1
FRONT COVER PHOTOGRAPH OF LITTLE PECONIC BAY
ANNUAL REPORT 1996
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1
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ON THE COVER
GREAT & LITTLE PECONIC BAYS
In the near foreground is the
northeastern corner of Great Peconic
Bay, part of the Peconic estuary that
stretches from Orient and Montauk Points
in the east to the town of Riverhead in
the west. At lower right is the hamlet
of New Suffolk, famous from 1897 to 1905
as the site of the United States Navy's
first submarine trials. Beyond is
Cutchogue Harbor and the exclusive
residential enclave of Nassau Point.
Beyond again is Hog Neck Bay to the left
and Little Peconic Bay to the right; Hog
Neck behind; Southold Bay to the left;
and Shelter Island Sound to the right.
Shelter Island appears on the horizon.
The breathtaking beauty of this estuary
attracts visitors from around the world,
and contributes greatly to the economy
of Suffolk's traditional markets.
TABLE OF CONTENTS
Corporate Profile & Financial Highlights............................. 1
Message to the Shareholders.......................................... 2
Commentary........................................................... 3
Summary of Selected Financial Data................................... 4
Price Range of Common Stock & Dividends.............................. 4
Management's Discussion & Analysis of Financial Condition
& Results of Operations........................................... 5
The Company's Business............................................... 5
General Economic Conditions.......................................... 5
Results of Operations................................................ 5
Net Income........................................................... 5
Net-Interest Income.................................................. 5
Average Assets, Liabilities, & Stockholders' Equity, Rate Spread,
& Effective Interest Rate Differential............................ 6
Analysis of Changes in Net-Interest Income........................... 7
Interest Income...................................................... 7
Investment Securities................................................ 7
Loan Portfolio....................................................... 8
Summary of Loan Loss Experience
& Allowance for Possible Loan Losses.............................. 9
Interest Expense..................................................... 10
Deposits ............................................................ 10
Short Term Borrowings................................................ 10
Other Income......................................................... 11
Other Expense........................................................ 11
Interest Rate Sensitivity............................................ 11
Asset/Liability Management & Liquidity............................... 12
Business Risks & Uncertainties....................................... 12
Capital Resources.................................................... 13
Risk-Based Capital/Leverage Guidelines............................... 13
Discussion of Current Accounting Principle........................... 13
Consolidated Statements of Condition................................. 14
Consolidated Statements of Income.................................... 15
Consolidated Statements of Changes in Stockholders' Equity........... 16
Consolidated Statements of Cash Flows................................ 17
Notes to Consolidated Financial Statements........................... 18
Report of Independent Public Accountants............................. 26
Report of Management................................................. 26
Suffolk Bancorp: Directors and Officers.............................. 27
The Suffolk County National Bank: Directors and Officers............. 28
Directory of Offices & Departments:
Addresses, Telephones, & FAX.........................inside back cover
This statement has not been reviewed or confirmed for accuracy or relevance
by the Office of the Comptroller of the Currency.
3
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 reputation
for providing personal service: this has developed a loyal and growing
clientele. SCNB operates 23 full-service offices throughout Suffolk County, New
York.
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. In recent years, commercial loans have
increased as a percentage of the loan portfolio. 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 above the
national average.
FINANCIAL HIGHLIGHTS
(dollars in thousands, except ratios, share, and per-share information)
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SUFFOLK BANCORP December 31, 1996 1995
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EARNINGS FOR THE YEAR Net income $ 10,647 $ 9,089
Net-interest income 41,157 38,891
Net income-per-share 3.19 2.43
Cash dividends-per-share 1.23 0.90
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BALANCES AT YEAR-END Assets $ 804,379 $ 805,794
Net loans 578,883 510,015
Investment securities 135,353 181,966
Deposits 711,018 727,060
Equity 72,750 70,046
Shares outstanding 3,296,445 3,409,309
Book value per common share $ 22.07 $ 20.55
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RATIOS Return on average equity 15.12% 11.56%
Return on average assets 1.35 1.15
Average equity to average assets 8.96 9.91
Net-interest margin (taxable-equivalent) 5.84 5.49
Net charge-offs to average net loans 0.17 0.16
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SUFFOLK BANCORP ANNUAL MEETING
Tuesday, April 8, 1997, 1:00 P.M.
Fox Hill Golf & Country Club
Oakleigh Avenue
Baiting Hollow, New York
REGISTRAR AND TRANSFER AGENT
American Stock Transfer & Trust Co.
40 Wall Street, 46th Floor
New York, New York 10269-0436
(800) 937-5449
TRADING
Suffolk Bancorp's common stock is traded over-the-counter, and is listed on the
NASDAQ National Market System under the symbol "SUBK." Market makers at December
31, 1996 included the firms of: Herzog, Heine, Geduld, Inc.; McConnell, Budd &
Downes, Inc.; Sandler O'Neill & Partners, L.P.; and Smith Barney Shearson, Inc.
S.E.C. FORM 10-K
The Annual Report to the Securities and Exchange Commission on Form 10-K and
documents incorporated by reference can be obtained, without charge, by writing
to the Secretary, Suffolk Bancorp, 6 West Second Street, Riverhead, New York
11901.
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[GRAPHIC OMITTED]
To Our Shareholders:
Nineteen-ninety-six was another successful year for Suffolk Bancorp and for its
wholly owned subsidiary, The Suffolk County National Bank.
Net income was $10,647,000, up 17.1 percent from $9,089,000 last year.
Earnings-per-share were $3.19 compared to $2.43, an increase of 31.3 percent.
Assets at year-end remained essentially steady at $804,379,000, compared to
$805,794,000. Shareholders' equity amounted to $72,750,000, up 3.9 percent from
$70,046,000. Book value-per-share was $22.07, up 7.4 percent from $20.55 the
previous year. Dividends-per-share were $1.23 increased 36.7 percent from $0.90.
Average loans increased by 4.7 percent, to $544,258,000 from $519,602,000.
Average deposits increased slightly, to $709,203,000 from $696,629,000. Net
interest income increased by 5.6 percent to $41,157,000 from $38,981,000. Income
other than from interest increased by 8.7 percent, to $7,286,000 from
$6,702,000. Expense other than for interest decreased by 3.9 percent, to
$28,967,000 from $30,135,000. Return on average common equity increased to 15.12
percent from 11.56 percent. Return on assets increased to 1.35 percent from 1.15
percent. The price of a share reached $39 3/4.
These key statistics tell a story of resounding success. Every balance and ratio
of material consequence to your investment in Suffolk Bancorp has improved from
year to year. The most important of them, earnings-per-share, is up by almost
one-third.
This occurred during a period when the fundamentals of the economy did not
change significantly, either nationally or regionally. This was very much the
result of even more refined strategic planning by our senior management. We are
keenly aware of the consolidation taking place in the commercial banking
industry. We are equally aware that our continued independence runs counter to
that trend. We remain committed to independence for a number of reasons, not the
least of which is that we believe we can provide our shareholders with better
value over the long term than could a would-be acquirer. We also see that the
role Suffolk plays in the communities it serves is often crucially important to
the economic life of those communities. We still advertise -- and deliver
hometown service! We have operated under the same name, The Suffolk County
National Bank, for 107 years. Our customers appreciate that we have not forced
them to join the "bank-of-the-month" club. We do not shuffle them from name to
name, logo to logo, or product to product as control of the company lurches from
one bank holding company to the next. Consistency is important to retail and
commercial customers alike, and Suffolk's reward for its reliability is the
loyalty of its customers. The benefits of that loyalty flow straight through to
our shareholders.
When I wrote to you at this time last year, Suffolk Bancorp and The Suffolk
County National Bank had just survived the most serious threat ever to their
traditions of independence, service, and profit. The meaning of that experience
was not lost on us. Good performance is no longer enough. Only superior
performance will do. We made a formidable push to justify your continued
confidence and support. I believe we have succeeded.
I cannot adequately express my gratitude for the effort our staff, or should I
say, your staff made during 1996 to improve your return. All of us, from teller
to executive, understand how important our shareholders are to our future. Your
faith in us is a privilege, and we are committed to preserving it.
Sincerely,
[GRAPHIC OMITTED]
Edward J. Merz
Chairman, President,
& Chief Executive Officer
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COMMENTARY
MARGIN! MARGIN ! MARGIN!
If "location, location, location" is the mantra of the retail trade, then
"margin, margin, margin" is what bankers say to themselves over and over again.
Deregulation has made the industry more competitive than it has been in living
memory, and financial institutions other than banks have leaped to snare
customers for traditional banking services. Commercial paper underwritten by
investment bankers has taken the place of large corporate loans. Money market
funds have encroached on the market for short term deposits with banks. The
captive finance companies of major auto makers have taken a growing share of the
market for consumer loans. Faced with fewer opportunities, and supplied with
more capital than they can use, banks have been merging with increasing
frequency.
Almost inevitably, the imperatives of running a large, bureaucratic institution
overcome the ability of the merged organization to provide service of good
quality to its customers. There is still a niche for banks that know their
communities, make lending decisions locally and quickly, and stay agile enough
to respond to sudden changes in customers' needs or preferences.
Suffolk Bancorp's subsidiary, The Suffolk County National Bank, is, and long has
been, just that "hometown" bank. "SCNB" remains a leader in personal, attentive
service in its market on Long Island. In an earlier, more regulated era, simple
but inflexible regulations ensured SCNB's margin of profit. More recently,
maintaining that profit margin requires ever sharper strategy in retail and
commercial operations, asset/liability mix, and capital management.
Even a quick review of Suffolk's financial statements for 1996 will reveal that
its assets and liabilities did not grow from year to year, but that performance
ratios did so handsomely. Why? Because the first question asked about any
proposal is, "What is the margin?" Nineteen-ninety-six was a time of internal
consolidation and retrenchment. Suffolk put every aspect of its operations under
the microscope, and analyzed it for the contribution it makes to the bottom
line. What were the results?
The first step was to restructure Suffolk Bancorp's management into a
leaner, more focused team.
The most important component of Suffolk's performance during 1996 has
been a dynamic campaign of capital management. In 1995, Suffolk
repurchased more than ten percent of the outstanding stock. In 1996, the
Board of Directors authorized the repurchase of an additional five
percent, more than two-thirds of which Suffolk actually purchased during
the year. The 1997 strategic plan calls for yet another five percent.
Assets were re-deployed into the loan portfolio from lower yielding
investments, particularly into more profitable commercial loans. This
contributed to a 35 basis-point improvement in the net interest margin
from year to year.
Suffolk Bancorp consolidated the data processing operations of the Island
Computer Corporation of New York into The Suffolk County National Bank.
Item-processing was outsourced at considerable savings.
Through reassignment, attrition, and early retirement, Suffolk reduced
headcount to 372 at year-end from 400 at the end of 1995 without a
corresponding drop in the volume of business.
Last year was the time to position Suffolk for the future by achieving the
greatest efficiencies possible. In 1997 and beyond, Suffolk will apply itself to
growth. It will employ these efficiencies in new markets across Long Island. On
December 23, 1996, SCNB opened its 23rd office in West Babylon, now the
westernmost of SCNB's offices. Coming soon is a business banking center in
greater Smithtown, and the relocation of the Medford office to larger quarters.
SCNB now spans more than 80 miles across one of the most lucrative banking
markets in the United States, ready to grow and prosper.
* * * * *
The entire staff of Suffolk Bancorp and the Suffolk County National Bank wishes
to congratulate Raymond A. Mazgulski, Edward J. Merz, and John F. Hanley as they
assume new positions in the Company. Mr. Mazgulski, Chairman since 1980, assumes
the post of Vice-Chairman of Suffolk Bancorp and SCNB. Mr. Merz succeeds him as
Chairman of both Suffolk Bancorp and SCNB, and continues as President and Chief
Executive Officer of the Bancorp. Mr. Hanley succeeds Mr. Merz as President and
C.E.O. of SCNB.
* * * * *
Management's discussion and analysis of financial condition and results of
operations begins on page 5. The Board of Directors and Management encourage you
to read it to gain a better understanding of Suffolk's operations during the
past year.
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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 1996 1995 1994 (1) 1993 1992
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Interest income $ 60,529 $ 59,312 $ 51,564 $ 43,997 $ 46,984
Interest expense 19,372 20,331 15,734 14,525 18,153
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Net-interest income 41,157 38,981 35,830 29,472 28,831
Provision for possible loan losses 1,120 530 730 1,098 2,572
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Net interest income after provision 40,037 38,451 35,100 28,374 26,259
Other income 7,286 6,702 5,675 4,730 4,060
Other expense 28,967 30,135 27,752 21,345 19,788
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Income before income taxes and cumulative
effect of change in accounting principle 18,356 15,018 13,023 11,759 10,531
Provision for income taxes 7,709 5,929 4,705 4,070 3,858
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Income before cumulative effect of change in
accounting for income taxes 10,647 9,089 8,318 7,689 6,673
Cumulative effect of change in accounting for income taxes -- -- -- 624 --
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Net income $ 10,647 $ 9,089 $ 8,318 $ 8,313 $ 6,673
====================================================================================================================================
BALANCE AT DECEMBER 31:
Federal funds sold $ 1,500 $ 32,500 $ -- $ -- $ 27,600
Investment securities -- available for sale 104,649 137,043 68,261 -- --
Investment securities -- held to maturity 30,704 44,923 126,380 194,391 166,946
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Total investment securities 135,353 181,966 194,641 194,391 166,946
Net loans 578,883 510,015 529,075 406,740 369,005
Total assets 804,379 805,794 811,654 642,359 599,418
Total deposits 711,018 727,060 723,993 568,768 538,604
Other borrowings 7,200 -- -- 6,500 --
Stockholders' equity $ 72,750 $ 70,046 $ 77,093 $ 63,284 $ 57,105
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SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity 15.12% 11.56% 11.50% 13.78% 12.19%
Return on average assets 1.35 1.15 1.11 1.35 1.13
Net interest margin (taxable equivalent) 5.84 5.49 5.34 5.31 5.43
Average equity to average assets 8.96 9.91 9.68 9.79 9.24
Dividend pay-out ratio 38.49 36.83 31.61 27.32 29.40
Asset Quality:
Non-performing assets to total loans (net of discount) 1.02 1.33 1.70(2) 1.26 1.84
Non-performing assets to total assets .74 0.85 1.11(2) 0.80 1.13
Allowance to non-accrual loans and 90+ 127.12 77.38 77.39 92.73 71.62
Allowance to loans, net of discounts 1.05 1.15 1.16 1.20 1.27
Net charge-offs to average net loans 0.17% 0.16% 0.23% 0.24% 0.48%
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PER SHARE DATA: (4)
Income before cumulative effect of change in
accounting principle $ 3.19 $ 2.43 $ 2.25(3) $ 2.27 $ 1.97
Cumulative effect of change in accounting principle -- -- -- 0.18 --
Net income 3.19 2.43 2.25 2.45 1.97
Cash dividends 1.23 0.90 0.71 0.68 0.60
Book value at year-end 22.07 20.55 20.29 18.63 16.85
Highest market value 39.75 37.50 28.50 25.00 22.00
Lowest market value $ 29.50 $ 26.00 $ 21.00 $ 19.00 $ 9.00
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Number of full-time-equivalent employees at year-end 372 400 426 322 307
Number of branch offices at year-end 23 22 21 13 13
Number of automatic teller machines 16 15 14 8 5
====================================================================================================================================
(1) The information for 1994 reflects the acquisition of Hamptons on April 11,
1994.
(2) Includes $2,128,000 of non-performing loans and $1,222,000 of other real
estate acquired from Hamptons.
(3) Reflects issuance of 402,109 shares in acquisition of Hamptons on April 11,
1994.
(4) Per share data is based on average shares outstanding of 3,341,032 in 1996,
3,739,470 in 1995, 3,692,286 in 1994, 3,391,149 in 1993, and 3,387,198 in
1992.
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." Following
are the quarterly high and low prices of the Company's common stock. Prices are
as reported by NASDAQ.
7
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1996 High Low Dividends 1995 High Low Dividends
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First quarter $ 32.75 $ 29.50 $ 0.30 First quarter $ 29.00 $ 26.00 $ 0.20
Second quarter 33.25 30.50 0.30 Second quarter 33.25 26.50 0.20
Third quarter 34.25 31.50 0.30 Third quarter 36.75 32.00 0.20
Fourth quarter 39.75 33.00 0.33 Fourth quarter 37.50 32.50 0.30
====================================================================================================================================
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 Suffolk Bancorp's (the
"Company" or "Suffolk") results of operations for each of the past three years,
and its financial condition as of December 31, 1996 and 1995, 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. Its banking subsidiary, The Suffolk
County National Bank (the "Bank"), operates 23 full-service offices in Suffolk
County, New York. It offers a full line of domestic, retail, and commercial
banking services, and trust services. The Bank's primary lending area includes
all of Suffolk County, New York. The Bank also makes loans for automobiles in
Nassau County, New York.
The Bank serves as an indirect lender to the customers of many automobile
dealers in its service area. The Bank also lends to small manufacturers,
wholesalers, builders, farmers and retailers, and finances dealers' inventory.
The Bank makes loans secured by real estate, including residential mortgages, of
which most are sold to mortgage investors; real estate construction loans; and
loans that are secured by commercial real estate and float with the prime rate,
or that have relatively short terms and are retained in the Bank's portfolio.
The Bank offers both fixed and floating-rate second mortgage loans with a
variety of 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, including demand,
savings, N.O.W., and money market accounts, as well as term certificates. To a
much lesser degree, it relies on other short-term sources of funds, including
interbank overnight loans and, when needed, sale-repurchase agreements.
GENERAL ECONOMIC CONDITIONS
Growth in Long Island's economy was slow but sustained in 1996. Increased demand
for finance, information, transportation and tourism were offset by layoffs
resulting from corporate consolidations and down-sizing. Long Island has a
highly educated and skilled work force, and a diverse industrial base. It is
adjacent to New York City, one of the world's largest centers of distribution
and a magnet for finance and culture. The island's economic cycles vary from
those of the national economy. During 1996, interest rates were stable
throughout the year.
RESULTS OF OPERATIONS
NET INCOME
Net income was $10,647,000 compared to $9,089,000 last year and $8,318,000 in
1994. This represents an increase of 17.14 percent in 1996 after a 9.27 percent
increase in 1995. Earnings-per-share were $3.19 compared to $2.43 last year and
$2.25 in 1994.
NET-INTEREST INCOME
Net-interest income during 1996 was $41,157,000, up from $38,981,000 and
$35,830,000 in 1995 and 1994, respectively. These represent increases of 5.58
percent and 8.79 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
5.84 percent during 1996, up from 5.49 percent in 1995, which was up from 5.34
percent in 1994. Average rates on average interest-earning assets increased to
8.55 percent in 1996 from 8.30 percent in 1995. Average rates on average
interest-bearing liabilities decreased to 3.54 percent in 1996 from 3.65 percent
in 1995. These resulted in a 0.35 percent increase in the interest rate
differential from 1995 to 1996, compared to a 0.15 percent increase from 1994 to
1995. Core deposits did not reprice upward as quickly as did assets. Also,
demand deposits increased from year to year as a percentage of total deposits.
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9
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
statements of condition. It presents an analysis of net-interest income on a
taxable-equivalent basis, listing each major category of interest-earning assets
and interest-bearing liabilities, as well as other assets and liabilities:
(dollars in thousands)
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Year ended December 31, 1996 1995 1994
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Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
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INTEREST-EARNING ASSETS
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U.S. treasury securities $110,483 $ 6,579 5.95% $115,606 $ 6,482 5.61% $123,864 $ 5,520 4.46%
Obligations of states &
political subdivisions 13,639 1,005 7.37 25,404 1,892 7.45 37,004 2,561 6.92
U.S. govt. agency obligations 26,939 1,801 6.69 30,734 2,052 6.68 24,854 1,610 6.48
Corporate bonds & other securities 638 38 5.96 638 38 5.96 665 49 7.37
Federal funds sold & securities purchased
under agreements to resell 17,208 919 5.34 31,805 1,839 5.78 15,771 663 4.20
Loans, including non-accrual loans 544,258 50,659 9.31 519,602 47,783 9.20 487,297 42,145 8.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $713,165 $ 61,001 8.55% $723,789 $60,086 8.30% $689,455 $52,548 7.62%
====================================================================================================================================
Cash & due from banks $ 40,114 $ 37,806 $ 25,319
Other non-interest-earning assets 32,880 31,596 32,671
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Total assets $786,159 $793,191 $747,445
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INTEREST-BEARING LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s &
money market deposits $325,788 $ 7,924 2.43% $337,550 $ 8,462 2.51% $373,690 $ 8,949 2.39%
Time deposits 220,531 11,428 5.18 206,801 11,098 5.37 155,278 6,430 4.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total savings & time deposits 546,319 19,352 3.54 544,351 19,560 3.59 528,968 15,379 2.91
Federal funds purchased & securities
sold under agreements to repurchase 322 19 5.90 11,140 674 6.05 3,861 171 4.43
Other borrowings - - - 72 2 2.78 2,132 81 3.80
Mortgages - - - 748 95 12.70 1,446 103 7.12
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Total interest-bearing liabilities $546,641 $ 19,371 3.54% $556,311 $20,331 3.65% $536,407 $15,734 2.93%
====================================================================================================================================
Rate spread 5.01% 4.65% 4.69%
Non-interest-bearing deposits $162,884 $152,278 $135,593
Other non-interest-bearing liabilities 6,221 6,000 3,097
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Total liabilities $715,746 $714,589 $675,097
Stockholders' equity 70,413 78,602 72,348
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Total liabilities & stockholders' equity $786,159 $793,191 $747,445
Net-interest income (tax equivalent basis)
& effective interest rate differential $ 41,630 5.84% $39,755 5.49% $36,814 5.34%
Less: taxable-equivalent basis adjustment (473) (774) (984)
- ------------------------------------------------------------------------------------------------------------------------------------
Net-interest income $ 41,157 $38,981 $35,830
====================================================================================================================================
Interest income on a taxable-equivalent basis includes the additional amount of
interest income that would have been earned if the Bank's investment in
non-taxable U.S. Treasury Securities and state and municipal obligations had
been subject to New York State and federal income taxes yielding the same
after-tax income. The rate used for this adjustment was approximately 34.0% for
federal income taxes and 9.0% for New York State income taxes for all periods.
For each of the years 1996, 1995 and 1994, $1.00 of non-taxable income from
obligations of states and political subdivisions equates to fully-taxable income
of $1.52. In addition, in 1996, 1995 and 1994, $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.
6
10
ANALYSIS OF CHANGES IN NET-INTEREST INCOME
The table below presents 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 numerous simultaneous changes in volume and rate during the period,
it is not possible to allocate precisely 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)
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1996 over 1995 1995 over 1994
Changes Due to Changes Due to
Volume Rate Net Change Volume Rate Net Change
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INTEREST-EARNING ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $ (295) $ 392 $ 97 $ (388) $1,350 $ 962
Obligations of states & political subdivisions (867) (20) (887) (853) 184 (669)
U.S. govt. agency obligations (254) 3 (251) 391 51 442
Corporate bonds & other securities - - - (2) (9) (11)
Federal funds sold & securities purchased
under agreements to resell (789) (131) (920) 859 317 1,176
Loans, including non-accrual loans 2,289 587 2,876 2,884 2,754 5,638
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 84 $ 831 $ 915 $2,891 $4,647 $ 7,538
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Savings, N.O.W.'s & money market deposits $ (290) $ (248) $ (538) $ (893) $ 406 $ (487)
Time deposits 720 (390) 330 2,467 2,201 4,668
Federal funds purchased & securities sold
under agreements to repurchase (639) (16) (655) 421 82 503
Other borrowings (2) - (2) (62) (17) (79)
Mortgages (95) - (95) (65) 57 (8)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ (306) $ (654) $ (960) $1,868 $2,729 $ 4,597
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net-interest income
(taxable-equivalent basis) $ 390 $ 1,485 $ 1,875 $1,023 $1,918 $ 2,941
===================================================================================================================================
The table above includes the effect of the acquisition of Hamptons as of April
11, 1994.
INTEREST INCOME
Interest income increased to $60,529,000 in 1996 from $59,312,000 in 1995, an
increase of 2.1 percent, which was up 15.0 percent from $51,564,000 in 1994. The
increase in 1996 was attributable to higher average loan balances and rates, and
higher rates on investments.
INVESTMENT SECURITIES
Average investment in U.S. Treasury securities decreased to $110,483,000 in 1996
from $115,606,000 in 1995, a decrease of 4.4 percent. 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 continued to
become less attractive during 1996 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. The Company currently holds no investment in derivative
products.
The following table summarizes the carrying amounts of the Company's Investment
Securities available for sale and held to maturity as of the dates indicated:
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale, at fair value:
U.S. treasury securities $ 91,092 $ 121,168 $ 68,261
U.S. government agency debt securities 13,557 15,875 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale 104,649 137,043 68,261
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. treasury securities 8,019 12,053 57,091
Obligations of states & political subdivisions 10,170 18,140 36,780
U.S. govt. agency obligations 11,877 14,092 31,871
Corporate bonds & other securities 638 638 638
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity 30,704 44,923 126,380
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $ 135,353 $ 181,966 $ 194,641
====================================================================================================================================
Fair value of investment securities held to maturity $ 30,920 $ 45,451 $ 123,096
Unrealized gains 219 662 228
Unrealized losses 3 134 3,512
====================================================================================================================================
7
11
The amortized cost, maturities and approximate weighted average yields, on a
taxable-equivalent basis, at December 31, 1996 are as follows: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Available for Sale - - - - - - - - - - - - - - - Held to Maturity - - - - - - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Obligations of U.S. Corporate Total
U.S. Treasury Govt. Agency U.S. Treasury States & Political Govt. Agency Bonds & Amortized
Securities Debt. Securities Subdivisions Obligations Other Securities Cost
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Amortized Amortized Amortized Amortized Amortized
Maturity (in years) Cost Yield Cost Yield Cost Yield Value Yield Cost Yield Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
Within 1 $20,565 5.50% - - $8,019 5.86% $ 7,818 6.81% $ 360 6.68% - - $ 36,762
After 1 but within 5 69,919 6.57 $ 4,916 5.16% - - 602 10.07 11,517 6.30 - - 86,954
After 5 but within 10 - - 8,473 5.95 - - 1,750 7.98 - - - - 10,223
Other securities (FRB) - - - - - - - - - - $638 6.00% $ 638
- ------------------------------------------------------------------------------------------------------------------------------------
Total $90,484 6.33% $13,389 5.66% $8,019 5.86% $10,170 7.21% $11,877 6.31% $638 6.00% $134,577
====================================================================================================================================
As a member of the Federal Reserve System, the Bank owns Federal Reserve Bank
stock with a book value of $638,000. Being an equity investment, the stock has
no maturity. There is no public market for this investment. The last declared
dividend was 6%.
LOAN PORTFOLIO
Consumer loans, net of unearned discounts, totaled $265,039,000 at year-end
1996, up 8.0 percent from $245,317,000 at the end of 1995. Consumer loans
include primarily indirect, dealer-generated automobile loans. Competition is
intense on Long Island, both among commercial banks, and with captive finance
companies of automobile manufacturers. This has resulted in lower yields on
consumer loans.
Commercial loans totaling $102,263,000 at year-end 1996 were up 29.9 percent
from $78,730,000 at year-end 1995. These loans continue to be made to small
local businesses throughout the Company's primary lending area. Loan balances
are seasonal, particularly in the Hamptons where retail inventories rise in the
spring and are reduced by autumn.
Commercial and residential real estate mortgages, including home equity loans
have increased to $216,005,000 in 1996 from $189,802,000 in 1995.
The following table categorizes the Company's total loans (net of unearned
discounts) at December 31,: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
CATEGORY 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural loans $ 102,263 $ 78,730 $ 71,414 $ 52,103 $ 45,030
Commercial real estate mortgages 113,501 99,940 104,548 65,738 59,250
Real estate -- construction loans 9,437 7,946 8,018 5,327 6,294
Residential mortgages (1st and 2nd liens) 64,093 55,047 50,011 33,489 34,558
Home equity loans 28,974 26,869 27,534 18,440 19,900
Consumer loans 265,039 245,317 269,725 236,043 207,211
Lease finance 98 311 743 - -
Other loans 1,592 1,778 3,296 522 1,492
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned discounts) $ 584,997 $ 515,938 $ 535,289 $ 411,662 $ 373,735
====================================================================================================================================
The following table illustrates the sensitivity to changes in interest rates of
the Company's total loans, net of discounts. It does not include overdrafts and
loans not accruing interest, which together total approximately $5,426,000 at
December 31, 1996: (in thousands)
- --------------------------------------------------------------------------------
After 1 But After
Within 5 Years 5 Years Total
- --------------------------------------------------------------------------------
Predetermined rates $ 224,803 $ 42,388 $ 267,191
Floating or adjustable rates 20,111 1,097 21,208
- --------------------------------------------------------------------------------
Total $ 244,914 $ 43,485 $ 288,399
================================================================================
The following table illustrates the sensitivity to changes in interest rates on
the Company's commercial, financial, agricultural; and real estate construction
loans, not including non-accrual loans totaling approximately $1,104,000 at
December 31, 1996: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Due Within After 1 But After
1 year Before 5 Years 5 Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural $ 92,172 $ 4,035 $ 5,055 $ 101,262
Real estate construction 5,961 1,077 2,296 9,334
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 98,133 $ 5,112 $ 7,351 $ 110,596
====================================================================================================================================
8
12
The following table shows the Company's non-accrual, past due and restructured
loans, at December 31,: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Accruing loans contractually past due 90 days or more $ 975 $ 2,584 $ 2,015 $ 871 $ 1,372
Loans not accruing interest 3,834 5,071 6,014 4,437 5,175
Restructured loans 208 532 372 51 744
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 5,017 $ 8,187 $ 8,401 $ 5,359 $ 7,291
====================================================================================================================================
Interest on loans that have been restructured or are no longer accruing interest
would have amounted to $361,000 for 1996 under the contractual terms of those
loans. The Company records the payment of interest on such loans as a reduction
of principal. Interest income recognized on restructured and non-accrual loans
was immaterial for the years 1996, 1995 and 1994.
The percentage of net charge-offs to average net loans during 1996 was 0.17
percent, compared to 0.16 percent during 1995 and 0.23 percent during 1994. The
ratio of the allowance for possible loan losses to loans, net of discount was
1.05 percent during 1996, compared to 1.15 percent in 1995 and 1.16 percent in
1994. The Company has a formal policy for 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. Ordinarily, loans no longer
accrue interest when 90 days past due. When a loan is placed on non-accrual
status, all interest accrued previously in the current year, but not collected,
is reversed against interest income in the current year. Any interest accrued in
prior years is charged against the allowance for possible loan losses. Loans are
removed from non-accrual status when they become current as to principal and
interest, and when, in the opinion of management, the loans can be collected in
full. There were no loans of a material amount, which have become problems, that
are not reflected in the foregoing tables.
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loan loss reserves are based upon management's continuing analysis of the
quality of the loan portfolio, including changes in size and composition,
historical loan losses, industry-wide losses, current and anticipated economic
conditions, and detailed analysis of individual loans which may not be
collectible. The Company identifies specific weaknesses. This analysis includes
estimates of the fair value of loan collateral and potential alternative sources
of repayment. The reserve is based upon factors and trends identified by
management at the time financial statements are prepared, although there can be
no assurance that the reserve is in fact adequate. Part of the reserve is then
allocated to cover potential losses. When specific loans or portions thereof are
deemed to be uncollectible, those amounts are charged-off against the reserve
for loan losses. This occurs when the loan is significantly delinquent and the
borrower has not shown the ability or intent to bring the loan current; the
borrower has insufficient assets to pay the debt; or the fair value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement. Residential real estate and consumer
loans are not analyzed individually because of the large number of loans,
comparatively small balances, and historically low losses. The provision for
loan losses may, in the future, change as a percentage of total loans. The
reserve for loan losses is maintained sufficiently to provide for estimated loan
losses.
The Allowance for Possible Loan Losses has seven major categories. A summary of
transactions for periods indicated follows: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses, January 1, $ 5,923 $ 6,214 $ 4,922 $ 4,730 $ 3,871
Allowance acquired from Hamptons - - 1,678 - -
Loans charged-off:
Commercial, financial & agricultural loans 322 346 869 440 623
Commercial real estate mortgages 369 271 8 - 244
Real estate -- construction loans - - - - -
Residential mortgages (1st & 2nd liens) - - - - -
Home equity loans 47 28 80 - 50
Consumer loans 518 539 511 678 1,022
Lease finance - - - - -
Other loans - - - 49 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 1,256 1,184 1,468 1,167 1,939
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries of charged-off loans:
Commercial, financial & agricultural loans 111 89 72 14 11
Commercial real estate mortgages 4 16 - - -
Real estate -- construction loans - - 11 - -
Residential mortgages (1st & 2nd liens) - - - - -
Home equity loans - - - - -
Consumer loans 209 258 269 247 215
Lease finance - - - - -
Other loans 2 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 326 363 352 261 226
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 930 821 1,116 906 1,713
Provisions for possible loan losses 1,120 530 730 1,098 2,572
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $ 6,113 $ 5,923 $ 6,214 $ 4,922 $ 4,730
====================================================================================================================================
9
13
The following table presents information concerning loan balances and asset quality: (dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of discounts:
Average $ 544,258 $ 520,139 $ 487,297 $ 381,884 $ 358,093
At end of period 584,997 515,938 535,289 411,662 369,005
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets to total loans (net of discounts) 1.02% 1.33% 1.70% 1.26% 1.84%
Non-performing assets to total assets 0.74 0.85 1.11 0.80 1.13
Ratio of net charge-offs to average net loans 0.17 0.16 0.23 0.24 0.48
Net charge-offs to net loans at December 31, 0.16 0.16 0.21 0.22 0.46
Allowance for possible loan losses
to loans, net of discounts 1.05 1.15 1.16 1.20 1.27
====================================================================================================================================
The disparity between average net loans and net loans at December 31, 1994 is
largely attributable to the acquisition of the loan portfolio of Hamptons during
the second quarter.
INTEREST EXPENSE
Interest expense for 1996 was $19,372,000, down 4.7 percent from $20,331,000
during 1995, which was up 29.2 percent from $15,734,000 in 1994. The largest
part of the Company's interest expense was incurred for deposits of individuals,
commercial enterprises, and various levels of government and governmental
agencies. Short-term borrowings, including Federal Funds Purchased (inter-bank
short-term lending), Securities Sold Under Agreements to Repurchase, and Federal
Reserve Bank Borrowings are utilized at various times throughout the year. These
borrowings averaged $322,000 during 1996, $11,212,000 in 1995, and $5,993,000 in
1994.
DEPOSITS
Average interest-bearing deposits increased to $546,319,000 in 1996 from
$544,351,000 in 1995. Traditional savings deposits decreased during 1996,
averaging $190,962,000, down 2.9 percent from $196,587,000 in 1995. Average
balances of time certificates under $100,000, increased to $191,318,000 in 1996,
up from $178,481,000 in 1995, an increase of 7.2 percent. Average balances of
money market deposits of $77,962,000 were 11 percent of average total deposits
during 1996. Average balances of time certificates of $100,000 or more were
$29,213,000, up 3.2 percent from $28,320,000 during 1995.
The following table shows the classification of the average deposits of the Company for each of the periods indicated: (dollars in
thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Rates Paid Rates Paid Rates Paid
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits $ 162,884 $ 152,278 $ 135,593
Savings deposits 190,962 2.72% 196,587 2.80% 225,142 2.67%
N.O.W. & money market deposits 134,826 2.03 140,963 2.10 148,548 1.98
Time certificates of $100,000 or more 29,213 3.08 28,320 3.48 15,603 2.55
Other time deposits 191,318 5.50 178,481 5.67 139,675 4.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 709,203 $ 696,629 $ 664,561
====================================================================================================================================
At December 31, 1996, the remaining maturities of the Company's time certificates of $100,000 or more were as follows: (in
thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months or less $ 17,817
Over 3 through 6 months 3,313
Over 6 through 12 months 3,877
Over 12 months 6,067
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 31,074
====================================================================================================================================
SHORT-TERM BORROWINGS
Occasionally, 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 were $322,000 and $1,389,000 for 1996 and
1995 respectively. Average balances of Federal Reserve Bank borrowings during
1996 were $0 and $72,000 for 1995. Retail repurchase agreements averaged $0 and
$9,751,000 in 1996 and 1995, respectively.
10
14
OTHER INCOME
Other income increased to $7,286,000 during 1996, up 4.9 percent from $6,947,000
in 1995, which was up 22.4 percent from $5,675,000 in 1994. Service charges on
deposit accounts were up 11.1 percent from 1995 to 1996, and 24.0 percent from
1994 to 1995. Other service charges were up 12.7 percent and 14.7 percent for
the same periods. Fiduciary fees in 1996 amounted to $457,000, down 9.1% from
$503,000 in 1995, which was up 11.8% from $450,000 in 1994.
OTHER EXPENSE
Other expense during 1996 was $28,967,000, down 3.9 percent from $30,135,000 in
1995, which was up 8.6 percent from $27,752,000 during 1994. FDIC assessments
decreased from $811,000 in 1995, to $2,000 in 1996. FDIC assessments were
$1,407,000 in 1994.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is determined by the date when each asset and
liability in the Company's portfolio of assets and liabilities can be repriced.
Sensitivity increases when the interest-earning assets and interest-bearing
liabilities cannot be repriced at the same time. While this analysis presents
the quantity of assets and liabilities repricing in each time period, it does
not consider how quickly various assets and liabilities might actually be
repriced in response to changes in interest rates. Management reviews its
asset/liability strategy regularly. Given differing sensitivities to the various
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,
1996: (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) $161,504 $ 49,105 $ 75,418 $ 289,670 $9,300 $584,997
Investment securities (2) 15,441 10,869 10,441 97,964 638 135,353
Federal funds sold (3) 1,500 -- -- -- -- 1,500
====================================================================================================================================
Total interest-earning assets $178,445 $ 59,974 $ 85,859 $ 387,634 $9,938 $721,850
====================================================================================================================================
DEMAND DEPOSITS AND INTEREST-BEARING LIABILITIES
====================================================================================================================================
Demand deposits (4) $ 16,663 $ 16,663 $ 33,326 $ 101,663 -- $168,315
N.O.W. & money market accounts (5) 5,346 5,346 10,691 117,585 -- 138,968
Interest-bearing deposits (6) 81,673 52,004 69,086 200,971 -- 403,734
Federal funds purchased (3) 7,200 -- -- -- -- 7,200
====================================================================================================================================
Total demand deposits and interest-bearing liabilities $110,882 $ 74,013 $ 113,103 $ 420,219 -- $718,217
====================================================================================================================================
Gap $ 67,563 $(14,039) $ (27,244) $ (32,585) $9,938 $ 3,633
====================================================================================================================================
Cumulative difference between interest-earning assets
and interest-bearing liabilities $ 67,563 $ 53,524 $ 26,280 $ (6,305) $3,633
====================================================================================================================================
Cumulative difference as a percentage of total assets 8.40% 6.65% 3.27% (0.78%) 0.45%
====================================================================================================================================
(1) Based upon contractual maturity, instrument repricing date, if applicable,
projected prepayments and prepayments of principal, based upon experience.
Non-accrual loans, loans in the process of renewal and potential
charge-offs were classified as not rate sensitive.
(2) Based upon contractual maturity, projected prepayments and prepayments of
principal, based upon experience. FRB stock is not considered
rate-sensitive.
(3) Based upon contractual maturity.
(4) Based upon experience of historical stable core deposit relationships.
(5) N.O.W. and Money Market Accounts are assumed to decline over a period of
two years.
(6) Fixed rate deposits and deposits with fixed pricing intervals are reflected
as maturing in the period of contractual maturity. Savings accounts are
assumed to decline over a period of five years.
As of December 31, 1996, the volume of interest-earning assets with maturities
of less than one year exceeded interest-bearing liabilities of similar maturity.
This cumulative gap might result in increased net interest margin if interest
rates increase. If interest rates decline, a narrowing of the net interest
margin could result.
11
15
ASSET/LIABILITY MANAGEMENT & LIQUIDITY
The asset/liability management committee (the "committee") reviews the financial
performance of the Company under the asset/liability management policy. The
committee is composed of two outside directors, executive management, the
comptroller, and the heads of commercial lending, retail lending, and retail
banking. It 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
Company's net-interest margin. The committee always assesses the impact of any
change in strategy on the Company'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
conditions in the Company's market are considered by the committee. The Company
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 a short term to minimize the risk to
principal from changing interest rates. The committee anticipates cash flows for
the coming three months and suggests actions to ensure liquidity. Thus, the
Company 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 & UNCERTAINTIES
The Bank's principal investments are loans and a portfolio of short and
medium-term debt of the United States Treasury, states and other political
subdivisions, U.S. Government agencies, and corporations.
Consumer loans, net of unearned discounts, comprised 45.3 percent of the Bank's
loan portfolio, more than 88 percent of which are indirect dealer-generated
loans secured by automobiles. Most of these loans are made to residents of the
Bank's primary lending area. Each loan is small in amount. Borrowers represent a
cross-section of the population, and are employed in a variety of industries.
The risk presented by any one loan is correspondingly small, and therefore, the
risk that this portion of the portfolio presents to the Company is depends on
the financial stability of the population as a whole, not any one entity or
industry.
Loans secured by real estate comprise 36.9 percent of the portfolio, 52.5
percent of which are for commercial real estate. Loans of this variety present
somewhat greater risk than consumer loans, particularly in the current economy.
The Company has attempted to minimize the risks of these loans by considering
several factors, including the creditworthiness of the borrower, location,
condition, value, and the business prospects for the security property.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 17.5 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. The Company obtains, whenever possible, both the
personal guarantees of the principal(s), and also cross-guarantees among the
principals' business enterprises.
U.S. Treasury securities represented 73.2 percent of the investment portfolio
and offer little or no financial risk. Municipal obligations constitute 7.5
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 issuer, 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
fluctuations 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 does the effect of inflation.
Interest rates do not necessarily move in the same direction or to the same
degree 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.
12
16
CAPITAL RESOURCES
Primary capital, including stockholders' equity, not including the net
unrealized gain on securities available for sale, and net of tax and the
allowance for possible loan losses, amounted to $78,405,000 at year-end 1996,
compared to $75,271,000 at year-end 1995 and $83,750,000 at year-end 1994.
During 1996, the Company repurchased 118,400 shares for an aggregate price of
$3,714,850. This accounts for the decrease in capital from 1995 to 1996.
Management determined that this would increase leverage while preserving capital
ratios well above regulatory requirements.
The following table presents the Company's primary capital and related ratios for each of the last five years: (dollars in
thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1996(1) 1995(1) 1994(1) 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Primary capital at year-end $ 78,405 $ 75,271 $ 83,750 $ 68,206 $ 61,835
Primary capital at year-end as a percentage of year-end:
Total assets plus allowance for possible loan losses 9.67% 9.27% 10.24% 10.54% 10.24%
Loans, net of unearned discounts 13.40% 14.59% 15.65% 16.57% 16.55%
Total deposits 10.95% 10.35% 11.57% 11.99% 11.48%
====================================================================================================================================
(1) Capital ratios do not include the effect of SFAS No. 115 "Accounting for
Certain Investments in Debt and Investment Securities."
The Company measures how effectively it utilizes capital using two widely
accepted performance ratios -- return on average assets and return on average
common stockholders' equity. The returns in 1996 on average assets of 1.35
percent and average common equity of 15.12 percent increased from 1995 when
returns were 1.15 percent and 11.56 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 the bank's net profits for the current year combined with
retained net profits (net profits minus dividends paid during that period) of
the prior two years. The amount currently available is $ 4,357,000.
RISK-BASED CAPITAL/LEVERAGE GUIDELINES
The Federal Reserve Bank's risk-based capital guidelines call for bank holding
companies to require minimum ratios of capital to risk-weighted assets, which
include certain off-balance sheet activities, such as standby letters of credit.
The guidelines define capital as being "core," or "Tier 1," capital, which
includes common stockholders' equity, a limited amount of perpetual preferred
stock, minority interest in unconsolidated subsidiaries, less goodwill; or
"supplementary" or "Tier 2" capital which includes subordinated debt, redeemable
preferred stock, and a limited amount of the allowance for possible loan losses.
All bank holding companies must meet a minimum ratio of total qualifying capital
to risk weighted assets of 8.00 percent, of which at least 4.00 percent should
be in the form of Tier 1 capital. At December 31, 1996, the Company's ratios of
core capital and total qualifying capital (core capital plus Tier 2 capital) to
risk-weighted assets were 10.73 percent and 11.68 percent, respectively.
DISCUSSION OF CURRENT ACCOUNTING PRINCIPLES
In December 1996, the Financial Accounting Standards Board, ("FASB") issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125," which is an amendment to SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which
supersedes SFAS No. 122. SFAS No. 125 is effective for transfers and servicing
of financial assets and extinguishment of liabilities occurring after December
31, 1996. SFAS No. 127 delayed the effective date of certain provisions of SFAS
No. 125 until January 1, 1998.
13
17
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
ASSETS 1996 1995
Cash & Due From Banks ...................................................................... $ 49,823,996 $ 48,954,797
Federal Funds Sold ......................................................................... 1,500,000 32,500,000
Investment Securities:
Available for Sale, at Fair Value ....................................................... 104,648,484 137,043,258
Held to Maturity (Fair Value of $30,920,000 and $45,451,000, respectively)
United States Treasury Securities ....................................................... 8,019,446 12,053,390
Obligations of States & Political Subdivisions .......................................... 10,169,918 18,139,862
U.S. Government Agency Obligations ...................................................... 11,876,889 14,091,886
Corporate Bonds & Other Securities ...................................................... 637,849 637,849
------------ ------------
30,704,102 44,922,987
------------ ------------
Total Investment Securities ............................................................ 135,352,586 181,966,245
Total Loans ................................................................................ 592,774,266 533,994,669
Less: Unearned Discounts ................................................................... 7,777,620 18,056,029
Allowance for Possible Loan Losses ................................................ 6,113,380 5,923,233
------------ ------------
Net Loans ................................................................................ 578,883,266 510,015,407
Premises & Equipment, Net .................................................................. 13,201,180 11,802,549
Other Real Estate Owned, Net ............................................................... 1,898,574 1,240,756
Accrued Interest Receivable, Net ........................................................... 5,222,184 5,132,867
Excess of Cost Over Fair Value of Net Assets Acquired ...................................... 2,624,105 2,986,037
Other Assets ............................................................................... 15,872,926 11,195,455
------------ ------------
TOTAL ASSETS ........................................................................... $804,378,817 $805,794,113
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Demand Deposits ............................................................................ $168,315,458 $152,007,218
Savings, N.O.W.'s & Money Market Deposits .................................................. 329,930,465 359,331,269
Time Certificates of $100,000 or more ...................................................... 31,073,585 27,777,020
Other Time Deposits ........................................................................ 181,698,148 187,944,356
------------ ------------
Total Deposits ......................................................................... 711,017,656 727,059,863
Federal Funds Purchased .................................................................... 7,200,000 --
Dividend Payable on Common Stock ........................................................... 1,087,827 1,095,562
Accrued Interest Payable ................................................................... 1,579,351 1,830,052
Other Liabilities .......................................................................... 10,744,407 5,762,873
------------ ------------
TOTAL LIABILITIES ...................................................................... 731,629,241 735,748,350
------------ ------------
Commitments and Contingent Liabilities (see note 11)
STOCKHOLDERS' EQUITY
Common Stock (par value $5.00; 7,500,000 shares authorized 3,805,210 and
3,799,674 shares issued at December 31, 1996 & 1995, respectively) .................... 19,026,050 18,998,370
Surplus .................................................................................. 18,456,432 18,373,392
Undivided Profits ........................................................................ 37,353,193 33,927,780
Treasury Stock at Par (508,765 shares and 390,365 shares, respectively) .................. (2,543,825) (1,951,825)
Net Unrealized Gain on Securities Available for Sale, Net of Tax ......................... 457,726 698,046
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ........................................................... 72,749,576 70,045,763
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ............................................. $ 804,378,817 $ 805,794,113
============= =============
See accompanying notes to consolidated financial statements.
14
18
CONSOLIDATED STATEMENTS OF INCOME
For the Years ended December 31,
1996 1995 1994
INTEREST INCOME
Federal Funds Sold ........................................................... $ 918,926 $ 1,839,151 $ 663,262
United States Treasury Securities ............................................ 6,450,335 6,354,527 5,412,007
Obligations of States & Political Subdivisions (tax exempt) .................. 660,874 1,244,807 1,685,087
U.S. Government Agency Obligations ........................................... 1,801,373 2,052,192 1,609,537
Corporate Bonds & Other Securities ........................................... 38,271 38,271 49,022
Loans ........................................................................ 50,659,016 47,782,904 42,145,375
----------- ----------- -----------
Total Interest Income .................................................... 60,528,795 59,311,852 51,564,290
INTEREST EXPENSE
Savings, N.O.W.'s & Money Market Deposits .................................... 7,924,335 8,460,997 8,949,438
Time Certificates of $100,000 or more ........................................ 900,406 986,204 398,591
Other Time Deposits .......................................................... 10,528,496 10,111,987 6,032,300
Federal Funds Purchased ...................................................... 18,541 87,123 170,093
Interest on Other Borrowings ................................................. 58 589,507 81,387
Interest on Mortgages ........................................................ -- 94,712 102,612
----------- ----------- -----------
Total Interest Expense .................................................... 19,371,836 20,330,530 15,734,421
Net-interest Income ...................................................... 41,156,959 38,981,322 35,829,869
Provision for Possible Loan Losses ........................................... 1,120,000 530,000 730,000
----------- ----------- -----------
Net-interest Income After Provision for Possible Loan Losses ............. 40,036,959 38,451,322 35,099,869
OTHER INCOME
Service Charges on Deposit Accounts .......................................... 4,144,014 3,729,918 3,007,977
Other Service Charges, Commissions & Fees .................................... 1,942,930 1,724,075 1,502,648
Fiduciary Fees ............................................................... 456,500 503,257 450,000
Other Operating Income ....................................................... 742,935 744,533 714,606
----------- ----------- -----------
Total Other Income ....................................................... 7,286,379 6,701,783 5,675,231
OTHER EXPENSE
Salaries & Employee Benefits ................................................. 15,844,994 16,373,556 14,540,444
Net Occupancy Expense ........................................................ 2,387,113 2,329,290 2,202,202
Equipment Expense ............................................................ 2,518,561 3,162,296 2,784,688
Outside Services ............................................................. 1,824,813 1,291,227 1,187,565
FDIC Assessments ............................................................. 2,000 810,720 1,407,465
Amortization of Excess Cost
Over Fair Value of Net Assets Acquired ................................... 361,932 361,932 270,969
Other Operating Expense ...................................................... 6,027,471 5,805,822 5,358,935
----------- ----------- -----------
Total Other Expense ...................................................... 28,966,884 30,134,843 27,752,268
Income Before Provision for Income Taxes ..................................... 18,356,454 15,018,262 13,022,832
Provision for Income Taxes ................................................... 7,709,133 5,929,578 4,705,000
=========== =========== ===========
NET INCOME ................................................................... $10,647,321 $ 9,088,684 $ 8,317,832
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Net Income ................................................................... $ 3.19 $ 2.43 $ 2.25
Average Common Shares Outstanding ............................................ 3,341,032 3,739,470 3,692,286
See accompanying notes to consolidated financial statements.
15
19
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Undivided
Stock Surplus Profits
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 ........................................... $16,982,300 $11,831,795 $ 34,470,187
Net Income ..................................................... -- -- 8,317,832
Dividend ....................................................... -- -- (2,623,728)
Issuance of Stock in Purchase of
Hamptons Bancshares (402,109 shares) ......................... 2,010,545 6,520,653 --
Issuance of Stock Under Stock
Option Plan (1,105 Shares) .................................. 5,525 20,944 --
Cumulative Effect of Change in Accounting
Principle at January 1, 1994 ................................ -- -- --
Net Change in Unrealized Loss on
Securities Available for Sale ............................... -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ........................................... $18,998,370 $18,373,392 $ 40,164,291$
Net Income ..................................................... -- -- 9,088,684
Dividend ....................................................... -- -- (3,347,606)
Purchase of Treasury Stock ..................................... -- -- (11,977,589)
Net Change in Unrealized Gain on
Securities Available for Sale ................................. -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ........................................... $18,998,370 $18,373,392 $ 33,927,780
Net Income ..................................................... -- -- 10,647,321
Dividend ....................................................... -- -- (4,098,196)
Purchase of Treasury Stock ..................................... -- -- (3,123,712)
Net Change in Unrealized Gain on
Securities Available for Sale ............................... -- -- --
Adjustment of Issuance of Stock in Purchase
of Hampton Bancshares (5,536 shares) ........................ 27,680 83,040 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ....................................... $ 19,026,050 $18,456,432 $ 37,353,193
====================================================================================================================================
Net Unrealized
Gain (Loss) On
Securities
Treasury Available
Stock For Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 ....................................... $ -- $ -- $ 63,284,282
Net Income ................................................. -- -- 8,317,832
Dividend ................................................... -- -- (2,623,728)
Issuance of Stock in Purchase of
Hamptons Bancshares (402,109 shares) ..................... -- -- 8,531,198
Issuance of Stock Under Stock
Option Plan (1,105 Shares) .............................. -- -- 26,469
Cumulative Effect of Change in Accounting
Principle at January 1, 1994 ............................ -- (328,472) (328,472)
Net Change in Unrealized Loss on
Securities Available for Sale ........................... -- (114,895) (114,895)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ....................................... -- $ (443,367) $ 77,092,686
Net Income ................................................. -- -- 9,088,684
Dividend ................................................... -- -- (3,347,606)
Purchase of Treasury Stock ................................. (1,951,825) -- (13,929,414)
Net Change in Unrealized Gain on
Securities Available for Sale ............................. -- 1,141,413 1,141,413
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ....................................... $ (1,951,825) $ 698,046 $ 70,045,763
Net Income ................................................. -- -- 10,647,321
Dividend ................................................... -- -- (4,098,196)
Purchase of Treasury Stock ................................. (592,000) -- (3,715,712)
Net Change in Unrealized Gain on
Securities Available for Sale ........................... -- (240,320) (240,320)
Adjustment of Issuance of Stock in Purchase
of Hampton Bancshares (5,536 shares) .................... -- -- 110,720
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ....................................... $ (2,543,825) $ 457,726 $ 72,749,576
====================================================================================================================================
See accompanying notes to consolidated financial statements.
16
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995 1994
NET INCOME ...................................................................... $ 10,647,321 $ 9,088,684 $ 8,317,832
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provision for Possible Loan Losses ........................................ 1,120,000 530,000 730,000
Depreciation & Amortization ............................................... 1,607,673 2,074,991 1,727,892
Amortization of Excess Cost Over Fair Value of Net Assets Acquired ........ 361,932 361,932 270,969
Accretion of Discounts .................................................... (2,020,315) (1,839,404) (2,107,671)
Amortization of Premiums .................................................. 397,373 200,867 284,555
Increase in Accrued Interest Receivable ................................... (89,317) (1,125,866) (892,059)
Increase in Other Assets .................................................. (4,677,471) (2,151,106) (527,083)
(Decrease) Increase in Accrued Interest Payable ........................... (250,701) 730,226 (36,898)
Increase in Income Taxes Payable .......................................... 469,220 59,851 6,053
Increase (Decrease) in Other Liabilities .................................. 4,504,579 1,630,513 (1,075,163)
------------- ------------- -------------
Net Cash Provided by Operating Activities ............................... 12,070,294 9,560,688 6,698,427
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities ............................... 2,288,510 2,500,940 1,449,362
Maturities of Investment Securities; Available for Sale ................... 163,533,384 121,070,133 55,000,000
Purchases of Investment Securities; Available for Sale .................... (129,539,796) (188,275,593) (123,295,731)
Maturities of Investment Securities; Held to Maturity ..................... 18,552,503 91,768,062 126,756,406)
Purchases of Investment Securities; Held to Maturity ...................... (6,598,000) (12,750,500) (25,673,742)
Loan Disbursements & Repayments, Net ...................................... (72,302,761) 19,157,077 (35,913,818)
Purchases of Premises & Equipment, Net .................................... (3,006,304) (1,449,487) (1,184,547)
Disposition of Other Real Estate Owned .................................... 1,424,500 1,521,730 823,216
Cash & Cash Equivalents Acquired, Net of Cash Disbursement ................ -- -- 15,938,431
------------- ------------- -------------
Net Cash (Used in) Provided by Investing Activities ..................... (25,647,964) 33,542,362 13,899,577
============= ============= =============
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposit Accounts ............................... (16,042,207) 3,066,937 12,997,051
Decrease in Other Borrowings .............................................. -- -- (6,500,000)
Increase (Decrease) in Federal Funds Purchased ............................ 7,200,000 (4,300,000) 4,300,000
Common Stock Sold for Cash ................................................ 110,720 -- 26,469
Dividends Paid to Shareholders ............................................ (4,105,931) (2,973,982) (2,490,014)
Treasury Shares Acquired .................................................. (3,715,713) (13,929,414) --
------------- ------------- -------------
Net Cash (Used in) Provided by Financing Activities .................... (16,553,131) (18,136,459) 8,333,506
------------- ------------- -------------
Net (Decrease) Increase in Cash & Cash Equivalents ...................... (30,130,801) 24,966,591 28,931,510
Cash & Cash Equivalents Beginning of Year ............................ 81,454,797 56,488,206 27,556,696
------------- ------------- -------------
Cash & Cash Equivalents End of Year .................................. $ 51,323,996 $ 81,454,797 $ 56,488,206
============= ============= =============
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest ................................ $ 60,439,478 $ 58,185,987 $ 49,756,316
============= ============= =============
Cash Paid During the Year for:
Interest ................................................................ $ 19,622,537 $ 19,600,304 $ 15,602,404
Income Taxes ............................................................ 7,239,913 5,869,727 4,698,947
------------- ------------- -------------
Total Cash Paid During Year for Interest & Income Taxes ............... $ 26,862,450 $ 25,470,031 $ 20,301,350
============= ============= =============
Non Cash Investing & Financing (loans re-classified as "other real estate
owned," including foreclosures) .............................................. $ 2,292,319 $ 459,381 $ 1,510,346
Issuance of Common Stock ........................................................ -- -- 8,531,198
(Decrease) Increase in Market Value Related to FASB 115 ......................... (407,322) 2,002,357 (819,229)
Decrease (Increase) in Deferred Tax (Liability) Benefit Related to FASB 115 ..... 167,002 (860,944) 375,862
Dividends Declared Not Paid ..................................................... 1,087,827 1,095,562 721,938
Net Assets Acquired From Hamptons Bancshares, Inc. (see footnote 10) ............ -- -- 9,308,631
============= ============= =============
See accompanying notes to consolidated financial statements.
17
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
The accounting and reporting policies of Suffolk Bancorp and its subsidiaries
conform to generally accepted accounting principles and general practices within
the banking industry. The following footnotes describe the most significant of
these policies.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported assets and liabilities
as of the date of the consolidated statements of condition. The same is true of
revenues and expenses reported for the period. Actual results could differ
significantly from those estimates.
(A) Consolidation--The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, The Suffolk County National Bank
(the "Bank") and Island Computer Corporation of New York, Inc. All inter-company
transactions have been eliminated in consolidation.
(B) Investment Securities--The Company reports debt securities and
mortgage-backed securities in one of the following categories: (i) "held to
maturity" (management has the intent and ability to hold to maturity) which are
to be reported at amortized cost; (ii) "trading" (held for current resale) which
are to be reported at fair value, with unrealized gains and losses included in
earnings; and (iii) "available for sale" (all other debt securities and
mortgage-backed securities) which are to be reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. Accordingly, the Company classified all of
its holdings of debt securities and mortgage-backed securities as either "held
to maturity," or "available for sale." At the time a security is purchased, a
determination is made as to the appropriate classification.
On November 15, 1995, the FASB issued a special report titled, "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities, Questions and Answers" ("the Guide"). The Guide
permitted a one-time reassessment and related reclassifications from the held to
maturity category (no later than December 31, 1995) that will not call into
question the intent of the enterprise to hold other debt securities until
maturity in the future. In December 1995, the Bank performed a reassessment of
its investment and mortgage-backed securities portfolio, that resulted in a
reclassification of approximately $16 million of investment securities from held
to maturity into available for sale. The impact upon the Bank's financial
condition resulting from this transfer was not material; also, there was no
impact on the Bank's results from operations resulting from this transfer.
Premiums and discounts on debt and mortgage-backed securities are amortized as
expense and accreted as income over the estimated life of the respected security
using a method which approximates the level-yield method. Gains and losses on
the sales of investment securities are recognized upon realization, using the
specific identification method and shown separately in the consolidated
statements of income.
(C) Loans and Loan Interest Income Recognition--Loans are stated at the
principal amount outstanding. Interest on loans not made on a discounted basis
is credited to income, based upon the principal amount outstanding during the
period. Unearned discounts on installment loans are credited to income using
methods which approximate a level-yield. Recognition of interest income is
discontinued when reasonable doubt exists as to whether interest due can be
collected. Loans generally no longer accrue interest when 90 days past due. When
a loan is placed on non-accrual status, all interest previously accrued in the
current year, but not collected, is reversed against current year interest
income. Any interest accrued in prior years is charged against the allowance for
possible loan losses. Loans and leases are removed from non-accrual status when
they become current as to principal and interest, and when, in the opinion of
management, the loans can be collected in full.
(D) Allowance for Possible Loan Losses--The balance of the Allowance for
Possible Loan Losses is determined by management's estimate of the amount of
financial risk in the loan portfolio and the likelihood of loss. The analysis
also considers the Bank's loan loss experience, and may be adjusted in the
future depending on economic conditions. Additions to the Allowance are made by
charges to expense, and actual losses, net of recoveries, are charged to the
Allowance. Regulatory examiners may require the Bank to add to the allowance
based upon their judgment of information available to them at the time of their
examination
Effective January 1, 1995, the Bank adopted the accounting and disclosure
guidance in Statement of Financial Accounting Standards No. 114, titled
"Accounting by Creditors for Impairment of a Loan." as amended by Statement No.
118, titled "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures." Both pronouncements establish the accounting by creditors for
impairment of certain loans with the latter adding as to how a creditor
recognizes the interest income related to those impaired loans. Pursuant to this
accounting guidance, a valuation allowance is recorded on impaired loans to
reflect the difference, if any, between the loan face and the present value of
projected cash flows, observable fair value or collateral value. This valuation
allowance is reported within the overall allowance for loan losses. Such change
in accounting was not material to the consolidated financial statements.
(E) Premises and Equipment--Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated by the
declining-balance or straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the term of the lease or the estimated life of the asset, whichever is shorter.
(F) Other Real Estate Owned--Property acquired through foreclosure (other real
estate owned or "OREO"), is stated at the lower of cost or fair value less
selling costs. Credit losses arising at the time of the acquisition of property
are charged against the allowance for possible loan losses. Any additional
write-downs to the carrying value of these assets that may be required, as well
as the cost of maintaining and operating these foreclosed properties, are
charged to expense. Additional write-downs are recorded in a valuation reserve
account that is maintained asset by asset.
(G) Excess of Cost Over Fair Value of Net Assets Acquired--The excess of cost
over fair value of net assets acquired (goodwill) is being amortized over ten
years.
(H) Income Taxes--The Company uses an asset and liability approach to accounting
for income taxes. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
18
22
and liabilities. Deferred tax assets are recognized if it is more likely than
not that a future benefit will be realized. It is management's position that no
valuation allowance is necessary against any of the Company's deferred tax
assets.
(I) 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 are amortized
over a period that reflects the long-term nature of pension expense used in
estimating pension costs.
The Company accrues for post-retirement benefits other than pensions by accruing
the cost of providing those benefits to an employee during the years that the
employee serves.
(J) Cash and Cash Equivalents--For purposes of the consolidated statement of
cash flows, cash and due from banks, and federal funds sold are considered to be
cash equivalents. Generally, federal funds are sold for one-day periods.
(K) Treasury Stock--The balance of treasury stock is computed at par value. The
excess cost over par is subtracted from undivided profits.
(L) Late Charges--The Bank recorded late charges on the cash basis in 1995. In
1996, the Bank recorded late charges on the accrual method. Late charges
included in income were approximately $1,237,000 and $424,000, in 1996 and 1995,
respectively.
(M) Reclassification of Prior Year Consolidated Financial Statements--Certain
reclassifications have been made to the prior year's consolidated financial
statements that conform with the current year's presentation.
Note 2--Investment Securities
The amortized cost, estimated fair values, and gross unrealized gains and losses
of the Company's investment securities available for sale and held to maturity
at December 31, 1996 and 1995 were: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Securities 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Gross Gross Estimated Gross Gross
Amortized Fair Unrealized Unrealized Amortized Fair Unrealized Unrealized
Cost Value Gains Losses Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. treasury securities $ 90,484 $ 91,092 $ 631 $23 $120,416 $121,168 $ 752 $ --
U.S. gov't. agency debt 13,389 13,557 168 -- 15,444 15,875 431 --
-------- -------- ------ --- -------- -------- ------ ----
Balance at end of year $103,873 $104,649 $ 799 $23 $135,860 $137,043 $1,183 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
U.S. treasury securities $ 8,019 $ 8,040 $ 21 -- $ 12,053 $ 12,106 $ 76 $ 23
Obligations of states and
political subdivisions 10,170 10,285 115 -- 18,140 18,363 281 58
U.S. govt. agency obligations 11,877 11,957 83 3 14,092 14,344 303 51
Corporate bonds and
other securities 638 638 -- -- 638 638 -- --
-------- -------- ------ --- -------- -------- ------ ----
Balance at end of year $ 30,704 $ 30,920 $ 219 $ 3 $ 44,923 $ 45,451 $ 660 $132
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $134,577 $135,569 $1,018 $26 $180,783 $182,494 $1,843 $132
====================================================================================================================================
U.S. Government Agency Obligations are mortgage-backed securities which
represent participating interests in pools of first mortgage loans. The
amortized cost, maturities and approximate fair value at December 31, 1996 are
as follows: (in thousands)
- ---------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------
U.S.
U.S. Treasury Govt. Agency
Securities Debt
- ---------------------------------------------------------------
Amortized Fair Amortized Fair
Maturity (in years) Cost Value Cost Value
- ---------------------------------------------------------------
Within 1 $ 20,565 $ 20,553
After 1 but within 5 69,919 70,539 $ 4,916 $ 4,960
After 5 but within 10 8,473 8,597
Other Securities (FRB)
- ---------------------------------------------------------------
Total $ 90,484 $ 91,092 $ 13,389 $ 13,557
===============================================================
- --------------------------------------------------------------------------------------------------------------------
.................................Held to Maturity.....................
- --------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Corporate Total
U.S. Treasury State & Political Govt. Agency Bonds & Amortized
Securities Subdivisions Obligations Other Security Cost
- --------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Maturity (in years) Cost Value Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
Within 1 $ 8,019 $ 8,040 $ 7,818 $ 7,847 $ 360 $ 357 $ 36,762
After 1 but within 5 602 625 11,517 11,600 86,954
After 5 but within 10 1,750 1,813 10,223
Other Securities (FRB) $ 638 $ 638 638
- --------------------------------------------------------------------------------------------------------------------
Total $ 8,019 $ 8,040 $ 10,170 $ 10,285 $ 11,877 $ 11,957 $ 638 $ 638 $ 134,577
====================================================================================================================
As a member of the Federal Reserve system, the Bank owns Federal Reserve Bank
Stock with a book value of $638,000. The stock has no maturity and there is no
public market for the investment.
Actual maturities of U.S. Government Agency Obligations will differ from
contractual maturities because the mortgage-loan borrowers have the right to
prepay obligations with or without penalties and because the issuer can call the
security before it is due.
At December 31, 1996 and 1995, investment securities carried at $124,977,000 and
$156,599,000, respectively, were pledged to secure trust deposits and public
funds on deposit. No securities have been sold during the past three years.
19
23
Note 3--Loans
At December 31, 1996 and 1995, loans included the following:
(in thousands)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Commercial financial and agricultural $ 102,270 $ 78,737
Commercial real estate 113,501 99,940
Real estate construction loans 9,499 8,016
Residential mortgages (1st and 2nd liens) 64,093 55,047
Home equity loans 28,974 26,869
Consumer loans 272,747 263,297
Lease finance 98 311
Other loans 1,592 1,778
- --------------------------------------------------------------------------------
592,774 533,995
Unearned discounts (7,778) (18,057)
Allowance for possible loan losses (6,113) (5,923)
- --------------------------------------------------------------------------------
Balance at end of year $ 578,883 $ 510,015
================================================================================
Restructured loans, loans not accruing interest and loans contractually past due
90 days or more with regard to payment of principal and/or interest amounted to
$5,017,000 and $8,187,000 at December 31, 1996 and 1995, respectively. Interest
on loans which have been restructured or are no longer accruing interest would
have amounted to $361,000 during 1996, $415,000 during 1995 and $394,000 during
1994 under the contractual terms of those loans. Interest income recognized on
restructured and non-accrual loans was immaterial for the years 1996, 1995 and
1994.
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
$5,837,000 and $5,575,000 at December 31, 1996 and 1995, respectively. Unused
portions of lines of credit to directors, directly or indirectly, totaled
$5,851,000 and $5,075,000 as of December 31, 1996 and 1995, respectively. New
loans totaling $2,641,000 were granted and payments of $2,379,000 were received
during 1996.
The Company has pledged $14,271,000 of 1--4 family residential mortgages as
collateral against advances from the Federal Reserve Bank as of December 31,
1996.
Note 4--Allowance for Possible Loan Losses
An analysis of the changes in the Allowance for Possible Loan Losses follows:
(in thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year $ 5,923 $ 6,214 $ 4,922
Allowance acquired from Hamptons -- -- 1,678
Provision for possible loan losses 1,120 530 730
Loans charged-off (1,256) (1,184) (1,468)
Recoveries on loans 326 363 352
- --------------------------------------------------------------------------------
Balance at end of year $ 6,113 $ 5,923 $ 6,214
================================================================================
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- -Income Recognition and Disclosures," as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
secured. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
The Bank had previously measured the allowance for loan losses using methods
similar to those prescribed in SFAS No. 114 and SFAS No. 118. As a result of
adopting these statements, no additional allowance for loan losses was required
as of January 1, 1995.
At December 31, 1996 and 1995, respectively, the Bank's recorded investment in
impaired loans and the related valuation allowance calculated under SFAS No. 114
and SFAS No. 118 are as follows: (in thousands)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Recorded investment $1,240 $3,200
Valuation allowance 369 1,200
- --------------------------------------------------------------------------------
This allowance is included in the allowance for loan losses on the statements of
condition.
Note 5--Premises and Equipment
The following table details premises and equipment: (in thousands)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Land $ 3,333 $ 2,490
Premises 7,773 7,535
Furniture, fixtures & equipment 12,939 11,941
Leasehold improvements 536 479
- --------------------------------------------------------------------------------
24,581 22,445
Accumulated depreciation
and amortization (11,380) (10,642)
- --------------------------------------------------------------------------------
Balance at end of year $ 13,201 $ 11,803
================================================================================
Depreciation and amortization charged to operations amounted to $1,608,000,
$2,075,000, and $1,728,000 during 1996, 1995 and 1994, respectively.
Note 6--Short-Term Borrowings
Presented below is information concerning 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 year 1995 and 1994: (dollars in
thousands)
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Daily average outstanding $ 9,823 $ 2,123
Total interest cost 590 81
Average interest rate paid 6.00% 3.80%
Maximum amount outstanding at any-
month-end (March 1995, February 1994) $11,118 $22,840
December 31, balance -- --
Weighted average interest rate
on balances outstanding at December 31 -- --
================================================================================
There were no such borrowings during 1996.
Note 7--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 1996 , 1995 or 1994.
The Company has an Incentive Stock Option Plan ("the Plan") under which 330,000
shares of the Company's common stock are reserved for issuance to key employees.
Options are awarded by a committee appointed by the Board of Directors. The Plan
provides that the option price shall not be less than the fair value of the
common stock on the date the option is granted. All options are exerciseable for
a period of ten years or less. The Plan provides for the grant of stock
appreciation rights which the holder may exercise instead of the underlying
option. When the stock appreciation right is exercised, the underlying option is
canceled. The optionee receives shares of common stock with a fair market value
equal to the excess of the fair value of the shares subject to the option at the
time of exercise (or the portion thereof so exercised) over the aggregate option
price of the shares set forth in the option agreement. The exercise of stock
appreciation rights is treated as the exercise of the underlying option. The
Company has granted
20
24
options on 30,397 shares through December 31, 1996. Options vest after one year
and expire after ten years.
The following table presents the options exercised or expired during each of the
past three years:
- --------------------------------------------------------------------------------
Shares Wtd. Avg. Exercise
- --------------------------------------------------------------------------------
Balance at December 31, 1993 4,615 $13.88
Options granted -- --
Options exercised (1,401) 13.88
Options expired or terminated (3,214) 13.88
- --------------------------------------------------------------------------------
Balance at December 31, 1994 -- --
Options granted -- --
Options exercised -- --
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 1995 -- --
Options granted 13,900 39.00
Options exercised -- --
Options expired or terminated -- --
- --------------------------------------------------------------------------------
Balance at December 31, 1996 13,900 $39.00
================================================================================
All options outstanding at December 31, 1996 have an exercise price of $39 and a
remaining contractual life of ten years. None of these options are currently
exerciseable. The weighted average fair value of the options granted during 1996
was $13.10. The fair value of each option is estimated on the date granted using
the Black-Scholes option pricing model. The following weighted-average
assumptions were used for grants in 1996: risk-free interest rate of 6.3%;
expected dividend yield of 3.5; expected life of ten years; and expected
volatility of 32.2%.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Net Income: As Reported $10,647
Pro Forma 10,540
- --------------------------------------------------------------------------------
Primary EPS: As Reported 3.19
Pro Forma 3.15
- --------------------------------------------------------------------------------
All dividends must conform to applicable statutory requirements. Under 12 USC
56-9, a national bank may not pay a dividend on its common stock if the dividend
would exceed net undivided profits then on hand. Further, under 12 USC 60, a
national bank must obtain prior approval from the Office of the Comptroller of
the Currency ("OCC") to pay dividends on either common or preferred stock that
would exceed the banks net profits for the current year combined with retained
net profits (net profits minus dividends paid during that period) from the prior
two years. At December 31, 1996, approximately $4,357,000 was available for
dividends from the Bank to Suffolk Bancorp without prior approval of the OCC.
On October 23, 1995, the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend distribution of one right per common share. Each right,
if made exerciseable by certain events, entitles the holder to acquire one-half
of a share of common stock for $70, adjustable to prevent dilution. The Rights
expire in 2005 if they are not redeemed before that time. The Plan contains
provisions to protect stockholders from possible, unsolicited attempts to
acquire the Company. In the event of the acquisition by any potential acquirer
of 10% of the outstanding stock, the rights then entitle the holder to purchase
the acquiring company's stock at a 50% discount upon a subsequent merger with
that acquirer. In the event of the acquisition of 20% or more of the Company's
common stock, they entitle the holder to purchase the Company's common stock at
a 50% discount. Following the acquisition of 20% but less than 50% of the common
shares, the Board can exchange one-half of a share of the Company for each valid
right.
Note 8--Income Taxes
The following table presents the provision for income taxes in the consolidated
statements of income which is comprised of the following: (in thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Current: Federal $ 5,684 $ 4,032 $ 3,792
State 1,913 1,510 1,270
- --------------------------------------------------------------------------------
7,597 5,542 5,062
Deferred: Federal 95 336 (413)
State 17 52 56
- --------------------------------------------------------------------------------
112 388 (357)
- --------------------------------------------------------------------------------
Total $ 7,709 $ 5,930 $ 4,705
================================================================================
The total tax expense was less than the amounts computed by applying the Federal
income tax rate because of the following:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax expense
at statutory rates 34% 34% 34%
Tax exempt interest (1%) (3%) (4%)
Amortization of excess cost over
fair value of net assets acquired 1% 1% 1%
State income taxes net of
federal benefit 7% 7% 7%
Other 1% -- (1%)
- --------------------------------------------------------------------------------
Total 42% 39% 37%
================================================================================
The tax effects of temporary differences that create significant deferred-tax
assets and deferred-tax liabilities at December 31, 1996 and 1995, and the
recognition of income and expense for purposes of tax and financial reporting,
resulting in net increases to the Company's net deferred tax asset for the years
ended December 31, 1996 and 1995 are presented below: (in thousands)
- --------------------------------------------------------------------------------
1996 1995 Change
- --------------------------------------------------------------------------------
Deferred tax assets:
Provision for possible
loan losses $2,513 $2,434 $ 79
Depreciation 197 4 193
Post-retirement benefits 390 280 110
Deferred compensation 534 566 (32)
Purchase accounting 605 790 (185)
Other 397 198 199
- --------------------------------------------------------------------------------
Total deferred tax assets
before valuation allowance 4,636 4,272 364
Valuation allowance -- -- --
- --------------------------------------------------------------------------------
Total deferred tax assets
net of valuation allowance 4,636 4,272 364
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Pension 762 648 114
Tax liability from investment
Securities available for sale 318 309 9
Bad debt recapture 161 281 (120)
- --------------------------------------------------------------------------------
Total deferred tax liabilities 1,241 1,238 3
- --------------------------------------------------------------------------------
Net deferred tax asset $3,395 $3,034 $ 361
================================================================================
The Internal Revenue Service has examined and closed their years through tax
year 1990.
21
25
Note 9--Employee Benefits
(A) Retirement Plan--The Company has a non-contributory pension plan available
to all full-time employees who are at least 21 years old and have completed at
least one year of employment. The following tables set forth the status of
Suffolk Bancorp's combined plan as of September 30, 1996 and September 30, 1995,
the time at which the annual valuation of the plan is made:
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations: 1996 1995
- --------------------------------------------------------------------------------
Accumulated benefit obligation $ 7,052,872 $ 6,459,208
- --------------------------------------------------------------------------------
Vested benefit obligation $ 6,986,861 $ 6,394,357
- --------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $ (9,404,786) $(8,743,268)
Plan assets at fair value, primarily
listed stocks and bonds 10,651,834 9,738,873
- --------------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation $ 1,247,048 $ 995,605
Unrecognized net transition assets
being amortized over 17 years (442,304) (496,292)
Unrecognized prior service cost (64,431) (68,410)
Unrecognized net loss 762,181 1,109,736
- --------------------------------------------------------------------------------
Prepaid pension cost included in
other assets $ 1,502,494 $ 1,540,639
================================================================================
Net pension cost for 1996, 1995 & 1994 included the following components:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 667,558 $ 609,669 $ 589,376
Interest cost on projected
benefit obligations 665,768 626,586 587,690
Expected return on plan assets (814,824) (721,316) (676,728)
Net amortization & deferral (49,957) (28,582) (37,457)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 468,545 $ 486,357 $ 462,881
================================================================================
The weighted average discount rate for purposes of determining net periodic
pension cost was 7.75% in 1996 and 1995, and 8% in 1994. The rate of increase in
future compensation levels used in determining these amounts was 5.0% in 1996,
1995 and 1994. The expected long-term rate of return on assets is 8.5% for 1996,
1995 and 1994.
(B) Director's Retirement Income Agreement of the Bank of the Hamptons--On April
11,1994, Suffolk acquired Hamptons Bancshares, Inc., which had a director's
deferred compensation plan. The liability for this plan was approximately
$529,000 and $511,000 on December 31, 1996 and 1995. Interest (about $54,000 in
1996 and $53,000 in 1995) is accrued over the term of the plan. In 1996, the
Bank paid approximately $36,000 to participants.
(C) 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. The rate of
return on the initial deferral was guaranteed. For purposes of financial
reporting, interest (approximately $153,000 in 1996, $183,000 in 1995 and
$100,000 in 1994) at the plan's contractual rate is being accrued on the
deferral amounts over the expected plan term. During 1996, the Company made
payments of approximately $90,000 to participants of the plan.
The Company has purchased life insurance policies on the plan's participants
based upon reasonable actuarial benefit and other financial assumptions where
the present value of the projected cash flows from the insurance proceeds
approximates the present value of the projected cost of the employee benefit.
The Company is the named beneficiary on the policies. Net insurance expense
(income) related to the policies aggregated approximately $37,000, $68,000, and
($11,000) in 1996, 1995 and 1994, respectively.
(D) Post-Retirement Benefits Other Than Pension--The following table sets forth
the post-retirement benefit liability included in other liabilities in the
accompanying consolidated statements of condition as of December 31, 1996 and
1995:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation
(the "APBO"):
Retirees $ (563,326) $ (431,714)
Fully eligible active plan participants (597,744) (617,012)
Other active participants (818,977) (705,169)
- --------------------------------------------------------------------------------
Total APBO $(1,980,047) $(1,753,895)
Unrecognized net loss 370,097 387,913
Unrecognized transition obligation 311,536 332,305
- --------------------------------------------------------------------------------
Post-retirement benefit liability $(1,298,414) $(1,033,677)
================================================================================
Net periodic post-retirement benefit cost (the "net periodic cost") for the
years ended December 31, 1996, 1995, and 1994 includes the following components:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost of benefits earned $138,005 $ 97,007 $ 83,461
Interest cost on liability 132,294 115,200 94,007
Unrecognized loss 20,743 9,417 16,570
Unrecognized service liability 20,769 20,769 20,769
- --------------------------------------------------------------------------------
Net periodic cost $311,811 $242,393 $214,807
================================================================================
The average health-care, cost-trend rate assumption significantly affects the
amounts reported. For example, a 1% increase in this rate would have increased
the accumulated benefit obligation by $295,000 at December 31, 1996, and
increase the net periodic cost by $52,000 for the year. The post-retirement
benefit cost components for 1996 were calculated assuming average health-care,
cost-trend rates going up 9% and decreasing 3% after approximately six years.
Note 10--Acquisition of Hamptons Bancshares, Inc.
On April 11, 1994, Suffolk Bancorp ("Suffolk") acquired Hamptons Bancshares,
Inc. ("Hamptons"). Hamptons' principal asset was The Bank of the Hamptons, which
operated 8 branch locations in eastern Suffolk County. Each share of Hamptons
common stock on that date was entitled to receive 0.6809 shares of Suffolk
common stock or $14.64 in cash. 402,109 shares were issued. An additional 5,536
shares were issued in 1996 which were offset by a cash refund of $110,720 of the
purchase price as the result of an accounting adjustment. This transaction has
been accounted for under the purchase method of accounting and, accordingly, the
Company's consolidated results of operations for 1994 reflect the results of
Hamptons from April 11, 1994. The excess cost over the fair value of net assets
acquired of $2,624,000 and $2,986,000 is shown as an intangible asset on the
statement of condition at December 31, 1996 and 1995, and is being amortized
over ten years.
22
26
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. The Company is contingently liable under standby letters-of-credit
in the amount of $5,481,000 and $5,428,000 at December 31, 1996 and 1995,
respectively. The Company has commitments to make 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 in the amount of $27,474,000 and $23,719,000, and
commercial loans of $10,599,000 and $9,450,000 as of December 31, 1996 and 1995,
respectively.
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 1996, the Company was required to maintain balances with the Federal
Reserve Bank of N.Y. for reserve and clearing requirements. These balances
averaged $7,477,000 in 1996.
Total rental expense for the years ended December 31, 1996, 1995 and 1994
amounted to $491,000, $501,000, and $527,000. respectively.
At December 31, 1996, the Company was obligated under a number of non-cancelable
operating leases for land and buildings used for bank purposes. Minimum annual
rentals, exclusive of taxes and other charges under non-cancelable operating
leases, are summarized as follows: (in thousands)
- --------------------------------------------------------------------------------
Minimum Annual Rentals
- --------------------------------------------------------------------------------
1997 $ 559
1998 435
1999 424
2000 431
2001 and thereafter 2,167
================================================================================
Note 12--Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital requirements that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Comptroller of
the Currency categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.
The Bank's actual capital amounts and ratios are also presented in the following
table: (in thousands)
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Action Provisions
Amount Ratio Amount Ratio Amount Ratio
===================================================================================================================================
As of December 31, 1996
Total Capital (to risk-weighted assets) $75,389 11.68% $51,632 8.0% $64,540 10.0%
Tier 1 Capital (to risk-weighted assets) 69,276 10.73% 25,816 4.0% 38,724 6.0%
Tier 1 Capital (to average assets) 69,276 8.81% 31,453 4.0% 39,308 5.0%
===================================================================================================================================
As of December 31, 1995
Total Capital (to risk-weighted assets) $ 72,284 11.95% $48,397 8.0% $60,496 10.0%
Tier 1 Capital (to risk-weighted assets) 66,361 10.97% 24,199 4.0% 36,298 6.0%
Tier 1 Capital (to average assets) 66,631 8.37% 31,728 4.0% 39,660 5.0%
===================================================================================================================================
23
27
Note 13--Credit Concentrations
The Bank's principal investments are loans, and a portfolio of short and
medium-term debt of the United States Treasury, states and other political
subdivisions, U.S. Government agencies, and corporations.
As of December 31, 1996, consumer loans, net of unearned discounts, comprised
45.3 percent of the Bank's loan portfolio, more than 88 percent of which are
indirect dealer-generated loans secured by automobiles. Most of these loans are
made to residents of the Bank's primary lending area, which is Suffolk County,
New York. Borrowers represent a cross-section of the population and are employed
in a variety of industries. The risk presented by any one loan is 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, not on
any one company, institution, or industry.
Loans secured by real estate represented 36.9 percent of the portfolio, 52.5
percent of that for commercial real estate. Loans of this variety present
somewhat greater risk than consumer loans, particularly in the current economy.
The Company has attempted to minimize the risks of these loans by considering
several factors, including the creditworthiness of the borrower, the location,
condition, value, and business prospects for the security property.
Commercial, financial, and agricultural loans, unsecured or secured by
collateral other than real estate, comprise 17.5 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. The Company obtains, whenever possible, both
personal guarantees of the principal(s), and also cross-guarantees among the
principals' business enterprises.
Note 14--Fair Value of Financial Instruments
The following table presents the carrying amounts and fair values of the Bank's
financial instruments at December 31, 1996 and 1995. SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments," defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale: (in thousands)
- --------------------------------------------------------------------------------
1996 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------
Cash & cash equivalents $ 51,324 $ 51,324 $ 81,455 $ 81,455
Investment securities
available for sale 104,648 104,648 137,043 137,043
Investment securities
held to maturity 30,704 30,920 44,923 45,451
Loans 592,774 588,748 533,995 526,826
Accrued interest receivable 5,222 5,222 5,133 5,133
Deposits 711,018 712,829 727,060 730,098
Accrued interest payable 1,579 1,579 1,830 1,830
Fed funds purchased 7,200 7,200 -- --
================================================================================
Limitations
The following estimates are made at a specific point in time and may be based on
judgments regarding losses expected in the future, risk, and other factors which
are subjective in nature. The methods and assumptions used to produce the fair
value estimates follow.
Short-term Instruments
Short-term financial instruments are valued at the carrying amounts included in
the statements of condition, which are reasonable estimates of fair value due to
the relatively short term of the instruments. This approach applies to cash and
cash equivalents, federal funds purchased, accrued interest receivable,
non-interest bearing demand deposits, N.O.W., money market, and savings
accounts, accrued interest payable, and other borrowings.
Loans
Fair values are estimated for portfolios of loans with similar characteristics.
Loans are segregated by type.
Investment Securities
The fair value of the investment portfolio, including mortgage-backed
securities, was based on quoted market prices or market prices of similar
instruments. The fair value of performing loans was calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest-rate risk of the loan.
Estimated maturity is based on the Bank's history of repayments for each type of
loan, and an estimate of the effect of the current economy.
Fair value for significant non-performing loans is based on recent external
appraisals of collateral, if any. If appraisals are not available, estimated
cash flows are discounted using a rate commensurate with the associated risk.
Assumptions regarding credit risk, cash flows, and discount rates are made using
available market information and specific borrower information.
The carrying amount and fair value of loans were as follows at December 31, 1996
and 1995: (in thousands)
- --------------------------------------------------------------------------------
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Commercial, financial
& agricultural $102,270 $100,565 $ 78,737 $ 77,952
Commercial real estate 113,501 110,578 99,940 99,234
Real estate
construction loans 9,499 9,421 8,016 7,960
Residential mortgages
(1st & 2nd liens) 64,093 63,693 55,047 53,538
Home equity loans 28,974 28,878 26,869 26,886
Consumer loans 272,747 273,923 263,297 259,200
Lease finance 98 98 311 306
Other loans 1,592 1,592 1,778 1,750
- --------------------------------------------------------------------------------
Totals $592,774 $588,748 $533,995 $526,826
================================================================================
Deposit Liabilities
The fair value of certificates of deposit was calculated by discounting cash
flows with applicable origination rates. At December 31, 1996, the fair value of
certificates of deposit of $181,698,000 had a carrying value of $181,241,000. At
December 31, 1995, the fair value of certificates of deposit of $187,922,000 had
a carrying value of $185,636,000.
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
current creditworthiness of the counter-parties.
The estimated fair value of written financial guarantees and letters of credit
is based on fees currently charged for similar agreements. The contractual
amounts of these commitments were $17,838,000 and $23,629,000 at December 31,
1996 and 1995. The fees charged for the commitments were not material in amount.
24
28
Note 15--Suffolk Bancorp (Parent Company Only) Condensed Financial Statements: (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Condensed Statements of Condition as of December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Due From Banks $ 1,610 $ 1,513
Investment in Subsidiaries: SCNB 71,305 68,817
ICC 869 763
Other Assets 71 69
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 73,855 $ 71,162
====================================================================================================================================
Liabilities and Stockholders' Equity
Dividends Payable $ 1,088 $ 1,096
Other Liabilities 17 20
Stockholders' Equity 72,750 70,046
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 73,855 $ 71,162
====================================================================================================================================
Condensed Statements of Income for the Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Income
Dividends From Subsidiary Bank $ 7,972 $ 17,277 $ 2,629
Interest Income -- 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
7,972 17,279 2,637
Expense
Other Expense (Income) 150 229 (17)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Net Income of Subsidiaries 7,822 17,050 2,654
Equity in Undistributed Earnings of Subsidiaries 2,825 (7,961) 5,664
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 10,647 $ 9,089 $ 8,318
====================================================================================================================================
Condensed Statements of Cash Flows for the Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income $ 10,647 $ 9,089 $ 8,318
Less: Equity in Undistributed Earnings of Subsidiaries 2,825 (7,961) 5,664
Other, Net (14) (2) 3,099
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,808 17,048 5,753
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Cash Paid for Acquisition -- -- (3,556)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Investing Activities -- -- (3,556)
Cash Flows From Financing Activities
Issuance of Common Stock 111 -- --
Repurchase of Common Stock (3,716) (13,929) --
Issuance of Stock Under Stock Option Plan -- -- 26
Dividends Paid (4,106) (2,974) (2,490)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Financing Activities (7,711) (16,903) (2,464)
Net Increase (Decrease) in Cash and Cash Equivalents 97 145 (267)
Cash and Cash Equivalents, Beginning of Year 1,513 1,368 1,635
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,610 $ 1,513 $ 1,368
====================================================================================================================================
Note: No income tax provision has been recorded on the books of Suffolk Bancorp
since it files a return consolidated with its subsidiaries.
Note 16--Selected Quarterly Financial Data (Unaudited)
The comparative results for the four quarters of 1996 and 1995 are as follows:
(in thousands of dollars except for share and per-share data)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 14,671 $ 14,993 $ 15,365 $ 15,500 $ 14,754 $ 14,771 $ 14,947 $ 14,840
Interest expense 4,997 4,841 4,795 4,739 4,998 5,051 5,118 5,164
- ------------------------------------------------------------------------------------------------------------------------------------
Net-interest income 9,674 10,152 10,570 10,761 9,756 9,720 9,829 9,676
Provision for possible loan
losses 225 295 300 300 190 115 75 150
- ------------------------------------------------------------------------------------------------------------------------------------
Net-interest income after
provision
for possible loan losses 9,449 9,857 10,270 10,461 9,566 9,605 9,754 9,526
Other income 1,636 1,752 1,948 1,950 1,462 1,607 1,801 1,832
Other expense 6,970 7,252 7,369 7,376 7,656 8,031 7,166 7,282
Provision for income taxes 1,662 1,823 2,066 2,158 1,171 1,150 1,713 1,895
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,453 $ 2,534 $ 2,783 $ 2,877 $ 2,201 $ 2,031 $ 2,676 $ 2,181
====================================================================================================================================
Per-share data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.72 $ 0.75 $ 0.85 $ 0.87 $ 0.58 $ 0.54 $ 0.71 $ 0.60
Cash dividends $ 0.30 $ 0.30 $ 0.30 $ 0.33 $ 0.20 $ 0.20 $ 0.20 $ 0.30
Average shares 3,394,595 3,367,124 3,310,208 3,298,819 3,799,674 3,780,195 3,716,770 3,661,871
====================================================================================================================================
25
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Suffolk Bancorp:
We have audited the accompanying consolidated statements of condition of
Suffolk Bancorp and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements of Suffolk Bancorp and subsidiaries as of December 31,
1994, and for the year then ended, were audited by other auditors whose report,
dated January 23, 1995, expressed an unqualified opinion on those statements
which included an explanatory paragraph that discussed a change in accounting
principle relating to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
January 1, 1994, which was promulgated by the Financial Accounting Standards
Board.
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 financial statements referred to above present
fairly, in all material respects, the financial position of Suffolk Bancorp and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen, LLP
New York, New York
January 15, 1997
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
To the Stockholders and Board of Directors of Suffolk Bancorp:
The management of Suffolk Bancorp is responsible for the preparation and
integrity of the consolidated financial statements and all other information in
this annual report, whether audited or unaudited. The financial statements have
been prepared in accordance with generally accepted accounting principles and,
where necessary, are based on management's best estimates and judgment. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.
Suffolk Bancorp's independent auditors have been engaged to perform an
audit of the consolidated financial statements in accordance with 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 keeps reliable financial
records for preparing financial statements. Internal audits are conducted to
continually evaluate the adequacy and effectiveness of such internal controls,
policies, and procedures.
The examination and audit committee of the Board of Directors, which is
composed entirely of directors who are not employees of Suffolk Bancorp, meets
periodically with the independent auditors, internal auditors, and with
management to discuss audit and internal accounting controls, regulatory audits,
and financial reporting matters.
Edward J. Merz, Victor F. Bozuhoski, Jr.
Chairman, President Executive Vice President
& Chief Executive Officer Chief Financial Officer & Treasurer
Riverhead, New York
January 15, 1997
26
30
DIRECTORS AND OFFICERS
[LOGO] SUFFOLK BANKORP
DIRECTORS
Edward J. Merz
Chairman, President and Chief Executive Officer
Raymond A. Mazguslki
Vice Chairman
Bruce Collins
Retired
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.
John F. Hanley
President & Chief Executive Officer
The Suffolk County National Bank
Hallock Luce 3rd
Director, Lupton & Luce, Inc. (general insurance)
President, Hallup Realty Corp. (real estate)
John J. Raynor
President, John J. Raynor, P.E. & L.S., P.C.
(civil engineering/surveying)
J. Douglas Stark
President, Stark Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering
Greenhouses Inc. (wholesale nursery)
OFFICERS
Edward J. Merz
Chairman, President & Chief Executive Officer
John F. Hanley
Executive Vice President & Chief Administrative Officer
Victor F. Bozuhoski, Jr.,
Executive Vice President, Chief Financial Officer & Treasurer
Douglas Ian Shaw
Vice President & Corporate Secretary
[Photograph]
THE EXECUTIVE TEAM AT SUFFOLK
Victor F. Bozuhoski,Jr. Augustus C. Weaver John F. Hanley
Thomas S. Kohlmann Edward J. Merz
27
31
THE SUFFOLK COUNTY NATIONAL BANK
32
DIRECTORS
Edward J. Merz
Chairman of the Board
Raymond A. Mazgulski
Vice Chairman of the Board
Bruce Collins
Retired
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.
John F. Hanley
President &
Chief Executive Officer
Hallock Luce 3rd
Director,
Lupton & Luce, Inc.
(general insurance)
President,
Hallup Realty Corp.
(real estate)
John J. Raynor
President, John J. Raynor,
P.E. & L.S., P.C. (civil
engineering/surveying firm)
J. Douglas Stark
President, Stark
Mobile Homes, Inc.
Peter Van de Wetering
President, Van de Wetering
Greenhouses, Inc.
(wholesale nursery)
EXECUTIVE OFFICERS
John F. Hanley
President &
Chief Executive Officer
Victor F. Bozuhoski, Jr.
Executive Vice President &
Chief Financial Officer
Thomas S. Kohlmann
Executive Vice President &
Chief Lending Officer
Augustus C. Weaver
Executive Vice President &
Chief Information Officer
CONSUMER LOANS
Jeanne P. Hamilton
Senior Vice President
John Dunleavy
Vice President
COMMERCIAL LOANS
Robert C. Dick
Senior Vice President
Lawrence Milius
Senior Vice President
Peter M. Almasy
Vice President
David T. De Vito
Vice President
Robert T. Ellerkamp
Vice President
Frederick J. Weinfurt
Vice President
Thomas E. Clemens
Vice President
AUDIT
Roy Garbarino, C.P.A.
Auditor
BRANCH ADMINISTRATION
Robert H. Militscher
Senior Vice President &
Branch Administrator
Bohemia Office
Dwight W. Miller
Vice President
Center Moriches Office
Thomas R. Columbus, Sr.
Vice President
Cutchogue Office
Richard J. Noncarrow Vice President
East Hampton Pantigo Office
Katherine M. Sacco
Vice President
East Hampton Village Office
Jill M. James
Assistant Vice President
Hampton Bays Office
John J. Reilly
Vice President
Mattituck Office
Janet V. Stewart
Vice President
Medford Office
Paul E. Vaas
Vice President
Montauk Harbor Office
Montauk Village Office
Susan M. Williams
Assistant Vice President
Port Jefferson Office
Peter A. Poten
Vice President
Riverhead, Ostrander
Avenue Office
Linda C. Zarro
Vice President
Riverhead, Second Street Office
Barbara A. Scesny
Regional Vice President
Anita J. Nigrel
Vice President
Sag Harbor Office
Jane P. Markowski
Assistant Vice President
Southampton Office
Water Mill Office
Jeffrey D. Morch
Regional Vice President
Wading River Office
Miller Place Office
Shoreham Office
William K. Miller
Regional Vice President
West Babylon Office
John M. Giglio
Branch Officer
Westhampton Beach Office
Charles E. Johnson
Vice President
TRUST
Dan A. Cicale
Senior Vice President
& Trust Officer
William C. Araneo
Vice President
Lori E. Thompson
Vice President
COMPTROLLER
J. Gordon Huszagh
Senior Vice President
& Comptroller
David J. Bennett, C.P.A.
Vice President
COMPLIANCE
Louis A. Antoniello
Bank Officer & CRA Officer
CORPORATE SERVICES
Douglas Ian Shaw
Vice President & Secretary
FACILITIES AND SECURITY
William E. Heck, Jr.
Vice President
HUMAN RESOURCES
Lillian M. Spiess
Assistant Vice President
EMPLOYEE DEVELOPMENT
Richard Montenegro
Vice President
MARKETING
Brenda B. Sujecki
Vice President
DATA PROCESSING
Mark J. Drozd
Senior Vice President
OPERATIONS
Dennis F. Orski
Senior Vice President
RESEARCH & DEVELOPMENT
Alexander B. Doroski
Senior Vice President
& Cashier
Suffolk Bancorp and The Suffolk County National Bank are
Equal Opportunity Affirmative Action Employers
28
33
DIRECTORY OF OFFICES AND DEPARTMENTS
Area Code (516)
Telephone FAX
Executive Offices.........................................322 Roanoke Avenue, Riverhead, N.Y. 11901 727-3800 727-3214
Audit ................................................228 East Main St., Port Jefferson, N.Y. 11777 473-3580 473-6221
Bohemia Office..................................3880 Veterans Memorial Highway, Bohemia, N.Y. 11716 585-4477 585-4809
Branch Administration...................................295 North Sea Road, Southampton, N.Y. 11968 287-3138 287-2690
Business and Professional Banking Center..............260 Middle County Road, Smithtown, N.Y. 11787 979-3400 979-3430
Center Moriches Office.................................502 Main Street, Center Moriches, N.Y. 11934 878-8800 878-4431
Commercial Loans .......................................6 West Second Street, Riverhead, N.Y. 11901 727-2701 727-5798
Compliance ...............................................322 Roanoke Avenue, Riverhead, N.Y. 11901 727-5395 727-3214
Comptroller..............................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5270 369-2230
Consumer Loans .........................................244 Old Country Road, Riverhead, N.Y. 11901 727-7277 727-5521
Corporate Services (Investor Relations)...................322 Roanoke Avenue, Riverhead, N.Y. 11901 727-5667 727-3214
Cutchogue Office....................................................Route 25, Cutchogue, N.Y. 11935 734-5050 734-7759
Data Processing...............................................40 Orville Drive, Bohemia, N.Y. 11716 589-5131 589-6329
East Hampton Pantigo Office..............................351 Pantigo Road, East Hampton, N.Y. 11937 324-2000 324-6367
East Hampton Village Office................................100 Park Place, East Hampton, N.Y. 11937 324-3800 324-3863
Employee Development....................................295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-3293
Facilities & Security...................................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
Information Services.....................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5934
Human Resources..........................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5377 727-3170
Lending.................................................6 West Second Street, Riverhead, N.Y. 11901 727-2701 727-5798
Marketing ..............................................295 North Sea Road, Southampton, N.Y. 11968 287-2288 287-2690
Mattituck Office.............................................10900 Main Road, Mattituck, N.Y. 11952 298-9400 298-9188
Medford Office....................................................2799 Rte 112, Medford, N.Y. 11763 758-1500 758-1509
Miller Place Office........................................74 Echo Avenue, Miller Place, N.Y. 11764 474-8400 474-8510
Montauk Harbor Office..........................................West Lake Drive, Montauk, N.Y. 11954 668-4333 668-3643
Montauk Village Office.....................................746 Montauk Highway, Montauk, N.Y. 11954 668-5300 668-1214
Mortgage Loans .........................................244 Old Country Road, Riverhead, N.Y. 11901 727-7277 369-2468
Port Jefferson Harbor Office..........................135 West Broadway, Port Jefferson, N.Y. 11777 474-7200 331-7806
Port Jefferson Village Office......................228 East Main Street, Port Jefferson, N.Y. 11777 473-7700 473-9406
Research & Development...................................206 Griffing Avenue, Riverhead, N.Y. 11901 727-5151 369-5834
Retail Banking..........................................295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-2690
Riverhead, Ostrander Avenue Office.....................1201 Ostrander Avenue, Riverhead, N.Y. 11901 727-6800 727-5095
Riverhead, Second Street Office.........................6 West Second Street, Riverhead, N.Y. 11901 727-2700 727-3210
Sag Harbor Office............................................17 Main Street, Sag Harbor, N.Y. 11963 725-3000 725-4627
Shoreham Office................................................9926 Route 25A, Shoreham, N.Y. 11786 744-4400 744-6743
Southampton Office......................................295 North Sea Road, Southampton, N.Y. 11968 283-3800 287-3293
Trust and Investment Services...........................295 North Sea Road, Southampton, N.Y. 11968 287-3100 287-3296
Wading River Office...........................2065 Wading River-Manor Rd., Wading River, N.Y. 11792 929-6300 929-6799
Water Mill Office.......................................828 Montauk Highway, Water Mill, N.Y. 11976 726-4500 726-7573
Westhampton Beach Office.............................144 Sunset Ave., Westhampton Beach, N.Y. 11978 288-4000 288-9252
West Babylon Office.............................955 Little East Neck Road, West Babylon, N.Y. 11704 669-7300 669-5521