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PHOTOGRAPH OF VILLAGE OF SOUTHAMPTON
NO BORDERS - FOUR COLOR BLEED
[SUFFOLK BANCORP LOGO]
ANNUAL REPORT 1993
and Form 10-K
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[PHOTO -- SEE EDGAR APPENDIX]
ON THE COVER
VILLAGE OF SOUTHAMPTON
The village of Southampton shares with the hamlet of Southold the distinction
of being one of the two oldest English settlements on Long Island. Puritans
from Lynn, Massachusetts arranged with John Winthrop, governor of the
Massachusetts Bay Colony, to purchase a tract on the Island's South Fork from
both the Earl of Stirling and the Shinnecock Indians. After the railroad
reached Southampton in 1872, it became a popular destination for vacationing
New Yorkers. Wide, sand beaches on the ocean, an elegant assortment of shops
and restaurants, and varied and impressive residential architecture make
Southampton today one of the premier resorts on the east coast.
TABLE OF CONTENTS
Corporate Profile & Financial Highlights . . . . . . . 1 Interest Rate Sensitivity . . . . . . . . . . . . . 14
Message to the Shareholders . . . . . . . . . . . . . . 2 Asset/Liability Management & Liquidity . . . . . . 15
Commentary . . . . . . . . . . . . . . . . . . . . . . 3 Business Risks & Uncertainties . . . . . . . . . . 15
Capital Resources . . . . . . . . . . . . . . . . . . 16
Summary of Selected Financial Data . . . . . . . . . . 6 Risk-Based Capital/Leverage Guidelines . . . . . . 16
Price Range of Common Stock & Dividends . . . . . . . . 6 Discussion of Current Accounting Principles . . . . . 17
Acquisition of Hamptons Bancshares, Inc. . . . . . . 17
Management's Discussion & Analysis of
Financial Condition and Results of Operations . . . . 7
The Company's Business . . . . . . . . . . . . . . . 7 Consolidated Statements of Condition . . . . . . . . . 18
General Economic Conditions . . . . . . . . . . . . 7 Consolidated Statements of Income . . . . . . . . . . . 19
Results of Operations . . . . . . . . . . . . . . . . 7 Consolidated Statements of Changes in Stockholders'
Net Income . . . . . . . . . . . . . . . . . . . . 7 Equity . . . . . . . . . . . . . . . . . . . . . . . 20
Net-interest Income . . . . . . . . . . . . . . . . 7 Consolidated Statements of Cash Flows . . . . . . . . . 21
Average Assets, Liabilities, & Stockholders' Equity, Notes to Consolidated Financial Statements . . . . . . 22
Rate Spread, & Effective Interest Rate Independent Auditors' Report . . . . . . . . . . . . . 31
Differential . . . . . . . . . . . . . . . . . . 8 Report of Management . . . . . . . . . . . . . . . . . 32
Analysis of Changes in Net-interest Income . . . 9
Interest Income . . . . . . . . . . . . . . . . . . 9 Form 10-K . . . . . . . . . . . . . . . . . . . . . . . 33
Investment Securities . . . . . . . . . . . . . . 9
Loan Portfolio . . . . . . . . . . . . . . . . . 10 Suffolk Bancorp: Directors and Officers . . . . . . . . 39
Summary of Loan Loss Experience Island Computer Corporation: Directors and Officers . . 39
& Allowance for Possible Loan Losses . . . . . . 11 The Suffolk County National Bank: Directors and
Interest Expense . . . . . . . . . . . . . . . . . 13 Officers . . . . . . . . . . . . . . . . . . . . . . 40
Deposits . . . . . . . . . . . . . . . . . . . . 13
Short Term Borrowings . . . . . . . . . . . . . . 13 Directory of Offices and Departments:
Other Income . . . . . . . . . . . . . . . . . . . 13 Addresses, Telephones, and
Other Expense . . . . . . . . . . . . . . . . . . . 14 Telecopiers . . . . . . . . . . . . . inside back cover
This statement has not been reviewed or confirmed for accuracy or relevance
by the Office of the Comptroller of the Currency.
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CORPORATE PROFILE
SUFFOLK BANCORP is engaged in the commercial banking business
through its wholly owned subsidiary, The Suffolk County National Bank. "SCNB"
is a full-service commercial bank. Organized in 1890, the Bank is the second
largest independent bank headquartered on Long Island. The Bank has built a
strong local reputation by providing personal service which has developed a
loyal and growing clientele.
The Bank focuses on developing and maintaining ties to the
communities it serves. Its business is primarily retail, and emphasizes loans
to individual consumers, and to small and medium-sized commercial enterprises.
It has special expertise in indirect retail lending, evaluating and buying
loans generated by automobile dealers. The Bank's primary market is Suffolk
County, New York, which is increasingly suburban in character. The County has a
population of more than 1.3 million people, and incomes well above the national
average.
Suffolk Bancorp also owns Island Computer Corporation of New York,
Inc., a bank data processing company located in Bohemia, New York.
On September 7, 1993, Suffolk Bancorp signed a definitive agreement
to acquire a bank holding company on the south fork of Long Island which has
eight offices and $160,000,000 in assets. Suffolk Bancorp is now awaiting the
approval of shareholders and regulators to complete the transaction.
FINANCIAL HIGHLIGHTS
(in thousands of dollars, except ratios, share, and per-share information)
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SUFFOLK BANCORP December 31, 1993 1992
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EARNINGS FOR THE YEAR Income Before Cumulative Effect of Accounting Change $ 7,689 $ 6,673
Cumulative Effect of Accounting Change 624 -
Net Income 8,313 6,673
Net-interest Income 29,472 28,831
Income-Per-Share Before Accounting Change 2.27 1.97
Cumulative Effect-Per-Share of Accounting Change 0.18 -
Net Income-Per-Share 2.45 1.97
Cash Dividends-Per-Share 0.68 0.60
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BALANCES AT YEAR-END Assets 642,359 599,418
Net Loans 406,740 369,005
Investment Securities 194,391 166,946
Deposits 568,768 538,604
Equity 63,284 57,105
Shares Outstanding 3,396,460 3,389,281
Book Value Per Common Share $ 18.63 $ 16.85
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RATIOS Return on Average Equity 13.78% 12.19%
Return on Average Assets 1.35% 1.13%
Average Capital Ratio 9.79% 9.24%
Net-interest Margin (Taxable-equivalent) 5.31% 5.43%
Net Charge-offs to Average Net Loans 0.24% 0.48%
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SUFFOLK BANCORP ANNUAL MEETING TRADING
Tuesday, April 12, 1994, 1:00 P.M. Suffolk Bancorp's common stock is traded over-the-counter,
Fox Hill Golf & Country Club and is listed on the NASDAQ National Market System under
Oakleigh Avenue the symbol "SUBK." Market makers at December 31, 1993
Baiting Hollow, New York included the firms of: Herzog, Heine, Geduld, Inc.;
McConnell, Budd & Downes, Inc.; Ryan Beck & Co.; Sandler
O'Neill & Partners, L.P.;and Smith Barney Shearson, Inc.
REGISTRAR AND TRANSFER AGENT S.E.C. FORM 10-K
American Stock Transfer & Trust Co. The Annual Report to the Securities and Exchange
40 Wall Street, 46th Floor Commission, Form 10-K, is included in this document.
New York, New York 10269-0436 Documents incorporated by reference can be obtained,
(212) 936-5100 without charge, by writing to the Secretary, Suffolk
Bancorp, 6 West Second Street, Riverhead, New York 11901.
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[SUFFOLK BANCORP LETTERHEAD]
TO OUR SHAREHOLDERS:
1993 was a successful year for Suffolk Bancorp and for its wholly owned
subsidiaries, The Suffolk County National Bank and Island Computer Corporation.
Net income increased substantially from 1992 to 1993 and important operating
ratios improved.
Net income was $8,313,000, 25 percent greater than in 1992. Earnings-per-share
were $2.45, up 48 cents from 1992. Assets totaled $642,359,000 at year-end, up
7 percent from 1992. Equity capital totaled $63,284,000, up 11 percent from
year-end 1992. Book-value-per-share was $18.63.
We feel satisfied with this performance. The economy in our region has started
to improve, and while our net interest margin has narrowed slightly as rates of
interest have stabilized at low rates, the demand for loans increased
adequately for us to increase net interest income from the previous year. We
benefited as well from considerable improvement in the quality of our loans.
Consequently, the portion of our income which we devoted to the provision for
possible loan losses decreased by 57.3 percent. For the second year in a row,
both net income and earnings-per-share have exceeded past records. Regular
dividends stand at $0.68 per share, and the price of a share reached $25.00,
closing at $23.00 on December 31st, the first a new high, and the second a
year-end record.
The explanation for our success is straightforward. We make every effort
possible to determine what financial services our customers want and need.
Then, we provide them, as pleasantly and conveniently as we can. We further
bear in mind that we are always working with other people's money, both that of
our depositors, and you, our shareholders, and exercise appropriate discretion
in the conduct of each day's business. Prudence and common sense have served us
well for the past one-hundred-and-four years and will guide us into the future.
As always, it has been an honor, a pleasure, and a challenge to serve as your
chief executive officer during the past year. Your support has been greatly
appreciated.
Edward J. Merz
President & Chief Executive Officer
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COMMENTARY
On September 7, 1993, Suffolk Bancorp signed a definitive agreement to merge
with Hamptons Bancshares, Inc., of Southampton, New York, parent to The Bank of
the Hamptons.
As this report goes to press, the shareholders of Hamptons have voted in favor
of the merger. We are awaiting the approval of federal banking regulators to
proceed with the transaction, which we have every reason to believe that we
will obtain.
This acquisition is the largest Suffolk Bancorp has ever undertaken. It is also
somewhat outside the ordinary course of Suffolk's business. Nonetheless, it was
well and carefully considered, and very much in keeping with our strategic plan
for the long term.
Accordingly, we devote our commentary in this year's report to a discussion of
this transaction, and why management has chosen to pursue the merger. We also
wish to reassert Suffolk Bancorp's commitment to its traditions of strength,
independence, and stability.
* * * * *
WHY HAMPTONS?
There are a number of reasons why we believe that this merger is in the best
interest of our shareholders, the shareholders of Hamptons, and the communities
served by both institutions. Suffolk Bancorp has always been judicious and
sensible in evaluating possible acquisitions. In fact, while we have made many
such evaluations over the years, most often the only prudent action has been to
exclude the institution from further consideration, and devote our attention to
the ongoing business of serving our customers.
The circumstances surrounding Hamptons, however, presented a unique
opportunity. Upon thorough analysis, it became clear that a combination with
Hamptons offered Suffolk Bancorp a number of strategic advantages.
We quote from our strategic plan:
"... the Company will address itself to several distinct niches in the
market:
"Full-service commercial banking to well-defined communities with
independent identities. Personal, attentive service which is reliable
and convenient will attract the customers who live in such communities
more than the service of a bureaucratic institution. Branch office
location, convenience, and direct lending are the most important
considerations, along with the training of staff in service, courtesy,
and sincerity."
Located on Long Island's south fork, Hamptons fit this long-held strategy in a
number of ways.
Hamptons Beach Scene
HOMETOWN SERVICE
For a banking company of small and moderate size, well-focused communities are
essential. We are the first to acknowledge that a bank of our size cannot be
all things to all customers. What we can offer our customers is accessible and
pleasant service, without the layers of bureaucracy which control many larger
institutions, and frustrate borrowers and depositors alike. The people who live
in towns where residents are likely to know one another are the same people who
expect personal service from their bank. It is in these towns in which Suffolk
has prospered. All but one of Hampton's offices are located in "hometown"
hamlets and villages. Therefore, this acquisition permits us to extend the
expertise we have already developed to five new communities.
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Traditions In Banking
the ledger, a proof machine, and old currency
MARKET SHARE
In order for a "super-community" bank such as Suffolk to succeed, it must be
able to serve a substantial portion of its market. Unlike a large regional
bank which builds its share of the market by advertising broadly, and capturing
a relatively small fraction of comparatively large market, banks such as
Suffolk must focus their efforts on the local media, and more importantly,
word-of-mouth. For this approach to work, we must be able to acquire a
substantial portion of each local market.
According to the most recent data available, Suffolk has 29.5 percent of local
deposits and Hamptons has 18.5 percent, excluding the Medford and the Bohemia
offices respectively, both of which are located in a more suburban setting.
Even including these western offices, the combined market share would be 21.7
percent, large enough for Suffolk to build on its reputation for "hometown"
service.
GEOGRAPHIC PROXIMITY
As can be noted on the map on this page, each of the eight offices of Hamptons
are located in communities new to Suffolk. There is no overlap, but the
westernmost office of Hamptons on the south fork is in the town adjacent to the
easternmost office of Suffolk. This offers an ideal fit, for our customers'
convenience, for advertising, and for operations.
DIVERSIFICATION
Hamptons business is in many ways similar to Suffolk's, but Hampton's loan
portfolio is more diversified than Suffolk's. While business is more seasonal
on the south fork, it is also more commercial, and provides Suffolk with the
opportunity to increase the volume of commercial credit outstanding, observing,
of course, Suffolk's traditional standards of credit.
FIDUCIARY SERVICES
In a majority of communities on the south fork, families whose annual income is
greater than $100,000 per year represent an unusually large portion of the
population. Suffolk is the only bank on the east end with trust operations
headquartered locally. Hamptons offers us a fertile new market for trust
services.
COST SAVINGS
One of the greatest opportunities in any merger is to consolidate operations
and achieve economies of scale. After the merger, all back office operations
including item processing, data processing, and training will be combined.
Personnel, marketing, shareholder relations, security, facilities, and many
other functions will be administered by current staff at Suffolk. Management
believes that the savings will be substantial.
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LIQUIDITY
As a result of the merger, Suffolk will be issuing as many as 450,000 shares of
stock. Significant increases in the number of shares and the number of
shareholders should improve the liquidity of Suffolk's shares, making it more
likely that shareholders will be able to buy or sell at prices which reflect
the underlying value of the stock.
LEVERAGE
Three-quarters of the purchase price for Hamptons will be paid in stock, but
one-quarter of the purchase price will be paid in cash. This will add leverage
to current capital which was unusually high at year-end. Though
book-value-per-share will be slightly lower, earnings-per-share will be higher
than if the entire price had been paid in stock.
DUE DILIGENCE
We want to assure our shareholders that we approached this acquisition with
necessary caution and close scrutiny. Like many banks in the northeast,
Hamptons encountered significant difficulty during the recent recession in
collecting loans on their original terms. Before signing an agreement, we sent
a team of our best lenders to Hamptons to examine the loan portfolio. We also
reviewed its operations, premises, and staffing, and developed detailed
projections of income before making an offer.
In our opinion, this "due diligence" has enabled us to make a proper assessment
of the prospects for this merger.
LOOKING FORWARD
The Suffolk County National Bank of Riverhead has operated under the same name
and charter since its founding in January of 1890, and will continue to do so
as long as good fortune will allow. After the merger, The Bank of the Hamptons
will be merged into The Suffolk County National Bank. "SCNB" will then operate
as one, with 21 offices in 18 communities on Long Island's east end.
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SUMMARY OF SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY: (dollars in thousands except per share amounts)
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FOR THE YEARS 1993 1992 1991 1990 1989
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Interest Income $ 43,997 $ 46,984 $ 50,787 $ 52,528 $ 49,078
Interest Expense 14,525 18,153 25,619 29,187 29,329
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Net-interest Income 29,472 28,831 25,168 23,341 19,749
Provision for Possible Loan Losses 1,098 2,572 2,610 1,548 960
Other Income 4,730 4,060 3,169 2,526 2,675
Other Expenses 21,345 19,788 18,090 15,809 14,405
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Net Operating Expense 16,615 15,728 14,921 13,283 11,730
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Principle 11,759 10,531 7,637 8,510 7,059
Provision for Income Taxes 4,070 3,858 2,576 3,138 1,826
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Income Before Cumulative Effect of Change in
Accounting Principle 7,689 - - - -
Cumulative Effect of Change in Accounting
Principle 624 - - - -
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Net Income $ 8,313 $ 6,673 $ 5,061 $ 5,372 $ 5,233
====================================================================================================================================
BALANCE AT DECEMBER 31,
Federal Funds Sold $ - $ 27,600 $ 40,400 $ 30,300 $ -
Investment Securities 194,391 166,946 136,113 125,426 114,109
Net Loans 406,740 369,005 360,074 351,783 344,430
Total Assets 642,359 599,418 574,042 542,792 520,210
Total Deposits 568,768 538,604 517,551 487,399 465,223
Other Borrowings 6,500 - - - -
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase - - - 1,865 3,030
Stockholders' Equity 63,284 57,105 52,268 48,765 44,906
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SELECTED FINANCIAL RATIOS:
Return on Average Equity 13.78% 12.19% 10.02% 11.42% 12.09%
Return on Average Assets 1.35% 1.13% 0.93% 1.02% 1.04%
Average Equity to Average Assets 9.79% 9.24% 9.27% 8.92% 8.60%
Net Charge-offs to Average Loans 0.24% 0.48% 0.46% 0.27% 0.13%
At Year End:
Allowance to Non-accrual Loans and 90+ 92.73% 71.62% 52.50% 72.42% 114.98%
Allowance to Average Loans 1.29% 1.32% 1.11% 0.82% 0.67%
Dividend Payout Ratio 27.32% 29.40% 37.16% 33.96% 32.79%
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PER SHARE DATA:
Income Before Cumulative Effect of Change in
Accounting Principle $ 2.27 $ 1.97 $ 1.51 $ 1.62 $ 1.58
Cumulative Effect of Change in Accounting
Principle 0.18 - - - -
Net Income 2.45 1.97 1.51 1.62 1.58
Cash Dividends 0.68 0.60 0.56 0.55 0.52
Book Value at Year-end 18.63 16.85 15.51 14.64 13.61
Highest Market Value 25.00 20.00 11.00 13.25 15.25
Lowest Market Value 19.00 9.00 7.75 7.50 12.75
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Number of Full-time-equivalent Employees at year
end 305 307 297 287 269
Number of Branch Offices at year end 13 13 13 12 10
====================================================================================================================================
Per share data is based on average shares outstanding of 3,391,149 in 1993,
3,387,198 in 1992, 3,358,228 in 1991, 3,316,179 in 1990, and 3,299,602 in 1989.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's common stock is traded in the over-the-counter market,
and is quoted on the NASDAQ National Market System under the symbol "SUBK."
The following tables detail the quarterly high and low prices of the Company's
common stock. Prices for 1993 and 1992 are as reported by NASDAQ.
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1993 High Low Dividends 1992 High Low Dividends
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First Quarter $ 21.00 $ 19.00 $ 0.17 First Quarter $ 12.00 $ 9.00 $ 0.14
Second Quarter 22.00 19.50 0.17 Second Quarter 15.50 11.25 0.15
Third Quarter 22.50 20.25 0.17 Third Quarter 16.00 14.25 0.15
Fourth Quarter 25.00 21.88 0.17 Fourth Quarter 20.00 15.00 0.16
==============================================================================================================================
The Company declares regular quarterly cash dividends, payable on the first
business day of each fiscal quarter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion which follows provides an analysis of the Company's
results of operations for each of the past three years and its financial
condition as of December 31, 1993 and 1992, respectively. Selected tabular data
are presented for each of the past five years.
THE COMPANY'S BUSINESS
Nearly all of the Company's business is providing banking services to
its commercial and retail customers in Suffolk County, on Long Island, New
York. The Company is a one-bank holding company which banking subsidiary, The
Suffolk County National Bank (the "Bank"), operates 13 full-service offices in
the eastern half of Suffolk County. It offers a full line of domestic, retail,
and commercial banking services, including trust services. The Bank's primary
lending area includes all of Suffolk County, New York.
The Bank serves as an indirect lender to the customers of many
automobile and marine dealers in its service area. The Bank also lends to
small manufacturers, wholesalers, builders, farmers and retailers, including
financing for dealer inventory. The Bank also makes loans secured by real
estate, including residential mortgages, of which most are sold to mortgage
investors after they are made, real estate construction loans, and loans which
are secured by commercial real estate and which float with the prime rate, or
which have relatively short terms and are retained in the Bank's portfolio.
The Bank offers both fixed and floating rate second mortgage loans with a
variety of repayment plans.
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, and high-quality corporate bonds.
The Bank finances most of its activities with deposits which include
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 sale-repurchase agreements, and when needed, interbank
overnight loans.
The Company is also the sole owner of Island Computer Corporation of
New York, Inc. ("Island Computer"), a financial data- processing service
company located in Bohemia, New York. Approximately 84 percent of the ongoing
business of Island Computer is providing services to The Suffolk County
National Bank.
GENERAL ECONOMIC CONDITIONS
The economy on Long Island recovered slowly during 1993. Lingering
effects of the recession of 1989 to 1993 continued to limit growth in
employment and retail activity throughout the region. More significant
improvement was noticeable toward the end of the year.
RESULTS OF OPERATIONS
NET INCOME
Net income during 1993 amounted to $8,313,000, compared to $6,673,000
and $5,061,000 in 1992 and 1991, respectively. This represents a 24.6 percent
increase after a 31.9 percent increase.
NET-INTEREST INCOME
Net-interest income during 1993 was $29,472,000, up from $28,831,000
and $25,168,000 in 1992 and 1991, respectively. These represent increases of
2.2 percent and 14.6 percent, respectively. Net-interest income is the most
important part of the net income of the Company.
The effective-interest-rate-differential, on a taxable-equivalent
basis, was 5.31 percent during 1993, down from 5.43 percent in 1992, which was
up from 5.28 percent in 1991. This was the result of interest rates which
stabilized during 1993 after several years of substantial declines. Also
contributing was intensified competition which has depressed rates of interest
on indirect retail auto paper, one of the Company's most important lines of
business. During 1993, average rates on average interest-earning assets
decreased from 8.69 percent to 7.83 percent. Average rates on average
interest-bearing liabilities decreased from 3.96 percent to 3.15 percent. Funds
obtained from principal repayments on loans were reinvested at lower yields,
reflecting current market rates of interest. These resulted in a 0.12 percent
decrease in the interest rate differential from 1992 to 1993, compared to a
0.15 percent increase from 1991 to 1992.
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AVERAGE ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY,
RATE SPREAD, AND EFFECTIVE INTEREST RATE DIFFERENTIAL (ON A TAXABLE-EQUIVALENT
BASIS)
The following table illustrates the average composition of the
Company's balance sheet. 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)
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Year Ended December 31, 1993 1992 1991
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Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
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U.S. Treasury Securities $122,175 $ 5,354 4.38% $103,982 $ 5,445 5.24% $ 64,649 $ 4,977 7.70%
Obligations of States &
Political Subdivisions 41,663 3,095 7.43% 41,556 3,741 9.00% 47,278 4,833 10.22%
U.S. Govt. Agency Obligations 1,912 99 5.18% 3,931 324 8.24% 6,533 599 9.17%
Corporate Bonds & Other Securities 934 70 7.49% 927 71 7.66% 2,511 217 8.64%
Federal Funds Sold & Securities Purchased
Under Agreements to Resell 27,870 852 3.06% 47,990 1,636 3.41% 41,190 2,338 5.68%
Loans, including Non-accrual Loans 381,884 35,691 9.35% 358,093 37,154 10.38% 347,286 39,575 11.40%
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Total Interest-earning Assets $576,438 $45,161 7.83% $556,479 $48,371 8.69% $509,447 $52,539 10.31%
================================================================================================================================
Cash & Due from Banks $ 25,319 $ 24,078 $ 27,911
Other Non-interest-earning Assets 14,494 12,061 6,293
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Total Assets $616,251 $592,618 $543,651
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INTEREST-BEARING LIABILITIES
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Savings, N.O.W.'s &
Money Market Deposits $303,364 $ 7,815 2.58% $280,641 $ 8,935 3.18% $210,464 $10,860 5.16%
Time Deposits 158,071 6,705 4.24% 177,562 9,218 5.19% 211,191 14,696 6.96%
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Total Savings & Time Deposits $461,435 $14,520 3.15% $458,203 $18,153 3.96% $421,655 $25,556 6.06%
Federal Funds Purchased & Securities
Sold Under Agreements to Repurchase 125 4 3.20% - - - 1,005 64 6.37%
Other Borrowings 18 1 5.56% - - - - - -
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Total Interest-bearing Liabilities $461,578 $14,525 3.15% $458,203 $18,153 3.96% $422,660 $25,620 6.06%
================================================================================================================================
Rate Spread 4.68% 4.73% 4.25%
Non-interest-bearing Deposits $ 90,564 $ 76,310 $ 66,669
Other Non-interest-bearing Liabilities 3,767 3,374 3,833
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Total Liabilities $555,909 $537,887 $493,162
Stockholders' Equity 60,342 54,731 50,489
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Total Liabilities & Stockholders' Equity $616,251 $592,618 $543,651
Net-interest Income (Tax Equivalent Basis)
& Effective Interest Rate Differential $30,636 5.31% $30,218 5.43% $26,919 5.28%
Less: Taxable-equivalent Basis Adjustment (1,164) (1,387) (1,751)
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Net-interest Income $29,472 $28,831 $25,168
================================================================================================================================
Interest income on a taxable-equivalent basis includes the additional amount of
interest income that would have been earned had the Bank's investment in
non-taxable loans and state and municipal obligations been made in loans and
investment securities subject to New York State and Federal income taxes
yielding the same after-tax income. The rate used for this adjustment was
approximately 34.0% for federal income taxes and 11.9% for New York State
income taxes for all periods.
For each of the years 1993, 1992 and 1991, $1.00 of non-taxable income from
obligations of states and political subdivisions equates to fully taxable
income of $1.52. In addition, in 1993, 1992 and 1991, $1.00 of non-taxable
income on U.S. Treasury securities equates to $1.02 of fully taxable income.
Amortization of loan fees are included in interest income.
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ANALYSIS OF CHANGES IN NET-INTEREST INCOME
The following table represents a summary analysis 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 the numerous simultaneous changes in volume and
rate during the period analyzed, it is not possible to precisely allocate the
changes between volumes and rates. For purposes of this table, changes which
are not due solely to volume or to rate have been allocated to these categories
based on the respective percentage changes in average volume and average rate
as they compare to each other: (in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1993 OVER 1992 1992 OVER 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Changes due to Changes due to
Volume Rate Net Change Volume Rate Net Change
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $ 872 $ (963) $ (91) $ 2,393 $ (1,925) $ 468
Obligations of States & Political Subdivisions 10 (656) (646) (550) (542) (1,092)
U.S. Govt. Agency Obligations (131) (94) (225) (219) (56) (275)
Corporate Bonds & Other Securities 1 (2) (1) (124) (22) (146)
Federal Funds Sold & Securities Purchased
Under Agreements to Resell (629) (155) (784) 341 (1,043) (702)
Loans, including Non-accrual Loans 2,370 (3,833) (1,463) 1,203 (3,624) (2,421)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets $ 2,493 $ (5,703) $ (3,210) $ 3,044 $ (7,212) $ (4,168)
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & Money Market Deposits $ 682 $ (1,802) $ (1,120) $ 2,976 $ (4,901) $ (1,925)
Time Deposits (942) (1,571) (2,513) (2,111) (3,367) (5,478)
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase 4 - 4 (32) (32) (64)
Other Borrowings 1 - 1 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities $ (255) $ (3,373) $ (3,628) $ 833 $ (8,300) $ (7,467)
Net Change in Net-interest Income
(taxable-equivalent basis) $ 2,748 $ (2,330) $ 418 $ 2,211 $ 1,088 $ 3,299
=================================================================================================================================
INTEREST INCOME
Interest income fell during 1993 to $43,997,000, down 6.4 percent from
$46,984,000 during 1992, which was itself down 7.5 percent from $50,787,000
during 1991. The decline was the result of lower rates of interest.
INVESTMENT SECURITIES
Average investment in U.S. Treasury securities increased to
$122,175,000 in 1993 from $103,982,000 in 1992, an increase of 17.5 percent.
Despite significant decreases in the rate offered on these obligations,
stagnant loan demand made them an attractive alternative investment in 1993.
These securities are the primary source of the Company's liquidity. Holdings of
municipal securities have decreased because yields, even on a
taxable-equivalent basis, have become less attractive during 1993 as changes in
the income tax code for individuals made it possible for them to underbid
corporate investors. U.S. Treasury and municipal securities provide collateral
for various liabilities to municipal depositors.
9
12
The following table summarizes the amounts and the distribution of the
Company's Investment Securities held as of the dates indicated: (in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations $ 149,999 $ 111,921 $ 88,980
Obligations of States & Political Subdivisions 42,025 51,351 41,108
U.S. Govt. Agency Obligations 1,176 2,743 5,101
Corporate Bonds & Other Securities 1,191 931 924
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $ 194,391 $ 166,946 $ 136,113
============================================================================================================================
Market Value of Investment Securities $ 195,532 $ 168,832 $ 138,977
Unrealized Gains 1,298 2,072 2,864
Unrealized Losses 157 186 -
============================================================================================================================
The book value, maturities and approximate weighted average yields, on a
taxable-equivalent basis, at December 31, 1993 are as follows: (dollars in
thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Obligations of U.S. Corporate
Treasury States & Political Govt. Agency Bonds and Other
Maturity Obligations Yield Subdivisions Yield Obligations Yield Securities Yield Total
- ------------------------------------------------------------------------------------------------------------------------------------
Within 1 Year $ 92,874 3.67% $ 29,885 5.31% $ 20 4.50% $ 499 9.91% $ 123,278
After 1 But Within 5 Years 57,125 4.40% 12,140 9.73% 1,156 5.30% - - 70,421
After 5 But Within 10 Years - - - - - - - -
After 10 Years - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $ 149,999 3.94% $ 42,025 6.58% $ 1,176 5.04% $ 499 9.91% $ 193,699
====================================================================================================================================
As a member of the Federal Reserve System, the Bank owns Federal Reserve Bank
stock with a book value of $439,850. An equity investment, the stock has no
maturity. There is no public market for this investment. The last declared
dividend was 6%.
At December 31, 1993 the Company owned 18,000 shares of Hamptons Bancshares,
Inc. common stock with a book value of $252,000. Market value approximated book
value at December 31, 1993.
LOAN PORTFOLIO
Consumer loans, net of unearned discounts, totaled $236,043,000 at year-end
1993, up 13.9 percent from $207,211,000 at the end of 1992. Consumer loan
balances are composed primarily of indirect, dealer-generated automobile loans.
The Bank has developed a reputation for good service that has enabled it to
maintain its share of the market for this type of lending.
Commercial loans, totaling $52,103,000 at year-end 1993, were up 15.7
percent from $45,030,000 at year-end 1992. These loans continue to be to small
local businesses. Demand for both consumer and commercial loans has been
diminished for several years, reflecting the general slowdown in the local
economy.
Commercial and residential real estate mortgages, including home equity
loans, however, have increased 2.5 percent from $120,002,000 in 1992 to
$122,994,000 in 1993.
The following table categorizes the Company's total loans at December 31,:
(in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
CATEGORY 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
Commercial, Financial & Agricultural Loans $ 52,103 $ 45,030 $ 41,435 $ 47,590 $ 51,564
Commercial Real Estate Mortgages 65,738 59,250 49,365 44,200 38,618
Real Estate - Construction Loans 5,327 6,294 4,883 6,554 7,733
Residential Mortgages (1st and 2nd Liens) 33,489 34,558 31,782 26,456 14,543
Home Equity Loans 18,440 19,900 21,843 22,358 20,632
Consumer Loans (Net of Unearned Discounts) 236,043 207,211 205,855 206,072 212,701
Other Loans 522 1,492 8,782 1,426 902
- --------------------------------------------------------------------------------------------------------------------------------
Total Loans (Net of Unearned Discounts) $ 411,662 $ 373,735 $ 363,945 $ 354,656 $ 346,693
================================================================================================================================
10
13
The following table illustrates the sensitivity to changes in interest
rates of the Company's total loans, not including overdrafts and loans not
accruing interest, together totaling approximately $4,959,000 at December 31,:
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
Due Within After 1 But After
INTEREST RATE PROVISION 1 Year Within 5 Years 5 Years Total
- -------------------------------------------------------------------------------------------------------------------
Predetermined Rates $ 32,751 $ 232,606 $ 17,824 $ 283,181
Floating or Adjustable Rates 92,602 12,741 18,179 123,522
- -------------------------------------------------------------------------------------------------------------------
Total $ 125,353 $ 245,347 $ 36,003 $ 406,703
===================================================================================================================
The following table shows the Company's non-accrual, past due, and
restructured loans, and other real estate owned at December 31,: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
Accruing Loans which are
contractually past due 90 days or more $ 871 $1,372 $2,441 $2,230 $1,364
Loans not accruing interest 4,437 5,175 4,054 1,007 605
Restructured Loans 51 744 878 730 -
Other Real Estate Owned 649 853 125 298 125
- ------------------------------------------------------------------------------------------------------------------------------------
Total $6,008 $8,144 $7,498 $4,265 $2,094
====================================================================================================================================
Interest on loans which have been restructured or are no longer
accruing interest would have amounted to $322,000 for 1993, and $361,000 for
1992 and $432,000 for 1991 under the contractual terms of those loans. The
Company records the payment of interest on such loans as a reduction of
principal.
The percentage of net charge-offs to average net loans during 1993 was
0.24 percent, compared to 0.48 percent during 1992 and 0.46 percent during
1991. The ratio of the allowance for possible loan losses to average net loans
was 1.29 percent during 1993, compared to 1.32 percent in 1992 and 1.11 percent
in 1991. The Company's net charge-offs remain low compared to industry
averages. The Company continues to add to the allowance for possible loan
losses, recognizing general economic conditions and loan delinquencies. During
1992, the Company revised its policy of internal credit review to more
precisely identify risk and exposure in the loan portfolio.
Generally, recognition of interest income is discontinued where
reasonable doubt exists as to whether interest can be collected. Income from
loans not accruing interest is recorded when received.
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
To determine the required amount of the allowance for possible loan
losses, management identifies problem loans and estimates the probability and
amount of potential losses based primarily on the financial condition of the
borrower and, among other things, the appraised value of the collateral. For
loans not specifically identified as problems, management uses data concerning
the Company's general experience with loan losses and considers current
economic conditions to compute the additional reserve required to offset
unidentified problem loans. In addition, management considers the examinations
of loans by regulatory authorities, internal reviews and other evaluations. The
Company allocates the allowance in proportion to the risk identified in each
category of loans.
11
14
Transactions in the Allowance for Possible Loan Losses are made in seven
major loan categories. The summary of such transactions for periods indicated
follows: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Possible Loan Losses, January 1, $ 4,730 $ 3,871 $ 2,873 $ 2,264 $ 1,735
LOANS CHARGED-OFF:
Commercial, Financial & Agricultural Loans 440 623 479 171 62
Commercial Real Estate Mortgages - 244 - - -
Real Estate - Construction Loans - - - - -
Residential Mortgages (1st & 2nd Liens) - - 52 - -
Home Equity Loans - 50 - - -
Consumer Loans 678 1,022 1,329 896 527
Other 49 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Charge-offs $ 1,167 $ 1,939 $ 1,860 $ 1,067 $ 589
RECOVERIES OF CHARGED-OFF LOANS:
Commercial, Financial & Agricultural Loans $ 14 $ 11 $ 54 $ 4 $ -
Commercial Real Estate Mortgages - - - - -
Real Estate - Construction Loans - - - - -
Residential Mortgages (1st & 2nd Liens) - - - - -
Home Equity Loans - - - - -
Consumer Loans 247 215 194 124 158
Other Loans - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Recoveries $ 261 $ 226 $ 248 $ 128 $ 158
NET LOANS CHARGED-OFF $ 906 $ 1,713 $ 1,612 $ 939 $ 431
Provisions for Possible Loan Losses 1,098 2,572 2,610 1,548 960
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $ 4,922 $ 4,730 $ 3,871 $ 2,873 $ 2,264
====================================================================================================================================
The distribution of the Allowance for Possible Loan Losses, by category at end
of period, is listed in the following table. The distribution is proportionate
to the risk identified in each category: (dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 %* 1992 %* 1991 %* 1990 %* 1989 %*
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial, Financial & Agricultural Loans $1,581 32.1 $1,557 32.9 $1,552 40.1 $ 434 15.1 $ 447 19.7
Commercial Real Estate Mortgages 1,707 34.7 1,383 29.3 992 25.6 - - - -
Real Estate - Construction Loans 1 0.0 - - - - - - - -
Residential Mortgages (1st & 2nd Liens) 155 3.1 147 3.1 108 2.8 535 18.6 496 21.9
Home Equity Loans 254 5.2 223 4.7 204 5.3 - - - -
Consumer Loans 1,191 24.2 1,396 29.5 1,003 25.9 1,865 64.9 1,321 58.4
Other Loans 34 0.7 24 0.5 12 0.3 39 1.4 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $4,922 100.0 $4,730 100.0 $3,871 100.0 $2,873 100.0 $2,264 100.0
===================================================================================================================================
* Percentage of Total Allowance for Possible Loan Losses.
Average net loan balances and net loan balances at year-end for the
entire portfolio are presented in the following table, along with aggregate
ratios of charge-offs to average and year-end loan balances, as well as the
ratio of the Allowance for Possible Loan Losses to average loans: (dollars in
thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net of Unearned Discounts:
Average Net Loans $381,884 $358,093 $347,286 $351,217 $336,052
Net Loans at End of Period $411,662 $369,005 $360,074 $351,783 $344,430
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Charge-offs to Average Net Loans .24% .48% .46% .27% .13%
Net Charge-offs to Net Loans at December 31, .22% .46% .45% .27% .13%
Allowance for Possible Loan Losses
to Average Net Loans 1.29% 1.32% 1.11% .82% .67%
==================================================================================================================================
12
15
INTEREST EXPENSE
Interest expense for 1993 was $14,525,000, down 20.0 percent from
$18,153,000 during 1992, which was down 29.1 percent from $25,619,000 in 1991.
The largest part of the Company's interest expense was incurred by deposits of
individuals, commercial enterprises, and various levels of government and its
agencies. Short-term borrowings, including Federal Funds Purchased (interbank
short-term lending), Securities Sold Under Agreements to Repurchase, and
Federal Reserve Bank borrowings were minimal during 1993 and 1992.
DEPOSITS
Average interest-bearing deposits increased to $461,435,000 in 1993
from $458,203,000 in 1992. The decrease in interest expense, despite the
increase in balances, occurred because the average rates paid on
interest-bearing deposits declined.
Balances of traditional savings deposits increased during 1993,
averaging $184,185,000, up 32.9 percent from $138,720,000 in 1992. Average
balances of time certificates, notably certificates under $100,000, decreased
to $144,340,000 in 1993, down from $157,514,000 in 1992, a decrease of 8.4
percent. Average balances of money market deposits of $89,719,000 were 16.3
percent of average total deposits during 1993. Average balances of time
certificates of $100,000 or more were $13,731,000, down 31.5 percent from
$20,048,000 during 1992.
The following table shows the classifications of the average deposits
of the Company for each of the periods indicated: (dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Rates Paid Rates Paid Rates Paid
- ----------------------------------------------------------------------------------------------------------------------------------
Demand Deposits $ 90,564 - $ 76,310 - $ 66,669 -
Savings Deposits 184,185 2.84% 138,720 3.50% 71,911 5.04%
N.O.W. & Money Market Deposits 119,179 2.16% 141,921 2.87% 138,553 5.22%
Time Certificates of $100,000 or more 13,731 2.49% 20,048 2.88% 35,718 5.62%
Other Time Deposits 144,340 4.41% 157,514 5.49% 175,473 7.23%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits $ 551,999 $ 534,513 $ 488,324
==================================================================================================================================
At December 31, 1993, the remaining maturities of the Company's time
certificates of $100,000 or more were as follows: (in thousands)
- -----------------------------------------------------------------------------------------------------------------------
3 months or less $ 5,167
Over 3 through 6 months 1,950
Over 6 through 12 months 1,712
Over 12 months 4,040
- -----------------------------------------------------------------------------------------------------------------------
Total $ 12,869
=======================================================================================================================
SHORT TERM BORROWINGS
The Company uses several types of short-term funding. These include
lines of credit for federal funds with correspondent banks, retail
sale-repurchase agreements and the Federal Reserve Bank discount window.
Average balances of federal funds purchased during 1993 were $125,000. Average
balances of Federal Reserve Bank borrowings during 1993 were $18,000. No
retail repurchase agreements were issued during 1993.
OTHER INCOME
Other income increased to $4,730,000 during 1993, up 16.5 percent from
$4,060,000 in 1992, which was up 28.1 percent from $3,170,000 in 1991. Service
charges on deposit accounts were up 4.0 percent from 1992 to 1993, and 35.1
percent from 1991 to 1992. Other service charges were up 21.7 percent and 17.5
percent for the same periods.
13
16
OTHER EXPENSE
Other expense during 1993 was $21,345,000, up 7.9 percent from
$19,788,000 in 1992, which was up 9.4 percent from $18,090,000 during 1991.
Growth of the Company and the related growth in the volume of business has
increased costs in the areas of: recruitment and retention of qualified staff;
increased use of data processing to provide better operating and management
information; and the improvement and expansion of facilities. FDIC assessments
increased from $1,030,000 in 1991, to $1,135,000 in 1992, to $1,203,000 in
1993.
INTEREST RATE SENSITIVITY
Interest-rate sensitivity is determined by the date when the Bank's
portfolio of assets and liabilities can be repriced. Changes occur when the
interest-earning assets and interest-bearing liabilities cannot be repriced at
the same time. While this analysis presents the quantity of assets and
liabilities repricing by time period, it does not consider the sensitivity of
various assets and liabilities to changes in market interest rates.
Management reviews its asset/liability strategy regularly. Given the
differing sensitivity to market interest rates of its assets and liabilities,
management may selectively mismatch the repricing of assets and liabilities to
take advantage of temporary or projected differences in interest rates. The
following table reflects the sensitivity of the Company's consolidated
statement of condition at December 31, 1993: (dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
0 - 90 91 - 180 181-360 Over One Not Rate
MATURITY Days Days Days Year Sensitive Total
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic Loans (1) (Net of unearned discount) $ 112,329 $ 53,794 $ 89,214 $ 145,936 $ 5,467 $ 406,740
Investment Securities (2) 40,316 48,230 35,889 69,264 692 194,391
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets $ 152,645 $ 102,024 $ 125,103 $ 215,200 $ 6,159 $ 601,131
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS AND INTEREST-BEARING LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
Demand Deposits (3) $ 9,853 $ 9,853 $ 19,706 $ - $ 59,119 $ 98,531
N.O.W. & Money Market Accounts (4) 15,928 15,928 31,856 46,684 16,837 127,233
Interest Bearing Deposits (5) 51,479 44,775 79,444 167,306 - 343,004
Federal Reserve Bank Borrowing (6) 6,500 - - - - 6,500
- ----------------------------------------------------------------------------------------------------------------------------------
Total Demand Deposits and Interest-bearing
Liabilities $ 83,760 $ 70,556 $ 131,006 $ 213,990 $ 75,956 $ 575,268
==================================================================================================================================
Gap $ 68,885 $ 31,468 $ (5,093) $ 1,210 $ (69,797) $ 25,863
Cumulative Difference Between Interest-earning
Assets and Interest-bearing Liabilities $ 68,885 $ 100,353 $ 94,450 $ 95,660 $ 25,863 $ -
Cumulative Difference as a Percentage of Total Assets 10.72% 15.62% 14.70% 14.89% 4.03%
==================================================================================================================================
(1) Based upon contractual maturity, repricing date if applicable, and
projected prepayments, based upon experience. Loans not accruing interest,
loans in the process of renewal and potential charge-offs are classified as
not sensitive to rates.
(2) Based upon contractual maturity, projected prepayments, based upon
experience. FRB and Hamptons Bancshares, Inc. stock are not sensitive to
rates.
(3) Based upon experience with stable core deposits.
(4) N.O.W. and Money Market balances are assumed to decline over a period of
two years.
(5) Fixed rate deposits and deposits with fixed pricing intervals are included
in the period of contractual maturity. Savings balances are assumed to
decline over a period of five years.
(6) Based on contractual maturity.
As of December 31, 1993, interest-earning assets exceeded interest-bearing
liabilities between 181 and 360 days by approximately $94,450. This cumulative
gap might result in increased net-interest should the rates increase. Should
interest rates decline, a narrowing of the net-interest margin could result.
14
17
ASSET/LIABILITY MANAGEMENT & LIQUIDITY
The asset/liability management committee reviews the financial
performance of the Company under the asset/liability management policy. The
committee, composed of two outside directors, executive management, the
comptroller, and the heads of commercial lending, retail lending, and
marketing, uses computer simulations of financial performance under changing
interest rates to quantify interest-rate risk and project liquidity. The
simulations also help in developing alternative strategies to increase the
Bank's net-interest margin. The committee always assesses the impact of any
change in strategy on the Bank's ability to make loans and repay deposits.
While managing financial risk, only strategies and policies which meet
regulatory guidelines and are appropriate under the economic and competitive
pressures in the Bank's market are considered by the committee. The Bank has
not used forward contracts or interest rate swaps to manage interest-rate risk.
Liquidity is the Company's ability to meet anticipated loan demand and
withdrawals of deposits. It is ensured by assets which can be converted quickly
into cash. These liquid assets must be of short term to minimize the risk to
principal from changing interest rates. The committee anticipates cash flows in
detail for the coming three months and suggests actions to ensure liquidity.
Thus, the Bank has sufficient cash flow under normal operations and is aware of
potential sources of liquidity to meet the demand for loans and withdrawals of
deposits.
BUSINESS RISKS AND UNCERTAINTIES
The Bank's principal investments are in loans and in a portfolio of
short and medium term debt of the United States Treasury, states and other
political subdivisions, U.S. Government agencies, and corporations.
Consumer loans, net of unearned discounts, comprised 57.3 percent of
the Bank's loan portfolio, more than 83.5 percent of which are indirect
dealer-generated loans secured by automobiles. Nearly all of these loans are
made to residents of the Bank's primary lending area, which is Suffolk County,
New York. Each loan is small in amount, and borrowers represent a cross-section
of the population employed in a variety of industries. The risk presented by
any one loan is correspondingly small, and therefore, the risk which this
portion of the portfolio presents to the Company is dependent upon the
financial stability of the population as a whole, and is not dependent on any
one entity or industry.
Loans secured by real estate represented 29.9 percent of the
portfolio, most of which are for commercial properties. Loans of this variety
present somewhat greater risk than consumer loans, particularly in the current
economy. The Bank has attempted to minimize the risks of these loans by
carefully considering, among other things, the creditworthiness of the
borrower, whether or not the real estate is located in the Bank's primary
lending area, the condition and value of, as well as the business prospects for
the security property. The Bank obtains, whenever possible, the personal
guarantees of the principal(s), and cross-guarantees among the principals'
business enterprises.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 12.7 percent of the loan portfolio.
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.
U.S. Treasury securities represented 77.2 percent of the investment
portfolio and present the Company with little or no financial risk.
Municipal obligations constitute 21.6 percent of the investment
portfolio. These obligations present slightly greater risk than U.S. Treasury
securities, but significantly less risk than loans because they are backed by
the full faith and taxing power of the municipal entity, each of which is
located in the state of New York. The Company's policy is to hold these
securities to maturity, which eliminates the risk to principal caused by
variations in interest rates.
Aggregate balances of other types of loans and investments are not
material in amount, and present little overall risk to the Company.
Virtually all of the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effect of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Management believes that
continuation of its efforts to manage its net-interest spread and the maturity
of its assets and liabilities will position the Company to benefit from current
interest rates.
15
18
CAPITAL RESOURCES
Primary capital consisting of stockholders' equity and the allowance
for possible loan losses amounted to $68,206,000 at year end 1993, compared to
$61,835,000 at year end 1992 and $56,139,000 at year end 1991. The increase in
1993 was due to retained earnings, and, to a lesser extent, reinvested
dividends and stock issued through the stock option plan.
The following table presents the Company's primary capital and related
ratios for each of the last five years: (dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
Primary capital at year end $68,206 $61,835 $56,139 $51,638 $47,169
Primary capital at year end as a
percentage of year end:
Total assets plus allowance for possible
loan losses 10.54% 10.24% 9.69% 9.46% 9.03%
Loans, Net of unearned discounts 16.57% 16.55% 15.43% 14.56% 13.61%
Total deposits 11.99% 11.48% 10.82% 10.59% 10.14%
====================================================================================================================================
The Company measures how effectively it utilizes capital by two widely
used performance ratios, return on average assets and return on average common
stockholders' equity. The returns in 1993 on average assets of 1.35 percent and
average common equity of 13.78 percent increased moderately over 1992. In 1992,
returns were 1.13 percent and 12.19 percent, respectively.
All dividends must conform to applicable statutory requirements. The
Company's ability to pay dividends depends on the 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 its net profits for the current year combined
with retained net profits (net profits minus dividends paid during that period)
of the prior two years. The amount currently available is $16,177,000.
RISK-BASED CAPITAL/LEVERAGE GUIDELINES
The Federal Reserve Bank's guidelines to implement risk-based capital
requirements for bank holding companies were phased-in during a transition
period ending in 1992 when the guidelines became fully effective.
The guidelines require minimum ratios of capital to risk-weighted
assets (including 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 consists of
subordinated debt, redeemable preferred stock, and a limited amount of the
allowance for possible loan losses. By year-end 1993, all bank holding
companies should 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, 1993, the Company's ratios of core
capital and total qualifying capital (core capital plus Tier 2 capital) to
risk-weighted assets were 14.07 percent and 15.17 percent, respectively. These
ratios substantially exceed the minimums in effect for bank holding companies
in 1993.
16
19
DISCUSSION OF CURRENT ACCOUNTING PRINCIPLES
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"). SFAS 114 generally would require all
creditors to account for impaired loans, except those that are accounted for at
fair market value or at the lower of cost or fair value, at the present value
of the expected future cash flows discounted at the loan's effective interest
rate. SFAS is effective for fiscal years beginning after December 15, 1994, and
earlier application is encouraged. The Company will not implement SFAS 114
earlier than the effective date and has not yet determined the impact of
implementation.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 generally
requires that debt and equity securities that have readily determinable fair
values be carried at fair value unless they are classified as held to maturity.
Securities can be classified as held to maturity and carried at amortized cost
only if the reporting entity has a positive intent and ability to hold those
securities to maturity. If not classified as held to maturity, such securities
must be classified as trading securities or securities available for sale.
Unrealized gains or losses for securities available for sale are to be excluded
from earnings and reported as a net amount as a separate component of
stockholders equity. Unrealized holding gains and losses for trading securities
are to be included in earnings. The statement's effective date is for fiscal
years beginning after December 15, 1993. Management does not believe that this
statement will have a material effect on the The Company's financial condition
or results of operations.
ACQUISITION OF HAMPTONS BANCSHARES, INC.
On September 7, 1993 Suffolk Bancorp ("Suffolk") and Hamptons
Bancshares, Inc. ("Hamptons") of Southampton, New York reached an agreement to
merge. Shareholders of Hamptons will receive stock in Suffolk and cash.
Seventy-five percent of the aggregate consideration will be payable in
common stock. Holders of Hamptons' stock who receive stock will receive 0.6744
shares of Suffolk common stock for each share of Hamptons stock, the equivalent
of $14.50 per share based on the mean of the high bid and low asked market
price for Suffolk shares on August 30, 1993, or $21.50 per share. Suffolk will
pay 25 percent of the total purchase price in cash at a fixed price of $14.50
per share of Hamptons common stock. Additional consideration will be paid to
the extent that sales of foreclosed real estate, then held by Hamptons and sold
before the consummation of this merger, exceed Suffolk's estimate of its value.
There is no assurance that this will occur. The merger is expected to be a
tax-free reorganization to the extent that consideration is paid in stock.
The completion of this merger is subject to the approval of the
shareholders of Hamptons as well as various regulatory agencies. It will be
accounted for as a purchase.
Hamptons is a one-bank holding company which conducts business through
its wholly owned subsidiary, The Bank of the Hamptons, N.A., a commercial bank
headquartered in East Hampton, New York. Established in 1964 as the First
National Bank of East Hampton, The Bank of the Hamptons maintains 8 offices in
the communities of Bohemia, East Hampton, Montauk, Sag Harbor, Southampton, and
Water Mill, New York. Hamptons also owns The Appraisal Center, Inc, a real
estate appraisal company located in Bohemia, New York.
At December 31, 1993 the Company owned 18,000 shares of Hamptons
common stock with a book value of $252,000.
17
20
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
ASSETS 1993 1992
Cash & Due From Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,556,696 $ 23,296,464
Federal Funds Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,600,000
----------- -----------
Cash & Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,556,696 50,896,464
Investment Securities (Market Value $195,287,000 in 1993
& $168,832,000 in 1992)
United States Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . 149,999,285 111,920,356
Obligations of States & Political Subdivisions . . . . . . . . . . . . . . . . 42,025,332 51,350,996
U.S. Government Agency Obligations . . . . . . . . . . . . . . . . . . . . . . 1,175,893 2,743,328
Corporate Bonds & Other Securities . . . . . . . . . . . . . . . . . . . . . . 1,190,644 931,282
----------- -----------
Total Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . 194,391,154 166,945,962
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442,224,211 404,872,000
Less: Unearned Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,561,954 31,137,297
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . 4,922,126 4,730,074
----------- -----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406,740,131 369,004,629
Premises & Equipment (Net of Accumulated Depreciation
& Amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,727,625 4,596,490
Other Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648,510 853,500
Accrued Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,199,028 2,522,498
Branch Purchase Premium (Net of Accumulated
Amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,837 642,796
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,586,063 3,956,052
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 642,359,044 $ 599,418,391
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,531,935 $ 87,484,898
Savings, N.O.W.'s & Money Market Deposits . . . . . . . . . . . . . . . . . . . . . 319,556,727 283,876,562
Time Certificates of $100,000 or more . . . . . . . . . . . . . . . . . . . . . . . 12,868,514 17,001,510
Other Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,811,235 150,241,310
----------- -----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568,768,411 538,604,280
Dividend Payable on Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 577,398 542,285
Accrued Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967,808 1,271,427
Other Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500,000 -
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,261,145 1,895,185
----------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 579,074,762 $ 542,313,177
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Common Stock (par value $5.00; 7,500,000 shares authorized;
3,396,460 & 3,389,281 shares issued and outstanding at
December 31, 1993 & 1992, respectively) . . . . . . . . . . . . . . . . . . . . $ 16,982,300 $ 16,946,405
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,831,795 11,695,011
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,470,187 28,463,798
----------- -----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,284,282 $ 57,105,214
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . $ 642,359,044 $ 599,418,391
=========== ===========
See accompanying notes to consolidated financial statements
18
21
CONSOLIDATED STATEMENTS OF INCOME
For the Years ended December 31,
INTEREST INCOME 1993 1992 1991
Federal Funds Sold & Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . . . . . . . . . . $ 851,504 $ 1,635,665 $ 2,338,475
U.S. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . 5,249,261 5,338,244 4,878,668
Obligations of States & Political Subdivisions (tax exempt) . . . . . . 2,035,667 2,461,312 3,178,625
U.S. Govt. Agency Obligations . . . . . . . . . . . . . . . . . . . . . 98,884 323,941 598,741
Corporate Bonds & Other Securities . . . . . . . . . . . . . . . . . . 70,436 71,169 217,267
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,690,994 37,153,379 39,575,072
----------- ----------- -----------
Total Interest Income $ 43,996,746 $ 46,983,710 $ 50,786,848
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits . . . . . . . . . . . . . . . $ 7,815,716 $ 8,934,992 $ 10,859,158
Time Certificates of $100,000 or more . . . . . . . . . . . . . . . . . 341,536 576,887 2,007,256
Other Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 6,363,027 8,640,660 12,688,532
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . . 3,999 - 64,282
Interest on Other Borrowings . . . . . . . . . . . . . . . . . . . . . 542 - -
----------- ----------- -----------
Total Interest Expense $ 14,524,820 $ 18,152,539 $ 25,619,228
Net-interest Income $ 29,471,926 $ 28,831,171 $ 25,167,620
Provision For Possible Loan Losses . . . . . . . . . . . . . . . . . . 1,098,000 2,572,000 2,610,000
----------- ----------- -----------
Net-interest Income After Provision For Possible Loan
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,373,926 $ 26,259,171 $ 22,557,620
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . . . . . . . . . . . $ 2,244,682 $ 2,157,584 $ 1,597,359
Other Service Charges, Commissions & Fees . . . . . . . . . . . . . . . 1,145,272 941,128 800,958
Fiduciary Activities . . . . . . . . . . . . . . . . . . . . . . . . . 410,549 345,383 315,439
Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . 929,976 616,046 455,762
----------- ----------- -----------
Total Other Income $ 4,730,479 $ 4,060,141 $ 3,169,518
OTHER EXPENSE
Salaries & Employee Benefits . . . . . . . . . . . . . . . . . . . . . $ 11,609,771 $ 10,707,026 $ 9,423,802
Net Occupancy Expense . . . . . . . . . . . . . . . . . . . . . . . . . 1,659,004 1,514,866 1,447,822
Equipment Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,037,297 2,062,587 2,204,261
FDIC Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202,640 1,134,996 1,030,214
Other Operating Expense . . . . . . . . . . . . . . . . . . . . . . . . 4,836,464 4,368,839 3,984,361
----------- ----------- -----------
Total Other Expense $ 21,345,176 $ 19,788,314 $ 18,090,460
Income Before Income Taxes and Cumulative Effect of Change
in Accounting for Income Taxes . . . . . . . . . . . . . . . . . . $ 11,759,229 $ 10,530,998 $ 7,636,678
Provision For Income Taxes . . . . . . . . . . . . . . . . . . . . . . 4,070,000 3,858,000 2,576,000
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES $ 7,689,229 $ 6,672,998 $ 5,060,678
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES 623,614 - -
----------- ----------- -----------
NET INCOME $ 8,312,843 $ 6,672,998 $ 5,060,678
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Before Cumulative Effect Of Change in Accounting Principle $ 2.27 $ 1.97 $ 1.51
Cumulative Effect Of Change In Accounting Principle 0.18 - -
----------- ----------- -----------
Net Income $ 2.45 $ 1.97 $ 1.51
=========== =========== ===========
Average Common Shares Outstanding 3,391,149 3,387,198 3,358,228
See accompanying notes to consolidated financial statements
19
22
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Undivided
Stock Surplus Profits Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 $ 16,655,850 $ 11,466,136 $ 20,643,128 $ 48,765,114
Net Income - - 5,060,678 5,060,678
Dividend - - (1,880,595) (1,880,595)
Issuance of Stock Under Stock Dividend
Reinvestment Plan (38,361 Shares) 191,805 130,507 - 322,312
----------- ----------- ----------- -----------
Balance, December 31, 1991 $ 16,847,655 $ 11,596,643 $ 23,823,211 $ 52,267,509
Net Income - - 6,672,998 6,672,998
Dividend - - (2,032,411) (2,032,411)
Issuance of Stock Under Stock Dividend
Reinvestment Plan (19,750 Shares) 98,750 98,368 - 197,118
----------- ----------- ----------- -----------
Balance, December 31, 1992 $ 16,946,405 $ 11,695,011 $ 28,463,798 $ 57,105,214
Net Income - - 8,312,843 8,312,843
Dividend - - (2,306,454) (2,306,454)
Issuance of Stock Under Stock
Option Plan (7,179 Shares) 35,895 136,784 - 172,679
----------- ----------- ----------- -----------
Balance, December 31, 1993 $ 16,982,300 $ 11,831,795 $ 34,470,187 $ 63,284,282
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
20
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1992 1991
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,312,843 $ 6,672,998 $ 5,060,678
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses . . . . . . . . . . . . . . . 1,098,000 2,572,000 2,610,000
Depreciation & Amortization . . . . . . . . . . . . . . . . . . . 1,212,234 1,383,297 1,518,138
Amortization of Branch Purchase Premium . . . . . . . . . . . . . 132,959 132,959 132,960
Accretion of Discounts . . . . . . . . . . . . . . . . . . . . . (1,496,699) (1,489,162) (393,688)
Amortization of Premiums . . . . . . . . . . . . . . . . . . . . 254,454 235,241 257,510
(Increase) Decrease in Accrued Interest Receivable . . . . . . . 323,470 360,397 825,292
(Increase) in Other Assets . . . . . . . . . . . . . . . . . . . (1,630,011) (960,094) (982,678)
(Decrease) in Accrued Interest Payable . . . . . . . . . . . . . (303,619) (932,473) (1,064,900)
Increase (Decrease) in Income Taxes Payable . . . . . . . . . . . (319,554) 2,788 300,604
Increase in Other Liabilities . . . . . . . . . . . . . . . . . . 685,514 344,533 214,323
Increase in Dividend Payable on Common Stock . . . . . . . . . . 35,113 70,551 5,371
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . $ 8,304,704 $ 8,393,035 $ 8,483,610
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investments . . . . . . . . . . . . . . . . $ 1,575,421 $ 2,508,187 $ 3,194,749
Maturities of Investments . . . . . . . . . . . . . . . . . . . . 177,424,983 198,974,514 84,036,370
Purchases of Investments . . . . . . . . . . . . . . . . . . . . (205,203,351) (231,061,999) (97,781,970)
Loan Disbursements & Repayments, Net . . . . . . . . . . . . . . (38,868,615) (12,301,844) (10,727,577)
Purchases of Premises & Equipment, Net . . . . . . . . . . . . . (1,343,369) (723,276) (905,669)
Disposition of OREO Property . . . . . . . . . . . . . . . . . . 204,990 - -
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . $ (66,209,941) $ (42,604,418) $ (22,184,097)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts . . . . . . . . . . . . . . . . $ 30,164,131 $ 21,053,712 $ 31,191,308
Net Increase (Decrease) in Other Borrowings . . . . . . . . . . . 6,500,000 - (1,865,465)
Common Stock Sold for Cash . . . . . . . . . . . . . . . . . . . 172,679 197,118 322,312
Dividends Paid to Shareholders . . . . . . . . . . . . . . . . . (2,271,341) (1,961,860) (1,875,224)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . $ 34,565,469 $ 19,288,970 $ 27,772,931
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS . . . . . . (23,339,768) (14,922,413) 14,072,444
CASH & CASH EQUIVALENTS BEGINNING OF YEAR . . . . . . . . . 50,896,464 65,818,877 51,746,433
----------- ----------- -----------
CASH & CASH EQUIVALENTS END OF YEAR . . . . . . . . . . . . $ 27,556,696 $ 50,896,464 $ 65,818,877
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest . . . . . . . . . . . $ 44,320,216 $ 47,344,107 $ 51,642,553
=========== =========== ===========
Cash Paid During the Year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,828,440 $ 19,085,012 $ 26,714,542
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4,389,554 3,855,212 2,370,894
----------- ----------- -----------
Total Cash Paid During Year for Interest & Income Taxes . . . $ 19,217,994 $ 22,940,224 $ 29,085,436
=========== =========== ===========
Non Cash Investing - (loans re-classified as "other real estate owned",
including foreclosures and in-substance foreclosures) . . . . . . $ - $ 728,500 $ (173,425)
=========== =========== ===========
See accompanying notes to consolidated financial statements
21
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Suffolk Bancorp and its subsidiaries
conform with 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 statement 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
the Company and its wholly owned subsidiaries, The Suffolk County National Bank
(The "Bank") and Island Computer Corporation of New York, Inc. All
intercompany transactions have been eliminated in consolidation.
(B) INVESTMENT SECURITIES-Securities are held to maturity for investment
purposes and are stated at cost, adjusted for the amortization of premiums and
the accretion of discounts on a level-yield method. Gains and losses on the
sale of investment securities are determined by computing the difference
between the book, or carrying value of the security, and the proceeds from its
sale. The Company has the intent and ability to hold these securities to
maturity.
(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 which approximate a level-yield. Recognition of interest income is
discontinued when reasonable doubt exists as to whether interest can be
collected.
(D) NONPERFORMING ASSETS-Nonperforming assets include loans and leases not
accruing interest, insubstance foreclosures (ISFs), foreclosed property and
repossessed equipment, and certain renegotiated loans. Assets cease to accrue
interest when interest or principal is sufficiently past due, or when
management adjudges that although payments of principal and/or interest are
current, it would be prudent to do so. Except in the case of most consumer and
residential real estate loans, assets on which payments are past due more than
90 days or more no longer accrue interest, unless they are well-secured or in
the process of normal collection or renewal. Consumer loans, including
residential real estate, generally no longer accrue interest when 90 days past
due. When a loan is placed on nonaccrual 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 are removed from
nonaccrual status when they become current as to principal and interest, and
when, in the opinion of management, the loans can be collected in full.
(E) 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 judgement of information available to them at the time of
their examination
(F) 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. Amortization of leasehold improvements is calculated using the
straight-line method over the term of the lease or the estimated life of the
asset, whichever is shorter.
(G) INCOME TAXES-Prior to January 1, 1993, deferred income taxes were provided
for timing differences in the recognition of revenues and expenses for the
differing purposes of tax reporting and financial statements, pursuant to
Accounting Principles Board Opinion No. 11. Effective January 1, 1993 the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires a change from the deferred
method to the "asset-and-liability method" of accounting for income taxes.
Under the asset-and-liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statements and the tax bases of existing assets and liabilities to the extent
that current available evidence about the future raises doubt about the
realization of a deferred tax asset a valuation allowance must be established.
Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date, whereas
under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates. The cumulative effect, at January 1, 1993, of this change
in the method of accounting for income taxes has been included in the
Consolidated Statement of Income, for the year ended December 31, 1993.
(H) SUMMARY OF RETIREMENT BENEFITS ACCOUNTING-The Company's retirement plan is
non-contributory and covers substantially all eligible employees. The plan
conforms to the provisions of the Employee Retirement Income Security Act of
1974, as amended. The Company'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, used in
estimating pension costs, are amortized over a period that reflects the
long-range nature of pension expense. The Company adopted SFAS No. 106
"Employers' Accounting for Post-retirement Benefits Other
22
25
Than Pensions" ("SFAS No. 106") on January 1, 1992. This Statement established
accounting standards for post-retirement benefits other than pensions
(hereinafter referred to as post-retirement benefits). The statement focuses
principally on health care benefits, although it applies to all forms of
post-retirement benefits other than pensions. SFAS No. 106 changed the
Company's practice of accounting for post-retirement benefits on a cash basis
by requiring accrual of the cost of providing those benefits to an employee,
and the employee's beneficiaries and covered dependents, during the years that
the employee renders the necessary service.
(I) 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 presentation.
(J) OTHER REAL ESTATE OWNED-Property acquired through foreclosure (other real
estate owned or "OREO"), including ISFs, is stated at the lower of cost or fair
value less selling costs. Credit losses arising at the time of acquisition of
property are charged against the allowance for possible loan losses. Any
additional write-downs that may be required to the carrying value of these
assets, as well as the cost of maintaining and operating these foreclosed
properties, are changed to expense. Additional write-downs are recorded in a
valuation reserve account that is maintained asset by asset. Also included is
$105,000 representing investment in property purchased by the banking
subsidiary for a possible branch office.
(K) 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.
NOTE 2 - INVESTMENT SECURITIES
The book and estimated market values of the Company's investment securities at
December 31, 1993 and 1992 were: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Gross Gross Estimated Gross Gross
Amortized Market Unrealized Unrealized Amortized Market Unrealized Unrealized
Cost Value Gains Losses Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $ 149,999 $150,328 $ 373 $ 44 $ 111,921 $ 112,667 $ 790 $ 44
Obligations of States and
Political Subdivisions 42,025 42,894 910 41 51,351 52,585 1,261 27
U.S. Govt. Agency
Obligations 1,176 1,123 11 64 2,743 2,628 - 115
Corporate Bonds and
Other Securities 1,191 1,187 4 8 931 952 21 -
-------- ------- --------- --------- -------- -------- --------- ---------
Balance at end of year $ 194,391 $195,532 $ 1,298 $ 157 $ 166,946 $ 168,832 $ 2,072 $ 186
====================================================================================================================================
U.S. Government Agency Obligations are mortgage-backed securities which
represent participating interests in pools of first mortgage loans.
The book value and estimated market value of investment securities, categorized
by maturity, at December 31, 1993 are as follows: (in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Obligations of U.S. Corporate
Treasury States & Political Govt. Agency Bonds &
Securities Subdivisions Obligations Other Securities Total
Maturity Book Market Book Market Book Market Book Market Cost
- -----------------------------------------------------------------------------------------------------------------------------------
Within 1 Year $ 92,874 $ 92,932 $ 29,885 $ 29,973 $ 20 $ 24 $ 499 $ 502 $ 123,278
After 1 But within 5 Years 57,125 57,396 12,140 12,921 1,156 1,099 - - 70,421
After 5 But within 10 Years - - - - - - - - -
Other Securities (FRB and
Hamptons Bancshares Stock) - - - - - - 692 685 692
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $149,999 $150,328 $ 42,025 $ 42,894 $ 1,176 $ 1,123 $ 1,191 $ 1,187 $ 194,391
===================================================================================================================================
Actual maturities of U.S. Government Agency Obligations will differ from
contractual maturities because the mortgage-loan borrowers have the right to
prepay obligations with or without penalties, because the issuer can call the
security before it is due.
At December 31, 1993 and 1992, securities carried at $168,880,000 and
$124,744,000, respectively, were pledged to secure trust deposits and public
funds on deposit. No securities have been sold during the past three years.
23
26
NOTE 3 - LOANS
At December 31, 1993 and 1992, loans included the following: (in thousands)
- -----------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------
Commercial, Financial
and Agricultural Loans $ 52,103 $ 45,030
Commercial Real Estate 65,738 59,250
Real Estate Construction Loans 5,327 6,294
Residential Mortgages (1st & 2nd Liens) 33,489 34,558
Home Equity Loans 18,440 19,900
Consumer Loans 266,605 238,348
Other Loans 522 1,492
- -----------------------------------------------------------------
$442,224 $404,872
less:
Unearned Discounts (30,562) (31,137)
Allowance for Possible
Loan Losses (4,922) (4,730)
- -----------------------------------------------------------------
Balance at end of year $406,740 $369,005
=================================================================
Renegotiated 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 $5,359,000 and $7,291,000 at December 31, 1993 and 1992,
respectively. Interest on loans which have been restructured or are no longer
accruing interest would have amounted to $322,000 during 1993, $361,000 during
1992 and $432,000 during 1991 under the contractual terms of those loans.
The Company makes loans to its directors, as well as to other related parties
in the ordinary course of its business. Loans made to directors, either
directly or indirectly, which exceed $60,000 in aggregate for any one director
totaled $6,178,000 and $4,999,000 at December 31, 1993 and 1992, respectively.
Unused portions of lines of credit to directors, directly or indirectly,
totaled $3,225,000 as of December 31, 1993. New loans totaling $8,077,000 were
granted and payments of $6,898,000 were received during 1993.
The Company has pledged $9,611,000 of 1-4 family residential mortgages as
collateral against advances from the Federal Reserve Bank as of December 31,
1993.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the changes in the Allowance for Possible Loan Losses follows:
(in thousands)
- --------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------
Balance at beginning
of year $4,730 $3,871 $2,873
Provision for possible loan losses 1,098 2,572 2,610
Loans charged off (1,167) (1,939) (1,860)
Recoveries on loans 261 226 248
- --------------------------------------------------------------------
Balance at end of year $4,922 $4,730 $3,871
====================================================================
NOTE 5 - PREMISES AND EQUIPMENT
The following table presents detail concerning premises and equipment: (in
thousands)
- --------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------
Land $ 498 $ 528
Premises 2,493 2,472
Furniture, Fixtures & Equipment 9,398 8,177
Leasehold Improvements 560 550
- --------------------------------------------------------------------
$12,949 $11,727
less: Accumulated Depreciation
and Amortization (8,221) (7,131)
- --------------------------------------------------------------------
Balance at end of year $ 4,728 $ 4,596
====================================================================
Depreciation and amortization charged to operations amounted to $1,212,000,
$1,383,000, and $1,518,000 during 1993, 1992 and 1991, respectively.
NOTE 6 - STOCKHOLDERS' EQUITY
The Company has a Dividend Reinvestment Plan. Stockholders can reinvest
dividends in common stock of the Company at a 3% discount from market value on
newly issued shares. Shareholders may also make additional cash purchases.
There were no shares issued in 1993, 19,750, and 38,361 shares were issued
under the Plan during 1992 and 1991, respectively.
At the 1989 annual meeting, the shareholders approved an Incentive Stock Option
Plan ("the Plan") which reserved 330,000 shares of the Company's common stock
for issuance to key employees. Options are awarded by a committee appointed by
the Board of Directors. The Plan provides that the option price shall not be
less than the fair value of the common stock on the date the option is granted.
All options are exercisable for a period of ten years or less. The Plan
provides for the grant of stock appreciation rights which the holder may
exercise instead of the underlying option. When the stock appreciation right is
exercised, the underlying option is cancelled. 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.
- --------------------------------------------------------------------
FAIR MARKET VALUE
NUMBER OF AT DATE OF GRANT
SHARES OR EXERCISE
- --------------------------------------------------------------------
Balance at December 31, 1990 16,096 $13.87
Options granted - -
Options exercised - -
Options expired or terminated - -
- --------------------------------------------------------------------
Balance at December 31, 1991 16,096 $13.87
Options granted - -
Options exercised - -
Options expired or terminated - -
- --------------------------------------------------------------------
Balance at December 31, 1992 16,096 $13.87
Options granted - -
Options exercised (11,481) $19.63-$25.00
Options expired or terminated - -
- --------------------------------------------------------------------
Balance at December 31, 1993 4,615 $13.87 (*)
====================================================================
24
27
(*) Fair market value of the Company's Common Stock at December 31, 1993 was
$23.00.
During the year ended December 31, 1993 the Company recorded compensation
expense for stock appreciation rights of $160,763.
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 its net profits for the current year combined
with retained net profits (net profits minus dividends paid during that period)
of the prior two years. At December 31, 1993, approximately $16,177,000 was
available for dividends from the Bank to Suffolk Bancorp without prior approval
of the OCC.
NOTE 7 - SHORT-TERM BORROWINGS
Presented below are short-term interest-bearing liabilities, principally
Federal Reserve 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 years 1993, 1992 and 1991:
(dollars in thousands)
- --------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------
Daily average outstanding $ 143 $ - $ 1,005
Total interest cost 5 - 64
Average interest rate paid 3.50% - 6.40%
Maximum amount outstanding
at any month end
(December 1993; January 1991) $ 6,500 $ - $ 1,679
December 31, balance 6,500 - -
Weighted average interest rate
on balances outstanding at
December 31, 3.00% - -
====================================================================
NOTE 8 - BRANCH ACQUISITIONS
On October 23, 1987, the Bank acquired the Mattituck branch office of First
Nationwide Bank. It assumed deposit liabilities totaling $38,078,000. The
premium paid was $1,330,000 of which $133,000 was amortized during 1993, 1992
and 1991. The core deposit intangible is amortized using a straight-line method
over a period not exceeding ten years. On March 23, 1990, the Bank assumed
deposits amounting to $22,209,301 and purchased the leasehold interest in a
branch office, formerly of Chemical Bank, in Port Jefferson, New York. The
lease-purchase premium was the difference between the present value of the
assigned lease and the present value of comparable leases at current market
rates. The lease-purchase premium is amortized using a straight-line method
over the remainder of the lease, and is included in other assets.
NOTE 9 - INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of $620,000
is determined as of January 1, 1993 and is reported separately in the
consolidated statement of income in 1993. Prior years' financial statements
have not been restated to apply the provisions of SFAS No. 109.
The tax effects of temporary differences that create significant deferred-tax
assets and deferred-tax liabilities at January 1, 1993 and December 31, 1993
and the temporary difference in the recognition of income and expense for
purposes of tax and financial reporting, resulting in net increases to the
Company's net deferred taxes receivable (asset) balance sheet for the year
ended December 31, 1993 are presented below: (in thousands)
- --------------------------------------------------------------------
CHANGE FOR
THE YEAR
ENDED
JANUARY 1, DECEMBER DECEMBER
1993 31, 1993 31, 1993
- --------------------------------------------------------------------
Deferred tax assets:
Provision for possible
loan losses $ 1,878 $ 1,958 $ 80
Depreciation - 54 54
Post-retirement benefits 43 106 63
Deferred compensation 220 285 65
Other 21 20 (1)
- --------------------------------------------------------------------
Total deferred tax
assets before
valuation allowance $ 2,162 $ 2,423 $ 261
Valuation allowance - - -
- --------------------------------------------------------------------
Total deferred tax
assets net of
valuation allowance $ 2,162 $ 2,423 $ 261
- --------------------------------------------------------------------
Deferred tax liability:
Pension $ 125 $ 102 $ 23
Depreciation 128 - 128
Other 38 38 -
- --------------------------------------------------------------------
Total deferred tax liability $ 291 $ 140 $ 151
Net deferred tax asset $ 1,871 $ 2,283 $ 412
====================================================================
The cumulative effect of the change in accounting upon adoption of SFAS No. 109
represents the difference between the net deferred- tax asset at January 1,
1993 of $1,871,000 and the net deferred-tax asset recorded at December 31, 1992
of $1,247,000.
The components of consolidated income tax provisions are as follows: (in
thousands)
- --------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- --------------------------------------------------------------------
Current
Federal $ 3,115 $ 3,064 $ 2,003
State 1,367 1,347 1,143
- --------------------------------------------------------------------
4,482 4,411 3,146
Deferred
Federal (295) (446) (446)
State (117) (107) (124)
- --------------------------------------------------------------------
(412) (553) (570)
- --------------------------------------------------------------------
Total $ 4,070 $ 3,858 $ 2,576
====================================================================
25
28
Amounts currently payable at December 31, 1993, and 1992 totaled approximately
($3,000) and $316,000 respectively.
The sources of timing differences prior to the adoption of SFAS No. 109
resulting in deferred income taxes and the related tax effect of each were as
follows: (in thousands)
- --------------------------------------------------------------------
Year Ended December 31, 1992 1991
- --------------------------------------------------------------------
Loan Loss Deduction/
Provision for
Possible Loan Losses $ (534) $ (549)
Accelerated Tax Depreciation (27) 8
Deferred Compensation (25) (29)
Other, Net 33 -
- --------------------------------------------------------------------
Total $ (553) $ (570)
====================================================================
The total tax expense was less than the amounts computed by applying the
Federal income tax rate as a result of the following:
- --------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- --------------------------------------------------------------------
Federal Income Tax Expense
at Statutory Rates 34% 34% 34%
Tax Exempt Interest (5%) (7%) (12%)
State Income Taxes Net of
Federal Benefit 7% 7% 6%
Other 1% 3% 5%
- --------------------------------------------------------------------
Total 35% 37% 33%
====================================================================
The Internal Revenue Service has examined and closed their years through tax
year 1990.
NOTE 10 - EMPLOYEE BENEFITS
(A) RETIREMENT PLAN
The Company has a non-contributory pension plan available to all full-time
employees who have met certain age requirements and have completed at least one
year of employment. The following tables set forth the plan's status as of
October 1, 1993 and 1992, the time at which the annual valuation of the plan is
made:
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
- --------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------
Accumulated benefit obligation $ 3,490,400 $ 2,953,411
- -------------------------------------------------------------------
Vested benefit obligation $ 3,440,437 $ 2,905,930
- -------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(5,223,485) $(4,715,803)
Plan assets at fair value, primarily
listed stocks and bonds 6,220,420 5,306,143
- -------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation $ 996,935 $ 590,340
Unrecognized net transition assets
being amortized over 17.62 years (607,541) (663,166)
Unrecognized prior service cost 26,562 28,463
Unrecognized net loss 230,770 730,423
- -------------------------------------------------------------------
Prepaid pension cost included in
other assets $ 646,726 $ 686,060
===================================================================
NET PENSION COST FOR 1993, 1992 & 1991 INCLUDED THE FOLLOWING COMPONENTS:
- -------------------------------------------------------------------
1993 1992 1991
- -------------------------------------------------------------------
Service cost $ 446,139 $ 397,851 $ 341,084
Interest cost on projected
benefit obligations 391,655 360,456 322,240
Expected return on plan assets (449,584) (398,832) (308,505)
Net amortization & deferral (38,936) (27,914) 3,114
- -------------------------------------------------------------------
Net periodic pension cost $ 349,274 $ 331,561 $ 357,933
===================================================================
The weighted average discount rate for purposes of determining net periodic
pension cost was 8.5% in 1993 and 1992 respectively. The rate of increase in
future compensation levels used in determining these amounts was 6.5% in 1993
and 1992, respectively. The expected long-term rate of return on assets is 8.5%
for 1993 and 1992.
(B) DEFERRED COMPENSATION PLAN
During 1986, the Board approved a deferred compensation plan. Under the plan,
certain employees and Directors of the Company elected to defer compensation
aggregating approximately $177,000 in exchange for stated future payments to be
made at specified dates which would include a guaranteed rate of return on the
initial deferral. For purposes of financial reporting, interest (approximately
$130,000 in 1993, $95,000 in 1992 and $83,000 in 1991) at the plan's
contractual rate is being accrued on the deferral amounts over the expected
plan term. During 1993, the Company made payments of $61,000, according to the
plan, to participants who were still working for the Company.
The Company will fund the future payments by purchasing life insurance policies
on the plan's participants. The Company is the named beneficiary on the
policies. Net insurance expense (income) related to the policies aggregated
approximately $1,000, ($7,000) and ($11,000) in 1993, 1992 and 1991,
respectively.
(C) POST-RETIREMENT BENEFITS OTHER THAN PENSION
In December, 1990, the FASB issued SFAS No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions", which requires a calculation of
the actuarial present value of expected benefits to be paid to employees after
their retirement and an allocation of the cost of those benefits to the periods
for which employees rendered service. On January 1, 1992, the Company adopted
SFAS No. 106. The accrued post-retirement benefit recognized during 1993
includes a service cost of $77,291, interest of $51,940 and amortization of
$20,769. The accrued post-retirement benefit recognized during 1992 includes a
service cost of $52,598, interest of $34,318 and amortization of $20,769.
Interest is calculated assuming a discount rate of 8.5 percent, and the
amortization cost represents the unrecognized transition obligation as of
January 1, 1993, amortized using the straight-line method over a twenty-year
period. The only benefit available after retirement is participation in group
insurance plans.
26
29
NOTE 11 - 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. At December 31, 1993, the Company is contingently liable under
standby letters-of-credit in the amount of $1,356,000. The Company has
commitments to make or purchase, or to extend credit in the form of revolving
open end lines secured by 1-4 family residential properties, commercial real
estate, construction and land development loans, and lease financing
arrangements as of December 31, 1993 in the amount of $12,829,000, and
commercial loans of $10,971,000.
In the opinion of management, based upon legal counsel, liabilities arising
from legal proceedings against the Company, would not have a significant effect
on the financial position of the Company.
During 1993, the Company was required to maintain balances with the Federal
Reserve Bank of N.Y. for reserve and clearing requirements. These balances
averaged $2,992,000 in 1993.
Total rental expense for the years ended December 31, 1993, 1992 and 1991
amounted to $496,000, $457,000 and $432,000, respectively. At December 31,
1993, the Company was obligated under a number of non-cancellable operating
leases for land and buildings used for bank purposes. Minimum annual rentals,
exclusive of taxes and other charges under non-cancellable operating leases,
are summarized as follows: (in thousands)
- -------------------------------------------------------------------
Year ending December 31, Minimum Annual Rentals
- -------------------------------------------------------------------
1994 $ 463
1995 389
1996 390
1997 252
1998 and thereafter 1,742
===================================================================
NOTE 12 - CREDIT CONCENTRATIONS AND REGULATORY MATTERS
The Bank's principal investments are in loans, and in a portfolio of short and
medium term debt of the United States Treasury, states and other political
subdivisions, U.S. Government agencies, and corporations.
As of December 31, 1993, consumer loans, net of unearned discounts, comprised
57.3 percent of the Bank's loan portfolio, more than 83.5 percent of which are
indirect dealer-generated loans secured by automobiles. Nearly all of these
loans are made to residents of the Bank's primary lending area, which is
Suffolk County, New York. Each loan is small in amount, and borrowers represent
a cross- section of the population employed in a variety of industries. The
risk presented by any one loan is correspondingly small, and therefore, the
risk which this portion of the portfolio presents to the Company is dependent
upon the financial stability of the population as a whole, and is not dependent
on any one entity or industry.
As of December 31, 1993, loans secured by real estate represented 29.9 percent
of the portfolio, most of which are for commercial properties. Loans of this
variety present somewhat greater risk than consumer loans, particularly in the
current economy. The Bank has attempted to minimize the risks of these loans by
carefully considering, among other things, the creditworthiness of the
borrower, whether or not the real estate is located in Suffolk County, New
York, the Bank's primary lending area, the condition and value of, as well as
the business prospects for the security property. The Bank obtains, whenever
possible, the personal guarantees of the principal(s), and cross-guarantees
among the principal's business enterprises.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 12.7 percent of the loan portfolio.
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. Because of comparatively lower aggregate
balances, these loans do not present a substantial risk to the Company.
In connection with the determination of the allowance for possible loan losses
and other real estate owned, management obtains independent appraisals for
significant properties. Management believes that the allowances for possible
loan losses and other real estate owned are adequate. While management uses
whatever information is available to recognize losses on loans and other real
estate owned, future additions to the allowances may be necessary because of
changes in economic conditions, particularly in the northeastern United States.
During 1993, management made additions to the allowance for possible loan
losses of $192,000 in excess of net charge-offs.
In addition, various regulatory agencies, as an integral part of their
examinations, periodically review the Bank's allowance for possible losses on
loans and real estate owned. These agencies may require the Bank to make
additions to the allowance, based on their judgments about information
available to them at the time of their examination.
27
30
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
LIMITATIONS
The following estimates are made at a specific point in time and may be based
on judgments regarding loss experience expected in the future, risk and other
factors which are subjective in nature. The methods and assumptions used to
produce the fair value estimates are listed below.
INVESTMENTS
The fair value of the investment portfolio including mortgage-backed securities
was based on quoted market prices or market prices of similar instruments with
appropriate adjustments. See Note 2 for these amounts.
LOANS
Fair values are estimated for portfolios of loans with similar characteristics.
Loans are segregated by types such as commercial, commercial real estate,
residential mortgage, and consumer.
The fair value of performing loans was calculated by discounting scheduled
cashflows through the estimated maturity using estimated market discount rates
that reflect the credit and interest-rate risk inherent in the loan. The
estimate of maturity is based on the Bank's historical experience with
repayments for each type of loan, modified, as required, by an estimate of the
effects 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,
1993 and 1992: (in thousands)
- --------------------------------------------------------------------
1993 1992
LOAN CARRYING FAIR CARRYING FAIR
TYPES AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------
Commercial, Financial
& Agricultural: $ 52,103 $ 51,344 $ 45,030 $ 44,033
Commercial Real Estate: 65,738 65,936 59,250 53,379
Real Estate
Construction Loans: 5,327 5,357 6,294 6,099
Residential Mortgages
(1st & 2nd Liens): 33,489 33,723 34,558 33,490
Home Equity Loans: 18,440 18,448 19,900 19,285
Consumer Loans: 266,605 272,195 238,348 243,156
Other Loans: 522 523 1,492 1,492
- --------------------------------------------------------------------
Totals $442,224 $447,526 $404,872 $400,934
====================================================================
DEPOSIT LIABILITIES
Under SFAS 107, the fair value of deposits with no maturity, such as
non-interest bearing demand deposits, NOW, Money Market and savings accounts
approximates the amount payable on demand.
The fair value of certificates of deposit were calculated by discounting cash
flows with origination rates. At December 31, 1993, the fair value of
certificates of deposit with a carrying value of $150,680,000 was $151,501,000.
At December 31, 1992, the fair value of certificates of deposit was less than
the amount payable on demand, and as a result, the carrying amount and fair
value are the same.
Short-term borrowings, including advances from the Federal Reserve, are assumed
to be at market rates because their maturities are short.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND WRITTEN FINANCIAL
GUARANTEES
The fair value of commitments to extend credit was estimated either by
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 present 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: (in thousands)
- --------------------------------------------------------------------
CONTRACT FAIR
AMOUNT VALUE
- --------------------------------------------------------------------
Commitments to extend credit $ 14,968 $ 15,098
Standby letters of credit 1,356 1,376
Written financial guarantees 8,832 9,367
- --------------------------------------------------------------------
Totals $ 25,156 $ 25,841
====================================================================
The Bank had accrued interest payable in the amount of $968,000 and accrued
interest receivable in the amount of $2,199,000. The fair value of these
amounts has been determined to approximate the carrying value.
28
31
NOTE 14 - SUFFOLK BANCORP (PARENT COMPANY ONLY)
Condensed Financial Statements: (in thousands)
- ----------------------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 1993 1992
- ----------------------------------------------------------------------------------------------------------
Assets
Due From Banks $ 1,635 $ 1,841
Investment Security (Market Value of $245 in 1993) 252 -
Investment in Subsidiaries SCNB 61,695 55,560
ICC 281 246
Other Assets 41 -
- ----------------------------------------------------------------------------------------------------------
Total Assets $63,904 $57,647
==========================================================================================================
Liabilities and Stockholders' Equity
Dividends Payable $ 577 $ 542
Other Liabilities 43 -
Stockholders' Equity 63,284 57,105
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $63,904 $57,647
==========================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Income for the year ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
Income
Dividends from Subsidiary Bank $ 2,306 $ 2,032 $ 1,881
Interest Income 23 27 30
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,329 $ 2,059 $ 1,911
Expense
Other Expense $ 185 $ 5 $ 5
- -------------------------------------------------------------------------------------------------------------------------------
Income before Equity in Undistributed Net Income of Subsidiaries $ 2,144 $ 2,054 $ 1,906
Equity in Undistributed Earnings of Subsidiaries 6,169 4,619 3,155
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 8,313 $ 6,673 $ 5,061
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows for the year ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income $ 8,313 $ 6,673 $ 5,061
less: Equity in Undistributed Earnings of Subsidiaries 6,169 4,619 3,155
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 2,144 $ 2,054 $ 1,906
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of Investments $ (252) $ - $ -
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of Stock under Stock Option Plan 173 197 322
Dividends Paid (2,271) (1,961) (1,875)
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities $ (2,098) $ (1,764) $ (1,553)
Net Increase (Decrease) in Cash and Cash Equivalents (206) 290 353
Cash and Cash Equivalents, Beginning of Year 1,841 1,551 1,198
- --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,635 $ 1,841 $ 1,551
================================================================================================================================
Note: No income tax provision has been recorded on the books of Suffolk
Bancorp since it files a return consolidated with its subsidiaries.
29
32
NOTE 15 - ACQUISITION OF HAMPTONS BANCSHARES, INC.
On September 7, 1993 Suffolk Bancorp ("Suffolk") and Hamptons
Bancshares, Inc. ("Hamptons") of Southampton, New York, reached an agreement to
merge. Shareholders of Hamptons will receive stock in Suffolk and cash.
Seventy-five percent of the aggregate consideration will be payable in
common stock. Holders of Hamptons' stock who receive stock will receive 0.6744
shares of Suffolk common stock for each share of Hamptons stock, the equivalent
of $14.50 per share based on the mean of the high bid and low asked market
price for Suffolk shares on August 30, 1993, or $21.50 per share. Suffolk will
pay 25 percent of the total purchase price in cash at a fixed price of $14.50
per share of Hamptons common stock. Additional consideration will be paid to
the extent that sales of foreclosed real estate, then held by Hamptons and sold
before the consummation of this merger, exceed Suffolk's estimate of its value.
This could amount to as much as an additional $1.46 per share, although there
is no assurance that this will occur. The merger is expected to be a tax-free
reorganization to the extent that consideration is paid in stock.
The completion of this merger is subject to the approval of the
shareholders of Hamptons as well as various regulatory agencies. It will be
accounted for as a purchase.
Hamptons is a one-bank holding company with assets of approximately
$160,000,000 which conducts business through its wholly owned subsidiary, The
Bank of the Hamptons, N.A., a commercial bank headquartered in East Hampton,
New York. Established in 1964 as the First National Bank of East Hampton, The
Bank of the Hamptons maintains 8 offices in the communities of Bohemia, East
Hampton, Montauk, Sag Harbor, Southampton, and Water Mill, New York. Hamptons
also owns The Appraisal Center, Inc, a real estate appraisal company located in
Bohemia, New York.
At December 31, 1993 the Company owned 18,000 shares of Hamptons common stock
with a book value of $252,000. Market value approximated book value at December
31, 1993.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The comparative results for the four quarters of 1993 and 1992 are as follows:
(in thousands of dollars except for share and per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Income $11,273 $11,021 $10,882 $10,821 $12,093 $11,848 $11,477 $11,566
Interest Expense 3,781 3,618 3,559 3,567 5,146 4,604 4,354 4,049
- ----------------------------------------------------------------------------------------------------------------------------------
Net-interest Income $ 7,492 $ 7,403 $ 7,323 $ 7,254 $ 6,947 $ 7,244 $ 7,123 $ 7,517
Provision for Possible
Loan Losses 345 253 150 350 908 592 480 592
- ----------------------------------------------------------------------------------------------------------------------------------
Net-interest Income
After Provision for
Possible Loan Losses $ 7,147 $ 7,150 $ 7,173 $ 6,904 $ 6,039 $ 6,652 $ 6,643 $ 6,925
Other Income 950 1,022 1,490 1,268 981 956 1,060 1,063
Other Expenses 5,185 5,275 5,435 5,450 4,747 4,820 4,887 5,334
Provision for Income
Taxes 1,080 990 1,155 845 783 1,095 1,081 899
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before
Cumulative Effect of
Accounting Change $ 1,832 $ 1,907 $ 2,073 $ 1,877 $ 1,490 $ 1,693 $ 1,735 $ 1,755
Cumulative Effect of
Accounting Change 624 - - - - - - -
Net Income $ 2,456 $ 1,907 $ 2,073 $ 1,877 $ 1,490 $ 1,693 $ 1,735 $ 1,755
==================================================================================================================================
Per Share Data:
Income Before
Cumulative Effect
of Accounting
Change $ 0.54 $ 0.56 $ 0.61 $ 0.56 $ 0.44 $ 0.50 $ 0.51 $ 0.52
Cumulative Effect
of Accounting
Change 0.18 - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 0.72 $ 0.56 $ 0.61 $ 0.56 $ 0.44 $ 0.50 $ 0.51 $ 0.52
Cash Dividends 0.17 0.17 0.17 0.17 0.14 0.15 0.15 0.16
Average Shares 3,389,587 3,390,139 3,390,628 3,396,460 3,380,904 3,389,281 3,389,281 3,389,281
==================================================================================================================================
30
33
KPMG PEAT MARWICK
Certified Public Accountants
1 Jericho Plaza
Jericho, New York 11753
Independent Auditor's Report
The Stockholders and Board of Directors
Suffolk Bancorp:
We have audited the accompanying consolidated statements of
condition of Suffolk Bancorp and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Suffolk Bancorp and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 9 to the consolidated financial
statements, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes on January 1, 1993.
January 21, 1994
31
34
[SUFFOLK BANCORP LETTERHEAD]
The Stockholders and Board of Directors
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
generally accepted auditing standards 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 reliable financial
records are maintained for preparing financial statements. Internal audits are
conducted to continually evaluate the adequacy and effectiveness of such
internal controls, policies, and procedures.
The examining 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 with management to discuss audit and internal accounting controls,
regulatory audits, and financial reporting matters.
Edward J. Merz Victor F. Bozuhoski, Jr.
President and Executive Vice-President,
Chief Executive Officer Chief Financial Officer,
and Treasurer
32
35
[SUFFOLK BANCORP LOGO]
DIRECTORS
Raymond A. Mazgulski
Chairman of the Board, Suffolk Bancorp
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Howard M. Finkelstein
Partner, Smith, Finkelstein, Lundberg, Isler & Yakaboski
(attorneys)
Edgar F. Goodale
President, Riverhead Building Supply, Corp.
Hallock Luce III
Vice President, Lupton & Luce, Inc.
(general insurance)
Edward J. Merz
President & Chief Executive Officer, Suffolk Bancorp
J. Douglas Stark
President, Stark Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering Greenhouses, Inc.
(wholesale nursery)
OFFICERS
Edward J. Merz
President & Chief Executive Officer
Victor F. Bozuhoski, Jr.
Executive Vice President, Chief Financial Officer, &
Treasurer
Douglas Ian Shaw
Corporate Secretary
AUDIT DEPARTMENT
Roy Garbarino, C.P.A.
Auditor
Joanne Appel
IS Audit Manager
Maureen Mougios
Assistant Vice President
Carolyn Leahy
Senior Staff Auditor
SUBSIDIARIES
[ISLAND COMPUTER CORPORATION LOGO]
DIRECTORS
Edward J. Merz, Chairman,
President & Chief Executive Officer, Suffolk Bancorp
Augustus C. Weaver
President, Island Computer Corporation of New York, Inc.
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Alexander B. Doroski
Senior Vice President & Chief Operations Officer,
The Suffolk County National Bank
Peter Van de Wetering
President, Van de Wetering
Greenhouses, Inc. (wholesale nursery)
OFFICERS
Augustus C. Weaver
President
Mark J. Drozd
Vice President
Thomas J. Munkelwitz
Corporate Secretary
Janet L. Maher
Corporate Treasurer
Suffolk Bancorp and its subsidiaries are Equal Opportunity Employers
39
36
[THE SUFFOLK COUNTY NATIONAL BANK LOGO]
THE
SUFFOLK COUNTY
NATIONAL BANK
DIRECTORS
Raymond A. Mazgulski
Chairman of the Board, The
Suffolk County National Bank
Joseph A. Deerkoski
President, See Neefus, Inc.
(general insurance)
Howard M. Finkelstein
Partner; Smith, Finkelstein,
Lundberg, Isler & Yakaboski
(attorneys)
Edgar F. Goodale
President, Riverhead Building
Supply, Corp.
Hallock Luce III
Vice President, Lupton &
Luce, Inc.
(general insurance)
Edward J. Merz
President & Chief Executive
Officer, Suffolk Bancorp
J. Douglas Stark
President, Stark
Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering
Greenhouses, Inc.
(wholesale nursery)
OFFICERS
Edward J. Merz
President &
Chief Executive Officer
Victor F. Bozuhoski, Jr.
Executive Vice President &
Chief Financial Officer
CONSUMER LOAN DEPARTMENT
John F. Hanley
Senior Vice President
Linda J. Brooks
Vice President
Gordon F. Handshaw
Vice President
Stasia Bermudez
Assistant Vice President
Brian Both
Assistant Vice President
Robert D. Brown
Assistant Vice President
John Dunleavy
Assistant Vice President
Jeanne P. Hamilton
Assistant Vice President
Pamela L. Palleschi
Assistant Vice President
Kevin Bangston
Bank Officer
Helene Caspar
Bank Officer
Jacqueline A. Covell
Bank Officer
Henry J. Fine
Bank Officer
Marilyn Lang
Bank Officer
Kathleen Manglaviti
Bank Officer
Sarah Mayo
Bank Officer
Deborah A. Simonetti
Bank Officer
COMMERCIAL LOAN DEPARTMENT
Robert C. Dick
Senior Vice President
Lawrence Milius
Senior Vice President
Peter M. Almasy
Vice President
David T. De Vito
Vice President
Wendy Harris
Bank Officer
Jana Saelzer
Bank Officer
Vincent J. Toner
Bank Officer
Loan Administration
Thomas S. Kohlmann
Senior Vice President
TRUST DEPARTMENT
Dan A. Cicale
Vice President
& Trust Officer
Lori E. Thompson
Assistant Vice President
Linda A. Schwartz
Bank Officer
Ronald Zlatniski
Bank Officer
BRANCH ADMINISTRATION DEPARTMENT
Robert H. Militscher
Senior Vice President &
Branch Administrator
Barbara A. Scesny
Regional Vice President
Dave Barczak
Bank Officer
Deanna Miller
Bank Officer
Francis G. Painter, Jr
Bank Officer
CENTER MORICHES OFFICE
Thomas R. Columbus, Sr.
Assistant Vice President
Paul G. Cuddy
Assistant Manager
CUTCHOGUE OFFICE
Richard J. Noncarrow
Vice President
Juneann Zarzecki
Assistant Manager
HAMPTON BAYS OFFICE
John J. Reilly
Assistant Vice President
Jeannette Jarzombek
Assistant Manager
MATTITUCK OFFICE
William Araneo
Vice President
Anita M. Young
Assistant Manager
MEDFORD OFFICE
Paul E. Vaas
Vice President
Sandra M. Alvaro
Assistant Manager
PORT JEFFERSON OFFICE
Edward J. Burkhardt
Vice President
Barbara McHugh
Assistant Manager
RIVERHEAD, OSTRANDER AVENUE OFFICE
Anita J. Nigrel
Assistant Vice President
David E. Hawkes
Assistant Manager
RIVERHEAD, SECOND STREET OFFICE
Linda Zarro
Vice President
Neil Toner
Assistant Manager
SHOREHAM OFFICE
Barbara A. Scesny
Vice President
Alison Cassara
Assistant Manager
WADING RIVER OFFICE
William K. Miller
Vice President
Eloise Husch
Assistant Manager
WESTHAMPTON BEACH OFFICE
Charles E. Johnson
Vice President
Maryellin Whaley
Assistant Manager
OPERATIONS DEPARTMENT
Alexander B. Doroski
Senior Vice President, Cashier
& Chief Operations Officer
Dennis F. Orski
Vice President
Linda Follett
Assistant Vice President
Michael E. Newins
Assistant Vice President
Dawn P. Sadowski
Assistant Vice President
Susan Tersillo
Assistant Vice President
Margaret M. Coughlin
Bank Officer
Donna J. DeLong
Bank Officer
Virginia Kleinheksel
Bank Officer
Lawrence A. Mennella
Bank Officer
Melinda Noncarrow
Bank Officer
COMPTROLLER'S DEPARTMENT
J. Gordon Huszagh
Senior Vice President
& Comptroller
Arlyne M. Morgenstern
Assistant Vice President
Patricia M. Bihn
Assistant Vice President
Barbara J. Danowski
Bank Officer
HUMAN RESOURCES DEPARTMENT
Richard Montenegro
Vice President
Lillian M. Spiess
Assistant Vice President
Roberta J. Zaweski
Bank Officer
CORPORATE SERVICES DEPARTMENT
Douglas Ian Shaw
Vice President & Secretary
Nellie J. Tysz
Bank Officer
MARKETING DEPARTMENT
Bruce S. Greenberg
Vice President
Brenda B. Sujecki
Assistant Vice President
Wendy A. Von Der Linn
Bank Officer
COMPLIANCE
Louis A. Antoniello
Bank Officer
FACILITIES AND SECURITY
William E. Heck, Jr.
Assistant Vice President
John Rutkoske
Bank Officer
40
37
DIRECTORY OF OFFICES AND DEPARTMENTS
Area Code (516)
Telephone Telecopier
EXECUTIVE OFFICES . . . . . . . . . . . . . . . . . . . 6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Audit Department . . . . . . . . . . . . . . . . . . . . 322 Roanoke Avenue, Riverhead, N.Y. 11901 727-2657 727-2638
Center Moriches Office . . . . . . . . . . . . . . . 502 Main Street, Center Moriches, N.Y. 11934 878-8800 878-4431
Commercial Loan Department . . . . . . . . . . . . . . 6 West Second Street, Riverhead, N.Y. 11901 727-2701 727-5798
Compliance Department . . . . . . . . . . . . . . . . . . 220 Roanoke Avenue, Riverhead, N.Y. 11901 727-5395 727-3214
Comptroller's Department . . . . . . . . . . . . . . . 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5270 369-2230
Consumer Loan Department . . . . . . . . . . . . . . . 244 Old Country Road, Riverhead, N.Y. 11901 727-7277 727-2651
Corporate Services Department . . . . . . . . . . . . . . 220 Roanoke Avenue, Riverhead, N.Y. 11901 727-2700 727-3214
Cutchogue Office . . . . . . . . . . . . . . . . . . . . . . . . . Route 25, Cutchogue, N.Y. 11935 734-5050 734-7759
Facilities Department . . . . . . . . . . . . . . . . . 6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Hampton Bays Office . . . . . . . . . . . . . . . . . . . Montauk Highway, Hampton Bays, N.Y. 11946 728-2700 728-8311
Human Resources Department . . . . . . . . . . . . . . 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5377 727-3170
Marketing Department . . . . . . . . . . . . . . . . . . 220 Roanoke Avenue, Riverhead, N.Y. 11901 727-4712 727-3214
Mattituck Office . . . . . . . . . . . . . . . . . . . . . 10900 Main Road, Mattituck, N.Y. 11952 298-9400 298-9188
Medford Office . . . . . . . . . . . . . . . . . . . . 2690R Expressway Plaza, Medford, N.Y. 11763 758-1500 758-1509
Mortgage Loan Department . . . . . . . . . . . . . . . 244 Old Country Road, Riverhead, N.Y. 11901 727-7277 369-2468
Operations Department . . . . . . . . . . . . . . . . . 206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5834
Port Jefferson Harbor Office . . . . . . . . . . . . 135 West Broadway, Port Jefferson, N.Y. 11777 473-9603 331-7806
Port Jefferson Village Office . . . . . . . . . . 228 East Main Street, Port Jefferson, N.Y. 11777 473-7700 473-9406
Riverhead, Second Street Office . . . . . . . . . . . . 6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Riverhead, Ostrander Avenue Office . . . . . . . . . 1201 Ostrander Avenue, Riverhead, N.Y. 11901 727-6800 727-5095
Shoreham Office . . . . . . . . . . . . . . . . . . . . . . . 9926 Route 25A, Shoreham, N.Y. 11786 744-4400 744-6743
Trust and Investment Services . . . . . . . . . . . . . . 322 Roanoke Avenue, Riverhead, N.Y. 11901 727-2600 727-2638
Wading River Office . . . . . . . . . . . . . . . Wading River-Manor Rd., Wading River, N.Y. 11792 929-6300 929-6799
Westhampton Beach Office . . . . . . . . . . . . . 144 Sunset Ave., Westhampton Beach, N.Y. 11978 288-4000 288-9252
ISLAND COMPUTER CORPORATION . . . . . . . . . . . . . . . . . 40 Orville Drive, Bohemia, N.Y. 11716 589-5131 589-6329
38
BACK COVER WRAP AROUND
PHOTOGRAPH OF VILLAGE OF SOUTHAMPTON
NO BORDERS - FOUR COLOR BLEED