Suffolk Bancorp (the “Company”) (NYSE:SCNB), parent company of Suffolk County National Bank (the “Bank”), today reported net income of $5.8 million, or $0.48 per diluted common share, for the second quarter of 2016 compared to $5.1 million, or $0.43 per diluted common share, a year ago. For the six months ended June 30, 2016, the Company recorded net income of $10.6 million, or $0.89 per diluted common share, versus $9.1 million, or $0.77 per diluted common share for the comparable 2015 year-to-date period.

The 13.0% increase in second quarter 2016 earnings versus the comparable 2015 period resulted principally from a $1.2 million increase in net interest income coupled with a $191 thousand increase in non-interest income. Partially offsetting these improvements was a $145 thousand increase in total operating expenses and a higher effective tax rate (27.2% versus 23.6%) in 2016 when compared to the second quarter of 2015. The Company did not record a provision for loan losses in either period.

President & CEO Howard C. Bluver stated: “I am very pleased to report an outstanding second quarter. While the big news during the quarter was the announcement of a definitive merger agreement with People’s United Financial, it is gratifying to see that our continuing Company-wide focus on high quality execution resulted in strong financial performance across the board. We look forward to leveraging the strengths of our combined institutions to create additional value for all of our current and future stakeholders.

“First, our deposit businesses had a very strong second quarter. Total deposits grew approximately $79 million during the quarter, from $1.87 billion at March 31, 2016 to $1.95 billion at June 30, 2016, a 4.2% increase. Total deposits at June 30, 2016 increased 13.4% from the comparable quarter a year ago. However, the truly remarkable part of this growth story is that 92% of the second quarter’s deposit growth came from increases in non-interest bearing demand deposits, which grew approximately $72 million during the quarter, from $791 million at March 31, 2016 to $863 million at June 30, 2016, a 9.2% increase. Total demand deposits increased 12.6% from the comparable quarter a year ago. We are clearly benefitting from a robust start to the summer season in our traditional markets on the east end of Long Island, including the Hamptons, as well as significant deposit generation coming from our expansion markets in Nassau County and New York City as the offices we opened in those markets over the last three years continue to mature.

“The quarterly results on the deposit side support our firmly held view that the core deposit franchise we have built over 126 years is unique in our marketplace and gives us a significant competitive advantage. At the end of the second quarter, 44% of our total deposits were demand deposits, resulting in an extraordinarily low cost of funds of 20 basis points and an attractive net interest margin and core net interest margin of 3.87% and 3.86%, respectively. In addition, core deposits, consisting of demand, N.O.W., savings and money market funds, represented 88% of total deposits at June 30, 2016. Our laser-like focus on long-term customer relationships, superior service levels and low funding costs is an inherent part of our culture and is something we have benefitted from throughout all interest rate cycles over many decades. Our community-oriented culture and devotion to the highest levels of customer service also align perfectly with People’s United.

“Second, our lending businesses continue to perform well and are delivering high quality loan growth. While our total loan portfolio decreased $18.2 million on a linked-quarter basis, that was solely due to the fact that we sold approximately $48 million in portfolio multifamily loans during the quarter, generating a net gain of $457 thousand. Without such sales, linked-quarter growth in total loans would have been approximately $30 million, an increase of 1.7%. As we have previously articulated, the robust market for the kind of high quality multifamily loans we have originated provides us with the flexibility to periodically complete these types of strategic sales. This allows us to generate non-interest income, protect our net interest margin and address market and regulatory concerns regarding commercial real estate loan concentration levels. Going forward, we do not anticipate any additional loan sales this year. Notwithstanding the loan sales completed this quarter, total loans at June 30, 2016 were $253 million higher compared to June 30, 2015, representing a 17.2% year over year increase.

“I am also pleased to report that efforts to further diversify our loan portfolio are beginning to bear fruit. In this regard, our commercial and industrial (“C&I”) portfolio increased approximately $21 million on a linked-quarter basis, an increase of 10.6%. We expect this trend to continue, as several relationship managers we brought on in the last few months with experience in C&I lending continue to build their books of business. In addition, with respect to commercial real estate lending, we have spent the last few months implementing enhanced risk management processes in order to remain compliant with applicable regulatory guidance. As a result, we anticipate re-entering certain commercial real estate markets that we backed away from earlier this year, although we have no current plans to re-enter the multifamily lending markets in New York City.

“Third, credit quality continues to be strong in all categories. Total non-accrual loans at June 30, 2016 were $6.9 million, or 0.40% of total loans, compared to $7.0 million, or 0.40% of total loans, at March 31, 2016. All other key credit metrics remain solid and reflect our steadfast commitment to a strong and highly disciplined credit culture. Early delinquencies (30-89 days past due), which we manage aggressively as a harbinger of future credit issues, remain extremely low at $1.4 million, or 0.08% of total loans, at June 30, 2016. We also had net recoveries this quarter of $35 thousand. Given the continuous improvement we have seen in our credit profile, we believe we are well reserved. Our allowance for loan losses at June 30, 2016 was $21 million, or 1.21% of total loans and 304% of total non-accrual loans.

“Finally, we continue to be vigilant in controlling operating expenses and improving our efficiency. Total operating expenses in the second quarter were $13.3 million, which is only slightly higher than the $13.2 million in total operating expenses incurred in both the first quarter this year and the comparable period in 2015, notwithstanding the significant increase in revenue experienced this quarter compared to both prior periods. This improvement in operating leverage translated into an improvement in our operating efficiency ratio during the second quarter to 59.8%, from 61.4% in the first quarter and 63.2% in the comparable quarter a year ago. We also generated in the second quarter an ROA of 1.05% and an ROE of 11.23%. We have proven our ability to balance the need for investment to generate revenue with expense saves in other areas.”

Performance and Other Highlights

  • Asset Quality – Total non-accrual loans were $6.9 million or 0.40% of loans outstanding at June 30, 2016 versus $5.5 million or 0.33% of loans outstanding at December 31, 2015 and $5.5 million or 0.37% of total loans outstanding at June 30, 2015. Total accruing loans delinquent 30 days or more were $1.4 million or 0.08% of loans outstanding at June 30, 2016 compared to $1.0 million or 0.06% of loans outstanding at December 31, 2015 and $4.6 million or 0.31% of loans outstanding at June 30, 2015. The Company recorded net loan recoveries of $35 thousand in the second quarter of 2016 versus net loan charge-offs of $5 thousand in the first quarter of 2016 and net loan recoveries of $726 thousand in the second quarter of 2015. The allowance for loan losses totaled $21.0 million at June 30, 2016 versus $20.7 million at December 31, 2015 and $20.1 million at June 30, 2015, representing 1.21%, 1.24% and 1.36% of total loans, respectively, at such dates. The allowance for loan losses as a percentage of non-accrual loans was 304%, 374% and 363% at June 30, 2016, December 31, 2015 and June 30, 2015, respectively. The Company held OREO amounting to $650 thousand at June 30 and March 31, 2016. The Company held no OREO during the other reported periods.
  • Capital Strength – The Company’s capital ratios continue to exceed all regulatory requirements, including the individual minimum capital requirements that the OCC established for the Bank. The Company’s tier 1 leverage ratio was 9.66% at June 30, 2016 versus 9.77% at December 31, 2015 and 10.10% at June 30, 2015. The Company’s tier 1 risk-based capital ratio was 12.04% at June 30, 2016 versus 11.68% at December 31, 2015 and 12.01% at June 30, 2015. The Company’s total risk-based capital ratio was 13.24% at June 30, 2016 as compared to 12.89% at December 31, 2015 and 13.26% at June 30, 2015. The Company’s total stockholders’ equity to total assets ratio and the Company’s tangible common equity to tangible assets ratio (“TCE ratio”) were 9.58% and 9.46%, respectively, at June 30, 2016 versus 9.10% and 8.98%, respectively, at December 31, 2015 and 9.57% and 9.43%, respectively, at June 30, 2015. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein.
  • Core Deposits – Core deposits, consisting of demand, N.O.W., savings and money market accounts, totaled $1.723 billion at June 30, 2016 versus $1.556 billion at December 31, 2015 and $1.476 billion at June 30, 2015. Core deposits represented 88%, 87% and 86% of total deposits at June 30, 2016, December 31, 2015 and June 30, 2015, respectively. Demand deposits were $863 million at June 30, 2016, reflecting increases of 9.5% and 12.6% from $788 million and $766 million at December 31, 2015 and June 30, 2015, respectively. Demand deposits represented 44%, 44% and 45% of total deposits at June 30, 2016, December 31, 2015 and June 30, 2015, respectively.
  • Loans – Loans outstanding at June 30, 2016 increased by $253 million, or 17.2%, to $1.73 billion when compared to June 30, 2015 and increased by $63 million, or 3.8%, when compared to December 31, 2015.
  • Net Interest Margin – Net interest margin was 3.87% in the second quarter of 2016 versus 3.81% in the first quarter of 2016 and 4.20% in the second quarter of 2015. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.86% in the second quarter of 2016 as compared to 3.80% in the first quarter of 2016 and 3.98% in the second quarter of 2015. The average cost of funds was 0.20% in the second quarter of 2016 versus 0.23% in the first quarter of 2016 and 0.18% in the second quarter of 2015.
  • Performance Ratios – Return on average assets and return on average common stockholders’ equity were 1.05% and 11.23%, respectively, in the second quarter of 2016 versus 0.89% and 9.64%, respectively, in the first quarter of 2016, and 1.06% and 10.88%, respectively, in the second quarter of 2015.

Earnings Summary for the Quarter Ended June 30, 2016

The Company recorded net income of $5.8 million during the second quarter of 2016 versus $5.1 million in the comparable quarter a year ago. The 13.0% improvement in second quarter 2016 net income resulted from a $1.2 million increase in net interest income and growth in non-interest income of $191 thousand, largely the result of a $457 thousand net gain on the sales of portfolio loans recorded in 2016. Partially offsetting these positive factors was a $145 thousand increase in total operating expenses and an increase in the effective tax rate to 27.2% in 2016 from 23.6% a year ago. The Company did not record a provision for loan losses in either the second quarter of 2016 or 2015.

The $1.2 million or 6.7% improvement in second quarter 2016 net interest income resulted from a $271 million (15.1%) increase in average total interest-earning assets. Partially offsetting the earning asset growth was a 33 basis point decline in the Company’s net interest margin to 3.87% in 2016 from 4.20% in 2015. The Company’s second quarter 2016 average total interest-earning asset yield was 4.07% versus 4.37% in the comparable 2015 quarterly period. The decrease in the interest-earning asset yield in 2016 resulted from a 38 basis point decline in the average loan yield to 4.19% in 2016 principally due to the receipt of $967 thousand in net non-accrual interest in 2015 versus $75 thousand in 2016. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.86% in the second quarter of 2016 versus 3.98% in the comparable 2015 period. The Company’s average balance sheet mix continued to improve as average loans increased by $336 million (23.7%) versus second quarter 2015. The average securities portfolio decreased by $79 million to $269 million in the second quarter of 2016 versus the comparable 2015 period. The average yield on the investment portfolio was 3.63% in 2016 versus 3.77% a year ago. At June 30, 2016, mortgage-backed securities, at 40%, made up the largest component of the Company’s investment portfolio. The available for sale securities portfolio had an unrealized pre-tax gain of $6.1 million and the entire securities portfolio had an estimated weighted average life of 3.3 years at June 30, 2016.

The Company’s average cost of total interest-bearing liabilities increased by five basis points to 0.35% in the second quarter of 2016 versus 0.30% in the comparable 2015 quarter. The Company’s total cost of funds, among the lowest in the industry, increased to 0.20% in the second quarter of 2016 versus 0.18% a year ago. Average core deposits increased $253 million (17.8%) to $1.7 billion during the second quarter of 2016 versus the second quarter of 2015, with average demand deposits representing 43% of second quarter 2016 average total deposits. Total deposits increased by $231 million or 13.4% to $1.9 billion at June 30, 2016 versus June 30, 2015. Core deposit balances, which represented 88% of total deposits at June 30, 2016, grew by $247 million or 16.7% during the same period. Average borrowings increased $17 million (23.8%) during the second quarter of 2016 compared to 2015 and were used, in part, to fund the growth in the Company’s loan portfolio. Total borrowings at June 30, 2016 were $15 million versus $65 million at the comparable 2015 date.

Non-interest income increased by $191 thousand in the second quarter of 2016 versus the comparable 2015 period. This improvement was principally due to an increase in net gain on the sales of portfolio loans (up $457 thousand) in the second quarter of 2016. Partially offsetting this improvement were reductions in service charges on deposits (down $209 thousand) and net gain on the sale of securities available for sale (down $142 thousand). The net gain on the sale of portfolio loans in the second quarter of 2016 resulted from two sales of performing multifamily loans in that period. No portfolio loans were sold in the second quarter of 2015.

Total operating expenses increased by $145 thousand or 1.1% in the second quarter of 2016 versus 2015 principally the result of growth in other operating expenses of $349 thousand, consulting and professional services expense of $75 thousand and equipment expense of $57 thousand. Partially offsetting these increases was a reduction in 2016 data processing costs of $280 thousand versus the comparable 2015 period. The increase in consulting and professional services expense was largely due to a $69 thousand increase in recruitment fees in 2016, while the increase in other operating expenses reflected a $255 thousand increase in expenses associated with loan appraisal and filing fees incurred during the second quarter of 2016. The improvement in data processing costs resulted from lower core systems expenses in 2016. The Company’s operating efficiency ratio improved to 59.8% in the second quarter of 2016 from 63.2% a year ago.

The Company did not record a provision for loan losses in the second quarter of 2016 or 2015.

The Company recorded income tax expense of $2.2 million in the second quarter of 2016 resulting in an effective tax rate of 27.2% versus an income tax expense of $1.6 million and an effective tax rate of 23.6% in the comparable period a year ago. The increase in the 2016 effective tax rate resulted from growth in pre-tax income taxed at the 35% federal rate, coupled with a reduction in tax-exempt securities income versus the comparable 2015 period.

Earnings Summary for the Six Months Ended June 30, 2016

The Company recorded net income of $10.6 million during the first six months of 2016 versus $9.1 million in the comparable 2015 period. The improvement in 2016 net income resulted principally from a $3.0 million increase in net interest income in the first half of 2016, partially offset by a $189 thousand increase in total operating expenses and an increase in the Company’s effective tax rate in 2016.

The $3.0 million or 8.8% improvement in June year-to-date 2016 net interest income resulted from a $259 million increase in average total interest-earning assets, offset in part by a 26 basis point contraction of the Company’s net interest margin to 3.84% in 2016 from 4.10% in 2015. The Company’s June year-to-date 2016 average total interest-earning asset yield was 4.05% versus 4.26% in the comparable 2015 year-to-date period. A lower average yield on the Company’s loan portfolio in the first half of 2016 versus the comparable 2015 period, down 25 basis points to 4.19%, was the primary driver of the reduction in the interest-earning asset yield. Excluding the impact of net non-accrual interest received in each year-to-date period, the Company’s core net interest margin was 3.82% in 2016 versus 3.99% in 2015. The Company’s average loan portfolio increased by $317 million (22.6%) versus June year-to-date 2015 while the average securities portfolio decreased by $67 million (19.0%) to $287 million in the same period. The average yield on the investment portfolio was 3.61% in this 2016 period versus 3.79% a year ago.

The Company’s average cost of total interest-bearing liabilities increased by eight basis points to 0.36% in the first six months of 2016 versus 0.28% in the comparable 2015 period. The Company’s total cost of funds increased by five basis points to 0.22% in the first half of 2016 versus 2015. Average core deposits increased by $248 million to $1.6 billion during the first six months of 2016 versus the comparable 2015 period, with average demand deposits representing 43% of year-to-date 2016 average total deposits. Average total deposits increased by $251 million or 15.5% to $1.9 billion during the first half of 2016 versus 2015. Average core deposit balances represented 88% of average total deposits during the same period. Average borrowings increased by $14 million during the first half of 2016 compared to 2015 and represented 6% of total average funding during the June 2016 year-to-date period.

The Company recorded a provision for loan losses of $250 thousand during the first six months of 2016 and 2015.

Total operating expenses increased by $189 thousand (0.7%) in the first half of 2016 versus 2015 as the result of growth in other operating expenses (up $595 thousand) and consulting and professional services (up $220 thousand), offset in part by a $671 thousand reduction in data processing costs. The Company’s operating efficiency ratio improved to 60.5% in the first six months of 2016 from 64.7% a year ago.

The Company recorded income tax expense of $4.1 million in the year-to-date June 2016 period resulting in an effective tax rate of 28.0% versus an income tax expense of $2.8 million and an effective tax rate of 23.6% in the comparable period a year ago.

Asset Quality

Non-accrual loans totaled $6.9 million or 0.40% of loans outstanding at June 30, 2016 versus $5.5 million or 0.33% of loans outstanding at December 31, 2015 and $5.5 million or 0.37% of total loans outstanding at June 30, 2015. The allowance for loan losses as a percentage of total non-accrual loans amounted to 304%, 374% and 363% at June 30, 2016, December 31, 2015 and June 30, 2015, respectively. Total accruing loans delinquent 30 days or more amounted to $1.4 million or 0.08% of loans outstanding at June 30, 2016 compared to $1.0 million or 0.06% of loans outstanding at December 31, 2015 and $4.6 million or 0.31% of loans outstanding at June 30, 2015.

Total criticized and classified loans were $25 million at June 30, 2016 versus $21 million at December 31, 2015 and $33 million at June 30, 2015. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $10 million at June 30, 2016 as compared to $12 million at December 31, 2015 and $18 million at June 30, 2015. The allowance for loan losses as a percentage of total classified loans was 204%, 170% and 114%, respectively, at the same dates.

At June 30, 2016, the Company had $10 million in troubled debt restructurings (“TDRs”), primarily consisting of commercial and industrial loans, commercial real estate loans, residential mortgages and home equity loans totaling $1 million, $3 million, $5 million and $1 million, respectively. The Company had TDRs amounting to $12 million and $13 million at December 31, 2015 and June 30, 2015, respectively.

At June 30, 2016, the Company’s allowance for loan losses amounted to $21.0 million or 1.21% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 1.24% at December 31, 2015 and 1.36% at June 30, 2015. The Company recorded net loan recoveries of $35 thousand in the second quarter of 2016 versus net loan charge-offs of $5 thousand in the first quarter of 2016 and net loan recoveries of $726 thousand in the second quarter of 2015. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, (0.01%) for the second quarter of 2016, 0.00% for the first quarter of 2016 and (0.21%) for the second quarter of 2015.

The Company held OREO amounting to $650 thousand at June 30 and March 31, 2016 resulting from the addition of one residential property during the first quarter of 2016. The Company held no OREO during the other reported periods.

Capital

Total stockholders’ equity was $210 million at June 30, 2016 compared to $197 million at December 31, 2015 and $191 million at June 30, 2015. The increase in stockholders’ equity versus June 30, 2015 was due principally to net income recorded during the last twelve months, net of dividends paid. The Company’s return on average common stockholders’ equity was 11.23% and 10.45% for the three and six month ended June 30, 2016 versus 10.88% and 9.85%, respectively, for the comparable 2015 periods.

The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.55%, 11.90%, 11.90% and 13.10%, respectively, at June 30, 2016. 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, including the individual minimum capital requirements that the OCC established for the Bank, at June 30, 2016. The Company’s total stockholders’ equity to total assets ratio and the Company’s TCE ratio were 9.58% and 9.46%, respectively, at June 30, 2016 versus 9.10% and 8.98%, respectively, at December 31, 2015 and 9.57% and 9.43%, respectively, at June 30, 2015. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein.

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 fully taxable equivalent (“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 June 30,   Six Months Ended June 30,
(in thousands) 2016   2015 2016   2015

CORE NET INCOME:

Net income, as reported $ 5,785   $ 5,118   $ 10,623   $ 9,127  
 
Adjustments:
Net non-accrual interest adjustment (75 ) (967 ) (126 ) (974 )
OREO-related expenses   6     -     96     -  
Total adjustments, before income taxes (69 ) (967 ) (30 ) (974 )
Adjustment for reported effective income tax rate   (19 )   (228 )   (8 )   (230 )
Total adjustments, after income taxes   (50 )   (739 )   (22 )   (744 )
 
Core net income $ 5,735   $ 4,379   $ 10,601   $ 8,383  
 
  Three Months Ended June 30,   Six Months Ended June 30,
($ in thousands) 2016   2015 2016   2015

CORE NET INTEREST INCOME/MARGIN:

      
Net interest income/margin (FTE) $ 19,829   3.87 % $ 18,760 4.20 % $ 39,008 3.84 % $ 36,255 4.10 %
 
Net non-accrual interest adjustment   (75 )   (0.01 %)   (967 )   (0.22 %)   (126 )   (0.02 %)   (974 )   (0.11 %)
 
Core net interest income/margin (FTE) $ 19,754     3.86 % $ 17,793     3.98 % $ 38,882     3.82 % $ 35,281     3.99 %
 

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

Certain statements contained in this document 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: the ability to obtain regulatory approvals and meet other closing conditions to the merger with People’s United, including approval by Suffolk shareholders on the expected terms and schedule, and including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; difficulties and delays in integrating the Suffolk business or fully realizing cost savings and other benefits of the merger; business disruption following the merger; increased capital requirements mandated by the Company’s regulators, including the individual minimum capital requirements that the OCC established for the Bank; the Bank’s temporary limitation on the growth of its commercial real estate (“CRE”) portfolio and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation due to the importance of the Bank’s CRE business to the Company’s overall business, financial condition and results of operation; any failure by the Bank to comply with the individual minimum capital ratios (including as a result of increases to the Bank’s allowance for loan losses), which may result in regulatory enforcement actions; the duration of the Bank’s limitation on the growth of its CRE portfolio, and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation; the cost of compliance and significant amount of time required of management to comply with regulatory requirements; results of changes in law, regulations or regulatory practices; 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; 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 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)
     
June 30, 2016 December 31, 2015 June 30, 2015
ASSETS
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks $ 52,396 $ 75,272 $ 78,344
Interest-bearing deposits due from banks   78,366     22,814     18,650  
Total cash and cash equivalents 130,762 98,086 96,994
Federal Reserve and Federal Home Loan Bank stock and other investments 4,469 10,756 6,177
Investment securities:
Available for sale, at fair value 215,111 247,099 273,837
Held to maturity (fair value $31,011, $63,272 and $65,851, respectively)   29,466     61,309     63,618  
Total investment securities   244,577     308,408     337,455  
Loans 1,729,874 1,666,447 1,476,626
Allowance for loan losses   20,965     20,685     20,051  
Net loans 1,708,909 1,645,762 1,456,575
Loans held for sale 2,790 1,666 3,132
Premises and equipment, net 25,659 23,240 23,601
Bank-owned life insurance 53,074 52,383 45,721
Deferred tax assets, net 12,391 15,845 15,681
Accrued interest and loan fees receivable 5,893 5,859 5,774
Goodwill and other intangibles 2,756 2,864 2,992
Other real estate owned ("OREO") 650 - -
Other assets   4,445     3,723     4,118  
TOTAL ASSETS $ 2,196,375   $ 2,168,592   $ 1,998,220  
 
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits $ 863,048 $ 787,944 $ 766,444
Savings, N.O.W. and money market deposits   860,053     768,036     709,450  
Subtotal core deposits 1,723,101 1,555,980 1,475,894
Time deposits   225,918     224,643     242,500  
Total deposits 1,949,019 1,780,623 1,718,394
Borrowings 15,000 165,000 65,000
Unfunded pension liability 6,416 6,428 6,081
Capital leases 4,333 4,395 4,455
Other liabilities   11,300     14,888     13,139  
TOTAL LIABILITIES   1,986,068     1,971,334     1,807,069  
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized;
issued 14,057,992, 13,966,292 and 13,945,208, respectively;
outstanding 11,892,254, 11,800,554, and 11,779,470, respectively) 35,145 34,916 34,863
Surplus 47,727 46,239 45,102
Retained earnings 138,348 130,093 123,891
Treasury stock at par (2,165,738 shares) (5,414 ) (5,414 ) (5,414 )
Accumulated other comprehensive loss, net of tax   (5,499 )   (8,576 )   (7,291 )
TOTAL STOCKHOLDERS' EQUITY   210,307     197,258     191,151  
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 2,196,375   $ 2,168,592   $ 1,998,220  
 

 
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands, except per share data)
       
Three Months Ended June 30,   Six Months Ended June 30,
2016 2015 2016 2015
INTEREST INCOME
Loans and loan fees $ 18,041 $ 15,995 $ 35,263 $ 30,564
U.S. Government agency obligations 197 531 615 1,072
Obligations of states and political subdivisions 924 1,276 1,918 2,611
Collateralized mortgage obligations 100 176 179 358
Mortgage-backed securities 473 443 937 888
Corporate bonds 162 45 308 83
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits due from banks 29 20 58 43
Dividends   108   90   183   150
Total interest income   20,034   18,576   39,461   35,769
INTEREST EXPENSE
Savings, N.O.W. and money market deposits 510 294 1,023 568
Time deposits 336 353 684 647
Borrowings   166   108   408   216
Total interest expense   1,012   755   2,115   1,431
Net interest income 19,022 17,821 37,346 34,338
Provision for loan losses   -   -   250   250
Net interest income after provision for loan losses   19,022   17,821   37,096   34,088
NON-INTEREST INCOME
Service charges on deposit accounts 614 823 1,390 1,570
Other service charges, commissions and fees 684 680 1,295 1,273
Net gain on sale of securities available for sale 18 160 24 186
Net gain on sale of portfolio loans 457 - 457 198
Net gain on sale of mortgage loans originated for sale 73 61 147 205
Income from bank-owned life insurance 345 303 691 612
Other operating income   50   23   129   97
Total non-interest income   2,241   2,050   4,133   4,141
OPERATING EXPENSES
Employee compensation and benefits 8,482 8,516 17,148 17,122
Occupancy expense 1,346 1,373 2,788 2,835
Equipment expense 461 404 847 789
Consulting and professional services 619 544 1,102 882
FDIC assessment 291 286 584 576
Data processing 234 514 413 1,084
Other operating expenses   1,886   1,537   3,589   2,994
Total operating expenses   13,319   13,174   26,471   26,282
Income before income tax expense 7,944 6,697 14,758 11,947
Income tax expense   2,159   1,579   4,135   2,820
NET INCOME $ 5,785 $ 5,118 $ 10,623 $ 9,127
 
EARNINGS PER COMMON SHARE - BASIC $ 0.49 $ 0.44 $ 0.90 $ 0.78
EARNINGS PER COMMON SHARE - DILUTED $ 0.48 $ 0.43 $ 0.89 $ 0.77
 

 
CONSOLIDATED STATEMENTS OF INCOME
QUARTERLY TREND
(unaudited, dollars in thousands, except per share data)
       
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
INTEREST INCOME
Loans and loan fees $ 18,041 $ 17,222 $ 16,552 $ 15,798 $ 15,995
U.S. Government agency obligations 197 418 477 530 531
Obligations of states and political subdivisions 924 994 1,049 1,114 1,276
Collateralized mortgage obligations 100 79 86 149 176
Mortgage-backed securities 473 464 438 441 443
Corporate bonds 162 146 132 96 45
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits due from banks 29 29 12 7 20
Dividends   108   75   59   71   90
Total interest income   20,034   19,427   18,805   18,206   18,576
INTEREST EXPENSE
Savings, N.O.W. and money market deposits 510 513 477 338 294
Time deposits 336 348 379 396 353
Borrowings   166   242   132   94   108
Total interest expense   1,012   1,103   988   828   755
Net interest income 19,022 18,324 17,817 17,378 17,821
Provision for loan losses   -   250   -   350   -
Net interest income after provision for loan losses   19,022   18,074   17,817   17,028   17,821
NON-INTEREST INCOME
Service charges on deposit accounts 614 776 723 749 823
Other service charges, commissions and fees 684 611 686 759 680
Net gain on sale of securities available for sale 18 6 - 133 160
Net gain on sale of portfolio loans 457 - - 370 -
Net gain on sale of mortgage loans originated for sale 73 74 66 85 61
Income from bank-owned life insurance 345 346 356 306 303
Other operating income   50   79   195   25   23
Total non-interest income   2,241   1,892   2,026   2,427   2,050
OPERATING EXPENSES
Employee compensation and benefits 8,482 8,666 8,344 7,980 8,516
Occupancy expense 1,346 1,442 1,439 1,401 1,373
Equipment expense 461 386 437 410 404
Consulting and professional services 619 483 668 609 544
FDIC assessment 291 293 280 226 286
Data processing 234 179 533 506 514
Nonrecurring project costs - - 1,443 - -
Other operating expenses   1,886   1,703   1,860   1,536   1,537
Total operating expenses   13,319   13,152   15,004   12,668   13,174
Income before income tax expense 7,944 6,814 4,839 6,787 6,697
Income tax expense   2,159   1,976   1,202   1,864   1,579
NET INCOME $ 5,785 $ 4,838 $ 3,637 $ 4,923 $ 5,118
EARNINGS PER COMMON SHARE - BASIC $ 0.49 $ 0.41 $ 0.31 $ 0.42 $ 0.44
EARNINGS PER COMMON SHARE - DILUTED $ 0.48 $ 0.41 $ 0.31 $ 0.42 $ 0.43
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.06
 

 
STATISTICAL SUMMARY
(unaudited, dollars in thousands, except per share data)
Three Months Ended June 30,   Six Months Ended June 30,
2016   2015 2016   2015

EARNINGS:

Earnings per common share - diluted $ 0.48 $ 0.43 $ 0.89 $ 0.77
Net income 5,785 5,118 10,623 9,127
Net interest income 19,022 17,821 37,346 34,338
Cash dividends per common share 0.10 0.06 0.20 0.12

AVERAGE BALANCES:

Total assets $ 2,221,138 $ 1,937,138 $ 2,204,544 $ 1,921,347
Loans and performing loans held for sale 1,752,568 1,416,310 1,716,730 1,399,776
Investment securities 268,740 347,895 286,539 353,622
Interest-earning assets 2,061,334 1,790,551 2,042,737 1,783,798
Demand deposits 823,834 721,907 794,993 695,407
Core deposits (1) 1,675,928 1,422,782 1,638,267 1,390,192
Total deposits 1,904,615 1,656,539 1,865,555 1,614,702
Borrowings 85,897 69,391 110,152 96,600
Stockholders' equity 207,119 188,605 204,388 186,784

FINANCIAL PERFORMANCE RATIOS:

Return on average assets 1.05 % 1.06 % 0.97 % 0.96 %
Return on average stockholders' equity 11.23 % 10.88 % 10.45 % 9.85 %
Average loans/average deposits 92.02 % 85.50 % 92.02 % 86.69 %
Average core deposits/average deposits 87.99 % 85.89 %

87.82

%

86.10 %
Average demand deposits/average deposits 43.25 % 43.58 % 42.61 % 43.07 %
Net interest margin (FTE) 3.87 % 4.20 % 3.84 % 4.10 %
Operating efficiency ratio (2) 59.76 % 63.19 % 60.54 % 64.72 %
Core operating efficiency ratio (3) 59.96 % 66.26 % 60.71 % 66.31 %
 
(1) Demand, savings, N.O.W. and money market deposits.

(2) The operating efficiency ratio is calculated by dividing operating expenses less OREO-related expenses by the sum
of fully taxable equivalent ("FTE") net interest income and non-interest income, excluding net gains and losses on sales
of available for sale securities.

(3) 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 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 $ 13,319 $ 13,174 $ 26,471 $ 26,282
Adjust for OREO-related expenses   (6 )   -     (96 )   -  
Core operating expenses   13,313     13,174     26,375     26,282  

Core non-interest income:

Total non-interest income 2,241 2,050 4,133 4,141
Adjustments   -     -     -     -  
Core non-interest income 2,241 2,050 4,133 4,141
Adjust for tax-equivalent basis   225     198     451     400  
Core FTE non-interest income   2,466     2,248     4,584     4,541  

Core operating efficiency ratio:

Core operating expenses   13,313     13,174     26,375     26,282  
Core FTE net interest income 19,754 17,793 38,882 35,281
Core FTE non-interest income 2,466 2,248 4,584 4,541
Adjust for net gain on sale of securities available for sale   (18 )   (160 )   (24 )   (186 )
Total FTE revenue   22,202     19,881     43,442     39,636  
Core operating expenses/total FTE revenue   59.96 %   66.26 %   60.71 %   66.31 %
 

 
STATISTICAL SUMMARY (continued)
(unaudited, dollars in thousands)
       

RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

Three Months Ended June 30,

Six Months Ended June 30,
2016 2015 2016 2015
 
Weighted average common shares outstanding 11,752,657 11,630,056 11,733,742 11,616,565
Weighted average unvested restricted shares 122,889   118,012     118,629   104,831  
Weighted average shares for basic earnings per share 11,875,546 11,748,068 11,852,371 11,721,396
Additional diluted shares:
Stock options 70,173   74,494     70,876   71,911  
Weighted average shares for diluted earnings per share 11,945,719   11,822,562     11,923,247   11,793,307  
 

CAPITAL RATIOS:

                  
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015  

Suffolk Bancorp:

Tier 1 leverage ratio 9.66 % 9.52 % 9.77 % 9.95 % 10.10 %
Common equity tier 1 risk-based capital ratio 12.04 % 11.48 % 11.68 % 11.98 % 12.01 %
Tier 1 risk-based capital ratio 12.04 % 11.48 % 11.68 % 11.98 % 12.01 %
Total risk-based capital ratio 13.24 % 12.65 % 12.89 % 13.21 % 13.26 %
Tangible common equity ratio (1) 9.46 % 8.91 % 8.98 % 9.38 % 9.43 %
Total stockholders' equity/total assets (2) 9.58 % 9.03 % 9.10 % 9.51 % 9.57 %
 

Suffolk County National Bank:

Tier 1 leverage ratio 9.55 % 9.30 % 9.58 % 9.78 % 9.95 %
Common equity tier 1 risk-based capital ratio 11.90 % 11.21 % 11.45 % 11.77 % 11.83 %
Tier 1 risk-based capital ratio 11.90 % 11.21 % 11.45 % 11.77 % 11.83 %
Total risk-based capital ratio 13.10 % 12.38 % 12.66 % 13.01 % 13.08 %
Tangible common equity ratio (1) 9.35 % 8.70 % 8.79 % 9.22 % 9.29 %
Total stockholders' equity/total assets (2) 9.46 % 8.81 % 8.91 % 9.34 % 9.42 %
 

(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 at June 30, 2016, 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 $ 210,307 Total assets $ 2,196,375 9.58 %
Less: intangible assets   (2,756 )

Less: intangible assets

  (2,756 )
Tangible common equity $ 207,551   Tangible assets $ 2,193,619   9.46 %
 

Suffolk County National Bank:

Total stockholders' equity $ 207,800 Total assets $ 2,195,982 9.46 %
Less: intangible assets   (2,756 ) Less: intangible assets   (2,756 )
Tangible common equity $ 205,044   Tangible assets $ 2,193,226   9.35 %
 

(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
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
 

LOAN DISTRIBUTION (1):

Commercial and industrial $ 215,960 $ 195,321 $ 189,769 $ 181,116 $ 196,881
Commercial real estate 734,586 718,934 696,787 648,132 598,866
Multifamily 426,367 480,678 426,549 392,921 361,309
Mixed use commercial 84,070 83,421 78,787 64,381 50,372
Real estate construction 40,452 37,373 37,233 32,896 31,628
Residential mortgages 178,504 181,649 186,313 186,545 182,828
Home equity 44,655 45,447 44,951 46,990 48,298
Consumer   5,280     5,249     6,058     6,539     6,444  
Total loans $ 1,729,874   $ 1,748,072   $ 1,666,447   $ 1,559,520   $ 1,476,626  
Sequential quarter growth rate   (1.04 %)   4.90 %   6.86 %   5.61 %   6.83 %
Period-end loans/deposits ratio   88.76 %   93.46 %   93.59 %   86.84 %   85.93 %
 

FUNDING DISTRIBUTION:

Demand $ 863,048 $ 790,678 $ 787,944 $ 801,212 $ 766,444
N.O.W. 134,562 143,862 130,968 123,553 130,583
Savings 350,565 337,657 326,469 326,711 310,055
Money market   374,926     368,331     310,599     308,816     268,812  
Total core deposits 1,723,101 1,640,528 1,555,980 1,560,292 1,475,894
Time   225,918     229,841     224,643     235,539     242,500  
Total deposits 1,949,019 1,870,369 1,780,623 1,795,831 1,718,394
Borrowings   15,000     160,000     165,000     50,000     65,000  
Total funding sources $ 1,964,019   $ 2,030,369   $ 1,945,623   $ 1,845,831   $ 1,783,394  
Sequential quarter growth rate - total deposits   4.21 %   5.04 %   (0.85 %)   4.51 %   7.96 %
Period-end core deposits/total deposits ratio   88.41 %   87.71 %   87.38 %   86.88 %   85.89 %
Period-end demand deposits/total deposits ratio   44.28 %   42.27 %   44.25 %   44.62 %   44.60 %
Cost of funds for the quarter   0.20 %   0.23 %   0.21 %   0.18 %   0.18 %
 
 

EQUITY:

Common shares outstanding 11,892,254 11,853,564 11,800,554 11,790,512 11,779,470
Stockholders' equity $ 210,307 $ 203,717 $ 197,258 $ 196,540 $ 191,151
Book value per common share 17.68 17.19 16.72 16.67 16.23
Tangible common equity 207,551 200,883 194,394 193,625 188,159
Tangible book value per common share 17.45 16.95 16.47 16.42 15.97
 
(1) Excluding loans held for sale.
 

 
ASSET QUALITY ANALYSIS
(unaudited, dollars in thousands)
         
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015

Non-performing assets (1):

Non-accrual loans:
Commercial and industrial $ 4,118 $ 4,128 $ 1,954 $ 3,662 $ 1,785
Commercial real estate 2,174 1,959 1,733 1,746 1,759
Residential mortgages 421 724 1,358 1,424 1,465
Home equity 185 186 406 548 355
Consumer   -     1     77     121     165  
Total non-accrual loans   6,898     6,998     5,528     7,501     5,529  
Loans 90 days or more past due and still accruing   -     -     -     -     -  
Total non-performing loans   6,898     6,998     5,528     7,501     5,529  
Non-accrual loans held for sale - - - - -
OREO   650     650     -     -     -  
Total non-performing assets $ 7,548   $ 7,648   $ 5,528   $ 7,501   $ 5,529  
Additions to non-accrual loans during the quarter $ 259   $ 2,519   $ 50   $ 3,118   $ 63  
Total non-accrual loans/total loans (2) 0.40 % 0.40 % 0.33 % 0.48 % 0.37 %
Total non-performing loans/total loans (2) 0.40 % 0.40 % 0.33 % 0.48 % 0.37 %
Total non-performing assets/total assets 0.34 % 0.34 % 0.25 % 0.36 % 0.28 %
 

Troubled debt restructurings ("TDRs") (2):

Total TDRs $ 10,156 $ 11,343 $ 11,563 $ 12,560 $ 12,932
Performing TDRs 8,125 9,267 9,239 10,172 10,091
 

Criticized and classified loans (2):

Special mention $ 14,862 $ 6,637 $ 9,197 $ 14,080 $ 15,466
Substandard/doubtful   10,296     11,218     12,190     15,238     17,616  
Total criticized and classified loans $ 25,158   $ 17,855   $ 21,387   $ 29,318   $ 33,082  
 

Activity in the allowance for loan losses:

Balance at beginning of period $ 20,930 $ 20,685 $ 20,315 $ 20,051 $ 19,325
Less: charge-offs 9 66 3 253 9
Recoveries 44 61 373 167 735
Provision for loan losses   -     250     -     350     -  
Balance at end of period $ 20,965   $ 20,930   $ 20,685   $ 20,315   $ 20,051  
Allowance for loan losses/non-accrual loans (1) (2) 304 % 299 % 374 % 271 % 363 %
Allowance for loan losses/non-performing loans (1) (2) 304 % 299 % 374 % 271 % 363 %
Allowance for loan losses/total loans (1) (2) 1.21 % 1.20 % 1.24 % 1.30 % 1.36 %
 

Net (recoveries) charge-offs:

Commercial and industrial $ (28 ) $ (45 ) $ (350 ) $ 114 $ (693 )
Commercial real estate (8 ) (10 ) (11 ) (10 ) (11 )
Residential mortgages (3 ) (2 ) (1 ) (4 ) (16 )
Home equity (3 ) 6 (5 ) (10 ) (5 )
Consumer   7     56     (3 )   (4 )   (1 )
Total net (recoveries) charge-offs $ (35 ) $ 5   $ (370 ) $ 86   $ (726 )
Net (recoveries) charge-offs (annualized)/average loans (0.01 %) 0.00 % (0.09 %) 0.02 % (0.21 %)
 
Delinquencies and non-accrual loans

as a % of total loans (1):

Loans 30 - 59 days past due 0.04 % 0.05 % 0.05 % 0.05 % 0.11 %
Loans 60 - 89 days past due 0.04 % 0.02 % 0.01 % 0.01 % 0.20 %
Loans 90 days or more past due and still accruing   -     -     -     -     -  
Total accruing past due loans 0.08 % 0.07 % 0.06 % 0.06 % 0.31 %
Non-accrual loans   0.40 %   0.40 %   0.33 %   0.48 %   0.37 %
Total delinquent and non-accrual loans   0.48 %   0.47 %   0.39 %   0.54 %   0.68 %
 
(1) At period end.
(2) Excluding loans held for sale.
 

             
NET INTEREST INCOME ANALYSIS
For the Three Months Ended June 30, 2016 and 2015
(unaudited, dollars in thousands)
 
2016 2015
Average Average Average Average
Balance   Interest   Yield/Cost Balance   Interest   Yield/Cost

Assets:

Interest-earning assets:
Investment securities (1) $ 268,740 $ 2,428 3.63 % $ 347,895 $ 3,269 3.77 %
Federal Reserve and Federal Home Loan Bank stock
and other investments 7,606 108 5.71 6,274 90 5.75
Federal funds sold, securities purchased under agreements
to resell and interest-bearing deposits due from banks 32,420 29 0.36 20,072 20 0.40
Loans and performing loans held for sale (2)   1,752,568     18,276     4.19     1,416,310     16,136     4.57  
Total interest-earning assets   2,061,334   $ 20,841     4.07 %   1,790,551   $ 19,515     4.37 %
Non-interest-earning assets   159,804   146,587
Total assets $ 2,221,138 $ 1,937,138
 

Liabilities and stockholders' equity:

Interest-bearing liabilities:
Savings, N.O.W. and money market deposits $ 852,094 $ 510 0.24 % $ 700,875 $ 294 0.17 %
Time deposits   228,687     336     0.59     233,757     353     0.61  
Total savings and time deposits   1,080,781     846     0.31     934,632     647     0.28  
Borrowings   85,897     166     0.78     69,391     108     0.62  
Total interest-bearing liabilities   1,166,678     1,012     0.35     1,004,023     755     0.30  
Demand deposits 823,834 721,907
Other liabilities   23,507   22,603
Total liabilities 2,014,019 1,748,533
Stockholders' equity   207,119   188,605
Total liabilities and stockholders' equity $ 2,221,138 $ 1,937,138
Total cost of funds 0.20 % 0.18 %
Net interest rate spread 3.72 % 4.07 %
Net interest income/margin 19,829 3.87 % 18,760 4.20 %
Less tax-equivalent basis adjustment   (807 )   (939 )
Net interest income $ 19,022   $ 17,821  
 
(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $572 and $798 in 2016 and 2015, respectively.
(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $235 and $141 in 2016 and 2015, respectively.
 

           
NET INTEREST INCOME ANALYSIS
For the Six Months Ended June 30, 2016 and 2015
(unaudited, dollars in thousands)
 
2016 2015
Average Average Average Average
Balance   Interest   Yield/Cost Balance   Interest   Yield/Cost

Assets:

Interest-earning assets:
Investment securities (1) $ 286,539 $ 5,143 3.61 % $ 353,622 $ 6,647 3.79 %
Federal Reserve and Federal Home Loan Bank stock
and other investments 8,492 183 4.33 7,299 150 4.14
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits due from banks 30,976 58 0.38 23,101 43 0.38
Loans and performing loans held for sale (2)   1,716,730     35,739     4.19     1,399,776     30,846     4.44  
Total interest-earning assets   2,042,737   $ 41,123     4.05 %   1,783,798   $ 37,686     4.26 %
Non-interest-earning assets   161,807   137,549
Total assets $ 2,204,544 $ 1,921,347
 

Liabilities and stockholders' equity:

Interest-bearing liabilities:
Savings, N.O.W. and money market deposits $ 843,274 $ 1,023 0.24 % $ 694,785 $ 568 0.16 %
Time deposits   227,288     684     0.61     224,510     647     0.58  
Total savings and time deposits   1,070,562     1,707     0.32     919,295     1,215     0.27  
Borrowings   110,152     408     0.74     96,600     216     0.45  
Total interest-bearing liabilities   1,180,714     2,115     0.36     1,015,895     1,431     0.28  
Demand deposits 794,993 695,407
Other liabilities   24,449   23,261
Total liabilities 2,000,156 1,734,563
Stockholders' equity   204,388   186,784
Total liabilities and stockholders' equity $ 2,204,544 $ 1,921,347
Total cost of funds 0.22 % 0.17 %
Net interest rate spread 3.69 % 3.98 %
Net interest income/margin 39,008 3.84 % 36,255 4.10 %
Less tax-equivalent basis adjustment   (1,662 )   (1,917 )
Net interest income $ 37,346   $ 34,338  
 
(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $1,186 and $1,635 in 2016 and 2015, respectively.
(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $476 and $282 in 2016 and 2015, respectively.