[LOGO] SUFFOLK COUNTY
NATIONAL BANK
DIRECTORS David T. De Vito East Hampton Village Office
Edward J. Merz Vice President Jill James
Chairman of the Board John Dunleavy Vice President
Bruce Collins Vice President
James E. Danowski Wendy Harris Hampton Bays Office
Joseph A. Deerkoski Vice President David C. Barczak
Howard M. Finkelstein Robert T. Ellerkamp Vice President
Edgar F. Goodale Vice President
Thomas S. Kohlmann John J. Reilly Hauppauge Office
Terence X. Meyer Vice President Dean Kupinsky
Susan V. B. O'Shea Deborah Simonetti Vice President
J. Douglas Stark Vice President
Peter Van de Wetering Frederick J. Weinfurt Manorville Office
Vice President Diane De Fabrizio
Assistant Vice President
EXECUTIVE OFFICERS
Thomas S. Kohlmann RETAIL BANKING Mattituck Office
President & Frank D. Filipo Janet V. Stewart
Chief Executive Officer Senior Vice President, Vice President
J. Gordon Huszagh Retail Banking
Executive Vice President & Susan M. Martinelli Medford Office
Chief Financial Officer Vice President Paul E. Vaas
Victor F. Bozuhoski, Jr. Richard J. Micallef Vice President
Executive Vice President Vice President
Retail Banking Miller Place Office
Augustus C. Weaver Bohemia Office Michele Fenning
Executive Vice President & Stan V. Gelish Assistant Vice President
Chief Information Officer Vice President
Robert C. Dick Montauk Harbor Office
Executive Vice President & Center Moriches Office Montauk Village Office
Chief Lending Officer Julia Pratt Stephanie D. Hemby
Manager Manager
LOANS
Philip D. Ammirato Cutchogue Office Port Jefferson Harbor Office
Senior Vice President Richard J. Noncarrow Port Jefferson Village Office
Lawrence Milius Vice President Peter A. Poten
Senior Vice President Vice President
Peter M. Almasy East Hampton Pantigo Office
Vice President Margaret B. Meighan
Joan Brigante Assistant Vice President
Vice President
42
[LOGO] SUFFOLK COUNTY
NATIONAL BANK
Riverhead, Ostrander West Babylon Office COLLECTIONS
Avenue Office Charles F. Bivona Brian Both
Darleen Korpi-Schneider Assistant Vice President Vice President
Manager
Westhampton Beach Office COMPLIANCE
Riverhead, Second Street John McGregor Jeanne P. Hamilton
Office Assistant Vice President Senior Vice President
Robert H. Militscher
Regional Senior TRUST & INVESTMENT COMPTROLLER
Vice President SERVICES William Cassara
Dan A. Cicale Vice President
Sag Harbor Office Senior Vice President
Jane P. Markowski & Trust Officer CORPORATE SERVICES
Assistant Vice President Douglas Ian Shaw
Trust & Estate Services Vice President &
Sayville Office Linda Schwartz Corporate Secretary
Pamela S. Werner Assistant Vice President
Assistant Vice President Joseph Gibbons DATA PROCESSING
Vice President Mark J. Drozd
Shoreham Office Lori E. Thompson Senior Vice President
Wendy A. Stapon Vice President
Assistant Vice President Warren Palzer FACILITIES
Vice President Charles E. Anderson
Smithtown Office Manager
William K. Miller Private Banking
Regional Vice President Richard B. Smith HUMAN RESOURCES
Senior Vice President Nancy Jacob
Southampton Office Theresa A. Kiernan Vice President
Patricia Bolomey Vice President
Vice President Benjamin Mancuso MARKETING
Vice President Brenda B. Sujecki
Southold Office Margaret Lupardo Vice President
Richard J. Noncarrow Vice President
Vice President OPERATIONS
Investors' Marketplace Dennis F. Orski
Wading River Office William C. Araneo Senior Vice President
Anita Nigrel Vice President Deanna L. Miller
Regional Vice President Vice President
AUDIT
Water Mill Office Maria R. Michaelson SECURITY
Patricia Bolomey Vice President Alexander B. Doroski
Vice President Senior Vice President
43
[LOGO] SUFFOLK COUNTY
NATIONAL BANK
Directory of Offices and Departments
Area Code (631)
ON THE WEB AT: WWW.SCNB.COM Telephone FAX
- -----------------------------------------------------------------------------------------------------------------------
Executive Offices 4 West Second Street, Riverhead, N.Y. 11901 208-2400 727-2638
Audit 4 West Second Street, Riverhead, N.Y. 11901 208-2285 727-9223
Bohemia Office 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-4477 585-4809
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
Collections 206 Griffing Avenue, Riverhead, N.Y. 11901 727-7900 727-5732
Commercial Loans 4 West Second Street, Riverhead, N.Y. 11901 208-2201 727-5798
6 West Second Street, Riverhead, N.Y. 11901 727-4712 727-3210
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 4 West Second Street, Riverhead, N.Y. 11901 208-2292 727-2638
Comptroller 4 West Second Street, Riverhead, N.Y. 11901 208-2270 369-2230
Consumer Loans 4 West Second Street, Riverhead, N.Y. 11901 208-2222 727-5521
Corporate Services (Investor Relations) 4 West Second Street, 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 4 West Second Street, Riverhead, N.Y. 11901 208-2333 208-0767
Hampton Bays Office 168 West Montauk Highway, Hampton Bays, N.Y. 11946 728-2700 728-8311
Hauppauge Office 110 Marcus Boulevard, Hauppauge, N.Y. 11788 436-5400 436-4454
Human Resources 4 West Second Street, Riverhead, N.Y. 11901 208-2310 727-3170
Information Services 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5934
Investors Marketplace 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 285-7284 285-6610
44
[LOGO] SUFFOLK COUNTY
NATIONAL BANK
Directory of Offices and Departments
Area Code (631)
ON THE WEB AT: WWW.SCNB.COM Telephone FAX
- -----------------------------------------------------------------------------------------------------------------------
Manorville Office 460 County Road 111, Suite 18, Manorville, N.Y. 281-8200 281-5695
Marketing 4 West Second Street, Riverhead, N.Y. 11901 208-2323 727-9223
Mattituck Office 10900 Main Road, Mattituck, N.Y. 11952 298-9400 298-9188
Medford Office 2801 Route 112, Suite B, 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 4 West Second Street, Riverhead, N.Y. 11901 208-2244 369-2468
Retail Banking 4 West Second Street, Riverhead, N.Y. 11901 208-2300 727-3873
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
Southold Office 55345 Main Road, Southold, N.Y. 11971 765-6700 765-6743
Trust and Investment Services 3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 285-6600 285-6610
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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