Market Overview

Suffolk Bancorp Reports Third Quarter 2015 Results

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 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.  


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

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