Suffolk Bancorp Reports Third Quarter 2015 Results

 Third Quarter 2015 Highlights

  • Net income increased by 31.7% to $4.9 million versus third quarter 2014  
  • Total loans outstanding increased by 5.6% versus second quarter 2015 and 23.6% versus third quarter 2014  
  • Demand deposits, representing 45% of total deposits at September 30, 2015, increased by 4.5% versus second quarter 2015 and 17.6% versus third quarter 2014    
  • Maintained exceptionally low cost of funds of 0.18% during third quarter 2015  
  • Core operating efficiency ratio improved to 61.8% versus 69.2% in third quarter 2014
  • Tangible book value per share increased by 6.3% to $16.42 at September 30, 2015 versus comparable 2014 date  

RIVERHEAD, N.Y., Oct. 21, 2015 (GLOBE NEWSWIRE) — Suffolk Bancorp (the “Company”) (NASDAQ:SUBK), parent company of Suffolk County National Bank (the “Bank”), today reported net income of $4.9 million, or $0.42 per diluted common share, for the third quarter of 2015 compared to $3.7 million, or $0.32 per diluted common share, a year ago. For the nine months ended September 30, 2015, the Company recorded net income of $14.1 million, or $1.19 per diluted common share, versus $11.2 million, or $0.96 per diluted common share for the comparable 2014 year-to-date period.

The 31.7% increase in third quarter 2015 reported earnings versus the comparable 2014 period resulted from a $1.8 million increase in net interest income and a $568 thousand reduction in total operating expenses.  Partially offsetting these improvements was a $123 thousand reduction in non-interest income and a $100 thousand increase in the provision for loan losses in 2015.

President & CEO Howard C. Bluver stated: “I am pleased to report another excellent quarter. It is gratifying to see the expansion strategies we have consistently articulated for our lending and deposit businesses translate into strong financial performance and accelerating momentum across the board.

“First, our lending businesses continue to perform exceedingly well. Linked-quarter growth in our total loan portfolio was approximately $83 million, from $1.477 billion at June 30, 2015 to $1.560 billion at September 30, 2015, a 5.6% increase. Total loans at the end of the third quarter represented a 24% increase from the comparable quarter a year ago. Even more impressive, third quarter loan growth was net of the sale of approximately $25 million in multifamily loans that was completed in late September, generating a net gain of $370 thousand. As we have previously articulated, the strong loan origination machine we have built as we expand west gives us the ability to take advantage of a deep and attractive market for the kind of high quality multifamily loans we are originating in New York City. This gives us the flexibility to periodically complete strategic sales like the one this quarter in order to generate non-interest income, protect our net interest margin and avoid becoming too concentrated in a single product line. We are also pleased to report that our loan pipeline continues to be robust and we remain optimistic about the prospect for continued strong loan growth for the rest of 2015 and into early 2016.

“This quarter’s results on the lending side clearly show that our core growth strategy of protecting and enhancing our traditional markets on the east end of Long Island, while we simultaneously expand west, is working exactly as envisioned. As the local economy has improved, loan demand has strengthened in our traditional markets. In addition, the loan production offices we opened during the last three years in Melville, Garden City and Long Island City, are all contributing substantially to our results. Because of the success we have had over this period, we are also finding it easier to recruit experienced bankers with established customer relationships in our expansion markets. For all these reasons, we believe we are in the early stages of a proven and successful expansion strategy.

“Second, our deposit businesses had another remarkable quarter, allowing us to fund all of our quarterly loan production through core deposit growth. Total core deposits, consisting of demand, N.O.W., savings and money market accounts, grew approximately $84 million during the quarter, from $1.476 billion at June 30, 2015 to $1.560 billion at September 30, 2015, a 5.7% increase. Total deposits, including time accounts, were $1.796 billion at September 30, 2015 and represented a 13.6% increase from the comparable quarter a year ago. Just as impressive, 45% of the third quarter’s total deposit growth came from increases in non-interest bearing demand deposits, which grew $35 million in the quarter, from $766 million on June 30, 2015 to $801 million on September 30, 2015, a 4.5% increase. Total demand deposits at September 30, 2015 represented a 17.6% increase from the comparable quarter a year ago. We clearly benefitted from a strong summer season in our traditional markets on the east end of Long Island, including the Hamptons, as well as significant deposit generation coming from new lending customers as we expand west. As our western expansion matures, it is also gratifying to see the seasonality in deposit growth traditionally associated with our east end markets become less pronounced.

“The quarterly results on the deposit side continue to prove that the core deposit franchise we have built over 125 years is unique in our marketplace and gives us a significant competitive advantage, particularly in a rising rate environment. At the end of the third quarter, 45% of our total deposits were demand deposits, resulting in an extraordinarily low cost of funds of 18 basis points and an attractive core net interest margin of 3.85%. In addition, core deposits represented 87% of total deposits at September 30, 2015. Our continuing ability to bring in new customer relationships, provide superior customer service and focus on low funding costs is part of our corporate DNA and is something we have benefitted from throughout all interest rate cycles over many decades. We continue to maintain an asset sensitive balance sheet so that, over time, we will benefit from positive earnings leverage as interest rates rise and the yields on our relatively short duration assets grow faster than the costs of our deposit liabilities.”

Mr. Bluver continued: “Third, credit quality continues to be very strong in all categories. Total non-accrual loans at September 30, 2015 were $7.5 million, or 0.48% of total loans, compared to $5.5 million, or 0.37% of total loans at June 30, 2015. However, this slight quarterly increase in total non-accrual loans was largely the result of a single relationship placed on non-accrual that was significantly paid down shortly after the end of the quarter. Accordingly, total non-accrual loans today are $6.0 million, or 0.38% of quarter-end loans. All other key credit metrics remain solid and reflect our steadfast commitment to a strong credit culture. Early delinquencies (30-89 days past due), which we manage aggressively as a harbinger of future credit issues, remain extremely low at $1.0 million, or 0.06% of total loans at September 30, 2015. Given the continuous improvement we have seen in our credit profile, as well as the strengthening economic conditions in our markets, we believe we are well reserved. Our allowance for loan losses at September 30, 2015 was $20.3 million, or 1.30% of total loans and 271% of total non-accrual loans.

“Finally, we continue to be vigilant in controlling operating expenses and improving our efficiency. The successful expansion strategies that have resulted in strong overall financial results during the last three years require significant investment, particularly in attracting the best lending and credit professionals to drive performance. Nevertheless, we have been successful in finding ways to fund these investments by reducing expenses in other areas, a trend clearly reflected in our third quarter results. Total operating expenses in the third quarter were $12.7 million, which is less than the $13.2 million in operating expenses incurred in both the second quarter of 2015 and the comparable quarter a year ago. This improvement in operating leverage, which was accomplished notwithstanding the significant revenue enhancing investments funded during the last year, translated into an improvement in our core efficiency ratio during the third quarter to 61.8%, from 69.2% in the comparable quarter a year ago. We have proven our ability to balance the need for investment to generate revenue with expense saves and we will continue to do this going forward.”

Performance and Other Highlights 

  • Asset Quality – Total non-accrual loans were $7.5 million or 0.48% of loans outstanding at September 30, 2015 versus $13.0 million or 0.96% of loans outstanding at December 31, 2014 and $14.7 million or 1.16% of loans outstanding at September 30, 2014. Total accruing loans delinquent 30 days or more were 0.06% of loans outstanding at September 30, 2015 as compared to 0.10% of loans outstanding at December 31, 2014 and 0.25% of loans outstanding at September 30, 2014. The Company recorded net loan charge-offs of $86 thousand in the third quarter of 2015 versus net loan recoveries of $726 thousand in the second quarter of 2015 and net loan recoveries of $72 thousand in the third quarter of 2014. The allowance for loan losses totaled $20.3 million at September 30, 2015 versus $19.2 million at December 31, 2014 and $18.8 million at September 30, 2014, representing 1.30%, 1.42% and 1.49% of total loans, respectively, at such dates. The allowance for loan losses as a percentage of non-accrual loans was 271%, 148% and 128% at September 30, 2015, December 31, 2014 and September 30, 2014, respectively. The Company held no other real estate owned (“OREO”) during any of the reported periods.
  • Capital Strength – The Company’s capital ratios continue to exceed all regulatory requirements. The Company’s tier 1 leverage ratio was 9.95% at September 30, 2015 versus 10.04% at December 31, 2014 and 10.21% at September 30, 2014. The Company’s total risk-based capital ratio was 13.21% at September 30, 2015 as compared to 13.35% at December 31, 2014 and 14.09% at September 30, 2014. The Company’s tangible common equity to tangible assets ratio (“TCE ratio”) (non-GAAP financial measure) was 9.38% at September 30, 2015 versus 9.50% at December 31, 2014 and 10.07% at September 30, 2014.
  • Core Deposits – Core deposits, consisting of demand, N.O.W., savings and money market accounts, totaled $1.6 billion at September 30, 2015 versus $1.3 billion at December 31, 2014 and $1.4 billion at September 30, 2014. Core deposits represented 87%, 86% and 86% of total deposits at September 30, 2015, December 31, 2014 and September 30, 2014, respectively. Demand deposits were $801 million at September 30, 2015, reflecting increases of 17.2% and 17.6% from $684 million and $681 million at December 31, 2014 and September 30, 2014, respectively. Demand deposits represented 45%, 44% and 43% of total deposits at September 30, 2015, December 31, 2014 and September 30, 2014, respectively.
  • Loans – Loans outstanding at September 30, 2015 increased by $297 million, or 23.6%, to $1.56 billion when compared to September 30, 2014 and increased by $204 million, or 15.1%, when compared to December 31, 2014.
  • Net Interest Margin – Net interest margin was 3.89% in the third quarter of 2015 versus 4.21% in the second quarter of 2015 and 4.00% in the third quarter of 2014. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.85% in the third quarter of 2015 as compared to 3.99% in the second quarter of 2015 and 3.97% in the third quarter of 2014. (See Non-GAAP Disclosure contained herein.) The average cost of funds was 0.18% in the third quarter of 2015 versus 0.18% in the second quarter of 2015 and 0.16% in the third quarter of 2014.
  • Performance Ratios – Return on average assets and return on average common stockholders’ equity were 0.97% and 10.15%, respectively, in the third quarter of 2015 versus 1.06% and 10.88%, respectively, in the second quarter of 2015, and 0.84% and 8.18%, respectively, in the third quarter of 2014.

Earnings Summary for the Quarter Ended September 30, 2015

The Company recorded net income of $4.9 million during the third quarter of 2015 versus $3.7 million in the comparable quarter a year ago. The 31.7% improvement in third quarter 2015 net income resulted from a $1.8 million increase in net interest income and a $568 thousand reduction in total operating expenses in 2015 versus the comparable 2014 period. Partially offsetting these improvements was a $123 thousand reduction in non-interest income and a $100 thousand increase in the provision for loan losses in 2015 versus 2014. The Company’s effective tax rate increased to 27.5% in 2015 from 19.0% a year ago.  

The $1.8 million or 11.8% improvement in third quarter 2015 net interest income resulted from a $220 million (13.4%) increase in average total interest-earning assets. Partially offsetting the earning asset growth was an 11 basis point decline in the Company’s net interest margin to 3.89% in 2015 from 4.00% in 2014. The Company’s third quarter 2015 average total interest-earning asset yield was 4.06% versus 4.14% in the comparable 2014 quarterly period. The decline in the interest-earning asset yield in 2015 resulted from reductions in the average yields on the loan and investment portfolios of 22 and nine basis points, respectively, when compared to the third quarter of 2014.  Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.85% in the third quarter of 2015 versus 3.97% in the third quarter of 2014.  The Company’s average balance sheet mix continued to improve as average loans increased by $292 million (24.0%) versus third quarter 2014 and low-yielding overnight interest-bearing deposits and federal funds sold declined by $30 million (71.3%) during the same period. The average securities portfolio decreased by $45 million to $331 million in the third quarter of 2015 versus the comparable 2014 period.  The average yield on the investment portfolio was 3.62% in the third quarter of 2015 versus 3.71% a year ago. At September 30, 2015, tax-exempt municipal securities, at 37%, made up the largest component of the Company’s investment portfolio. The available for sale securities portfolio had an unrealized pre-tax gain of $5.2 million and the entire securities portfolio had an estimated weighted average life of 4.6 years at September 30, 2015.

The Company’s average cost of total interest-bearing liabilities increased by five basis points to 0.32% in the third quarter of 2015 versus 0.27% in the third quarter of 2014. The Company’s total cost of funds, among the lowest in the industry, increased nominally to 0.18% in the third quarter of 2015 versus 0.16% a year ago. Average core deposits increased $170 million (12.7%) to $1.5 billion during the third quarter of 2015 versus the comparable 2014 period, with average demand deposits representing 44% of third quarter 2015 average total deposits. Total deposits increased by $215 million or 13.6% to $1.8 billion at September 30, 2015 versus September 30, 2014. Core deposit balances, which represented 87% of total deposits at September 30, 2015, grew by $204 million or 15.0% during the same period. Average borrowings increased $41 million during the third quarter of 2015 compared to 2014 and were used, in part, to fund the growth in the Company’s loan portfolio, which increased by $292 million on average during that same period.

Total operating expenses declined by $568 thousand or 4.3% in the third quarter of 2015 versus 2014 principally the result of a $648 thousand reduction in employee compensation and benefits expense in 2015, reflecting lower expense levels for incentive compensation, pension, 401(k) and medical insurance in 2015. The Company’s core operating efficiency ratio improved to 61.8% in the third quarter of 2015 from 69.2% a year ago.

As a result of continued growth in the loan portfolio, the Company recorded a $350 thousand provision for loan losses during the third quarter of 2015. The Company recorded a provision for loan losses of $250 thousand in the third quarter of 2014.

Non-interest income declined by $123 thousand or 4.8% in the third quarter of 2015 versus the comparable 2014 period.  This reduction was due to several factors, most notably reductions in fiduciary fees (down $265 thousand) and service charges on deposits (down $138 thousand). Fiduciary fees declined as a result of the Company’s decision to exit the wealth management market during the fourth quarter of 2014 through the sale of its wealth management business. Deposit service charges declined due to reductions in overdraft fees and demand deposit account analysis charges in 2015. Somewhat offsetting these reductions were higher net gains on the sale of securities available for sale (up $122 thousand) and on the sale of portfolio loans (up $153 thousand).  Excluding the impact of the wealth management sale in 2014 and the net gain on the sale of securities in each period, non-interest income increased by $20 thousand in 2015. 

The Company recorded income tax expense of $1.9 million in the third quarter of 2015 resulting in an effective tax rate of 27.5% versus an income tax expense of $875 thousand and an effective tax rate of 19.0% in the comparable period a year ago. The increase in the 2015 effective tax rate resulted from growth in pre-tax income taxed at the 35% federal rate, coupled with a reduction in tax-exempt income versus the comparable 2014 period.

Earnings Summary for the Nine Months Ended September 30, 2015

The Company recorded net income of $14.1 million during the first nine months of 2015 versus $11.2 million in the comparable 2014 period.  The 25.1% improvement in 2015 net income resulted principally from a $5.3 million increase in net interest income in the first nine months of 2015 coupled with a $747 thousand reduction in total operating expenses and a $150 thousand decline in the provision for loan losses. Partially offsetting these positive factors was a $1.8 million reduction in non-interest income and an increase in the Company’s effective tax rate in 2015.

The $5.3 million or 11.5% improvement in September year-to-date 2015 net interest income resulted from a $205 million increase in average total interest-earning assets, offset in part by a nine basis point contraction of the Company’s net interest margin to 4.02% in 2015 from 4.11% in 2014. The Company’s September year-to-date 2015 average total interest-earning asset yield was 4.19% versus 4.27% in the comparable 2014 year-to-date period. A lower average yield on the Company’s loan portfolio in the first nine months of 2015 versus the comparable 2014 period, down 27 basis points to 4.35%, was the primary contributing factor in the reduction in the interest-earning asset yield.  The Company’s average balance sheet mix continued to improve as average loans increased by $286 million (24.9%) versus September year-to-date 2014 and low-yielding overnight interest-bearing deposits, federal funds sold and securities purchased under agreements to resell declined by $31 million during the same period. The average securities portfolio decreased by $53 million to $346 million in the September year-to-date 2015 period versus 2014.  The average yield on the investment portfolio was 3.74% in the 2015 period versus 3.73% a year ago.

The Company’s average cost of total interest-bearing liabilities increased by two basis points to 0.30% in the first nine months of 2015 versus 0.28% in the comparable 2014 period. The Company’s total cost of funds was 0.17% in the first nine months of 2015 versus 0.16% in 2014. Average core deposits increased by $123 million to $1.4 billion during the first nine months of 2015 versus the comparable 2014 period, with average demand deposits representing 44% of year-to-date 2015 average total deposits. Average total deposits increased by $124 million or 8.1% to $1.7 billion during the September 2015 year-to-date period versus 2014. Average core deposit balances represented 86% of average total deposits during the 2015 period. Average borrowings increased by $76 million during the first nine months of 2015 compared to 2014 and represented 4.5% of total average funding during the September 2015 year-to-date period.

Due to a combination of improved credit metrics coupled with $515 thousand in 2015 year-to-date net recoveries, the Company’s provision for loan losses declined by $150 thousand during the first nine months of 2015 versus the comparable 2014 period.

Total operating expenses declined by $747 thousand in the first nine months of 2015 versus 2014 as the result of reductions in several categories, most notably employee compensation and benefits (down $875 thousand) and consulting and professional services (down $392 thousand). Excluding a $449 thousand branch consolidation expense credit recorded in the 2014 year-to-date period, total operating expenses would have declined by $1.2 million or 3.0% in 2015 when compared to 2014. The Company’s core operating efficiency ratio improved to 64.8% in the first nine months of 2015 from 70.8% a year ago.

Non-interest income declined by $1.8 million or 21.1% in the September 2015 year-to-date period when compared to 2014.  This reduction was due to several factors, most notably reductions in net gain on sale of premises and equipment (down $752 thousand), fiduciary fees (down $824 thousand), service charges on deposit accounts (down $515 thousand) and other service charges, commissions and fees (down $317 thousand). The reduction in net gain on the sale of premises and equipment resulted from gains recorded in 2014 on the sale of two bank properties. Fiduciary fees declined as a result of the Company’s sale of its wealth management business in late 2014. Deposit service charges declined principally due to a reduction in overdraft and demand deposit account analysis fees in 2015. Other service charges, commissions and fees were lower than the comparable 2014 period primarily as the result of a reduction in income from the sale of investment products through the Company’s branch network. Partially offsetting the foregoing reductions in non-interest income were increases in net gain on the sale of securities available for sale (up $331 thousand) and net gain on the sale of portfolio loans (up $351 thousand).

The Company recorded income tax expense of $4.7 million in the year-to-date September 2015 period resulting in an effective tax rate of 25.0% versus an income tax expense of $3.0 million and an effective tax rate of 21.3% in the comparable period a year ago. The increase in the 2015 effective tax rate resulted from growth in pre-tax income taxed at the 35% federal rate, coupled with a reduction in tax-exempt income versus the comparable 2014 period.

Asset Quality

Non-accrual loans totaled $7.5 million or 0.48% of loans outstanding at September 30, 2015 versus $13.0 million or 0.96% of total loans outstanding at December 31, 2014 and $14.7 million or 1.16% of loans outstanding at September 30, 2014. The allowance for loan losses as a percentage of total non-accrual loans amounted to 271%, 148% and 128% at September 30, 2015, December 31, 2014 and September 30, 2014, respectively. Total accruing loans delinquent 30 days or more amounted to $1 million or 0.06% of loans outstanding at September 30, 2015 as compared to $1 million or 0.10% of loans outstanding at December 31, 2014 and $3 million or 0.25% of loans outstanding at September 30, 2014.

Total criticized and classified loans were $29 million at September 30, 2015 versus $40 million at December 31, 2014 and September 30, 2014. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $15 million at September 30, 2015 as compared to $30 million at December 31, 2014 and September 30, 2014. The allowance for loan losses as a percentage of total classified loans was 133%, 64% and 62%, respectively, at the same dates.

At September 30, 2015, the Company had $13 million in troubled debt restructurings (“TDRs”), primarily consisting of commercial and industrial loans, commercial real estate loans and residential mortgages totaling $1 million, $5 million and $5 million, respectively. The Company had TDRs amounting to $20 million at December 31, 2014 and September 30, 2014.

At September 30, 2015, the Company’s allowance for loan losses amounted to $20.3 million or 1.30% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 1.42% and 1.49% at December 31, 2014 and September 30, 2014, respectively. The Company recorded net loan charge-offs of $86 thousand in the third quarter of 2015 versus net loan recoveries of $726 thousand in the second quarter of 2015 and net loan recoveries of $72 thousand in the third quarter of 2014. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, 0.02% for the third quarter of 2015, (0.21%) for the second quarter of 2015 and (0.02%) for the third quarter of 2014.

The Company held no OREO during any of the reported periods.

Capital

Total stockholders’ equity was $197 million at September 30, 2015 compared to $183 million at December 31, 2014 and September 30, 2014. The increase in stockholders’ equity versus September 30, 2014 was due principally to net income recorded during the past twelve months, net of dividends paid. The Company’s return on average common stockholders’ equity was 10.15% and 9.95% for the three and nine months ended September 30, 2015 versus 8.18% and 8.51%, respectively, for the comparable 2014 periods.

The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.78%, 11.77%, 11.77% and 13.01%, respectively, at September 30, 2015. Each of these ratios exceeds the regulatory guidelines for a “well capitalized” institution, the highest regulatory capital category.

The Company’s capital ratios also exceeded all regulatory requirements at September 30, 2015. The Company’s TCE ratio (non-GAAP financial measure) was 9.38% at September 30, 2015 versus 9.50% at December 31, 2014 and 10.07% at September 30, 2014.

Corporate Information

Suffolk Bancorp is a one-bank holding company engaged in the commercial banking business through Suffolk County National Bank, a full service commercial bank headquartered in Riverhead, New York and Suffolk Bancorp’s wholly owned subsidiary. Organized in 1890, the Bank has 27 branch offices in Nassau, Suffolk and Queens Counties, New York. For more information about the Bank and its products and services, please visit www.scnb.com.

Non-GAAP Disclosure

This discussion includes non-GAAP financial measures of the Company’s TCE ratio, tangible common equity, tangible assets, core net income, core FTE net interest income, core FTE net interest margin, core operating expenses, core non-interest income, core FTE non-interest income and core operating efficiency ratio. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.

With respect to the calculations of core net income, core FTE net interest income and core FTE net interest margin for the periods presented in this discussion, reconciliations to the most comparable U.S. GAAP measures are provided in the following tables. Such reconciliations for the TCE ratio, tangible common equity, tangible assets, core operating expenses, core non-interest income, core FTE non-interest income and core operating efficiency ratio are provided elsewhere herein.

  Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands)   2015      2014      2015      2014 
CORE NET INCOME:            
Net income, as reported $   4,923     $   3,738     $   14,050     $   11,229  
               
Less:              
Gain on sale of branch building and parking lot     –         –         –         (746 )
Branch consolidation credits     –         –         –         (449 )
Net non-accrual interest adjustment     (199 )       (117 )       (1,173 )       (789 )
Total adjustments, before income taxes     (199 )       (117 )       (1,173 )       (1,984 )
Adjustment for reported effective income tax rate     (55 )       (22 )       (293 )       (422 )
Total adjustments, after income taxes     (144 )       (95 )       (880 )       (1,562 )
               
Core net income $   4,779     $   3,643     $   13,170     $   9,667  

  

  Three Months Ended September 30,   Nine Months Ended September 30,
($ in thousands)   2015       2014       2015       2014  
CORE NET INTEREST INCOME/MARGIN:                
Net interest income/margin (FTE) $   18,220     3.89 %   $   16,515     4.00 %   $   54,475     4.02 %   $   49,310     4.11 %
                       
Net non-accrual interest adjustment     (199 )   (0.04 %)       (117 )   (0.03 %)       (1,173 )   (0.09 %)       (789 )   (0.07 %)
                       
Core net interest income/margin (FTE) $   18,021     3.85 %   $   16,398     3.97 %   $   53,302     3.93 %   $   48,521     4.04

 

Safe Harbor Statement Pursuant to the Private Securities Litigation Reform Act of 1995

Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These can include remarks about the Company, the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance, and potential future credit experience. These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified, that are beyond the Company’s control and that could cause future results to vary materially from the Company’s historical performance or from current expectations. These remarks may be identified by such forward-looking statements as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Factors that could affect the Company include particularly, but are not limited to: increased capital requirements mandated by the Company’s regulators; the Company’s ability to raise capital; competitive factors, including price competition; changes in interest rates; increases or decreases in retail and commercial economic activity in the Company’s market area; variations in the ability and propensity of consumers and businesses to borrow, repay, or deposit money, or to use other banking and financial services; results of regulatory examinations or changes in law, regulations or regulatory practices; the Company’s ability to attract and retain key management and staff; any failure by the Company to maintain effective internal control over financial reporting; larger-than-expected losses from the sale of assets; and the potential that net charge-offs are higher than expected or for further increases in our provision for loan losses. Further, it could take the Company longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require the Company to change its practices in ways that materially change the results of operations. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. For more information, see the risk factors described in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

Financial Highlights Follow

 CONSOLIDATED STATEMENTS OF CONDITION 
(unaudited, dollars in thousands, except per share data)
           
  September 30, 2015   December 31, 2014   September 30, 2014
ASSETS          
Cash and cash equivalents          
Cash and non-interest-bearing deposits due from banks $   79,049     $   41,140     $   49,618  
Interest-bearing deposits due from banks     18,751         13,376         20,534  
Federal funds sold     –         1,000         1,000  
Total cash and cash equivalents     97,800         55,516         71,152  
Interest-bearing time deposits in other banks     –         10,000         10,000  
Federal Reserve and Federal Home Loan Bank stock and other investments     5,581         8,600         3,200  
Investment securities:          
Available for sale, at fair value     261,232         298,670         308,589  
Held to maturity (fair value $69,402, $64,796 and $63,942, respectively)     66,427         62,270         62,323  
Total investment securities     327,659         360,940         370,912  
Loans     1,559,520         1,355,427         1,262,061  
Allowance for loan losses     20,315         19,200         18,800  
Net loans     1,539,205         1,336,227         1,243,261  
Loans held for sale     745         26,495         –  
Premises and equipment, net     23,144         23,641         23,901  
Bank owned life insurance     46,027         45,109         44,791  
Deferred taxes     14,422         15,714         13,217  
Accrued interest and loan fees receivable     6,349         5,676         6,227  
Goodwill and other intangibles     2,915         2,991         2,987  
Other assets     2,997         4,374         3,394  
  TOTAL ASSETS $   2,066,844     $   1,895,283     $   1,793,042  
           
LIABILITIES & STOCKHOLDERS’ EQUITY          
Demand deposits $   801,212     $   683,634     $   681,306  
Savings, N.O.W. and money market deposits     759,080         653,667         675,037  
Subtotal core deposits     1,560,292         1,337,301         1,356,343  
Time deposits     235,539         218,759         224,426  
Total deposits     1,795,831         1,556,060         1,580,769  
Borrowings     50,000         130,000         10,000  
Unfunded pension liability     5,969         6,303         –  
Capital leases     4,426         4,511         4,538  
Other liabilities     14,078         15,676         14,538  
TOTAL LIABILITIES     1,870,304         1,712,550         1,609,845  
COMMITMENTS AND CONTINGENT LIABILITIES          
STOCKHOLDERS’ EQUITY          
Common stock (par value $2.50; 15,000,000 shares authorized;          
issued 13,956,250, 13,836,508 and 13,833,328 shares, respectively,          
at September 30, 2015, December 31, 2014 and September 30, 2014;          
outstanding 11,790,512, 11,670,770 and 11,667,590 shares, respectively,          
at September 30, 2015, December 31, 2014 and September 30, 2014)     34,890         34,591         34,583  
Surplus     45,656         44,230         43,934  
Retained earnings     127,636         116,169         112,803  
Treasury stock at par (2,165,738 shares)     (5,414 )       (5,414 )       (5,414 )
Accumulated other comprehensive loss, net of tax     (6,228 )       (6,843 )       (2,709 )
TOTAL STOCKHOLDERS’ EQUITY     196,540         182,733         183,197  
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $   2,066,844     $   1,895,283     $   1,793,042  
           

 

CONSOLIDATED STATEMENTS OF INCOME  
(unaudited, dollars in thousands, except per share data)  
                 
  Three Months Ended September 30,   Nine Months Ended September 30,  
    2015       2014       2015       2014    
INTEREST INCOME                
Loans and loan fees $   15,798     $   13,396     $   46,362     $   39,476    
U.S. Government agency obligations     530         553         1,602         1,772    
Obligations of states and political subdivisions     1,114         1,428         3,725         4,422    
Collateralized mortgage obligations     149         198         507         672    
Mortgage-backed securities     441         474         1,329         1,475    
Corporate bonds     96         38         179         215    
Federal funds sold, securities purchased under agreements to                
resell and interest-bearing deposits due from banks     7         35         50         123    
Dividends     71         42         221         115    
Total interest income     18,206         16,164         53,975         48,270    
INTEREST EXPENSE                
Savings, N.O.W. and money market deposits     338         291         906         870    
Time deposits     396         322         1,043         1,004    
Borrowings     94         2         310         7    
Total interest expense     828         615         2,259         1,881    
Net interest income     17,378         15,549         51,716         46,389    
Provision for loan losses     350         250         600         750    
Net interest income after provision for loan losses     17,028         15,299         51,116         45,639    
NON-INTEREST INCOME                
Service charges on deposit accounts     749         887         2,319         2,834    
Other service charges, commissions and fees     759         778         2,032         2,349    
Fiduciary fees     –         265         –         824    
Net gain (loss) on sale of securities available for sale     133         11         319         (12 )  
Net gain on sale of portfolio loans     370         217         568         217    
Net gain on sale of mortgage loans originated for sale     85         51         290         214    
Net gain on sale of premises and equipment     –         –         –         752    
Income from bank owned life insurance     306         316         918         1,036    
Other operating income     25         25         122         106    
Total non-interest income     2,427         2,550         6,568         8,320    
OPERATING EXPENSES                
Employee compensation and benefits     7,980         8,628         25,102         25,977    
Occupancy expense     1,401         1,295         4,236         4,141    
Equipment expense     410         418         1,199         1,301    
Consulting and professional services     609         693         1,491         1,883    
FDIC assessment     226         202         802         737    
Data processing     506         549         1,590         1,681    
Branch consolidation credits     –         –         –         (449 )  
Other operating expenses     1,536         1,451         4,530         4,426    
Total operating expenses     12,668         13,236         38,950         39,697    
Income before income tax expense     6,787         4,613         18,734         14,262    
Income tax expense     1,864         875         4,684         3,033    
                                 
NET INCOME $   4,923     $   3,738     $   14,050     $   11,229    
                 
EARNINGS PER COMMON SHARE – BASIC $   0.42     $   0.32     $   1.20     $   0.97    
EARNINGS PER COMMON SHARE – DILUTED $   0.42     $   0.32     $   1.19     $   0.96    

 

CONSOLIDATED STATEMENTS OF INCOME
QUARTERLY TREND
(unaudited, dollars in thousands, except per share data)
                   
  Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015      2015      2015      2014      2014 
INTEREST INCOME                  
Loans and loan fees $   15,798     $   15,995     $   14,569     $   14,094     $   13,396  
U.S. Government agency obligations     530         531         541         548         553  
Obligations of states and political subdivisions     1,114         1,276         1,335         1,390         1,428  
Collateralized mortgage obligations     149         176         182         188         198  
Mortgage-backed securities     441         443         445         461         474  
Corporate bonds     96         45         38         38         38  
Federal funds sold, securities purchased under agreements to                  
resell and interest-bearing deposits due from banks     7         20         23         27         35  
Dividends     71         90         60         37         42  
Total interest income     18,206         18,576         17,193         16,783         16,164  
INTEREST EXPENSE                  
Savings, N.O.W. and money market deposits     338         294         274         292         291  
Time deposits     396         353         294         305         322  
Borrowings     94         108         108         41         2  
Total interest expense     828         755         676         638         615  
Net interest income     17,378         17,821         16,517         16,145         15,549  
Provision for loan losses     350         –         250         250         250  
Net interest income after provision for loan losses     17,028         17,821         16,267         15,895         15,299  
NON-INTEREST INCOME                  
Service charges on deposit accounts     749         823         747         847         887  
Other service charges, commissions and fees     759         680         593         735         778  
Fiduciary fees     –         –         –         199         265  
Net gain on sale of securities available for sale     133         160         26         31         11  
Net gain on sale of portfolio loans     370         –         198         –         217  
Net gain on sale of mortgage loans originated for sale     85         61         144         69         51  
Income from bank owned life insurance     306         303         309         319         316  
Other operating income     25         23         74         380         25  
Total non-interest income     2,427         2,050         2,091         2,580         2,550  
OPERATING EXPENSES                  
Employee compensation and benefits     7,980         8,516         8,606         8,583         8,628  
Occupancy expense     1,401         1,373         1,462         1,394         1,295  
Equipment expense     410         404         385         429         418  
Consulting and professional services     609         544         338         743         693  
FDIC assessment     226         286         290         294         202  
Data processing     506         514         570         523         549  
Other operating expenses     1,536         1,537         1,457         1,756         1,451  
Total operating expenses     12,668         13,174         13,108         13,722         13,236  
Income before income tax expense     6,787         6,697         5,250         4,753         4,613  
Income tax expense     1,864         1,579         1,241         687         875  
                                       
NET INCOME $   4,923     $   5,118     $   4,009     $   4,066     $   3,738  
EARNINGS PER COMMON SHARE – BASIC $   0.42     $   0.44     $   0.34     $   0.35     $   0.32  
EARNINGS PER COMMON SHARE – DILUTED $   0.42     $   0.43     $   0.34     $   0.35     $   0.32  

STATISTICAL SUMMARY  
(unaudited, dollars in thousands, except per share data)  
                 
  Three Months Ended September 30,   Nine Months Ended September 30,  
    2015      2014      2015      2014   
EARNINGS:                
Earnings per common share – diluted $ 0.42     $ 0.32     $ 1.19     $ 0.96    
Net income   4,923       3,738       14,050       11,229    
Net interest income   17,378       15,549       51,716       46,389    
Cash dividends per common share   0.10       0.06       0.22       0.06    
AVERAGE BALANCES:                
Total assets $ 2,013,119     $ 1,770,514     $ 1,952,270     $ 1,733,988    
Loans and performing loans held for sale   1,511,936       1,219,508       1,437,639       1,151,260    
Investment securities   330,891       376,097       345,958       399,261    
Interest-earning assets   1,860,118       1,640,573       1,809,579       1,604,249    
Demand deposits   779,215       673,441       723,650       644,042    
Core deposits (1)   1,512,580       1,342,291       1,431,436       1,308,428    
Total deposits   1,754,007       1,570,498       1,661,647       1,537,313    
Borrowings   42,783       1,957       78,464       2,619    
Stockholders’ equity   192,493       181,241       188,708       176,464    
FINANCIAL PERFORMANCE RATIOS:                
Return on average assets   0.97 %     0.84 %     0.96 %     0.87 %  
Return on average stockholders’ equity   10.15 %     8.18 %     9.95 %     8.51 %  
Average loans/average deposits   86.20 %     77.65 %     86.52 %     74.89 %  
Average core deposits/average deposits   86.24 %     85.47 %     86.15 %     85.11 %  
Average demand deposits/average deposits   44.42 %     42.88 %     43.55 %     41.89 %  
Net interest margin (FTE)   3.89 %     4.00 %     4.02 %     4.11 %  
Operating efficiency ratio (2)   61.16 %     68.78 %     63.51 %     68.13 %  
Core operating efficiency ratio (3)   61.75 %     69.20 %     64.75 %     70.77 %  
                 
(1) Demand, savings, N.O.W. and money market deposits.                
(2) The operating efficiency ratio is calculated by dividing operating expenses, excluding net gains and losses on sales and writedowns of OREO, by the sum of fully taxable equivalent (“FTE”) net interest income and non-interest income, excluding net gains and losses on bulk sales of loans and sales of available for sale securities.  
(3) The core operating efficiency ratio is calculated by making certain adjustments to the operating efficiency ratio calculation. The core operating efficiency ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate core operating efficiency. Since there is no authoritative requirement to calculate this ratio, our ratio is not necessarily comparable to similar efficiency measures disclosed or used by other companies in the financial services industry. The core operating efficiency ratio is a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. The reconciliation of core FTE net interest income to FTE net interest income is provided elsewhere herein. With respect to the calculation of the actual unaudited core operating efficiency ratio as of the reported periods, the reconciliation of core operating expenses to U.S. GAAP total operating expenses and core non-interest income to U.S. GAAP total non-interest income and the calculation of the core operating efficiency ratio are set forth below:  
Core operating expenses:                
Total operating expenses $ 12,668     $ 13,236     $ 38,950     $ 39,697    
Adjust for branch consolidation credits                     449    
Core operating expenses   12,668       13,236       38,950       40,146    
                 
Core non-interest income:                
Total non-interest income   2,427       2,550       6,568       8,320    
Adjust for gain on sale of branch building and parking lot                     (746 )  
Core non-interest income   2,427       2,550       6,568       7,574    
Adjust for tax-equivalent basis   200       190       600       622    
Core FTE non-interest income   2,627       2,740       7,168       8,196    
                 
Core operating efficiency ratio:                
Core operating expenses   12,668       13,236       38,950       40,146    
Core FTE net interest income   18,021       16,398       53,302       48,521    
Core FTE non-interest income   2,627       2,740       7,168       8,196    
Less net (gain) loss on sale of securities available for sale   (133 )     (11 )     (319 )     12    
Total FTE revenue   20,515       19,127       60,151       56,729    
Core operating expenses/total FTE revenue   61.75 %     69.20 %     64.75 %     70.77 %  

STATISTICAL SUMMARY (continued)  
(unaudited, dollars in thousands)  
                     
RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:      
                     
      Three Months Ended September 30,   Nine Months Ended September 30,  
        2015      2014      2015      2014   
                     
Weighted average common shares outstanding         11,674,697         11,586,564         11,636,155         11,578,350    
Weighted average unvested restricted shares         111,034         74,980         106,921         33,440    
Weighted average shares for basic earnings per share       11,785,731         11,661,544         11,743,076         11,611,790    
Additional diluted shares:                    
Stock options         77,568         54,742         74,823         56,201    
Weighted average shares for diluted earnings per share       11,863,299         11,716,286         11,817,899         11,667,991    
                     
CAPITAL RATIOS:                    
  September 30,   June 30,   March 31,   December 31,   September 30,  
    2015      2015      2015      2014      2014   
Suffolk Bancorp:                    
Tier 1 leverage ratio   9.95 %     10.10 %     10.13 %     10.04 %     10.21 %  
Common equity tier 1 risk-based capital ratio   11.98 %     12.01 %     12.52 %   N/A   N/A  
Tier 1 risk-based capital ratio   11.98 %     12.01 %     12.52 %     12.10 %     12.84 %  
Total risk-based capital ratio   13.21 %     13.26 %     13.77 %     13.35 %     14.09 %  
Tangible common equity ratio (1)   9.38 %     9.43 %     9.77 %     9.50 %     10.07 %  
Total stockholders’ equity/total assets (2)   9.51 %     9.57 %     9.91 %     9.64 %     10.22 %  
                     
Suffolk County National Bank:                    
Tier 1 leverage ratio   9.78 %     9.95 %     10.02 %     9.96 %     10.11 %  
Common equity tier 1 risk-based capital ratio   11.77 %     11.83 %     12.38 %   N/A   N/A  
Tier 1 risk-based capital ratio   11.77 %     11.83 %     12.38 %     12.00 %     12.72 %  
Total risk-based capital ratio   13.01 %     13.08 %     13.63 %     13.25 %     13.97 %  
Tangible common equity ratio (1)   9.22 %     9.29 %     9.66 %     9.40 %     9.97 %  
Total stockholders’ equity/total assets (2)   9.34 %     9.42 %     9.80 %     9.55 %     10.12 %  
                     
(1) The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The TCE ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actual unaudited TCE ratios as of September 30, 2015, reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets are set forth below:  
Suffolk Bancorp:                    
Total stockholders’ equity $   196,540         Total assets   $   2,066,844       9.51 %  
Less: intangible assets     (2,915 )       Less: intangible assets     (2,915 )      
Tangible common equity $   193,625         Tangible assets   $   2,063,929       9.38 %  
                     
Suffolk County National Bank:                    
Total stockholders’ equity $   193,079         Total assets   $   2,066,478       9.34 %  
Less: intangible assets     (2,915 )       Less: intangible assets     (2,915 )      
Tangible common equity $   190,164         Tangible assets   $   2,063,563       9.22 %  
                     
(2) The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP tangible common  
equity ratio presented herein.                    

 

STATISTICAL SUMMARY (continued)
(unaudited, dollars in thousands, except per share data)
                   
  Periods Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015      2015      2015      2014      2014 
                   
LOAN DISTRIBUTION (1):                  
Commercial and industrial $   181,116     $   196,881     $   178,812     $   177,813     $   180,399  
Commercial real estate     648,132         598,866         579,873         560,524         512,341  
Multifamily     392,921         361,309         322,229         309,666         274,352  
Mixed use commercial     64,381         50,372         35,333         34,806         27,476  
Real estate construction     32,896         31,628         24,608         26,206         21,615  
Residential mortgages     186,545         182,828         184,977         187,828         185,856  
Home equity     46,990         48,298         49,440         50,982         52,001  
Consumer     6,539         6,444         6,888         7,602         8,021  
Total loans $   1,559,520     $   1,476,626     $   1,382,160     $   1,355,427     $   1,262,061  
Sequential quarter growth rate   5.61 %     6.83 %     1.97 %     7.40 %     5.57 %
Period-end loans/deposits ratio   86.84 %     85.93 %     86.84 %     87.11 %     79.84 %
                   
FUNDING DISTRIBUTION:                  
Demand $   801,212     $   766,444     $   682,593     $   683,634     $   681,306  
N.O.W.     123,553         130,583         131,934         121,046         115,846  
Savings     326,711         310,055         312,101         298,653         302,470  
Money market     308,816         268,812         241,856         233,968         256,721  
Total core deposits     1,560,292         1,475,894         1,368,484         1,337,301         1,356,343  
Time     235,539         242,500         223,188         218,759         224,426  
Total deposits     1,795,831         1,718,394         1,591,672         1,556,060         1,580,769  
Borrowings     50,000         65,000         90,000         130,000         10,000  
Total funding sources $   1,845,831     $   1,783,394     $   1,681,672     $   1,686,060     $   1,590,769  
Sequential quarter growth rate – total deposits   4.51 %     7.96 %     2.29 %     (1.56 %)     0.80 %
Period-end core deposits/total deposits ratio   86.88 %     85.89 %     85.98 %     85.94 %     85.80 %
Period-end demand deposits/total deposits ratio   44.62 %     44.60 %     42.89 %     43.93 %     43.10 %
Cost of funds for the quarter   0.18 %     0.18 %     0.16 %     0.15 %     0.16 %
                   
                   
EQUITY:                  
Common shares outstanding     11,790,512         11,779,470         11,725,652         11,670,770         11,667,590  
Stockholders’ equity $   196,540     $   191,151     $   187,560     $   182,733     $   183,197  
Book value per common share     16.67         16.23         16.00         15.66         15.70  
Tangible common equity     193,625         188,159         184,517         179,742         180,210  
Tangible book value per common share     16.42         15.97         15.74         15.40         15.45  
                   
                   
(1) Excluding loans held for sale.                  

  

ASSET QUALITY ANALYSIS  
(unaudited, dollars in thousands)  
                     
  Three Months Ended  
  September 30,   June 30,   March 31,   December 31,   September 30,  
    2015      2015      2015      2014      2014   
Non-performing assets (1):                    
Non-accrual loans:                    
Commercial and industrial $   3,662     $   1,785     $   3,035     $   4,060     $   4,946    
Commercial real estate     1,746         1,759         6,647         6,556         6,650    
Residential mortgages     1,424         1,465         2,074         2,020         2,457    
Home equity     548         355         414         303         557    
Consumer     121         165         122         42         44    
Total non-accrual loans     7,501         5,529         12,292         12,981         14,654    
Loans 90 days or more past due and still accruing     –         –         –         –         –    
Total non-performing loans     7,501         5,529         12,292         12,981         14,654    
Non-accrual loans held for sale     –         –         –         –         –    
OREO     –         –         –         –         –    
Total non-performing assets $   7,501     $   5,529     $   12,292     $   12,981     $   14,654    
Total non-accrual loans/total loans (2)   0.48 %     0.37 %     0.89 %     0.96 %     1.16 %  
Total non-performing loans/total loans (2)   0.48 %     0.37 %     0.89 %     0.96 %     1.16 %  
Total non-performing assets/total assets   0.36 %     0.28 %     0.65 %     0.68 %     0.82 %  
                     
Troubled debt restructurings (“TDRs”) (2):                    
Total TDRs $   12,560     $   12,932     $   18,741     $   19,673     $   19,677    
Performing TDRs     10,172         10,091         9,418         9,380         8,194    
                     
Activity in the allowance for loan losses:                    
Balance at beginning of period $   20,051     $   19,325     $   19,200     $   18,800     $   18,478    
Less: charge-offs     253         9         493         22         119    
Recoveries     167         735         368         172         191    
Provision for loan losses     350         –         250         250         250    
Balance at end of period $   20,315     $   20,051     $   19,325     $   19,200     $   18,800    
Allowance for loan losses/non-accrual loans (1) (2)   271 %     363 %     157 %     148 %     128 %  
Allowance for loan losses/non-performing loans (1) (2)   271 %     363 %     157 %     148 %     128 %  
Allowance for loan losses/total loans (1) (2)   1.30 %     1.36 %     1.40 %     1.42 %     1.49 %  
                     
Net charge-offs (recoveries):                    
Commercial and industrial $   114     $   (693 )   $   149     $   (133 )   $   (56 )  
Commercial real estate     (10 )       (11 )       (7 )       (11 )       (11 )  
Residential mortgages     (4 )       (16 )       (11 )       (4 )       (4 )  
Home equity     (10 )       (5 )       (2 )       (2 )       (3 )  
Consumer     (4 )       (1 )       (4 )       –         2    
Total net charge-offs (recoveries) $   86     $   (726 )   $   125     $   (150 )   $   (72 )  
Net charge-offs (recoveries) (annualized)/average loans   0.02 %     (0.21 %)     0.04 %     (0.05 %)     (0.02 %)  
                     
Delinquencies and non-accrual loans                    
as a % of total loans (1):                    
Loans 30 – 59 days past due   0.05 %     0.11 %     0.05 %     0.07 %     0.22 %  
Loans 60 – 89 days past due   0.01 %     0.20 %     0.03 %     0.03 %     0.03 %  
Loans 90 days or more past due and still accruing     –         –         –         –         –    
Total accruing past due loans   0.06 %     0.31 %     0.08 %     0.10 %     0.25 %  
Non-accrual loans   0.48 %     0.37 %     0.89 %     0.96 %     1.16 %  
Total delinquent and non-accrual loans   0.54 %     0.68 %     0.97 %     1.06 %     1.41 %  
                     
(1) At period end.                    
(2) Excluding loans held for sale.                    

 

NET INTEREST INCOME ANALYSIS  
For the Three Months Ended September 30, 2015 and 2014  
(unaudited, dollars in thousands)    
                   
  2015   2014    
   Average    Average    Average    Average    
   Balance   Interest  Yield/Cost    Balance   Interest  Yield/Cost    
Assets:                  
Interest-earning assets:                  
Investment securities (1) $   330,891   $   3,022   3.62 % $   376,097   $   3,521   3.71 %  
Federal Reserve and Federal Home Loan Bank stock                  
and other investments     5,251       71     5.36       2,990       42   5.57    
Federal funds sold and interest-bearing                  
deposits due from banks     12,040       7   0.23       41,978       35   0.33    
Loans and performing loans held for sale (2)     1,511,936       15,948   4.18       1,219,508       13,532   4.40    
Total interest-earning assets     1,860,118   $   19,048   4.06 %     1,640,573   $   17,130   4.14 %  
Non-interest-earning assets     153,001             129,941          
Total assets $   2,013,119         $   1,770,514          
                   
Liabilities and stockholders’ equity:                  
Interest-bearing liabilities:                  
Savings, N.O.W. and money market deposits $   733,365   $   338   0.18 % $   668,850   $   291   0.17 %  
Time deposits     241,427       396   0.65       228,207       322   0.56    
Total savings and time deposits     974,792       734   0.30       897,057       613   0.27    
Borrowings     42,783       94     0.88       1,957       2     0.37    
Total interest-bearing liabilities     1,017,575       828   0.32       899,014       615   0.27    
Demand deposits     779,215             673,441          
Other liabilities     23,836             16,818          
Total liabilities     1,820,626             1,589,273          
Stockholders’ equity     192,493             181,241          
Total liabilities and stockholders’ equity $   2,013,119         $   1,770,514          
Total cost of funds     0.18 %     0.16 %  
Net interest rate spread     3.74 %     3.87 %  
Net interest income/margin       18,220   3.89 %       16,515   4.00 %  
Less tax-equivalent basis adjustment       (842 )           (966 )      
Net interest income   $   17,378         $   15,549        
                   
(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $692 and $830 in 2015 and 2014, respectively.    
(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $150 and $136 in 2015 and 2014, respectively.      

 

NET INTEREST INCOME ANALYSIS
For the Nine Months Ended September 30, 2015 and 2014
(unaudited, dollars in thousands)  
                 
  2015   2014  
   Average    Average    Average    Average  
   Balance   Interest  Yield/Cost    Balance   Interest  Yield/Cost  
Assets:                
Interest-earning assets:                
Investment securities (1) $   345,958   $   9,669   3.74 % $   399,261   $   11,129   3.73 %
Federal Reserve and Federal Home Loan Bank stock                
and other investments     6,609       221     4.47       3,099       115   4.96  
Federal funds sold, securities purchased under agreements to              
resell and interest-bearing deposits due from banks     19,373       50   0.35       50,629       123   0.32  
Loans and performing loans held for sale (2)     1,437,639       46,794   4.35       1,151,260       39,824   4.62  
Total interest-earning assets     1,809,579   $   56,734   4.19 %     1,604,249   $   51,191   4.27 %
Non-interest-earning assets     142,691             129,739        
Total assets $   1,952,270         $   1,733,988        
                 
Liabilities and stockholders’ equity:                
Interest-bearing liabilities:                
Savings, N.O.W. and money market deposits $   707,786   $   906   0.17 % $   664,386   $   870   0.18 %
Time deposits     230,211       1,043   0.61       228,885       1,004   0.59  
Total savings and time deposits     937,997       1,949   0.28       893,271       1,874   0.28  
Borrowings     78,464       310     0.53       2,619       7     0.36  
Total interest-bearing liabilities     1,016,461       2,259   0.30       895,890       1,881   0.28  
Demand deposits     723,650             644,042        
Other liabilities     23,451             17,592        
Total liabilities     1,763,562             1,557,524        
Stockholders’ equity     188,708             176,464        
Total liabilities and stockholders’ equity $   1,952,270         $   1,733,988        
Total cost of funds     0.17 %     0.16 %
Net interest rate spread     3.89 %     3.99 %
Net interest income/margin       54,475   4.02 %       49,310   4.11 %
Less tax-equivalent basis adjustment       (2,759 )           (2,921 )    
Net interest income   $   51,716         $   46,389      
                 
(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $2,327 and $2,573 in 2015 and 2014, respectively.  
(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $432 and $348 in 2015 and 2014, respectively.    

CONTACT: Investor and Press Contact: Brian K. Finneran
Executive Vice President &
Chief Financial Officer
(631) 208-2400

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