SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------
FORM 8-B
FOR REGISTRATION OF SECURITIES OF
CERTAIN SUCCESSOR ISSUERS
FILED PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
SUSSEX BANCORP
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-3475473
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
399 Route 23, Franklin, NJ 07416
(Address of Principal Executive (Zip Code)
Offices)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
- - --------------------------------------------------------------------------------
(Title of Class)
<PAGE>
ITEM 1. GENERAL INFORMATION
a) The Registrant was organized in January, 1996 as a business
corporation under the laws of the State of New Jersey.
b) The Registrant's fiscal year end is December 31.
ITEM 2. TRANSACTION OF SUCCESSION
a) The Sussex County State Bank
b) The Registrant was established by the Board of Directors of The
Sussex County State Bank (the "Bank") to become a holding company for the Bank.
Pursuant to the New Jersey Banking Act of 1948, as amended (the "Banking Act"),
and pursuant to the approval of the shareholders of the Bank, the Registrant
acquired all of the shares of the Bank in exchange for its own shares, on a
share per share basis. The Bank is now the wholly-owned subsidiary of the
Company.
ITEM 3. SECURITIES TO BE REGISTERED
1) The Registrant's Certificate of Incorporation authorizes 5,000,000
shares of common stock, no par value.
2) 674,996.
3) None.
ITEM 4. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Capital Structure
The Registrant's certificate of incorporation provides for an
authorized capitalization consisting of 5,000,000 shares of common stock,
without par value. The Registrant has 674,996 shares of common stock
outstanding, leaving 4,325,004 shares of authorized common stock available to be
issued when and if the Board of Directors of the Registrant determines it is
advisable to do so. Under New Jersey law, the Board of Directors is generally
empowered to issue authorized common stock without shareholder approval.
Dividend Rights
The holders of the Registrant's common stock are entitled to dividends,
when, as, and if declared by the Registrant's Board of Directors, subject to the
restrictions imposed by New Jersey law. The only statutory limitation applicable
to the Registrant is that dividends may not be paid if the Registrant is
insolvent. However, as a practical matter, unless the Registrant expands its
activities, its only source of income will be the earnings of the Bank. Under
the Banking Act, dividends may be paid only if, after the payment of the
dividend, the capital stock of the Bank will be unimpaired and either the Bank
will have a surplus of not less than 50% of its capital stock or the payment of
the dividend will not reduce the Bank's surplus.
<PAGE>
Voting Rights
Each share of the Common Stock is entitled to one vote per share.
Cumulative voting is not permitted. Under New Jersey corporate law, the
affirmative vote of a majority of the votes cast is required to approve any
merger, consolidation or disposition of substantially all of the Registrant's
assets.
Preemptive Rights
Under New Jersey law, shareholders may have preemptive rights if these
rights are provided in the certificate of incorporation. The Certificate of
Incorporation of the Registrant does not provide for preemptive rights.
Appraisal Rights
Under New Jersey law, dissenting shareholders of the Registrant will
have appraisal rights (subject to the broad exception set forth in the next
sentence) upon certain mergers or consolidations. Appraisal rights are not
available in any such transaction if shares of the corporation are listed for
trading on a national securities exchange or held of record by more than 1,000
holders. In addition, appraisal rights are not available to shareholders of an
acquired corporation if, as a result of the transaction, shares of the acquired
corporation are exchanged for any of the following: (i) cash; (ii) any
securities listed on a national securities exchange or held of record by more
than 1,000 holders; or (iii) any combination of the above. New Jersey law also
provides that a corporation may grant appraisal rights in other types of
transactions or regardless of the consideration received by providing for such
rights in its Certificate of Incorporation. The Registrant's Certificate of
Incorporation does not provide appraisal rights beyond those called for under
New Jersey law.
Directors
Under New Jersey law and the Registrant's Certificate of Incorporation,
the Registrant is to have a minimum of 3 directors and a maximum of 25, with the
number of directors at any given time to be fixed by the Board of Directors. The
Registrant currently has seven directors.
Indemnification
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify any person who was or is a party to any threatened,
pending or completed action, whether civil or criminal, administrative or
investigative by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving as a director or officer of any
other entity at the request of the Registrant against expenses, judgments, fines
and amounts paid in settlement incurred by such person in connection with such
action, provided that the director or officer acted in good faith in a manner he
reasonably believed to be in or not opposed to the best interest of the
Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In addition, in the event
that such action is in the name of the Registrant, a director or officer may not
be indemnified if he is found liable to the Registrant unless a court determines
that, despite the finding of liability, the officer or director is fairly and
reasonably entitled to indemnification.
<PAGE>
Limitation of Liability
The Certificate of Incorporation of the Registrant contains provisions
which may limit the liability of any director or officer of the Registrant to
the Registrant or its shareholders for damages for an alleged breach of any duty
owed to the Registrant or its shareholders. This limitation will not relieve an
officer or director from liability based on any act or omission (i) which was in
breach of such person's duty of loyalty to the Registrant or its shareholders;
(ii) which was not in good faith or involved a knowing violation of law; or
(iii) which resulted in receipt by such officer or director of an improper
personal benefit. These provisions are explicitly permitted by New Jersey law.
Shareholders Protection Act
A provision of New Jersey law, the New Jersey Shareholders Protection
Act (the "Shareholders Act") prohibits certain transactions involving an
"interested stockholder" and a company. An "interested stockholder" is generally
defined as one who is the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the outstanding stock of the corporation.
The Shareholders Act prohibits certain business combinations between an
interested stockholder and a New Jersey corporation subject to the Shareholders
Act for a period of five years after the date the interested stockholder
acquired his stock, unless the transaction was approved by the corporation's
board of directors prior to the time the interested stockholder acquired their
shares. After the five year period expires, the prohibition on business
combinations with an interested stockholder continues unless certain conditions
are met. The conditions include (i) that the business combination is approved by
the Board of Directors of the target corporation; (ii) that the business
combination is approved by a vote of two-thirds of the voting stock not owned by
the interested shareholder; and (iii) that the shareholders of the corporation
receive a price in accordance with a fair price formula set forth in the
statute. The Shareholders Act as applicable to the Registrant could inhibit
unsolicited offers to acquire the Registrant.
Restrictions on Acquisition of the Registrant
The Certificate of Incorporation of the Registrant permits the Board of
Directors, consistent with their fiduciary duty and as already permitted by
statute, to consider, in connection with any proposed acquisition of the
corporation, any fact which the Board of Directors deems relevant, including the
impact of such an acquisition of the Registrant on its employees and the
communities which the Registrant serves. This provision, along with the
provisions of the Shareholders Act described above could have the effect of
delaying, deferring or preventing a change in control of the Registrant.
<PAGE>
ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS
(A)
(1) Annual Report of The Sussex County State Bank on Form F-2 for the
year ended December 31, 1995.
(2) Quarterly Report of The Sussex County State Bank on Form F-4 for
the quarter ended September 30, 1996.
(B)
(1) Plan of Acquisition of All the Outstanding Shares of The Sussex
County State Bank by Sussex Bancorp.
(3) (i) Certificate of Incorporation of Sussex Bancorp.
(ii) By-laws of Sussex Bancorp.
(10)(a) 1995 Incentive Stock Option Plan.
(b) 1995 Stock Option Plan for Non-Employee Directors.
(c) 1988 Non Qualified Stock Option Plan.
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
SUSSEX BANCORP
Date: November 7, 1996 By/s/ Donald L. Kovach
--------------------
Donald L. Kovach
President
Form F-2
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1995
FDIC Certificate No.: 22221-6
THE SUSSEX COUNTY STATE BANK
- - --------------------------------------------------------------------------------
(Exact Name of bank as specified in its charter):
New Jersey 22-2087704
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
399 Route 23, Franklin, NJ 07416
- - --------------------------------------------------------------------------------
(Address of principal office) (ZIP Code)
Bank's Telephone number, including area code: (201) 827-2914
Securities registered under section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered:
The Bank's stock is not registered on any exchange.
Securities registered under Section 12(g) of the Act:
(Title of Class): Common - $2.50 Par Value
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of the
bank, as of February 23, 1996, was approximately $8,151,806.00
The number of shares outstanding of the bank's common stock, as of February 23,
1996 was 649,862 shares of Common Stock, $2.50 Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
The Sussex County State Bank Financial Statements for the year ended December
31, 1995 (Parts II and IV).
<PAGE>
PART I
ITEM I - BUSINESS
The Sussex County State Bank (the "Bank") was chartered in 1975 under the laws
of New Jersey and conducts a commercial retail banking business embracing most
of the traditional deposit and lending services typically offered by
community-based banks. The Bank's services consist chiefly of receiving demand,
time and savings deposits of individuals, firms and corporations and making
commercial, and consumer loans, including residential and commercial real estate
and home improvement loans and secured and unsecured commercial business loans.
The Bank also offers traveler's checks, safe deposit services, automated teller
machines, money orders and U. S. Savings Bonds.
The Bank's deposits are insured by the FDIC, but it is not a member of the
Federal Reserve System. The Bank is subject to regulation, supervision and
examination by the Department of Banking of New Jersey and FDIC.
The Bank is subject to intense competition from banks and other institutions
which provide financial services, however, management believes that because of
its size, philosophy and commitment to Sussex County, it can more effectively
serve the needs of individuals, small businesses and local communities, than can
the competition.
The Bank's operations are conducted at its main office in Franklin, six
full-service branches located in Vernon, Sparta Township, Montague, Andover,
Newton and Wantage, New Jersey.
As of December 31, 1995, the Bank employed 66 full-time equivalent employees,
including officers, bookkeepers, secretaries, tellers and other support staff.
The Bank considers its relations with its employees to be excellent.
In the opinion of management, there are no seasonal fluctuations or single
depositor relationship that adversely affect the operations of the Bank.
ITEM 2 - PROPERTIES
The Bank owns property at 399 Route 23, Franklin, the site of the Bank's main
office. The Bank also owns property located at 395 Route 23, Franklin, which
serves as the Bank's Administrative Offices. The Vernon, Wantage, Andover and
Newton offices are also owned by the Bank. The remaining two branches, located
in Sparta and Montague, are leased by the Bank. The Sparta and Montague leases
expire in 1997 and are subject to renewal options.
ITEM 3 - LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business, to which the Bank is a party or of which
any of their property is the subject.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the persons who owned beneficially more than 5%
of the Common Stock of the Bank as of February 23, 1996.
<PAGE>
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (CONTINUED)
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF % TO TOTAL NO. OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP SHARES OUTSTANDING
------------------- -------------------- ------------------
<S> <C> <C>
Donald L. Kovach, Esq.
R.D. 6, Box 526
Branchville, NJ 07826 72,424 (1) (4) 11.14 (1) (4)
William E. Kulsar
80 Fox Ridge Road
Sparta, NJ 07871 59,985 (3) (4) 9.23 (3) (4)
Ambrose Hamm
P. O. Box E
Branchville, NJ 07826 66,216 (2) 10.19 (2)
</TABLE>
(1) Includes 7,746 shares held in the name of his wife, Betty Jane Kovach,
and the following shares held in the name of his children; Jennifer Kovach - 2
shares. Also includes 3,551 shares registered in the name of Kovach, Fitzgibbons
& Goovaerts, P.A., Profit Sharing Plan and 297 shares registered in the name of
Kovach, Fitzgibbons & Goovaerts, P.A., Profit Sharing FBO Donald L. Kovach.
(2) Includes 4,969 shares held in the name of his wife, Lillian Hamm. Also
includes 4,003 shares registered in the name of Keilley Hamm Trust dated
3/26/82, 4,698 shares registered in the name of Keith Hamm Trust dated 3/26/82
and 21 shares registered in the name of Keilley Hamm UGTMA Ambrose Hamm,
Custodian.
(3) Includes 10,924 shares registered in the name of Caristia, Kulsar &
Wade, P.A., Profit Sharing Plan. Also includes 10,105 shares in the name of
William E. Kulsar IRA, Newton Trust Custodian.
(4) Includes 38,671 shares in which Mr. Kovach, and Mr. Kulsar have shared
voting authority as administrator(s) for shares registered in the name Sussex
County State Bank ESOP.
<PAGE>
The following information is furnished with respect to ownership of the Bank's
Common Stock by directors and officers of the bank as of December 31, 1995.
<TABLE>
<CAPTION>
Name of Individual or Amount and Nature
Number of Persons in Group of Beneficial Ownership Percent of Class
-------------------------- ----------------------- ----------------
<S> <C> <C>
Irvin Ackerson 10,010 (2) 1.55%
Donald L. Kovach 72,395 (3) (6) 11.19%
William E. Kulsar 59,560 (4) (6) 9.35%
Joel Marvil 15,253 2.36%
Richard Scott 19,078 2.95%
Joseph Zitone 32,230 (5) 4.98%
Directors and Principal
Officers as a Group 169,855 26.24%
</TABLE>
(1) Unless otherwise noted the person as to whom the information is
provided has sole voting and investment power over the shares of stock shown as
beneficially owned.
(2) Includes 4,931 shares owned by Mr. Ackerson's wife.
(3) Includes 7,748 shares owned by Mr. Kovach's wife and children. Also
includes 3,523 shares registered in the name of Kovach, Fitzgibbons & Goovaerts
Employee Profit Sharing Trust and 295 shares registered in the name of Kovach,
Fitzgibbons & Goovaerts Employee Profit Sharing FBO Donald L. Kovach.
(4) Includes 9,962 shares registered in the name of Caristia, Kulsar &
Wade, P.A., Profit Sharing Plan. Also includes 10,028 shares in the name of
Keogh Plan, and 220 shares in the name of Merrill Lynch, Caristia,
(5) Also includes 4,611 shares in the name of Zitone Construction & Supply
Co., Inc., Profit Sharing Plan Trust.
(6) Includes 38,671 shares in which Mr. Kovach, and Mr. Kulsar have shared
voting authority as administrator(s) for shares registered in the name Sussex
County State Bank ESOP.
<PAGE>
PART II
ITEM 5 - MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The following table shows the 1995 and 1994 quarterly range of bid prices of the
Bank's common stock which is traded over-the-counter. These quotations represent
prices between dealers and do not include retail markups, markdowns, or
commissions and do not necessarily reflect actual transactions. This information
has been obtained from the National Quotation Bureau for the year 1994 and 1995.
<TABLE>
<CAPTION>
1995 1994
HIGH LOW HIGH LOW
BID BID BID BID
--- --- --- ---
<S> <C> <C> <C> <C>
1st Quarter $11.25 $11.25 $10.00 $ 9.00
2nd Quarter $11.25 $11.25 $11.00 $ 9.50
3rd Quarter $13.00 $11.25 $11.25 $ 9.50
4th Quarter $15.00 $12.50 $11.25 $11.25
</TABLE>
The number of holders of the Bank's common stock was approximately 709 at
February 23, 1996.
The Bank paid cash dividends during 1995 of $.46 per share and $.34 per share
during 1994. The New Jersey Banking Act of 1948 imposes restrictions on the
ability of the Bank to pay dividends out of surplus. Under such restrictions no
dividend may be paid by the Bank unless, after giving effect to the dividend,
the Bank will have a surplus at least equal to 50% of its capital stock or, if
not, the payment of such dividend would not reduce the surplus of the Bank.
Payment of dividends depends on other factors as well, including the need for
internally generated capital to support asset growth. The Banks current policy
is to maintain a dividend payout ratio in the range of 30% to 45%.
ITEM 6 - SELECTED FINANCIAL DATA
The schedule entitled "Five Year Summary" which can be found in Exhibit A, sets
forth, in summary form, certain financial data for the five years ended December
31, 1995, which is not covered by the independent accountants report and should
be read in conjunction with the other financial statements and notes thereunto
of The Sussex County State Bank found elsewhere herein.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In the following section, the financial condition and operating results of the
Bank for the years ended December 31, 1995, 1994, and 1993 are reviewed and
analyzed. Reference should be made to the statements of condition, statements of
income and related notes presented elsewhere herein.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS 1995 AND 1994
SUMMARY
The Bank reported a decrease in earnings from operations in 1995 with net income
of $501,000 representing an decrease of 16.5% compared to $600,000 earned in
1994. Earnings per share in 1995 was $.78 compared to $.94 in the year 1994. The
decrease is attributable to a one time expense related to the termination of
services of the bank's Chief Executive Officer.
AVERAGE BALANCES AND NET INTEREST INCOME
The schedule "Comparative Consolidated Average Balances and Summary of Net
Interest Margin" found in Appendix A sets forth for the years ended December 31,
1995 and 1994 the average daily balance sheet items, the interest earned or
paid, the average interest rates earned on assets on a fully taxable equivalent
basis and the average rates paid on liabilities (dollars in thousands).
RATE/VOLUME ANALYSIS
The schedule "Comparative Consolidated Average Balances and Summary of Net
Interest Margin" found in Appendix A shows the approximate effect on the Bank's
net interest of volume, rate and number of days changes for the year 1995. For
the purposes of this schedule, changes which are not solely due to balance
changes, solely due to rate changes or solely due to changes in the total number
of days in the year are allocated to such categories based on the respective
percentage changes in average balances and average rates.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Bank, is the
difference between interest and fees earned on loans and other interest-earning
assets and interest paid on deposits and other interest-bearing liabilities. Net
interest income is directly affected by changes in volume and mix of
interest-earning assets and interest-bearing liabilities which support those
assets, as well as changing interest rates when differences exist in repricing
dates of assets and liabilities.
Net interest income, on a fully taxable equivalent basis, declined by $77,000 in
1995 compared to 1994. The schedule "Comparative Consolidated Average Balances
and Summary of Net Interest Margin" found in Appendix A shows the 1995 decrease
in net interest income resulted from a 30 basis-point decline in the net
interest spread due to the offering of promotional certificates of deposit
during 1995.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME
Other income consists primarily of service charges on deposit accounts. Other
income becomes a more significant source of stable income given the ever
increasing volatility of our interest rate environment. After excluding the gain
on sale of other real estate and equipment, other income increased $85,000 or
14% in 1995 compared to a decrease of $165,000 or 2.6% in 1994.
OTHER EXPENSES
Other expenses were reduced by $194,000 or 5.6% to a total of $3,644,000 in 1995
following a decrease of $85,000 or 2.4% in 1994. Salaries and employee benefits,
a major component of other expenses increased $146,000 or 9.1% during 1995 which
represents an accrued expense related to the terminated services of the bank's
chief executive officer. Expenses for Net Occupancy decreased a modest $1,000 or
.3% during 1995, while furniture and equipment expense increased $69,000 or 27%,
this increase is primarily attributable to the installation of automated deposit
and loan origination software and the addition of Automated Teller Machines at
our Andover and Montague offices. Other operating expenses decreased $20,000 or
1.6% during 1995. Inclusive in other operating expenses was a decrease in FDIC
insurance assessments of $60,000, and increased legal expense of $70,000.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level considered by
management to be adequate to provide for potential losses. The 1995 provision
for possible loan losses was $64,000 as compared to $187,000 for 1994.
Charge-offs net of recoveries amounted to $66,000 in 1995 as compared to
$149,000 in 1994. At December 31, 1995 and 1994, the allowance for possible loan
losses as a percentage of total loans amounted to .90% and .92%
respectively.
ASSETS
Total assets increased $12,627,000 or 15% for the year 1995.
Total assets at year-end were $94,870,000 compared to $82,243,000 at year-end
1994. This increase was primarily the result of offering promotional
Certificates of Deposit in 1995.
LOANS
Total loans increased $681,000 for the year 1995.
Loans secured by 1 to 4 family residential properties, which represent 75% of
the total loan portfolio at December 31, 1995, increased a modest 1.5% in 1995
to $39,620,000. The portfolio is primarily made up of one year adjustable,
three, five, and ten year balloon mortgages and 15 year fixed rate
mortgages.
Loans secured by nonresidential properties, which represents 18.6% of the total
loans at December 31, 1995, declined 2.5% in 1995 to $9,796,000.
Loans to individuals, which represents 3.1% of the total loans at December 31,
1995, declined .7% in 1995 to $1,615,000.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Commercial loans, which represents 3.1% of the total loans at December 31, 1995,
increased 29.3% to $1,647,000.
Other loans, which represents .1% of the total loans at December 31, 1995,
decreased .08% to $69,000.
LIQUIDITY
Liquidity involves the Bank's ability to meet loan demand, deposit withdrawals,
and maturity of liabilities. Funds to meet liquidity needs are generally raised
through increased deposits, liquidation, or maturity of loans and investments
and short-term borrowings.
At December 31, 1995, liquid assets comprised of cash and due from banks,
Federal funds sold, interest bearing deposits with banks, and investments at
book value with a maturity of one year amounted to $18,333,000. These liquid
assets coupled with the access to purchase funds from correspondent banks and
supplemented by an amortizing loan portfolio provides for a liquidity position
which is adequate to meet the Bank's commitments. The maturity schedule of the
investment portfolio, at book value, indicates that 17.5% of the portfolio
matures within one year, while 82.5% matures in five years or less.
INTEREST RATE SENSITIVITY
An interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market interest rates. Interest rate sensitivity is the volatility of a
Bank's earnings resulting from a movement in market interest rates.
The Bank has developed an Asset and Liability Management Policy. The policy
provides for the Bank to generally maintain a relatively balanced position
between interest rate sensitive assets and interest rate sensitive liabilities.
At December 31, 1995, the interest rate sensitivity position evident for
periodic intervals out to December 31, 1995 reflected a slight asset sensitive
position.
CAPITAL RESOURCES
Stockholders' equity inclusive of Unrealized Gain (Loss) on Securities Available
for Sale, net of income taxes was $7,609,000 at December 31, 1995.
The Bank's regulators have classified and defined bank capital into the
following components - (1) Tier I capital which includes tangible stockholders'
equity for common stock and certain perpetual preferred stock and (2) Tier II
capital which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock which does not qualify for
Tier I capital.
The Bank's regulators have implemented risk-based capital guidelines which
require a bank to maintain certain minimum capital as a percent of such bank's
assets and certain off-balance sheet items adjusted for predefined credit risk
factors (risk-adjusted assets). As of December 31, 1995, a bank is required to
maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets of
4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted
assets of 8.0%. As of December 31, 1995, the Bank's Tier I and combined Tier I
and II capital ratios were 15.25% and 16.33% (unaudited), respectively.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to the risk-based guidelines discussed above, the Bank's regulators
require that a bank which meets the regulators' highest performance and
operation standards maintain a minimum leverage ratio (Tier I capital as a
percent of tangible assets) of 3%. For those banks with higher levels of risk or
that are experiencing or anticipating significant growth, the minimum leverage
ratio will be proportionately increased. Minimum leverage ratios for each bank
will be evaluated through the ongoing regulatory examination process. As of
December 31, 1995, the Bank has a leverage ratio of 11.10% which management
believes will meet the regulators' required minimum ratio.
DIVIDENDS
The Bank's dividend policy is structured to balance both the current and future
values of its stock with the need for growth in equity capital necessary to
pursue growth opportunities. This balance is thought to be achieved by a
dividend payout ratio in the area of 30% to 45%. During 1995, cash dividends
totaling $.46 per share were paid providing for a dividend payout ratio of 59%.
The following table shows the 1994 dividend payments.
<TABLE>
<CAPTION>
Per Share
Amount/Percent Date of Record Payment Date
- - -------------- -------------- ------------
<S> <C> <C>
$.10 Cash Dividend 3/31/95 5/01/95
$.11 Cash Dividend 7/03/95 8/01/95
$.12 Cash Dividend 10/02/95 11/01/95
$.13 Cash Dividend 1/02/96 1/31/96
</TABLE>
STOCK PRICES
The following table shows the 1995 and 1994 quarterly range of bid prices of the
Bank's common stock. These quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not necessarily
reflect actual transactions. This information has been obtained from National
Quotation Bureau for the years 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
High Low High Low
Bid Bid Bid Bid
--- --- --- ---
<S> <C> <C> <C> <C>
1st Quarter $11.25 $11.25 $10.00 $ 9.00
2nd Quarter $11.25 $11.25 $11.00 $ 9.50
3rd Quarter $13.00 $11.25 $11.25 $ 9.50
4th Quarter $15.00 $12.50 $11.25 $11.25
</TABLE>
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EFFECTS OF INFLATION
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, the level of
interest rates has a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or change with the same magnitude as
the prices of goods and services since such prices are affected by inflation.
Accordingly, the liquidity, interest rate sensitivity and maturity
characteristics of the Bank's assets and liabilities are more indicative of its
ability to maintain acceptable performance levels.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS 1994 AND 1993
SUMMARY
The Bank reported an increase in earnings from operations in 1994 with net
income of $600,000 representing an increase of 71% compared to $350,000 earned
in 1993. Earnings per share in 1994 was $.94 compared to $.55 in the year 1993.
The improvement in performance is primarily attributable to higher net interest
income coupled with lower other expenses, and increased earning assets.
AVERAGE BALANCES AND NET INTEREST INCOME
The schedule "Comparative Consolidated Average Balances and Summary of Net
Interest Margin" found in Appendix A sets forth for the years ended December 31,
1994 and 1993 the average daily balance sheet items, the interest earned or
paid, the average interest rates earned on assets on a fully taxable equivalent
basis and the average rates paid on liabilities (dollars in thousands).
RATE/VOLUME ANALYSIS
The schedule "Comparative Consolidated Average Balances and Summary of Net
Interest Margin" found in Appendix A shows the approximate effect on the Bank's
net interest of volume, rate and number of days changes for the year 1994. For
the purposes of this schedule, changes which are not solely due to balance
changes, solely due to rate changes or solely due to changes in the total number
of days in the year are allocated to such categories based on the respective
percentage changes in average balances and average rates.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Bank, is the
difference between interest and fees earned on loans and other interest-earning
assets and interest paid on deposits and other interest-bearing liabilities. Net
interest income is directly affected by changes in volume and mix of
interest-earning assets and interest-bearing liabilities which support those
assets, as well as changing interest rates when differences exist in repricing
dates of assets and liabilities.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Net interest income, on a fully taxable equivalent basis, increased by $381,000
or 11% in 1994 compared to 1993. The schedule "Comparative Consolidated Average
Balances and Summary of Net Interest Margin" found in Appendix A shows the 1994
increase in net interest income resulted principally from lower interest expense
on deposits, a shift in the mix of assets from Federal Funds Sold and Securities
to an increase in Home Equity and residential Mortgage Loans, coupled with an
increase in earning assets.
OTHER INCOME
Other income consists primarily of service charges on deposit accounts. Other
income becomes a more significant source of stable income given the ever
increasing volatility of our interest rate environment. After excluding the gain
on sale of other real estate and equipment, and the gain on sale of investment
securities, other income decreased $16,000 or 2.6% in 1994 compared to an
increase of $93,000 or 18% in 1993.
OTHER EXPENSES
Other expenses were reduced by $85,000 or 2.4% to a total of $3,450,000 in 1994
following an increase of $242,000 or 7.3% in 1993. Salaries and employee
benefits, a major component of other expenses decreased $71,000 or 4.2% during
1994. Expenses for Net Occupancy decreased $87,000 or 20.6% during 1994 as a
result of the closure of the Byram Office, while furniture and equipment expense
decreased $10,000 or 3.7% during 1994. Other operating expenses increased
$83,000 or 7.1% during 1994. Inclusive in other operating expenses were expenses
related to the maintenance, operation and adjustments in the carrying values of
other real estate owned properties of $61,000, and increased expenses of $22,000
associated with the introduction of the Bank's NYCE/ATM service.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The 1994 provision for possible loan losses was $187,000 as compared to $101,000
for 1993. Charge-offs net of recoveries amounted to $149,000 in 1994 compared to
$101,000 in 1993. At December 31, 1994 and 1993, the allowance for possible loan
losses as a percentage of total loans amounted to .92% and .94%
respectively.
ASSETS
Total assets decreased $201,000 or .24% for the year 1994. Total assets at
year-end were $82,243,000 compared to $82,444,000 at year-end 1993.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LOANS
Total loans increased $5,271,000 for the year 1994. The increase was primarily
the result of the promotion of home equity and mortgage products.
Loans secured by 1 to 4 family residential properties, which represent 75% of
the total loan portfolio at December 31, 1994, increased 23% in 1994 to
$39,039,000. The portfolio is primarily made up of one year adjustable, three,
five, ten year balloon mortgages and fifteen year fixed rate mortgages.
Loans secured by nonresidential properties, which represents 19.3% of the total
loans at December 31, 1994, declined 4.2% in 1994 to $10,051,000.
Loans to individuals, which represents 3.1% of the total loans at December 31,
1994, declined 29.4% in 1994 to $1,627,000.
Commercial loans, which represents 2.5% of the total loans at December 31, 1994,
declined 8.8% to $1,274,000.
Other loans, which represents .1% of the total loans at December 31, 1994,
decreased 90% to $75,000.
LIQUIDITY
Liquidity involves the Bank's ability to meet loan demand, deposit withdrawals,
and maturity of liabilities. Funds to meet liquidity needs are generally raised
through increased deposits, liquidation, or maturity of loans and investments
and short-term borrowings.
At December 31, 1994, liquid assets comprised of cash and due from banks,
Federal funds sold, interest bearing deposits with banks, and investments at
book value with a maturity of one year amounted to $13,326,000. These liquid
assets coupled with the access to purchase funds from correspondent banks and
supplemented by an amortizing loan portfolio provides for a liquidity position
which is adequate to meet the Bank's commitments. The maturity schedule of the
investment portfolio, at book value, indicates that 38.4% of the portfolio
matures within one year, while 57.6% matures in five years or less.
INTEREST RATE SENSITIVITY
An interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market interest rates. Interest rate sensitivity is the volatility of a
Bank's earnings resulting from a movement in market interest rates.
The Bank has developed an Asset and Liability Management Policy. The policy
provides for the Bank to generally maintain a relatively balanced position
between interest rate sensitive assets and interest rate sensitive liabilities.
At December 31, 1994, the interest rate sensitivity position evident for
periodic intervals out to December 31, 1995 reflected a slight asset sensitive
position. Please refer to "Rate Sensitivity Analysis" found in Appendix A.
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES
Stockholders' equity inclusive of Unrealized Gain (Loss) on Securities Available
for Sale, net of income taxes was $6,646,000 at December 31, 1994. The growth in
stockholders' equity is generated primarily through earnings retention.
The Bank's regulators have classified and defined bank capital into the
following components - (1) Tier I capital which includes tangible stockholders'
equity for common stock and certain perpetual preferred stock and (2) Tier II
capital which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock which does not qualify for
Tier I capital.
The Bank's regulators have implemented risk-based capital guidelines which
require a bank to maintain certain minimum capital as a percent of such bank's
assets and certain off-balance sheet items adjusted for predefined credit risk
factors (risk-adjusted assets). As of December 31, 1994, a bank is required to
maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets of
4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted
assets of 8.0%. As of December 31, 1994, the Bank's Tier I and combined Tier I
and II capital ratios were 13.65% and 14.81% (unaudited), respectively.
In addition to the risk-based guidelines discussed above, the Bank's regulators
require that a bank which meets the regulators' highest performance and
operation standards maintain a minimum leverage ratio (Tier I capital as a
percent of tangible assets) of 3%. For those banks with higher levels of risk or
that are experiencing or anticipating significant growth, the minimum leverage
ratio will be proportionately increased. Minimum leverage ratios for each bank
will be evaluated through the ongoing regulatory examination process. As of
December 31, 1994, the Bank has a leverage ratio of 7.51% which management
believes will meet the regulators' required minimum ratio.
DIVIDENDS
The Bank's dividend policy is structured to balance both the current and future
values of its stock with the need for growth in equity capital necessary to
pursue growth opportunities. This balance is thought to be achieved by a
dividend payout ratio in the area of 30% to 45%. During 1994, cash dividends
totaling $.34 per share were paid providing for a dividend payout ratio of 36%.
The following table shows the 1994 dividend payments.
<TABLE>
<CAPTION>
Per Share
Amount/Percent Date of Record Payment Date
- - -------------- -------------- ------------
<S> <C> <C>
$.07 Cash Dividend 4/01/94 5/02/94
$.08 Cash Dividend 7/01/94 8/01/94
$.09 Cash Dividend 10/03/94 11/02/94
$.10 Cash Dividend 1/02/95 1/31/95
</TABLE>
<PAGE>
PART II (CONTINUED)
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EFFECTS OF INFLATION
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, the level of
interest rates has a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or change with the same magnitude as
the prices of goods and services since such prices are affected by inflation.
Accordingly, the liquidity, interest rate sensitivity and maturity
characteristics of the Bank's assets and liabilities are more indicative of its
ability to maintain acceptable performance levels.
<PAGE>
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
(a) Directors of the Bank
The following information is furnished with respect to each Director.
<TABLE>
<CAPTION>
NAME OF DIRECTOR TERM OF
DIRECTOR AGE PRINCIPAL OCCUPATION AND PLACE OF EMPLOYMENT SINCE OFFICE EXPIRES
- - -------- --- -------------------------------------------- ----- --------------
<S> <C> <C> <C> <C> <C>
Irvin Ackerson 73 Excavating Contractor, Ackerson Contracting Co. 1976 4/95
Donald L. Kovach 60 Attorney-at-Law, Kovach Fitzgibbons & Goovaerts, P.A. 1976 4/95
William E. Kulsar 58 Certified Public Accountant William E. Kulsar, P.A. 1976 4/95
Joel D. Marvil 61 President/CEO Ames Rubber Corporation 1989 4/95
Richard Scott 59 Dentist, Richard Scott, DDS 1976 4/95
Joseph Zitone 64 General Contractor, Zitone Construction 1984 4/95
</TABLE>
Family relationships.
None of the Directors or principal officers are related by blood, marriage or
adoption.
Involvement in certain legal proceedings.
There are no events which occurred during the last five years and which are
material to an evaluation of the ability or integrity of any principal officer,
director or person nominated to become a director of the Bank.
(b) Executive Officers of the Bank
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER BUSINESS
OFFICER AGE POSITION WITH BANK SINCE EXPERIENCE
- - ------- --- ------------------ ----- ----------
<S> <C> <C> <C> <C>
Donald L. Kovach 60 Chairman of Board/CEO 1976 Attorney-at-Law
Actively practiced in
Franklin, NJ for 30 years
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS
The following table sets forth the aggregate remuneration paid to all executive
officers, officers making $60,000 or greater and directors during the years
1993, 1994 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation
Awards Payouts
Restricted
Other Annual Stock Options/ LTIP All Other
Salary Bonus Compensation Award(s) SARs Payouts Compensation
Name and Principal Position Year ($) ($) ($)(3) ($) (#) ($) ($)
--------------------------- ---- --- --- ------ --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry C. Farmer 1995 $106,945 0 $ 877(3) 0 0 0 $2,941
President/CEO 1994 $107,095 0 $ 1,217(1)(3) 0 0 0 $ 833
1993 $104,216 0 $ 9,484(1)(3) 0 0 0 0
Seven persons 1995 $151,245(2) 0 $ 877(3) 0 0 0 0
Directors & 1994 $150,895(2) 0 $ 1,217(3) 0 0 0 $ 833
Executive Officers 1993 $147,861(2) 0 $ 9,484(1)(3) 0 0 0 0
</TABLE>
Footnotes:
(1) Bank provides additional life insurance, automobile and private golf club
membership for Larry C. Farmer. The use made thereof for personal purposes does
not exceed 10% of the total cash compensation which is the sum of base salary
and bonus and therefore is not included in the above table.
(2) The Bank's Director Fee and Remuneration Policy is as follows:
a) Director Annual Retainer - The Bank pays each outside director an annual
retainer of $1,000 with the exception of the Chairman of the Board, who is
paid an annual retainer of $5,800.
b) Director Fee Per Meeting - The Bank pays each outside director a fee of
$400 for each regular monthly Board Meeting or Special Board Meeting
attended.
c) Committee Member Fee Per Meeting - The Bank pays each outside director,
who serves as a committee member, $100 for each scheduled committee meeting
attended.
d) Special Project Hourly Rate - The Bank pays an hourly rate of $100 to
outside directors who undertake special projects which are assigned to them
by management with Board of Director approval.
<PAGE>
PART III (CONTINUED)
ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS (CONTINUED)
(3) The Bank maintains a trusteed non-contributory qualified employee stock
ownership plan covering all officers and employees who have been in the Bank's
employ six months or more. The cost of the plan is charged to operations as
incurred. The plan provides that a contribution not to exceed that allowed by
the Internal Revenue Service may be made at the discretion of the Board of
Directors. The monies contributed to the plan are used to purchase stock of the
Bank which is then allocated to eligible employees, each receiving a percentage
equal to the percent their salary bears to the total salary figure for the
entire group. The employees become vested in the shares allocated to them in
accordance with a schedule established in the plan. Full vesting is achieved
after six or more full years of service with the Bank. Since inception of the
plan on January 1, 1981 the total contribution of the Bank thereto attributable
to Larry C. Farmer is $40,352. The total contribution attributable to directors
and other principal officers of the Bank has been $63,435. The total
contribution attributable to all employees of the bank eligible to participate
has been $472,683. The Bank provides no other personal benefits, insurance
benefits, securities, property or reimbursement other than which is generally
available to all salaried employees.
(4) The Bank has no Long Term Compensation plans in effect.
(5) The Bank maintains a 401(k) Plan (a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code of 1986) under which the Bank
matches 50% on the first 3% of the voluntary contribution by an employee of the
employees base salary. All employees are eligible to participate in the Plan
after reaching the age of 21 and completing one year of service. Full vesting is
achieved after 6 or more full years of service with the Bank.
Summary Compensation Table Terminology:
Stock Appreciation Rights (SAR) - A right to demand a payment in the form
of cash, stock or a combination thereof from the company at some time in
the future.
Long-term Incentive Plan (LTIP) - Any plan providing compensation intended
to serve as incentive for performance to occur over a period longer than
one fiscal year, but excluding restricted stock, stock option and SAR
plans.
Non-qualified stock option plan:
During 1988, the stockholders approved a non-qualified stock option plan. As of
December 31, 1995, there were 31,857 authorized shares of the Bank's common
stock to be granted. Options may be granted to any officer of the Bank, at a
grant price not to be less than the higher of the par value of the stock or 85%
of its fair market value at the grant date. Options are exercisable when granted
with the option period determined by the Bank's Board of Directors, but not to
exceed five years. As of December 31, 1995, no options have been
granted.
Officers receiving compensation in the form of salary:
The Bank has 15 full time operating officers who are the only officers to
receive compensation in the form of salary from the Bank.
<PAGE>
PART III (CONTINUED)
ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS (CONTINUED)
The Sussex County State Bank paid $88,336.00 to Kovach, Fitzgibbons & Goovaerts,
P.A., Attorneys at Law at which Donald L. Kovach, Director and Chairman of the
Board of the Sussex County State Bank is a member, for legal services rendered
to the Bank for the year 1994. Said firm continues to render legal services to
the Bank on a continuing basis.
The Sussex County State Bank paid $15,062.00 to Caristia, Kulsar & Wade, P.A.,
Certified Public Accountants, at which William E. Kulsar, Secretary and a
Director of the Sussex County State Bank is a member, for accounting services
rendered to the Bank for Internal Revenue filing purposes and other accounting
services beyond those provided by the annually retained independent public
accountants. Caristia, Kulsar, & Wade, P.A. continues to render accounting
services to the Bank.
The Sussex County State Bank paid $12,200.00 to Irvin Ackerson for appraisal
services rendered to the Bank. Irvin Ackerson continues to render appraisal
services to the Bank.
The Bank leases its Montague Branch Office from Montague Mini Mall, Inc., for an
aggregate annual rental of $18,000 for 1200 square feet. Said lease was
initially entered into on April 1, 1982 and covered 500 square feet. An
additional 700 square feet was obtained via a remodification of the lease
agreement dated April 1, 1987. The said lease agreement expires March 31, 1997.
Mr. Joseph Zitone, a Director of the Bank is a majority stockholder of Montague
Mini Mall, Inc. Mr. Zitone was not a Director of the Bank at the time of the
initial lease agreement and was a Director at the time said lease was modified
and the additional square footage obtained. The Bank considers that the lease
terms are comparable to those which exist with unaffiliated third parties.
Directors and principal officers of the Bank and their associates were customers
of, and had transactions with, the Bank in the ordinary course of business
during the current and in prior operating years. Transactions prior to June 21,
1989 involving loans and commitments were made at terms which provided for a
1.00% discount on loan and commitment interest rates during the period of time
in which the director or principal officer remained a director or employee of
the Bank. Effective June 21, 1989, the policy of providing 1.00% discount on
loan and commitment interest rates was discontinued with all existing loan and
commitment rates adjusted to reflect prevailing interest rates at the time for
comparable transactions. Additional transactions may be expected to take place
with the Bank in the ordinary course of business throughout the succeeding
calendar year. All such transactions will be made (i) on substantially the same
terms including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons; (ii) in the ordinary course of
business and, (iii) not involving more than normal risk of collectibility or
other unfavorable features.
Aggregate extensions of credit to directors, principal officers and principal
shareholders of the Bank, including organizations in which they are officers or
have significant ownership, have exceeded 20% of the Bank's equity capital in
the past. On December 31, 1995 the aggregate sum of credit extended to principal
officers, directors and principal shareholders, including organizations in which
they are officers or had a significant interest was $1,534,821.00. The highest
sum of such aggregate extensions during the year 1995 was $1,534,821.00. Since
December 31, 1995 such aggregate extensions have not increased but, rather, have
decreased through normal payments.
<PAGE>
<TABLE>
<CAPTION>
SUSSEX COUNTY STATE BANK
LOANS TO PRINCIPAL OFFICERS, DIRECTORS, NOMINEES,
PRINCIPAL SECURITY HOLDERS, AND ANY ASSOCIATES OF THE
FOREGOING PERSONS
12/31/94
NATURE OF INDEBTEDNESS
NAME & RELATIONSHIP BALANCE OR TRANSACTION RATE
- - ------------------- ------- -------------- ----
<S> <C> <C> <C>
Larry Farmer (1) $181,283 1st Mortgage Loan 8.125%
--------
$181,283 % of Capital = 2.51%
Leatham Electrical (5) $ 3,059 Commercial Loan Secured SCSB Prime + 2%
Robert & Candace Leatham (1) $ 36,688 Installment Loan Secured 8.00%
--------
$ 41,747 % of Capital = .58%
Patricia Lettieri (1) $151,703 1st Mortgage Loan 7.00%
Patricia Lettieri (1) $ 12,790 Installment Loan Secured 6.25%
--------
$164,493 % of Capital = 2.28%
Valerie Seufert (1) $ 17,500 Installment Loan Secured WSJ Prime + 2%
Valerie Seufert (1) $ 47,791 Installment Loan Secured
--------
$ 65,291 % of Capital = 7.50% .90%
Terry H. Thompson (1) $ 9,500 Commercial Loan Secured 9.50%
--------
$ 9,500 % of Capital = .13%
Samuel K. Tolley (1) $ 29,377 2nd Mortgage Loan WSJ Prime + 2%
--------
$ 29,377 % of Capital = .41%
K. F. & G. Assoc. (5) $ 48,300 Commercial Loan Unsecured 9.00%
K. F. & G. Assoc. (5) $ 9,024 Line of Credit WSJ Prime + 1%
Franklin Renaissance (5) $ 87,052 1st Mortgage Loan 10.75%
Kulko Realty (5) $ 17,997 Installment Loan Unsecured 8.50%
--------
$162,372 % of Capital = 2.25%
</TABLE>
(1) Principal Officer
(2) Director
(3) Nominee
(4) Principal Security Holder
(5) Associate of Principal Officer, Director, Nominee or Principal Security
Holder.
<PAGE>
PART III (CONTINUED)
ITEM 10 - MANAGEMENT RENUMERATIONS AND
TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
THE SUSSEX COUNTY STATE BANK
LOANS TO PRINCIPAL OFFICERS, DIRECTORS, NOMINEES, PRINCIPAL SECURITY HOLDERS,
AND ANY ASSOCIATES OF THE FOREGOING PERSONS
12/31/95
NATURE OF INDEBTEDNESS
NAME & RELATIONSHIP BALANCE OR TRANSACTION RATE
- - ------------------- ------- -------------- ----
<S> <C> <C> <C>
Kulko Realty (5) $ 17,997 Installment Loan Unsecured 8.50%
William Kulsar (2) $141,532 1st Mortgage Loan 7.25%
--------
$159,529 % of Capital = 2.21%
Montague Mini Mall (5) $134,225 1st Mortgage Loan 7.50%
Zitone Lois (5) $ 33,506 2nd Mortgage Loan 8.00%
Zitone Construction (5) $ 74,059 1st Mortgage Loan 8.00%
Zitone Construction (5) $250,000 Commercial Loan Unsecured WSJ Prime + 1%
Big Z Stables $ 14,000 Commercial Loan Unsecured WSJ Prime + 1%
--------
$505,790 % of Capital = 7.00%
Irvin Ackerson (2) $ 10,000 Commercial Line of Credit WSJ Prime + 1%
Todd Hackett (5) $ 2,500 Commercial Loan Secured 5.35%
Joseph Hackett (5) $ 20,960 Commercial Loan Secured 5.35%
Thomas Hackett (5) $ 7,833 Commercial Loan Secured 5.35%
--------
$ 41,293 % of Capital = 8.50%
Joel Marvil (2) $ 11,686 1st Mortgage .57%
--------
$ 11,686 % of Capital = .16%
Ambrose Hamm (4) $156,662 1st Mortgage Loan 7.875%
Hamm's Sanitation, Inc. (5) $ 47,914 Commercial Loan Secured 13.00%
HSS, Inc. (5) $148,856 Commercial Loan Unsecured WSJ Prime + 1.5%
Lillian Hamm (5) $ 17,500 Commercial Loan Unsecured 13.50%
--------
$370,932 % of Capital = .51%
</TABLE>
(1) Principal Officer
(2) Director
(3) Nominee
(4) Principal Security Holder
(5) Associate of Principal Officer, Director, Nominee or Principal Security
Holder.
<PAGE>
PART IV
ITEM 11 - EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORT OF FORM F-3
(a) 1- Financial Statements:
Report of Independent Public Accountants
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Five-Year Summary
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Rate Sensitivity Analysis
Comparative Consolidated Average Balances
and Summary of Net Interest Margin
1995 Compared to 1994
Comparative Consolidated Average Balances
and Summary of Net Interest Margin
1994 Compared to 1993
(a) 5- Financial Statement Schedules
Schedule I. U. S. Treasury Securities, Obligations of Other U.S.
Government Agencies and Corporations, Obligations of States and
Political Subdivision and Other Bonds, Notes and Debentures
Information is included in Footnote 2 of the Bank's Financial
Statements.
Schedule II. Loans
Information is included in Footnote 3 of the Bank's Financial
Statements.
Schedule III. Bank Premises and Equipment
Information is included in Footnote 6 of the Bank's Financial
Statements.
Schedule IV. Allowance for Possible Loan Losses
Information is included in Footnote 4 of the Bank's Financial
Statements.
(b) Reports on Form F-3
No reports on Form F-3 have been filed during the last quarter of the
period covered by this report.
(c) Exhibits
Appendix A
Financial Statements of The Sussex County State Bank for the year ended
December 31, 1995.
FEDERAL DEPOSIT INSURANCE ACT SEC. 36.
EARLY IDENTIFICATION OF NEEDED IMPROVEMENTS IN FINANCIAL MANAGEMENT
<PAGE>
Management's Responsibilities for Preparing Financial Statements:
Section 36(b)(2)(A)(i) of the FDI Act specifically requires that each
insured depository institution prepare a management report which
includes a statement of the management's responsibilities for preparing
financial statements.
The financial management of the Sussex County State Bank is responsible
for the compilation of the financial information incorporated within
this report. The accompanying consolidated financial information has
been audited by the Bank's audit firm of Arthur Andersen LLP in
accordance with generally accepted auditing standards. The firm of
Arthur Andersen LLP has expressed an audit opinion which is incorporated
within Appendix A entitled, "Report of Independent Public Accountants".
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SUSSEX COUNTY STATE BANK
Date: March 24, 1996 /s/Candace Leatham
------------------
Candace Leatham
Vice President & Treasurer
/s/Donald L. Kovach
--------------------
Donald L. Kovach
Chairman of the Board/CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES
March 24, 1996 /s/Irvin Ackerson
-------------------
Irvin Ackerson
Director
March 24, 1996 /s/Donald L. Kovach
-------------------
Donald L. Kovach
Director
March 24, 1996 /s/Joseph Zitone
----------------
Joseph Zitone
Director
March 24, 1996 /s/William E. Kulsar
--------------------
William E. Kulsar
Director
March 24, 1996 /s/Joel D. Marvil
-----------------
Joel D. Marvil
Director
<PAGE>
APPENDIX A
SUSSEX COUNTY STATE BANK FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Financial Statements
Report of Independent Public Accountants
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Five-Year Summary
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Rate Sensitivity Analysis
Comparative Consolidated Average Balances
and Summary of Net Interest Margin
1995 Compared to 1994
Comparative Consolidated Average Balances
and Summary of Net Interest Margin
1994 Compared to 1993
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
The Sussex County State Bank:
We have audited the accompanying consolidated statements of condition
of The Sussex County State Bank (a New Jersey State Chartered Bank) and
subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Sussex
County State Bank and subsidiary as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/Arthur Anderson LLP
----------------------
Arthur Anderson LLP
Roseland, New Jersey
February 22, 1996
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
------------ -----------
<S> <C> <C>
CASH AND DUE FROM BANKS (Notes 2 and 11) $ 3,652,000 $ 4,325,000
FEDERAL FUNDS SOLD (Note 2):
Overnight 9,050,000 500,000
Term 1,500,000 100,000
INTEREST BEARING DEPOSITS WITH BANKS -- 100,000
------------ -----------
Cash and cash equivalents 14,202,000 5,025,000
------------ -----------
SECURITIES (Notes 2 and 3):
Available for sale, at market value 21,564,000 15,369,000
Held to maturity, at amortized cost (market value
of $2,142,000 in 1995 and $5,260,000 in 1994) 2,142,000 5,259,000
Total securities 23,706,000 20,628,000
------------ -----------
LOANS (Notes 2, 4 and 5) 52,747,000 52,066,000
Less -
Unearned income 123,000 163,000
Allowance for possible loan losses 476,000 478,000
------------ -----------
Net loans 52,148,000 51,425,000
------------ -----------
PREMISES AND EQUIPMENT, net (Notes 2 and 7) 2,307,000 2,262,000
------------ -----------
ACCRUED INTEREST RECEIVABLE 582,000 585,000
------------ -----------
OTHER REAL ESTATE (Note 2) 329,000 599,000
OTHER ASSETS (Note 9):
Intangibles 954,000 1,038,000
Other 642,000 681,000
------------ -----------
Total other assets 1,596,000 1,719,000
------------ -----------
Total assets $94,870,000 $82,243,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EOUITY
LIABILITIES:
Deposits:
Demand-- noninterest bearing $13,010,000 $12,227,000
Savings-- interest bearing 26,451,000 29,012,000
Time -- interest bearing (includes deposits $100,000
and over of $2,346,000 in 1995 and $1,289,000 in 1994) 46,464,000 33,848,000
------------ -----------
Total deposits 85,925,000 75,087,000
Accrued interest payable and other liabilities 1,336,000 510,000
------------ -----------
Total liabilities 87,261,000 75,597,000
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995 AND 1994
(continued)
1995 1994
------------ -----------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Notes 2, 3, 8, 10 and 12):
Common stock -- par value per share of $2.50, authorized
2,000,000 shares in 1995 and 1994; issued and outstanding
647,236 in 1995 and 636,711 in 1994 1,618,000 1,592,000
Additional paid-in capital 2,914,000 2,813,000
Retained earnings 3,023,000 2,818,000
Unrealized gain (loss) on securities available for sale, net of income taxes 54,000 (577,000)
------------ -----------
Total stockholders'equity 7,609,000 6,646,000
------------ -----------
Total liabilities and stockholders' equity $94,870,000 $82,243,000
============ ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,567,000 $4,386,000 $3,950,000
Interest on Federal funds sold 262,000 81,000 345,000
Interest on deposits with banks 2,000 4,000 4,000
Interest on securities -
Taxable 1,051,000 886,000 1,022,000
Exempt from Federal income tax 168,000 159,000 61,000
---------- ---------- ----------
Total interest income 6,050,000 5,516,000 5,382,000
---------- ---------- ----------
INTEREST EXPENSE 2,267,000 1,656,000 1,903,000
---------- ---------- ----------
Net interest income 3,783,000 3,860,000 3,479,000
PROVISION FOR POSSIBLE LOAN LOSSES
(Notes 2 and 5) 64,000 187,000 101,000
---------- ---------- ----------
Net interest income after provision
for possible loan losses 3,719,000 3,673,000 3,378,000
---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts 509,000 443,000 480,000
Gain on sale of other real estate and equipment 3,000 19,000 28,000
Safe deposit rental income 31,000 31,000 30,000
Trust department income (Note 2) 12,000 11,000 9,000
Other income 125,000 107,000 89,000
---------- ---------- ----------
Total other income 680,000 611,000 636,000
---------- ---------- ----------
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OTHER EXPENSES:
Salaries and employee benefits (Note 11) 1,755,000 1,609,000 1,680,000
Net occupancy expense 334,000 335,000 422,000
Furniture and equipment expense 328,000 259,000 269,000
Other operating expenses (Note 2) 1,227,000 1,247,000 1,164,000
---------- ---------- ----------
Total other expenses 3,644,000 3,450,000 3,535,000
---------- ---------- ----------
Income before provision for income taxes 755,000 834,000 479,000
PROVISION FOR INCOME TAXES (Notes 2 and 8) 254,000 234,000 129,000
---------- ---------- ----------
Net income $501,000 $600,000 $350,000
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 640,404 635,151 635,151
---------- ---------- ----------
NET INCOME PER COMMON SHARE (Note 2) $.78 $.94 $.55
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized Gain
Common Stock Additional Retained (Loss) on Securities
Shares Amount Paid-in Capital Earnings Available for Sale Total
------ ------ --------------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 634,838 $1,587,000 $2,796,000 $2,211,000 $ -- $6,594,000
Net income-- 1993 -- -- -- 350,000 -- 350,000
Cash dividends ($.20 per share) -- -- -- (127,000) -- (127,000)
Change in unrealized gain on securities
available for sale, net of income
taxes (Note 3) -- -- -- -- 106,000 106,000
------- ---------- ---------- ---------- -------- ----------
BALANCE, December 31, 1993 634,838 1,587,000 2,796,000 2,434,000 106,000 6,923,000
Net income-- 1994 -- -- -- 600,000 -- 600,000
Cash dividends ($.34 per share) -- -- -- (216,000) -- (216,000)
Shares issued through dividend
reinvestment plan 1,873 5,000 17,000 -- -- 22,000
Change in unrealized loss on securities
available for sale, net of income
taxes (Note 3) -- -- -- -- 683,000) (683,0000)
------- ---------- ---------- ---------- -------- ----------
BALANCE, December 31, 1994 636,711 1,592,000 2,813,000 2,818,000 577,000) 6,646,000
Net income-- 1995 -- -- -- 501,000 -- 501,000
Cash dividends ($.46 per share) -- -- -- (296,000) -- (296,000)
Shares issued through dividend
reinvestment plan 10,525 26,000 101,000 -- -- 127,000
Change in unrealized gain on securities
available for sale, net of income
taxes (Note 3) -- -- -- -- 631,000 631,000
------- ---------- ---------- ---------- -------- ----------
BALANCE, December 31, 1995 647,236 $1,618,000 $2,914,000 $3,023,000 $ 54,000 $7,609,000
======= ========== ========== ========== ======== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY (not covered by report of independent public accountants)
December 31
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME:
Interest income $ 6,050,000 $ 5,516,000 $ 5,382,000 $ 5,525,000 $ 5,640,000
Interest expense 2,267,000 1,656,000 1,903,000 2,483,000 2,950,000
---------- ---------- ---------- ---------- ----------
Net interest income 3,783,000 3,860,000 3,479,000 3,042,000 2,690,000
Provision for possible loan losses 64,000 187,000 101,000 23,000 47,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses 3,719,000 3,673,000 3,378,000 3,019,000 2,643,000
Other income 680,000 611,000 636,000 555,000 408,000
Other expense 3,644,000 3,450,000 3,535,000 3,293,000 2,762,000
---------- ---------- ---------- ---------- ----------
Income before provision for income
taxes 755,000 834,000 479,000 281,000 289,000
Provision for income taxes 254,000 234,000 129,000 89,000 101,000
---------- ---------- ---------- ---------- ----------
Net income $ 501,000 $ 600,000 $ 350,000 $ 192,000 $ 188,000
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF
SHARES OUTSTANDING (a) 640,404 635,151 635,151 635,151 635,151
PER SHARE INFORMATION:
Net income $.78 $.94 $.55 $.30 $.30
Cash dividends (b) $.46 $.34 $.20 $0 $.14
Stock dividends (b) 1.7% .3% 0% 5% 4.5%
PERFORMANCE YIELDS:
Return on average assets .57% .73% .43% .25% .30%
Return on average stockholders' equity 6.98% 8.84% 5.20% 2.96% 2.96%
END OF PERIOD DATA:
Total assets $94,870,000 $82,243,000 $82,444,000 $90,962,000 $64,373,000
Total deposits 85,925,000 75,087,000 75,107,000 84,190,000 57,627,000
Total stockholders' equity 7,609,000 6,646,000 6,923,000 6,594,000 6,405,000
Average assets 88,535,000 82,344,000 82,122,000 78,179,000 63,271,000
Average stockholders' equity 7,178,000 6,785,000 6,735,000 6,485,000 6,359,000
=========== =========== =========== =========== ===========
(a) The average number of shares outstanding was computed based on the
average number of shares outstanding during each period as adjusted for stock
dividends.
(b) Cash and stock dividends per common share are based on the actual number
of common shares outstanding on the dates of record as adjusted for subsequent
stock dividends.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 501,000 $ 600,000 $ 350,000
----------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation 259,000 197,000 270,000
Amortization 84,000 84,000 87,000
Provision for possible loan losses 64,000 187,000 101,000
Premium amortization and (discount accretion)
on securities, net 127,000 177,000 162,000
Accretion of loan origination and commitment fees, net (40,000) (50,000) (86,000)
Gain on sale of equipment -- (10,000) (18,000)
Loss (gain) on sale of other real estate 2,000 (9,000) (10,000)
Deferred Federal income tax provision (benefit) (6,000) 11,000 6,000
Decrease in accrued interest receivable 3,000 12,000 42,000
Decrease in other assets (385,000) (353,000) (130,000)
Increase (decrease) in accrued interest
payable and other liabilities 834,000 (95,000) 164,000
----------- ---------- -----------
Total adjustments 942,000 151,000 588,000
----------- ---------- -----------
Net cash provided by operating activities 1,443,000 751,000 938,000
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities -
Held to maturity 5,366,000 4,390,000 6,622,000
Available for sale 11,280,000 1,588,000 --
Proceeds from sales of securities -
Available for sale (16,627,000) -- --
Purchases of securities -
Held to maturity (2,171,000) (4,871,000) (11,737,000)
Proceeds from sale of other real estate 698,000 565,000 265,000
Proceeds from sale of equipment -- 10,000 20,000
Increase (decrease) in other real estate, net of sales (13,000) 209,000 227,000
Net increase in loans (1,164,000) (5,134,000) (3,713,000)
Capital expenditures (304,000) (659,000) (61,000)
----------- ---------- -----------
Net cash used in investing activities (2,935,000) (3,902,000) (8,377,000)
----------- ---------- -----------
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(continued)
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand
deposits and savings accounts ($1,778,000) ($719,000) ($2,089,000)
Net increase (decrease) in time deposits 12,616,000 699,000 (6,994,000)
Payment of dividends, net of reinvestment (169,000) (216,000) (127,000)
----------- ---------- -----------
Net cash (used in) provided by financing activities 10,669,000 (236,000) (9,210,000)
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 9,177,000 (3,387,000) (16,649,000)
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, beginning of year 5,025,000 8,412,000 25,061,000
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year $14,202,000 $ 5,025,000 $ 8,412,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ 1,715,000 $ 1,670,000 $ 1,952,000
Income taxes 201,000 138,000 90,000
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) NATURE OF OPERATIONS:
The Sussex County State Bank, (the "Bank") a New Jersey State Chartered
commercial bank, commenced operation in 1976. It provides commercial
banking and trust services for a broad range of individual and corporate
customers and various community bodies. The Bank operates seven branches
in Sussex County, New Jersey.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting policies of the Bank applied in the
preparation of the accompanying consolidated financial statements follows.
Basis of Presentation and Use of Estimates -
The consolidated financial statements include the accounts of the Bank and
an inactive wholly-owned subsidiary. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities -
Securities for which the Bank has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried
at cost adjusted for amortization of premiums and accretion of discounts
on a straight-line basis which is not materially different from the
interest method.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability strategy, or that may be
sold in response to changes in interest rates, changes in prepayment risk,
increased capital requirements or other similar factors, are classified as
available for sale and are carried at fair value. Differences between an
investment's amortized cost and fair value is charged/credited directly to
stockholders' equity, net of income taxes. The cost of securities sold is
determined on a specific identification basis. Gains and losses on sales
of securities are recognized in the income statement upon sale.
The Bank has no securities held for trading purposes as of December 31,
1995 and 1994.
Loans -
Interest is accrued on loans primarily based upon the principal amount
outstanding over the terms of the respective loan instruments. The general
policy of the Bank is to discontinue the accrual of interest income on
loans where principal or interest is past due 90 days or more and timely
collection thereof is doubtful. Loan origination and commitment fees are
deferred and accreted as a yield adjustment over the contractual life of
the related loans. The unaccreted balance is included in unearned income.
<PAGE>
Allowance For Possible Loan Losses -
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased
by provisions charged to expense and reduced by net charge-offs. The level
of the allowance is based on management's evaluation of potential losses
in the loan portfolio, after consideration of appraised collateral values,
financial condition of borrowers, as well as prevailing and anticipated
economic conditions. Credit reviews of the loan portfolio, designed to
identify potential charges to the allowance, are made on a periodic basis
during the year by senior management.
Impaired Loans -
The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan
-- Income Recognition and Disclosures, as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present
value of expected future cash flows discounted at the loans original
effective interest rate. As a practical expedient, impairment may be
measured based on the loans observable market price or the fair value of
the collateral if the loan is collateral dependent. When the measure of
the impaired loan is less than the recorded investment in the loan, the
impairment is recorded through a valuation allowance. This statement is
not applicable to large groups of smaller-homogeneous loans, such as
residential mortgage loans, credit card loans and consumer loans, which
are collectively evaluated for impairment.
The Bank had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of
adopting these statements, no additional allowance for loan losses was
required as of January 1, 1995.
Other Real Estate -
Other real estate includes loan collateral that has been formally
repossessed. All amounts have been transferred into and carried in other
real estate at the lower of the loan value or fair market value less
estimated costs to sell the underlying collateral. During 1995 and 1994,
the Bank incurred expenses and received rents related to the operation of
such properties and made adjustments to their carrying values resulting in
net income of $17,000 in 1995 and net expenses of $61,000 and $81,000 in
1994 and 1993, respectively, which is included in other operating expenses
in the accompanying financial statements.
Intangibles -
Core deposit intangibles relating to premiums paid on the acquisition of
deposits are amortized on a straight-line basis over 15 years.
Premises and Equipment -
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on the
straight-line method over the shorter of the estimated lives of the
related assets or the lease term. Maintenance and repairs are charged to
operations as incurred.
<PAGE>
Income Taxes -
The Bank uses the liability method of computing deferred income taxes.
Deferred income taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities.
Statement Of Cash Flows -
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, noninterest bearing amounts due from banks and Federal funds
sold. Generally, overnight Federal funds sold are for a one day period and
term Federal funds are sold for a 30 to 60-day period.
Net Income Per Common Share -
Per share amounts are computed by dividing net income by the weighted
average number of common shares outstanding during the year. The dilutive
effect of stock options is not material.
Trust Operations -
Trust income is recorded on a cash basis, which approximates the accrual
basis. Securities and other property held by the Bank in fiduciary or
agency capacities for customers of the trust department are not assets of
the Bank and, accordingly, are not included in the accompanying
consolidated financial statements.
New Financial Accounting Standards -
The Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in March 1995. This statement is effective for
the year ended December 31, 1996. Statement No. 121 requires that
long-lived assets to be held and used by the Bank be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Bank is currently
completing its review of the impact of Statement 121 on its financial
statements but does not expect it to be material.
(3) SECURITIES:
Information relative to the Bank's securities portfolio as of December 31,
is as follows -
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Available for Sale -
U. S. Treasury securities $ 7,637,000 $121,000 ($11,000) $ 7,747,000
U. S. Government mortgage-backed securities 13,835,000 41,000 (59,000) 13,817,000
----------- -------- ----------- -----------
Total $21,472,000 $162,000 ($70,000) $21,564,000
=========== ======== =========== ===========
<PAGE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Held to Maturity -
Obligations of state and political subdivisions $ 1,671,000 $ -- $ -- $ 1,671,000
Other debt securities 471,000 -- -- 471,000
----------- -------- ----------- -----------
Total $ 2,142,000 $ -- $ -- $ 2,142,000
=========== ======== =========== ===========
1994
Available for Sale -
U. S. Treasury securities $ 7,186,000 $ -- ($246,000) $ 6,940,000
U. S. Government mortgage-backed securities 9,145,000 1,000 (717,000) 8,429,000
----------- -------- ----------- -----------
Total $16,331,000 $ 1,000 ($963,000) $15,369,000
=========== ======== =========== ===========
Held to Maturity -
Obligations of state and political subdivisions $ 4,865,000 $ 1,000 $ -- $ 4,866,000
Other debt securities 394,000 -- -- 394,000
----------- -------- ----------- -----------
Total $ 5,259,000 $ 1,000 $ -- $ 5,260,000
=========== ======== =========== ===========
</TABLE>
<PAGE>
The amortized cost and estimated market value of securities at December
31, 1995, by contractual maturity, are shown below for securities to be
held to maturity and available for sale. Expected maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
----------- -----------
<S> <C> <C>
Available for sale -
Due in one year or less $ 2,000,000 $ 1,989,000
Due after one year through five years 12,137,000 12,291,000
----------- -----------
Total 14,137,000 14,280,000
U. S. Government mortgage-backed securities 7,335,000 7,284,000
----------- -----------
Total available for sale $21,472,000 $21,564,000
=========== ===========
Held to maturity -
Due in one year or less $ 2,142,000 $ 2,142,000
=========== ===========
</TABLE>
Securities available for sale as of December 31, 1995 have been recorded
at their fair value with the net unrealized gain of $92,000 (net of income
tax effect of $36,000) reflected as a decrease to stockholders' equity. At
December 31, 1995, U. S. Treasury securities having a book value of
$300,000 were pledged to secure public deposits and for other purposes as
required by law.
(4) LOANS:
Loans outstanding by classification at December 31 are as follows -
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Loans secured by one to four family
residential properties $39,620,000 $39,039,000
Loans secured by nonresidential properties 9,796,000 10,051,000
Loans to individuals 1,615,000 1,627,000
Commercial loans 1,647,000 1,274,000
Other loans 69,000 75,000
----------- -----------
Gross loans $52,747,000 $52,066,000
=========== ===========
</TABLE>
<PAGE>
Loans made by the Bank are generally made in the local and surrounding
communities in which it operates.
(5) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known. Changes in the
allowance for possible loan losses are summarized as follows -
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $478,000 $440,000 $440,000
Provision charged to expense 64,000 187,000 101,000
Loans charged off (68,000) (183,000) (168,000)
Recoveries of charged off loans 2,000 34,000 67,000
-------- -------- --------
Balance, end of year $476,000 $478,000 $440,000
======== ======== ========
</TABLE>
Nonperforming loans include nonaccrual loans, renegotiated loans and loans
which are 90 days delinquent. Nonaccrual loans include loans for which
accrual of interest income has been discontinued. Renegotiated loans are
loans for which the terms have been modified to provide a reduction or
deferral of interest or principal due to a deterioration in the financial
position of the borrower.
The principal amounts of nonperforming loans were $1,714,000 and
$1,794,000 at December 31, 1995 and 1994, respectively, which includes
$1,621,000 and $1,791,000 of nonaccrual loans, respectively. If interest
had been accrued on the nonaccrual loans, the effect on net interest
income would have been approximately $101,000 and $310,000, respectively.
In accordance with SFAS No. 114, the Bank utilized the following
information when measuring its allowance for possible loan losses. A loan
is considered impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of nonaccrual loans but may
include performing loans to the extent that situations arise which would
reduce the probability of collection in accordance with the contractual
terms. As of December 31, 1995, the Bank's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114
are as follows -
<TABLE>
<CAPTION>
Recorded Valuation
Investment Allowance
---------- ---------
<S> <C> <C>
Impaired loans -
Valuation allowance required $2,310,000 $370,000
No valuation allowance required -- --
---------- --------
Total impaired loans $2,310,000 $370,000
========== ========
</TABLE>
<PAGE>
This valuation allowance is included in the allowance for possible loan
losses on the accompanying statement of condition. The average recorded
investment in impaired loans for the period ended December 31, 1995 was
$2,213,000. Interest payments received on impaired loans are recorded as
interest income unless collection of the remaining recorded investment is
doubtful at which time payments received are recorded as reductions of
principal. The Bank recognized interest income on impaired loans of
$152,000 for the period ended December 31, 1995.
(6) RELATED PARTIES:
The Bank has extended credit in the ordinary course of business to various
directors, executive officers and their associates. A summary of the
changes in such loans are as follows -
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $1,354,000
New loans 407,000
Repayments (367,000)
----------
Balance, end of year $1,394,000
</TABLE>
As of December 31, 1995, all loans to directors, executive officers and
their associates were current as to principal and interest payments.
Certain directors of the Bank are associated with legal and accounting
firms that rendered various services to the Bank. The Bank paid the firms
approximately $99,000, $66,000 and $97,000 during 1995, 1994 and 1993,
respectively for legal and tax services.
(7) PREMISES AND EQUIPMENT:
A summary of premises and equipment as of December 31 are as follows -
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land $ 417,000 $ 417,000
Buildings 1,513,000 1,503,000
Furniture and equipment 2,505,000 2,228,000
Leasehold improvements 163,000 153,000
---------- ----------
4,598,000 4,301,000
Less-Accumulated depreciation and amortization 2,291,000 2,039,000
---------- ----------
$2,307,000 $2,262,000
========== ==========
</TABLE>
(8) EMPLOYEE BENEFIT PLANS:
The Bank maintains a qualified nonleveraged employee stock ownership plan
for substantially all employees. The plan provides that a contribution not
to exceed that allowed by the Internal Revenue Service may be made at the
discretion of the Board of Directors. The plan expense for the year ended
December 31, 1993 amounted to $111,000. No contributions were approved in
1995 and 1994. In July 1994, the Bank established a 401(k) savings plan
covering substantially all employees. Under the plan, the Bank matches 50%
of employee contributions for all participants, not to exceed 6% of their
salary. Contributions made by the Bank were approximately $24,000 in 1995
and $8,000 in 1994.
<PAGE>
(9) INCOME TAXES:
The components of the provision for income taxes for 1995, 1994 and 1993,
are as follows -
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal income taxes (benefit) -
Current ............................. $ 190,000 $ 183,000 $ 92,000
Deferred ............................ (6,000) 11,000 6,000
State .................................. 70,000 40,000 31,000
--------- --------- ---------
Total ............................ $ 254,000 $ 234,000 $ 129,000
========= ========= =========
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Bank's assets and
liabilities. Cumulative temporary differences at December 31, 1995 and
1994 are as follows-
<TABLE>
<CAPTION>
Deferred Tax
Asset (Liability)
1995 1994
-------- --------
<S> <C> <C>
Allowance for possible loan losses $162,000 $163,000
Loan fee income recognition 42,000 55,000
Accrued liabilities 51,000 --
Depreciation and amortization (114,000) (83,000)
Unrealized (gain) loss on securities
available for sale (36,000) 385,000
-------- --------
$105,000 $520,000
</TABLE>
As of December 31, 1995, the Bank had recorded a cumulative net deferred
tax asset of approximately $105,000. A comparison of income tax expense at
the Federal statutory rate in 1995, 1994 and 1993 to the Bank's provision
for income taxes is as follows -
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
At statutory rate $257,000 $284,000 $163,000
Increase (decrease) from statutory
rate resulting from -
Tax-exempt interest income (46,000) (45,000) (24,000)
State income taxes, net of Federal tax benefit 46,000 27,000 20,000
Alternative minimum tax credit -- -- (23,000)
Other (3,000) (32,000) (7,000)
-------- -------- --------
Provision for income taxes $254,000 $234,000 $129,000
</TABLE>
<PAGE>
(10) STOCKHOLDERS' EQUITY:
Nonqualified Stock Option Plan -
During 1988, the stockholders approved a nonqualified stock option plan
(the Plan). As of December 31, 1995, there were 31,857 authorized shares
of the Bank's common stock to be granted. Options may be granted to any
officer of the Bank, at a grant price not to be less than the higher of
the par value of the stock or 85% of its fair market value at the grant
date. Options are exercisable when granted with the option period
determined by the Bank's Board of Directors, but not to exceed five years.
As of December 31, 1995, no options have been granted.
Stock Option Plan for Nonemployee Directors -
During 1995, the stockholders approved a stock option plan for nonemployee
directors (the Director Plan). As of December 31, 1995, there were 32,000
authorized shares of the Bank's common stock to be granted. Upon approval
of the Director Plan, each director was granted an option to purchase
2,500 shares. In addition to the foregoing, each person serving as a
nonemployee director on the date of each annual meeting of the
shareholders who is elected or reelected as a nonemployee director of the
Bank at such annual meeting of stockholders, shall be granted an option to
purchase 500 shares of the Bank's common stock with a maximum of 7,500
shares total. The option price under each grant shall not be less than the
fair market value on the date of the grant. Options are exercisable in
their entirety six months after the date of the grant and expire after 10
years. As of December 31, 1995, 18,000 options at $11.25 were outstanding,
none were exercisable and none have been forfeited.
Incentive Stock Option -
Plan During 1995, the stockholders approved an incentive stock option plan
for executives of the bank (the Executive Plan). As of December 31, 1995
there were 64,000 authorized shares of the Bank's common stock to be
granted. Executive Plan options are granted at the sole discretion of the
Bank. The option price under each grant shall not be less than the fair
market value on the date of grant. The Bank may establish a vesting
schedule that must be satisfied before the options may be exercised; but
not within six months after the date of grant and have a term not longer
than 10 years from the date of grant. No options were granted or
outstanding during 1995.
(11) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Bank from time-to-time may be a defendant in legal proceedings
relating to the conduct of its business. In management's judgment, the
consolidated financial position or results of operations of the Bank will
not be affected materially by the outcome of any present legal
proceedings.
<PAGE>
Commitments With Off-Balance Sheet Risk -
The statement of condition does not reflect various commitments relating
to financial instruments which are used in the normal course of business.
Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Bank's financial
position. These instruments include commitments to extend credit and
letters of credit. These financial instruments carry various degrees of
credit risk, which is defined as the possibility that a loss may occur
from the failure of another party to perform according to the terms of the
contract.
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Bank receives a fee for
providing a commitment. The Bank was committed to advance $6,102,000 to
its borrowers as of December 31, 1995; such commitments generally expire
within one year.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. The Bank has entered
into standby letter of credit contracts with its customers totaling
$15,000 as of December 31, 1995, which generally expire within one year.
Executive Severance Arrangement -
On December 27, 1995, the Bank terminated the services of its chief
executive officer effective January 17, 1996. The Bank is currently
negotiating an appropriate severance arrangement with the officer since no
formal employment agreement was in existence. As of December 31, 1995, the
Bank accrued approximately $150,000 representing its estimate of the
settlement amount, including related payroll taxes.
Required Cash Balances -
Cash balances reserved to meet regulatory requirements amounted to
approximately $400,000 at December 31, 1995 and 1994, respectively.
Operating Leases The Bank leases one of its branch offices from a company
which is majority owned by a director at an annual rental of $20,000. The
minimum annual rental commitments for all noncancellable leases for bank
premises subsequent to December 31, 1995, are as follows -
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1996 $ 45,300
1997 45,300
1998 19,600
1999 3,000
2000 and thereafter 52,500
--------
Total $165,700
========
</TABLE>
<PAGE>
Total rental expense amounted to $53,000, $54,000 and $93,000 in 1995,
1994 and 1993, respectively.
(12) REGULATORY CAPITAL REQUIREMENTS:
The Bank's regulators provide that the Bank must adhere to three minimum
capital requirements. These regulations require, at a minimum, Tier I
capital to risk-weighted assets of at least 4%, total capital of at least
8% of risk-weighed assets, and a leverage ratio of at least 3% to 5% of
adjusted assets. At December 31, 1995, they had Tier I capital, total
capital and leverage ratios of 15.25%, 16.33% and 7.33%, respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following is a summary of fair value versus the carrying value of the
Bank's financial instruments. For the Bank, as for most financial
institutions, the bulk of its assets and liabilities are considered
financial instruments. Many of the Bank's financial instruments lack an
available trading market as characterized by a willing buyer and willing
seller engaging in an exchange transaction. It is also the Bank's general
practice and intent to hold its financial instruments to maturity and not
engage in trading or sales activities. Therefore, significant estimations
and present value calculations were used by the Bank for the purpose of
this disclosure. Estimated fair values have been determined by the Bank
using the best available data and an estimation methodology suitable for
each category of financial instruments. The estimation methodologies used,
the estimated fair values, and the recorded book balances, were as follows
Financial instruments actively traded in the secondary market have been
valued using available market prices.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------
Carrying Estimated
Value Fair Value
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 4,925,000 $ 4,925,000
Securities available for sale (Note 3) 15,369,000 15,369,000
Securities held to maturity (Note 3) 2,142,000 2,142,000
</TABLE>
Financial instruments with stated maturities have been valued using a
present value discounted cash flow with a discount rate approximating
current market for similar assets and liabilities. For those loans and
deposits with floating interest rates, it is assumed that estimated fair
values generally approximate the recorded book balances.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------
Carrying Estimated
Value Fair Value
----------- -----------
<S> <C> <C>
Loans, including accrued interest $52,754,000 $53,023,000
Deposits, including accrued interest 86,604,000 87,400,000
</TABLE>
<PAGE>
There is no material difference between the notional amount and the
estimated fair value of off-balance sheet unfunded loan commitments which
totaled $6,102,000 at December 31, 1995. Standby letters of credit
totaling $15,000 as of December 31, 1995 are based on fees charged for
similar agreements; accordingly, the estimated fair value of standby
letters of credit is nominal. See also Note 11 for additional discussion
relating to these off balance-sheet activities.
<PAGE>
Sussex County State Bank
Rate Sensitivity Analysis
December 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1-30 31-90 91-180 181 Days- Over
Subject to Rate Change within: Days Days Days 1 Year 1 Year
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets $ 9,540 $ 2,360 $ 7,368 $ 10,956 $ 71,564
Interest Earning Liabilities $ 13,020 $ 2,737 $ 4,303 $ 39,923 $ 62,861
Cumulative Dollar Gap $ (3,480) $ (377) $ 3,065 $(28,967) $ 8,703
Cumulative Gap Ratio
(Assets\Liabilities) .73 .76 .96 .50 1.14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sussex County State Bank
Comparative Consolidated Average Balances and Summary of Net Interest Margin
(Fully Taxable Equivalent Basis)
--------------------
(Dollars in Thousands)
1995 Comparted With 1994
-------------------------------------------------------------------------
1995 1994
------------------------------------ ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-Term Investments:
Federal Funds Sold ................. $ 4,472 263 5.88% $ 2,132 82 3.85%
Interest Bearing Deposits with Banks 45 0 0.00 100 1 1.00
Other Short-Term Investments ....... 0 0 0.00 0 0 0.00
-------- ----- ------- -----
Total Short-Term Investments . 4,517 263 5.82 2,232 83 3.72
Investments Securities:
U.S. Treasury ...................... 7,525 398 5.29 7,938 384 4.84
U.S. Government Agency ............. 10,121 617 6.10 9,136 469 5.13
State & Municipal .................. 3,823 242 6.32 4,896 227 4.64
Other Securities ................... 463 35 7.56 391 29 7.42
-------- ----- ------- -----
Total Investment Securities .. 21,932 1,292 5.89 11,686 1,109 4.96
Trading Account Securities............. 0 0 0.00 0 0 0.00
Loans:
Commercial ......................... 3,211 282 8.78 2,963 246 8.29
Consumer ........................... 14,567 1,308 8.98 13,851 1,229 8.87
Real Estate Mortgages .............. 35,198 2,904 8.25 34,066 2,808 8.24
Lease Financing .................... 0 0 0.00 0 0 0.00
-------- ----- ------- -----
Total Loans 52,976 4,494 8.48 50,880 4,283 8.42
-------- ----- ------- -----
Total Earning Assets ......... 79,425 6,049 7.62 75,473 5,475 7.25
-------- ----- ------- -----
Allowance for Loan Losses ............. (492) (517)
Cash & Due from Banks ................. 3,411 3,365
Premises & Equipment .................. 2,284 1,981
Other Real Estate ..................... 386 672
Other Assets .......................... 2,305 2,086
-------- ---------
Total Assets ................. $ 87,319 $ 83,060
======== =========
<PAGE>
<CAPTION>
Rate/Volume Analysis
(Fully Taxable Equivalent Basis)
---------------------------------
Increase/Decrease in Interest
---------------------------------
Due to Change in
Volume Rate Days Total
------ ---- ---- -----
<S> <C> <C> <C> <C>
ASSETS
Short-Term Investments:
Federal Funds Sold ...................... $ 122 $ 59 0 181
Interest Bearing Deposits with Banks .... 0 (1) 0 (1)
Other Short-Term Investments ............ 0 0 0 0
----- ---- - ---
Total Short-Term Investments ...... 122 58 0 180
Investments Securities:
U.S. Treasury ........................... (21) 35 0 14
U.S. Government Agency .................. 54 94 0 148
State & Municipal ....................... (56) 71 0 15
Other Securities ........................ 0 0 0 6
----- ---- - ---
Total Investment Securities ....... (23) 200 0 183
Trading Account Securities ................. 0 0 0 0
Loans:
Commercial .............................. 21 15 0 36
Consumer ................................ 64 15 0 79
Real Estate Mortgages ................... 93 3 0 96
Lease Financing ......................... 0 0 0 0
----- ---- - ---
Total Loans 178 33 0 211
----- ---- - ---
Total Earning Assets .............. 277 291 0 574
----- ---- - ---
Allowance for Loan Losses
Cash & Due from Banks
Premises & Equipment
Other Real Estate
Other Assets
Total Assets
<PAGE>
<CAPTION>
Sussex County State Bank
Comparative Consolidated Average Balances and Summary of Net Interest Margin
(Fully Taxable Equivalent Basis)
--------------------
(Dollars in Thousands)
(CONTINUED)
1995 Comparted With 1994
----------------------------------------------------------------------
1995 1994
---------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Interest Bearing Deposits:
NOW Accounts ........................... $11,446 $ 208 1.82 $11,927 216 1.81
Money Market Accounts .................. 5,203 115 2.21 6,689 149 2.23
Savings ................................ 26,849 669 2.49 30,582 755 2.47
CD's IRA ............................... 5,157 254 4.93 4,829 176 3.64
CD's $100,000 & Over ................... 2,206 102 4.62 1,344 36 2.68
Other Time Deposits .................... 16,618 918 5.52 9,031 314 3.48
-------- ------- ------- -----
Total Interest Bearing Deposits .. 67,479 2,266 3.36 63,241 1,646 2.56
Short-Term Borrowings
Federal Funds Purchased ................ 11 0 0.00 32 2 0.00
Repurchase Agreements .................. 0 0 0.00 0 0 0.00
Other Short-Term Borrowings ............ 0 0 0.00 0 0 0.00
-------- ------- ------- -----
Total Short-Term Borrowings ...... 11 0 0.00 32 2 0.00
Long-Term Debt ............................ 0 0 0.00 0 0 0.00
-------- ------- ------- -----
Total Interest Bearing Liabilities 67,490 2,266 3.36 64,434 1,648 2.55
------- -----
Demand Deposits ........................... 11,879 11,562
Other Liabilities ......................... 796 431
Stockholders' Equity ...................... 7,154 6,633
-------- -------
Total Liabilities & Stockholder's
Equity ........................ $87,319 $83,060
======= =======
Average Rate Paid to Fund Earning Assets .. 2.85 2.18
---- ----
NET INTEREST SPREAD ....................... $ 3,783 4.77% $ 3,827 5.07%
======= ==== ======= ====
<PAGE>
<CAPTION>
Rate/Volume Analysis
(Fully Taxable Equivalent Basis)
---------------------------------
Increase/Decrease in Interest
---------------------------------
Due to Change in
Volume Rate Days Total
------ ---- ---- -----
<S> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Interest Bearing Deposits:
NOW Accounts ............................. (9) 1 0 (8)
Money Market Accounts .................... (33) (1) 0 (34)
Savings .................................. (92) 6 0 (86)
CD's IRA ................................. 13 65 0 78
CD's $100,000 & Over ..................... 31 35 0 66
Other Time Deposits ...................... 356 248 0 604
--- --- - ---
Total Interest Bearing Deposits .... 266 354 0 620
Short-Term Borrowings
Federal Funds Purchased .................. 0 0 0 (2)
Repurchase Agreements .................... 0 0 0 0
Other Short-Term Borrowings .............. 0 0 0 0
--- --- - ---
Total Short-Term Borrowings ........ 0 0 0 (2)
Long-Term Debt .............................. 0 0 0 0
--- --- - ---
Total Interest Bearing Liabilities . 266 354 0 618
--- --- - ---
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Liabilities & Stockholder's
Equity
Average Rate Paid to Fund Earning Assets ....
NET INTEREST SPREAD ......................... $ 11 $(631) 0 (44)
===== ===== = ===
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sussex County State Bank
Comparative Consolidated Average Balances and Summary of Net Interest Margin
(Fully Taxable Equivalent Basis)
--------------------
(Dollars in Thousands)
1994 Comparted With 1993
-------------------------------------------------------------------------
1994 1993
------------------------------------ ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-Term Investments:
Federal Funds Sold ................. $ 2,132 82 3.85% $11,297 344 3.05 %
Interest Bearing Deposits with Banks 100 1 1.00 100 1 1.00
Other Short-Term Investments ....... 0 0 0.00 0 0 0.00
-------- ----- ---- ------ ----- ----
Total Short-Term Investments . 2,232 83 3.72 11,397 345 3.03
Investments Securities:
U.S. Treasury ...................... 7,938 384 4.84 7,188 389 5.41
U.S. Government Agency ............. 9,136 469 5.13 9,569 618 6.46
State & Municipal .................. 4,896 227 4.64 1,349 88 6.55
Other Securities ................... 391 29 7.42 207 18 8.70
-------- ----- ------ ----- ----
Total Investment Securities .. 22,361 1,109 4.96 18,313 1,113 6.08
Trading Account Securities ............ 0 0 0.00 0 0 0.00
Loans:
Commercial ......................... 2,963 246 8.29 3,273 278 8.48
Consumer ........................... 13,851 1,229 8.87 11,283 967 8.57
Real Estate Mortgages .............. 34,066 2,808 8.24 29,160 2,571 8.82
Lease Financing .................... 0 0 0.00 0 0 0.00
-------- ----- ------ ----- ----
Total Loans 50,880 4,283 8.42 43,716 3,816 8.73
-------- ----- ------ ----- ----
Total Earning Assets ......... 75,473 5,475 7.25 73,426 5,274 7.18
-------- ----- ---- ------ ----- ----
Allowance for Loan Losses ............. (517) (459)
Cash & Due from Banks ................. 3,365 3,862
Premises & Equipment .................. 1,981 1,930
Other Real Estate ..................... 672 1,235
Other Assets .......................... 2,086 2,128
-------- -------
Total Assets ................. $ 83,060 $82,122
======== =======
<PAGE>
<CAPTION>
Rate/Volume Analysis
(Fully Taxable Equivalent Basis)
---------------------------------
Increase/Decrease in Interest
---------------------------------
Due to Change in
Volume Rate Days Total
------ ---- ---- -----
<S> <C> <C> <C> <C>
ASSETS
Short-Term Investments:
Federal Funds Sold ....................... $(335) $ 73 0 (262)
Interest Bearing Deposits with Banks ..... 0 0 0 0
Other Short-Term Investments ............. 0 0 0 0
----- ----- - ----
Total Short-Term Investments ....... (335) 73 0 (262)
Investments Securities:
U.S. Treasury ............................ 38 (43) 0 (5)
U.S. Government Agency ................... (27) (122) 0 (149)
State & Municipal ........................ 172 (33) 0 139
Other Securities ......................... 14 (3) 0 11
----- ----- - ----
Total Investment Securities ........ 197 (201) 0 (4)
Trading Account Securities .................. 0 0 0 0
Loans:
Commercial ............................... (26) (6) 0 (32)
Consumer ................................. 227 35 0 262
Real Estate Mortgages .................... 414 (177) 0 237
Lease Financing .......................... 0 0 0 0
----- ----- - ----
Total Loans ........................ 615 (148) 0 467
----- ----- - ----
Total Earning Assets ............... 477 (276) 0 201
----- ----- - ----
Allowance for Loan Losses
Cash & Due from Banks
Premises & Equipment
Other Real Estate
Other Assets
Total Assets
<PAGE>
<CAPTION>
Sussex County State Bank
Comparative Consolidated Average Balances and Summary of Net Interest Margin
(Fully Taxable Equivalent Basis)
--------------------
(Dollars in Thousands)
(CONTINUED)
1994 Comparted With 1993
----------------------------------------------------------------------
1994 1993
---------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Interest Bearing Deposits:
NOW Accounts ........................... $11,927 216 1.81 $11,023 234 2.12
Money Market Accounts .................. 6,689 149 2.23 6,858 167 2.44
Savings ................................ 30,582 755 2.47 28,207 802 2.84
CD's IRA ............................... 4,829 176 3.64 5,870 258 4.40
CD's $100,000 & Over ................... 1,344 36 2.68 1,358 47 3.46
Other Time Deposits .................... 9,031 314 3.48 10,637 395 3.71
------ ----- ------- -----
Total Interest Bearing Deposits .. 64,402 1,646 2.56 63,953 1,903 2.98
Short-Term Borrowings
Federal Funds Purchased ................ 32 2 0.00 0 0 0.00
Repurchase Agreements .................. 0 0 0.00 0 0 0.00
Other Short-Term Borrowings ............ 0 0 0.00 0 0 0.00
------ ----- ------- -----
Total Short-Term Borrowings ...... 32 2 0.00 0 0 0.00
Long-Term Debt ............................ 0 0 0.00 0 0 0.00
------ ----- ------- -----
Total Interest Bearing Liabilities 64,354 1,648 2.55 63,953 1,903 2.98
Demand Deposits ........................... 11,562 11,007
Other Liabilities ......................... 431 427
Stockholders' Equity ...................... 6,633 6,735
------- -------
Total Liabilities & Stockholder's
Equity ........................ $83,060 $82,122
======= =======
Average Rate Paid to Fund Earning Assets .. 2.18 2.59
---- ----
NET INTEREST SPREAD ....................... $ 3,827 5.07% $ 3,371 4.59%
======= ==== ======= ====
<PAGE>
<CAPTION>
Rate/Volume Analysis
(Fully Taxable Equivalent Basis)
---------------------------------
Increase/Decrease in Interest
---------------------------------
Due to Change in
Volume Rate Days Total
------ ---- ---- -----
<S> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Interest Bearing Deposits:
NOW Accounts ........................... 18 (36) 0 (18)
Money Market Accounts .................. (4) (14) 0 (18)
Savings ................................ 63 (110) 0 (47)
CD's IRA ............................... (42) (40) 0 (82)
CD's $100,000 & Over ................... 0 (11) 0 (11)
Other Time Deposits .................... (57) (24) 0 (81)
----- ---- - -----
Total Interest Bearing Deposits .. (22) (235) 0 (257)
Short-Term Borrowings
Federal Funds Purchased ................ 0 0 0 2
Repurchase Agreements .................. 0 0 0 0
Other Short-Term Borrowings ............ 0 0 0 0
----- ---- - -----
Total Short-Term Borrowings ...... 0 0 0 0
Long-Term Debt ............................ 0 0 0 0
----- ---- - -----
Total Interest Bearing Liabilities (22) (235) 0 (235)
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Liabilities & Stockholder's
Equity
Average Rate Paid to Fund Earning Assets ..
NET INTEREST SPREAD ....................... $ 499 $ (41) $ 0 $456
===== ===== ===== ====
</TABLE>
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
F. D. I. C. INSURANCE CERTIFICATE NUMBER 22221-6
SUSSEX COUNTY STATE BANK
399 ROUTE 23
FRANKLIN, NEW JERSEY 07416
(201) 827-2914
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) YES [X] NO [ ]
(2) YES [X] NO [ ]
672,460 SHARES OF $2.50 PAR VALUE COMMON STOCK
OUTSTANDING AT 10/09/96
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
The changes in Sussex County State Bank's balance sheet during the third quarter
of 1996 are detailed in the following analysis. The $10.9 million increase in
our loan portfolio is primarily attributable to the offering of competitive
interest rates on Home Equity products and mortgages in the 15 year category.
Also the decrease that is reflective in the federal funds sold category is
synonomous with the increase in our loan portfolio as well. Total Stockholders
Equity reflects an increase of $381 thousand which reflects a 3% stock dividend
paid to shareholders in May, and also includes our shareholders enrollment in
the Bank's Dividend Reinvestment Plan and as it relates to Undivided Profits
results from year-to-date earnings of $440 thousand less a cash dividend payment
of $154 thousand or $.23 per share. As it relates to unrealized gain on
securities available-for-sale, there was a $328 thousand decrease.
RESULTS OF OPERATIONS
For the nine months ended September 30, 1996, net income was $440 thousand,
representing a $25 thousand increase from the $415 thousand earned during the
same period last year. This is primarily attributable to higher net interest
income coupled with higher non-interest income. This is primarily the result of
growth in the Bank's loan portfolio.
Interest Expense on deposits has increased by $394 thousand as compared to the
same period last year. This is attributable to our increase in Time Deposits by
offering competitive rates.
Also our Provision for Loan Loss has increased $55 thousand as compared to the
same period last year. The primary reason is due to the increase in our loan
portfolio.
Salaries and employee benefits shows an increase of $52 thousand which is the
combination of a salary program instituted and an increase in enrollment in our
401K program.
<PAGE>
<TABLE>
<CAPTION>
SUSSEX COUNTY STATE BANK
BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(000 Omitted)
Sept. 30, Dec. 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and due from banks:
(1) interest bearing deposits ......................... $ 0 $ 0
(2) non-interest bearing deposits and cash ............ 5,291 3,652
U. S. Treasury securities and securities of U. S. Government
agencies - AFS ....................................... 22,116 21,564
Obligations of states and political subdivisions - HTM ..... 1,690 2,142
Federal Funds Sold ......................................... 1,575 10,550
Loans, less reserve for loan losses and unearned discount .. 63,026 52,148
Bank premises and equipment, net ........................... 2,212 2,307
Accrued interest receivable ................................ 688 582
Other assets ............................................... 2,180 1,925
-------- --------
TOTALS .............................................. $ 98,778 $ 94,870
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits ....................................... $ 13,648 $ 13,010
Savings deposits ...................................... 27,042 26,451
Time deposits ......................................... 49,351 46,464
-------- --------
Total Deposits ...................................... $ 90,041 $ 85,925
-------- --------
Accrued interest payable .............................. 886 679
Other Liabilities...................................... 189 657
-------- --------
Total Liabilities ................................... $ 1,075 $ 87,262
-------- --------
Stockholders' Equity:
Common stock, $2.50 par value;
2,000,000 shares authorized,
672,460 shares outstanding .......................... $ 1,681 $ 1,618
Surplus ............................................... 3,278 2,914
Undivided profits ..................................... 2,977 3,023
Unrealized gain (loss) net on AFS ..................... (274) 54
-------- --------
Total Stockholders' Equity .......................... $ 7,662 $ 7,609
-------- --------
TOTALS .............................................. $ 98,778 $ 94,870
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX COUNTY STATE BANK
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(000 Omitted)
Qtr. Ending Qtr. Ending Year-to-date Year-to-date
Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans .............................. $1,262 $1,145 $3,652 $3,429
Interest on investment securities
U. S. Treasury securities and
securities of U. S. Government agencies............... 361 264 1,140 691
Obligations of states and
political subdivisions ............................... 6 46 31 141
Interest on balances due from
depository institutions .............................. 0 0 0 2
Other interest income, federal
funds sold ........................................... 26 112 159 184
------ ------ ------ ------
Total Interest Income ......................... $1,655 $1,567 $4,982 $4,447
Interest Expense, interest on deposits ..................... 654 629 1,990 1,596
------ ------ ------ ------
Net Interest Income ...................................... $1,001 $ 938 $2,992 $2,851
Provision for loan losses ................................ 45 15 85 30
------ ------ ------ ------
Net Interest Income After Provision
for Loan Losses ............................... $ 956 $ 923 $2,907 $2,821
------ ------ ------ ------
Other Income:
Service charges on deposit
accounts ............................................. $ 130 $ 139 $ 385 $ 392
Other Operating Income .................................. 26 12 120 101
------ ------ ------ ------
Total Other Income ............................ $ 156 $ 151 $ 505 $ 493
Other Expenses:
Salaries and employees' benefits ........................ $ 440 $ 403 $1,284 $1,231
Net occupancy expense of premises
and furniture ......................................... 159 161 515 497
Other expenses .......................................... 287 371 904 1,021
------ ------ ------ ------
Total Other Expenses .......................... $ 886 $ 935 $2,703 $2,749
------ ------ ------ ------
Income Before Income Tax Expense ........................ $ 226 $ 139 709 565
Income tax expense ...................................... 87 8 269 150
------ ------ ------ ------
Income ........................................ $ 139 $ 131 $ 440 $ 415
------ ------ ------ ------
Earnings per Share, Net Income .......................... $ .21 $ .20 $ .67 $ .64
------ ------ ------ ------
</TABLE>
Calculation
1995 - Average share's outstanding - 644,402/income = Earnings per Share
1996 - Average share's outstanding - 659,821/income = Earnings per Share
<PAGE>
<TABLE>
<CAPTION>
SUSSEX COUNTY STATE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPT 30, 1996 AND 1995
(000 Omitted)
Unrealized
Gain Total
Common Undivided (Loss) Equity
Stock Surplus Profits on AFS Capital
----- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
BALANCES - January 1, 1996 ........................... $ 1,618 $ 2,914 $ 3,023 $ 54 $ 7,609
Net Income - for six months
ended Sept 30, 1996 ................................ 440 440
Stock Dividends .................................... 62 360 422
Cash Dividends ..................................... (486) (486)
Unrealized Gain (Loss) AFS Net ..................... (328) (328)
Stock Option ....................................... 1 4 5
------- ------- ------- ------- -------
BALANCES - Sept 30, 1996 ............................. $ 1,681 $ 3,278 $ 2,977 $ (274) $ 7,662
------- ------- ------- ------- -------
BALANCES - January 1, 1995 ........................... $ 1,591 $ 2,813 $ 2,818 $ (577) $ 6,645
Net Income - for six months
ended June 30, 1995 ................................ 415 415
Stock Dividends .................................... 20 68 88
Cash Dividends ..................................... (211) (211)
Unrealized Gain (Loss) AFS Net ..................... 485 485
======= ======= ======= ======= =======
BALANCES - June 30, 1995 ............................. $ 1,611 $ 2,881 $ 3,022 (92) $ 7,422
======= ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX COUNTY STATE BANK
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPT 30, 1996 AND DECEMBER 31, 1995
(000 Omitted)
Sept 1996 Dec. 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................... $ 440 $ 501
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. 195 343
Provision for possible loan losses ......................... 85 64
Premium amortization (discount accretion)
on investment securities, net ............................ 25 127
Accretion of Loan origination and
commitment fees .......................................... (26) (40)
Loss on sale of investment securities ......................... 9 --
Loss on sale of other real estate ............................. (14) 2
Deferred Federal income tax benefit increase ............... 59 (6)
Decrease in accrued interest receivable .................... (106) 3
Decrease in other assets ................................... (132) (385)
Decrease in accrued interest and other liabilities ......... (261) 834
-------- --------
Total Adjustments ....................... (184) 942
Net cash provided by operating activities............. $ 256 $ 1,443
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment/
sale of investments securities - AFS ....................... $ 9,498 $ 11,280
Proceeds from maturities of investment securities - HTM ..... 1,671 5,366
Purchases of investment securities - HTM .................... (1,220) (2,171)
Purchases of investment securities - AFS .................... (10,526) (16,627)
Proceeds from sale of other real estate ..................... 0 698
Net increase in other real estate ........................... 0 (13)
Net (increase) decrease in loans ............................ (10,818) (1,164)
Capital expenditures ........................................ (100) (304)
-------- --------
Net cash provided by investing activities ............ $(11,555) $ (2,935)
-------- --------
<PAGE>
<CAPTION>
SUSSEX COUNTY STATE BANK
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPT 30, 1996 AND DECEMBER 31, 1995
(000 Omitted)
(continued)
Sept 1996 Dec. 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in demand
deposit and savings accounts ............................... $ 1,228 $ (1,778)
Net increase (decrease) in time deposits .................... 2,890 12,616
Payment of dividends ........................................ (154) (169)
-------- --------
Net cash provided by financing activities ............ $ 3,964 $ 10,669
-------- --------
Net increase in cash and cash equivalent ............. $ (7,335) $ 9,177
Cash and cash equivalents, beginning of year .................. $ 14,202 $ 5,025
-------- --------
Cash and cash equivalents, end of quarter ..................... $ 6,867 $ 14,202
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................. $ 1,890 $ 1,715
Income taxes .............................................. 186 201
-------- --------
</TABLE>
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SUSSEX COUNTY STATE BANK
Date /s/Donald L. Kovach
----------------
Donald L. Kovach
President/CEO
Date /s/Candace Leatham
---------------
Candace Leatham
Vice President & Treasurer
PLAN OF ACQUISITION
OF ALL THE OUTSTANDING STOCK
OF THE SUSSEX COUNTY STATE BANK
BY
SUSSEX BANCORP
THIS PLAN OF ACQUISITION (the "Plan") is entered into as of
this 24 day of January, 1996, by THE SUSSEX COUNTY STATE BANK, a commercial bank
organized under the laws of the State of New Jersey, with its principal office
at 399 Route 23, Franklin, New Jersey 07416, (the "Bank") and Sussex Bancorp, a
corporation organized under the laws of the state of New Jersey, with its
principal office at 399 Route 23, Franklin, New Jersey 07416 ("CORP").
WHEREAS, the Bank is desirous of forming a bank holding
company because it believes that the holding company will provide it with future
flexibility in undertaking the Bank's current activities and future new
activities and assist the Bank in remaining an independent institution, if the
Board determines that remaining independent is in the best interests of the Bank
and its shareholders; and
WHEREAS, the Bank's Board of Directors has determined that the
formation of a holding company is in the best interest of the Bank's
shareholders; and
WHEREAS, CORP was formed under the New Jersey Business
Corporation Act on behalf of the Bank at the direction of the Bank's Board of
Directors; and
WHEREAS, N.J.S. 17:9A-355 et seq. authorizes a New Jersey
corporation and a state-chartered bank to enter into a plan of acquisition to
exchange shares in the bank for shares in the holding company, to submit the
plan to the New Jersey Department of Banking for approval and implement the plan
if it is approved by the bank's shareholders, subject to the right of the bank's
shareholders to dissent and receive the fair value of their shares; and
WHEREAS, the Boards of Directors of the Bank and CORP have
adopted this Plan pursuant to the provisions of N.J.S.
17:9A-357.
NOW, THEREFORE, the parties hereto agree as follows:
1.0 PLAN OF ACQUISITION REQUIRED BY SECTION 17:9A-357.
1.1 Name of Acquiring Corporation. The name and the address of
the acquiring corporation is: Sussex Bancorp, 399 Route 23, Franklin, New Jersey
07416.
1.2 Name of Participating Bank. The name and address of the
participating bank is: The Sussex County State Bank, 399 Route 23, Franklin, New
Jersey 07416.
<PAGE>
1.3 Names and Address of Directors. The names and addresses of
the members of the Board of Directors of CORP are:
<TABLE>
<CAPTION>
Name Address
- - ---- -------
<S> <C>
Donald L. Kovach 399 Route 23
Franklin, NJ 07416
William E. Kulsar 399 Route 23
Franklin, NJ 07416
Irvin Ackerson 399 Route 23
Franklin, NJ 07416
Joel D. Marvil 399 Route 23
Franklin, NJ 07416
Richard Scott 399 Route 23
Franklin, NJ 07416
Joseph Zitone 399 Route 23
Franklin, NJ 07416
</TABLE>
1.4 Shares of Other Banks Owned by CORP. CORP does not own any
shares of capital stock of any other bank.
1.5 Terms and Conditions of Acquisition. The terms and
conditions of the acquisition are the terms set forth in Sections 2, 3, 5, and 6
hereof.
1.6 Effective Date. The effective date shall be the date
determined under Section 7 hereof.
1.7 Other Provisions. There are no other provisions of the
Plan except as set forth herein.
2.0 CAPITALIZATION; TERMS OF ACQUISITION.
2.1 Capitalization of CORP. CORP is authorized to issue
5,000,000 shares of capital stock without nominal or par value ("Common Stock").
CORP shall not issue any of its shares of Common Stock prior to the Effective
Date.
2.2 Capitalization of the Bank. The Bank is authorized to
issue 2,000,000 shares of common stock, par value $2.50 per share (the "Bank
Common Stock"). As of December 31, 1995, 647,236 shares were issued and
outstanding. In addition, as of December 31, 1995, options to purchase 18,000
shares of Bank Common Stock had been issued to non-employee directors of the
Bank.
2.3 Terms of Exchange. Upon the Effective Date, each share of
the Bank Common stock shall be converted into one share of Common Stock, subject
to the rights of dissenting shareholders as provided in Section 4 hereof, and
each option to purchase shares of Bank Common Stock shall be converted into
options to purchase the same number of shares of Common Stock on the same terms
and conditions.
<PAGE>
3.0 MODE OF CARRYING INTO EFFECT THE PLAN OF EXCHANGE.
3.1 Exchange Effective Immediately. Upon the Effective Date,
each certificate representing shares of the Bank Common Stock shall by virtue of
the Plan, and without any action on the part of the holder thereof, be deemed to
represent the same number of shares of Common Stock, and shall no longer
represent the Bank Common Stock. As set forth in Section 4 hereof, after the
Effective Date any dissenting shareholder who complies with the requirements of
N.J.S. 17:9A-360 et seq. shall have only the rights accorded dissenting
shareholders and such stockholder certificates shall not be deemed to represent
shares of Common Stock or the Bank Common Stock.
3.2 Issuance of Shares of Bank to CORP. Upon the Effective
Date, the Bank shall issue to CORP one share of its Common Stock, par value
$2.50 per share, for each share of Bank common stock outstanding on the
Effective Date.
3.3 Means of Effecting Exchange of Certificates of Bank Stock
for Certificates in CORP. Upon or immediately after the Effective Date, the Bank
shall notify each Bank stockholder of record on the Effective Date (except a
holder who is a dissenting shareholder as provided in Section 4 hereof) of the
procedure by which certificates representing the Bank Common Stock may be
exchanged for certificates of Common Stock. The Bank shall act as exchange agent
in effecting the exchange of certificates. After receipt of such notification,
each holder shall be obligated to surrender the certificates representing the
Bank Common Stock for exchange into certificates of Common Stock as promptly as
possible.
4.0 DISSENTING SHAREHOLDER. Any shareholder of the Bank who
desires to dissent from the transactions contemplated by the Plan shall have the
right to dissent by complying with all of the requirements set forth in N.J.S.
17:9A-360 et seq., and, if the transactions contemplated by the Plan are
consummated, shall be entitled to be paid the fair value of his shares in
accordance with those provisions.
5.0 CONDITIONS FOR CONSUMMATION OF THE PLAN AND RIGHT OF THE
BANK TO TERMINATE THE PLAN PRIOR TO CONSUMMATION.
5.1 Conditions for Consummation. Consummation of the Plan is
conditioned upon the following:
(a) Approval of the Plan by the Commissioner of Banking of
the State of New Jersey;
(b) Approval of the Plan by the holders of two-thirds
(2/3) or more of the outstanding Bank Common Stock entitled to vote;
(c) The non-objection of the Board of Governors of the
Federal Reserve System to a notification by CORP of its acquisition of Bank;
(d) The Bank's Board of Directors not terminating the Plan
prior to the Effective Date as permitted by Section 5.2 hereof.
<PAGE>
5.2 Right of Bank to Terminate Plan Prior to the Effective
Date. At any time prior to the Effective Date, the Board of Directors of the
Bank may terminate the Plan if in the judgment of the Board of Directors the
consummation of the Plan is inadvisable for any reason. To terminate the Plan
the Bank's Board of Directors shall adopt a resolution terminating the Plan and
in the event such termination occurs after the shareholders of the Bank have
voted on the Plan, promptly give written notice that the Plan has been
terminated to the shareholders of the Bank. Upon the adoption of the Board
resolution, the Plan shall be of no further force or effect and the Bank and
CORP shall not be liable to each other, to any shareholder of the Bank or to any
other person by reason of the Plan or the termination thereof. Without limiting
the reasons for which the Bank's Board may terminate the Plan, the Board may
terminate the Plan if:
(a) The number of shareholders dissenting from the Plan
and demanding payment of the fair value of their shares would in the judgment of
the Board render the Plan inadvisable; or
(b) The Bank or CORP fails to receive, or fails to receive
in form and substance satisfactory to the Bank or CORP, any permit, license or
qualification from any federal or state authority required in connection with
the consummation of the Plan.
6.0 EXPENSES.
Bank will bear all of the expenses incurred by the Bank and by
CORP in connection with the Plan, including, without limiting the foregoing, all
attorneys, accountants, and printing fees and all licensing fees incurred in
connection with the Plan and the formation of CORP.
7.0 EFFECTIVE DATE.
The Plan shall become effective upon a date selected by the
mutual agreement in writing of the parties hereto (the "Effective Date"). The
date so selected shall be within a reasonable period after the conditions set
forth in Section 5.1 have been complied with and the Bank has received any
approvals or consents without which it might terminate the Plan under Section
5.2. At least one week prior to the agreed upon effective date, the Plan shall
be filed with the Department of Banking of the State of New Jersey together with
the writing specifying the Effective Date and a certification by the president
or a vice president of the Bank that the Bank's shareholders have approved the
Plan.
<PAGE>
IN WITNESS WHEREOF, the Boards of Directors of The Sussex
County State Bank and Sussex Bancorp have authorized the execution of the Plan
and caused the Plan to be executed as of the date first written above.
ATTEST: THE SUSSEX COUNTY STATE BANK
By:/s/Donald L. Kovach
-------------------
DONALD L. KOVACH
Chief Executive Officer
ATTEST: SUSSEX BANCORP
By:/s/Donald L. Kovach
-------------------
DONALD L. KOVACH
Chief Executive Officer
CERTIFICATE OF INCORPORATION
OF
SUSSEX BANCORP
THIS IS TO CERTIFY THAT, there is hereby organized a corporation under
and by virtue of N.J.S. 14A:1-1 et seq., the "New Jersey Business Corporation
Act."
ARTICLE I
Corporate Name
The name of the Corporation shall be Sussex Bancorp.
ARTICLE II
Registered Office and Registered Agent
The address of the Corporation's registered office is:
Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, New Jersey 07416
The name of the registered agent at that address is:
William E. Kulsar
ARTICLE III
Initial Board of Directors and Number of Directors
<PAGE>
The number of directors shall be governed by the By-laws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be six (6). The names and addresses of the initial Board of Directors are
as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Donald L. Kovach c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
William E. Kulsar c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
Irvin Ackerson c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
Joel D. Marvil c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
Richard Scott c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
Joseph Zitone c/o Sussex Bancorp
399 Route 23
P.O. Box 353
Franklin, NJ 07416
</TABLE>
<PAGE>
ARTICLE IV
Corporate Purpose
The purpose for which the Corporation is organized is to engage in any
activities for which corporations may be organized under the New Jersey Business
Corporation Act.
ARTICLE V
Capital Stock
The Corporation is authorized to issue 5,000,000 shares of common
stock, without par value.
ARTICLE VI
Limitation of Liability
Subject to the following, a director or officer of the Corporation
shall not be personally liable to the Corporation or its shareholders for
damages for breach of any duty owed to the Corporation or its shareholders. The
preceding sentence shall not relieve a director or officer from liability for
any breach of duty based upon an act or omission (i) in breach of such person's
duty of loyalty to the Corporation or its shareholders, (ii) not in good faith
or involving a knowing violation of law, or (iii) resulting in receipt by such
person of an improper personal benefit. If the New Jersey Business Corporation
Act is amended to authorize corporate action further eliminating or limiting the
personal liability of directors or officers, then the liability of a director or
officer or both of the Corporation shall be eliminated or limited to the fullest
extent permitted by the New Jersey Business Corporation Act as so amended. Any
amendment to this Certificate of Incorporation, or change in law which
authorizes this paragraph shall not adversely affect any then existing right or
protection of a director or officer of the Corporation.
ARTICLE VII
Indemnification
The Corporation shall indemnify its officers, directors, employees and
agents and former officers, directors, employees and agents, and any other
persons serving at the request of the Corporation as an officer, director,
employee or agent of another corporation, association, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) incurred in connection
with any pending or threatened action, suit, or proceeding, whether civil,
criminal, administrative or investigative, with respect to which such officer,
director, employee, agent or other person is a party, or is threatened to be
made a party, to the full extent permitted by the New Jersey Business
Corporation Act. The indemnification provided herein (i) shall not be deemed
exclusive of any other right to which any person seeking indemnification may be
entitled under any by-law, agreement, or vote of shareholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in any other capacity, and (ii) shall inure to the benefit of the
heirs, executors, and the administrators of any such person. The Corporation
shall have the power, but shall not be obligated, to purchase and maintain
insurance on behalf of any person or persons enumerated above against any
liability asserted against or incurred by them or any of them arising out of
their status as corporate directors, officers, employees, or agents whether or
not the Corporation would have the power to indemnify them against such
liability under the provisions of this article.
<PAGE>
The Corporation shall, from time to time, reimburse or advance to
any person referred to in this article the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action,
suit or proceeding referred to in this article, upon receipt of a written
undertaking by or on behalf of such person to repay such amount(s) if a judgment
or other final adjudication adverse to the director or officer establishes that
the director's or officer's acts or omissions (i) constitute a breach of the
director's or officer's duty of loyalty to the corporation or its shareholders,
(ii) were not in good faith, (iii) involved a knowing violation of law, (iv)
resulted in the director or officer receiving an improper personal benefit, or
(v) were otherwise of such a character that New Jersey law would require that
such amount(s) be repaid.
ARTICLE VIII
Name and Address of Incorporator
The name and address of the incorporator is:
Robert A. Schwartz, Esq.
McCarter & English
Four Gateway Center
100 Mulberry Street
P.O. Box 652
Newark, New Jersey 07101-0652
IN WITNESS WHEREOF, I, the incorporator of the above named Corporation,
being over eighteen years of age, have signed this Certificate of Incorporation
on the 19th day of January, 1996.
/s/Robert A. Schwartz, Esq.
------------------------
Robert A. Schwartz, Esq.
BY-LAWS
OF
SUSSEX BANCORP
ARTICLE I
Law, Certificate of Incorporation and By-Laws
Section 1. These By-laws are subject to the Certificate of
Incorporation of the Corporation. In these Bylaws, reference to law, Certificate
of Incorporation and By-laws mean the law of the State of New Jersey and any
other applicable laws governing the operations of the Corporation, the
provisions of the Certificate of Incorporation as in effect from time to time
and the provisions of these By-laws in effect from time to time.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings, Inc. Except as otherwise
provided in these By-laws, all meetings of the stockholders shall be held at
such dates, time and places, within or without the State of New Jersey, as shall
be determined by the Board or Chief Executive Officer and as shall be stated in
the notice of the meeting or in waivers of notice thereof. If the place of any
meeting is not so fixed, it shall be held at the registered office of the
Corporation in the State of New Jersey.
Section 2. Annual Meeting. The annual meeting of stockholders
for the election of directors and the transaction of such other business as
properly may be brought before the meeting shall be held on such date after the
close of the Corporation's fiscal year as the Board may from time to time
determine.
Section 3. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, may be called by the Board or the
Chief Executive Officer and shall be called by the Chief Executive Officer or
the Secretary upon the written request of a majority of the holders of the
outstanding shares of the corporation entitled to vote. The request shall state
the date, time, place and purpose or purposes of the proposed meetings.
Section 4. Notice of Meetings. Except as otherwise required or
permitted by law, whenever the stockholders are required or permitted to take
any action at a meeting, written notice thereof shall be given, stating the
place, date and time of the meeting and, unless it is the annual meeting, by or
at whose direction it is being issued. The notice also shall designate the place
where the list of stockholders provided for in Section 8 of this Article II is
available for examination, unless such list is kept at the place where the
meeting is to be held. Notice of a special meeting also shall state the purpose
or purposes for which the meeting is called. A copy of the notice of any meeting
shall be delivered personally or shall be mailed, not less than ten (10) nor
more than sixty (60) days before the date of the meeting, to each stockholder of
record entitled to vote at the meeting. If mailed, the notice shall be given
when deposited in the United States mail, postage prepaid, and shall be directed
<PAGE>
to each stockholder at his address as it appears on the record of stockholders,
or to such other address which such stockholder may have furnished by written
request to the Secretary of the Corporation. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning thereof to the transaction of any business because
the meeting is not lawfully called or convened. Notice need not be given to any
stockholder who submits, either before or after the meeting, a signed waiver of
notice. Unless the Board, after the adjournment of a meeting, shall fix a new
record date for the adjourned meeting, or unless the adjournment is for more
than thirty (30) days, notice of an adjourned meeting need not be given if the
place, date and time to which the meeting shall be adjourned is announced at the
meeting at which the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation of the Corporation, at all meetings of
stockholders the holders of a majority of the outstanding shares of the
Corporation entitled to vote at the meeting shall be present in person or by
proxy in order to constitute a quorum for the transaction of business.
Section 6. Voting. Except as otherwise provided by the
Certificate of Incorporation, at any meeting of the stockholders every
stockholder of record having the right to vote thereat shall be entitled to one
vote for every share of stock standing in his name as of the record date and
entitling him to so vote. A stockholder may vote in person or by proxy. Except
as otherwise provided by law or by the Certificate of Incorporation, any
corporate action to be taken by a vote of the stockholders, other than the
election of directors, shall be authorized by not less than a majority of the
votes cast at a meeting by the stockholders present in person or by proxy and
entitled to vote thereon. Directors shall be elected as provided in Section 2 of
Article III of these By-laws. Written ballots shall not be required for voting
on any matter unless ordered by the Chairman of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing
by the stockholder or by his attorney-in-fact.
Section 8. List of Stockholders. At least ten (10) days before
every meeting of stockholders, a list of stockholders (including their
addresses) entitled to vote at the meeting and their record holdings as of the
record date shall be open for examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours, at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list also shall be kept at and throughout the meeting.
Section 9. Conduct of Meetings. At each meeting of the
stockholders, the Chairman of the Board or, in his absence, the President, shall
act as Chairman of the meeting. The Secretary or, in his absence, any person
appointed by the Chairman of the meeting shall act as Secretary of the meeting
and shall keep the minutes thereof. The order of business at all meetings of the
stockholders shall be as determined by the Chairman of the meeting.
<PAGE>
Section 10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed, in person or by
proxy, by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted in
person or by proxy and shall be delivered to the Corporation in accordance with
the laws of the State of New Jersey. Every written consent shall bear the date
of signature of each stockholder signing the consent. In no event shall any
corporate action referred to in any consent be effective unless written consents
signed by a sufficient number of stockholders to take action are duly delivered
to the Corporation within sixty (60) days of the earliest dated consent
delivered in accordance with the laws of the State of New Jersey. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not
consented in writing, but who were entitled to vote on the
matter.
ARTICLE III
Board of Directors
Section 1. Number of Board Members. The Board shall consist of
not less than one nor more than 25 directors. The number of directors may be
reduced or increased from time to time by action of a majority of the entire
Board, but no decrease may shorten the term of an incumbent director. When used
in these By-laws, the phrase "entire Board" means the total number of directors
which the Corporation would have if there were no vacancies.
Section 2. Election and Term. Except as otherwise provided by
law or by the By-laws, directors shall be elected at each annual meeting of the
stockholders. The persons receiving a plurality of the votes cast shall be so
elected. Subject to his earlier death or resignation each director shall hold
office until his successor shall have been duly elected and shall have
qualified.
Section 3. Resignations. Any director may resign at any time
by giving written notice of his resignation to the Corporation. A resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified herein, immediately upon its receipt,
and, unless otherwise specified therein, the acceptance of a resignation shall
not be necessary to make it effective.
Section 4. Vacancies. Any vacancy in the Board arising from an
increase in the number of directors or otherwise may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Subject to his earlier death or resignation, each
director so elected shall hold office until his successor shall have been duly
elected and shall have qualified. Directors appointed to fill vacancies on the
Board shall be placed in a class in a manner designed to keep equality between
the classes, to the extent possible.
Section 5. Place of Meetings. Except as otherwise provided in
these By-laws, all meetings of the Board shall be held at such places, within or
without the State of New Jersey, as the Board determines from time to time.
<PAGE>
Section 6. Annual Meeting. The annual meeting of the Board
shall be held either (a) without notice immediately after the annual meeting of
stockholders and in the same place, or (b) as soon as practicable after the
annual meeting of stockholders on such date and at such time and place as the
Board determines.
Section 7. Regular Meetings. Regular meetings of the Board
shall be held on such dates and at such places and times as the Board
determines. Notice of regular meetings need not be given, except as otherwise
required by law.
Section 8. Special Meetings. Special meetings of the Board may
be called by or at the direction of the Chief Executive Officer, and shall be
called by the Chief Executive Officer or the Secretary upon the written request
of a majority of the directors. The request shall state date, time, place and
purpose or purposes of the proposed meeting.
Section 9. Notice of Meetings. Notice of each special meeting
of the Board (and of each annual meeting held pursuant to subdivision (b) of
Section 6 of this Article III) shall be given, not later than 24 hours before
the meeting is scheduled to commence, by the Chief Executive Officer or the
Secretary and shall state the place, date and time of the meeting. Notice of
each meeting may be delivered to a director by hand or given to a director
orally (whether by telephone or in person) or mailed or telegraphed to a
director at his residence or usual place of business, provided, however, that if
notice of less than 72 hours is given it may not be mailed. If mailed, the
notice shall be deemed to have been given when deposited in the United States
mail, postage prepaid, and if telegraphed, the notice shall be deemed to have
been given when the contents of the telegram immediately be dispatched. Notice
of any meeting need not be given to any director who shall submit, either before
or after the meeting, a signed waiver of notice or who shall attend the meeting,
except if such director shall attend for the express purpose of objecting at the
beginning thereof to the transaction of any business because the meeting is not
lawfully called or convened. Notice of any adjourned meeting, including the
place, date and time of the new meeting, shall be given to all directors not
present at the time of the adjournment, as well as to the other directors unless
the place, date and time of the new meeting is announced at the adjourned
meeting.
Section 10. Quorum. Except as otherwise provided by law or in
these By-laws, at all meetings of the Board a majority of the entire Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 11. Conduct of Meetings. At each meeting of the Board,
the Chief Executive Officer or, in his absence, a director chosen by a majority
of the directors present, shall act as Chairman of the meeting. The Secretary
of, in his absence, any person appointed by the Chairman of the meeting, shall
act as Secretary of the meeting and keep the minutes thereof. The order of
business at all meetings of the Board shall be as determined by the Chairman of
the meeting.
<PAGE>
Section 12. Committee of the Board. The Board, by resolution
adopted by a majority of the entire Board, may designate an executive committee
and other committees, each consisting of one (1) or more directors. Each
committee (including the members thereof) shall serve at the pleasure of the
Board and shall keep minutes of its meetings and report the same to the Board.
The Board may designate one or more directors as alternate members of any
committee. Alternate members may replace any absent or disqualified member or
members at any meeting of a committee. In addition, in the absence or
disqualification of a member of a committee, if no alternate member has been
designated by the Board, the members present at any meeting and not disqualified
from voting, whether or not they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of the absent or
disqualified member.
Section 13. Operation of Committees. A majority of all the
members of a committee shall constitute a quorum for the transaction of
business, and the vote of a majority of all the members of a committee present
at a meeting at which a quorum is present shall be the act of the committee.
Each committee shall adopt whatever other rules of procedure it determines for
the conduct of its activities.
Section 14. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board. The compensation of directors may be on such
basis as is determined by the Board. Any director may waive compensation for any
meeting. Any director may waive compensation for any meeting. Any director
receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement from reasonable expenses
for such other services.
Section 15. Written Consent to Action in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board or of
any committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 16. Meetings Held Other Than in Person. Members of the
Board or any committee may participate in a meeting of the Board or committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
Section 17. Interested Directors and Officers.
(a) No contract or transaction between the Corporation and one
or more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of the Corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction, or solely because the director's or officer's votes are counted for
such purpose, if any one of the following is true:
<PAGE>
(1) The material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the board of
directors, a committee thereof, or the shareholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
Officers
Section 1. Executive Officers, etc. The executive officers of
the Corporation shall be a President, a Secretary and a Treasurer. The Board
also may elect or appoint a Chairman of the Board, one or more Vice Presidents
(any of whom may be designated as Executive Vice Presidents or otherwise), and
any other officers it deems necessary or desirable for the conduct of the
business of the Corporation, each of whom shall have such powers and duties as
the Board determines.
Section 2. Duties.
(a) The Chairman of the Board of Directors. The Chairman of
the Board shall preside at all meetings of the stockholders and the Board, and
shall be an ex officio a member of all committees established.
(b) The President. The President shall have general management
of the business and affairs of the Corporation, subject to the control of the
Board, and shall have such other powers and duties as the Board assigns to him.
(c) The Vice President. The Vice President or, if there shall
be more than one, the Vice Presidents, if any, in the order of their seniority
or in any other order determined by the Board, shall perform, in the absence or
disability of the President, the duties and exercise the powers of the President
and shall have such other powers and duties as the Board or the President
assigns to him or to them.
(d) The Secretary. Except as otherwise provided in these
By-laws or as directed by the Board, the Secretary shall attend all meetings of
the stockholders and the Board; shall record the minutes of all proceedings in
books to be kept for that purpose; shall give notice of all meetings of the
stockholders and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers and
duties as the Board or the President assigns to him.
<PAGE>
(e) The Treasurer. Subject to the control of the Board, the
Treasurer shall have the care and custody of the corporate funds and the books
relating thereto; shall perform all other duties incident to the office of
Treasurer; and shall have such other powers and duties as the Board or the
President assigns to him.
(f) Election; Removal. Subject to his earlier death,
resignation or removal as hereinafter provided, each officer shall hold his
office until his successor shall have been duly elected and shall have
qualified. Any officer may be removed at any time, with or without cause, by the
Board.
Section 3. Resignations. Any officer may resign at any time by
giving written notice of his resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified herein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 4. Vacancies. If an office becomes vacant for any
reason, the Board or the stockholders may fill the vacancy, and each officer so
elected shall serve for the remainder of his predecessor's term.
ARTICLE V
Provisions Relating to Stock
Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's
capital stock shall be in such form as required by law and as approved by the
Board. Each certificate shall be signed in the name of the Corporation by the
Chairman, if any, or the President or any Vice President and by the Secretary,
the Treasurer or any Assistant Secretary or any Assistant Treasurer and shall
bear the seal of the Corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent or registered by a registrar, other than the
Corporation or its employees, the signature of any officer of the Corporation
may be a facsimile signature. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature was placed on any certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued nevertheless by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 2. Lost Certificates, etc. The Corporation may issue a
new certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed and the Board may
require the owner of the lost, mutilated, stolen or destroyed certificate, or
his legal representatives, to make an affidavit of that fact and to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of the certificate or the issuance of a new
certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately indorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
<PAGE>
Section 4. Record Date.
The Board may fix a record date for the purpose of determining
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof. The record date fixed for such purpose shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board and shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting. If the Board does not fix a record date for
such purpose, the record date for such purpose shall be at the close of business
on the day next preceding the day on which notice is given and, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
The Board may fix a record date for the purpose of determining
stockholders entitled to consent to action in writing in lieu of a meeting. The
record date fixed for such purpose shall not precede the date upon which the
resolution fixing the record date is adopted by the Board and shall not be more
than ten (10) days after the adoption of such resolution fixing the record date.
If the Board does not fix a record date, the record date for the purpose of
determining stockholders entitled to consent to action in writing in lieu of a
meeting when no prior action by the Board is required by the laws of the State
of New Jersey or these By-laws, shall be the first date on which a signed
written consent with respect to the action taken or proposed to be taken is
delivered to the Corporation in accordance with the laws of the State of New
Jersey. If the Board does not fix a record date and prior action by the Board is
required by the laws of the State of New Jersey or these By-laws, the date for
determining stockholders entitled to consent to action in writing in lieu of a
meeting shall be at the close of business on the day on which the Board adopts
the resolution taking such prior action.
The Board may fix a record date for the purpose of determining
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or for the purpose of any other action.
The record date fixed for such purpose shall not precede the date upon which the
resolution fixing the record date is adopted and shall be no more than sixty
(60) days prior to such action. If the Board does not fix a record date, the
record date for determining the stockholders for any such purpose shall at the
close of business on the date on which the Board adopts the resolution relating
thereto.
ARTICLE VI
General Provisions
Section 1. Dividends, etc. To the extent permitted by law, the
Board shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation and the terms of any other corporate document or
instrument binding upon the Corporation, to determine the amount of any
dividends or distributions which shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form
as is required by law and as shall be approved by the Board.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board.
<PAGE>
Section 4. Voting Shares in Other Corporations. Unless
otherwise directed by the Board, shares in other corporations which are held by
the Corporation shall be represented and voted only by the Chief Executive
Officer or by a proxy or proxies appointed by him.
ARTICLE VII
Amendments
These By-laws may be made, altered or repealed by the Board,
subject to the right of the stockholders to alter or repeal any by-law made by
the Board.
SUSSEX COUNTY STATE BANK
1995 INCENTIVE STOCK OPTION PLAN
ARTICLE I. PURPOSES
The purposes of the 1995 Incentive Stock Option Plan are (i)
to attract and retain highly-qualified executives, (ii) to align executive and
stockholder long-term interests by creating a direct link between executive
compensation and stockholder return, (iii) to enable executives of Sussex County
State Bank (the "Bank") to develop and maintain stock ownership positions in the
Bank, and (iv) to provide incentives to such executives to contribute to the
success of the Bank. To achieve these objectives, the Plan provides for the
granting of "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
ARTICLE II. DEFINITIONS
Whenever the following terms are used in this Plan, they shall
have the meaning specified below:
"Affiliate" shall mean the Bank, a Subsidiary, or any employee benefit plan
established or maintained by the Bank or a Subsidiary.
"Board" shall mean the Board of Directors of the Bank.
"Cause" shall mean (i) the conviction of the Participant of a felony by a court
of competent jurisdiction, (ii) the indictment of the Participant by a state or
Federal grand jury of competent jurisdiction for embezzlement or
misappropriation of funds of the Bank or for any act of dishonesty or lack of
fidelity towards the Bank, (iii) the written confession by the Participant of
any act of dishonesty towards the Bank or any embezzlement or misappropriation
of the Bank's funds, or (iv) willful or gross neglect of the duties for which
the Participant was responsible, all as the Committee, in its sole discretion,
may determine.
"Change in Control" shall mean the occurrence of one or more of the following
events: (i) the Bank acquires actual knowledge that any person (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than an
Affiliate is or becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Bank representing
15% or more of the combined voting power of the Bank's then outstanding
securities, (ii) the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by an Affiliate),
(iii) the approval by the Bank's stockholders of (a) a merger or consolidation
of the Bank with or into another corporation (other than a merger or
consolidation in which the Bank is the surviving corporation and which does not
result in any reclassification or reorganization of the Bank's then outstanding
shares of Common Stock or a change in the Bank's directors, other than the
addition of not more than three directors), (b) a sale or disposition of all or
substantially all of the Bank's assets, or (c) a plan of liquidation or
dissolution of the Bank, (iv) during any period of two consecutive calendar
years, individuals who at the beginning of such period constitute the Board of
Directors of the Bank cease for any reason to constitute at least two-thirds
<PAGE>
thereof, unless the election or nomination for the election by the Bank's
stockholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period, or (v) a sale of (a) Common Stock of the Bank if after such sale any
person (as defined above) other than an Affiliate owns a majority of the Bank's
Common Stock or (b) all or substantially all of the Bank's assets (other than in
the ordinary course of business). Notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred for purposes of clause (i) above if a
person is or becomes the beneficial owner, directly or indirectly, of more than
15% but less than 25% of the combined voting power of the Bank's then
outstanding securities if the acquisition of all voting securities in excess of
15% was approved in advance by two-thirds of the directors then in office.
"Code" shall mean the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.).
"Committee" shall mean the committee consisting of at least three (3) directors
of the Bank appointed by the Board to administer the Plan pursuant to the
provisions of Article III of the Plan.
"Common Stock" shall mean the common stock of the Bank, no par value.
"Disability" shall mean permanent and total disability as defined in the Bank's
employee welfare benefit plan offering a long term disability benefit, or, if no
such benefit is offered, as defined by Section 105(d)(4) of the Code.
"Employee" shall mean a common law employee (as defined in accordance with the
regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value Broker" shall mean one or more broker-dealers designated by
the Committee from time to time; provided however, that if on the applicable
date one or more broker-dealers have been designated by the Board as a
"Designated Broker" for purposes of the Bank's dividend reinvestment plan, such
broker-dealer or broker-dealers shall constitute the sole "Fair Market Value
Brokers" hereunder.
"Incentive Option" shall mean an Option whose terms satisfy the requirements
imposed by Section 422(b) of the Code and which is intended by the Committee to
be treated as an Incentive Option.
"Option" shall mean a right to purchase Common Stock which is awarded in
accordance with the terms of this Plan.
"Participant" shall mean an Employee who has been granted an Option under the
Plan.
"Plan" shall mean the Sussex County State Bank 1995 Incentive Stock Option Plan,
as may be amended from time to time.
"Retirement" shall mean any normal or early retirement by a Participant pursuant
to the terms of any pension, profit sharing or 401(k) plan, or policy of the
Bank or any Subsidiary which is applicable to such Participant at the time of
his Termination of Service.
"Secretary" shall mean the corporate secretary of the Bank.
<PAGE>
"Securities Act" shall mean the Securities Act of 1933.
"Shares" shall mean shares of Common Stock.
"Subsidiary(ies)" shall mean any corporation or other legal entity, domestic or
foreign, more than 50% of the voting power of which is, as of the date of the
adoption of this Plan or at any time subsequent thereto, owned or controlled,
directly or indirectly by the Bank.
"Terminate (Termination of) Service (or Termination)" shall mean the time at
which the Participant ceases to provide services to the Bank as an Employee, but
shall not include a lapse in providing services which the Committee determines
to be a temporary leave of absence.
ARTICLE III. ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") selected by the Board from among its members, which shall consist
of not less than three members, each of whom must be a "disinterested person"
within the meaning of the rules promulgated under Section 16(b) of the Exchange
Act. The Committee shall hold meetings at such times as may be necessary for the
proper administration of the Plan and shall keep minutes of its meetings. A
majority of the Committee shall constitute a quorum and a majority of the quorum
may authorize any action.
Subject to the provisions of the Plan, the Committee shall
have sole authority, in its absolute discretion: (i) to determine which of the
eligible Employees of the Bank shall be granted Options; (ii) to grant Options;
(iii) to determine the times when Options may be granted and the number of
Shares that may be purchased pursuant to such Options; (iv) to determine the
exercise price of the Shares subject to each Option, which price shall be not
less than the minimum specified in Section 6.1; (v) to determine the time or
times when each Option becomes exercisable, the duration of the exercise period,
and any other restrictions on the exercise of Options issued hereunder; (vi) to
prescribe the form or forms of the Option agreements under the Plan; (vii) to
determine the circumstances under which the time for exercising Options should
be accelerated and to accelerate the time for exercising outstanding Options;
(viii) to determine the duration and purposes for leaves of absence which may be
granted to a Participant without constituting a Termination of Service for
purposes of the Plan; (ix) to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan; and (x) to construe and interpret the Plan, the rules and regulations and
the Option agreements under the Plan, and to make all other determinations
deemed necessary or advisable for the administration of the Plan; provided,
however, that with respect to those eligible Employees who are not "officers" of
the Bank, within the meaning of Section 16(b) of the Exchange Act, the Committee
may delegate to any person or persons ("Subcommittee") all or any part of its
authority as set forth in (i) through (x) above. All references in the Plan to
the powers of a Subcommittee to act for the Committee shall be applicable only
to the extent consistent with the forgoing provision and only to the extent
consistent with the powers which have actually been delegated to it. All
decisions, determinations and interpretations of the Committee, or Subcommittee,
to the extent consistent with such delegation, shall be final and binding.
The provisions of this Article III shall survive any termination of the Plan.
<PAGE>
ARTICLE IV. SHARES SUBJECT TO PLAN
The maximum number of Shares that may be made subject to
Options granted pursuant to the Plan is 64,000 (or the number and kind of Shares
or other securities which are substituted for those Shares or to which those
Shares are adjusted pursuant to the provisions of Article VIII of the Plan). The
Bank shall reserve such number of Shares for the purposes of the Plan out of its
authorized but unissued shares, or out of Shares held in the Bank's treasury, or
partly out of each, as shall be determined by the Board. No fractional Shares of
shall be issued with respect to Options granted under the Plan.
In the event that any outstanding Option under the Plan for
any reason expires, is terminated, forfeited or is canceled prior to the
expiration date of the Plan, the Shares called for by the unexercised portion of
such Option may, to the extent permitted by Rule 16b-3 under the Exchange Act,
again be subject to an Option under the Plan.
ARTICLE V. ELIGIBILITY FOR AWARD OF OPTIONS
The Committee may designate any officer of the Bank, any group
or divisional officer, and any other key Employee of the Bank as eligible to
receive Options under the Plan. Non-employee directors shall not be eligible to
participate in the Plan. However, a person who otherwise is an eligible officer
or Employee shall not be disqualified from participation in the Plan by virtue
of being a director of the Bank or any Subsidiary.
ARTICLE VI. GRANT OF OPTIONS
The Committee or Subcommittee may in its sole discretion grant
Incentive Options to such officers and key Employees of the Bank as it
determines appropriate consistent with Article V. Incentive Options shall be
evidenced by Option agreements (which need not be identical) in such forms as
the Committee may from time to time approve. Before any Options are granted
under this Plan, a copy thereof shall be filed with the New Jersey Department of
Banking and Insurance, together with a certificate made by two officers, one of
whom shall be the president or a vice-president, stating that the Plan has been
adopted and approved in accordance with Article XIII.
Option agreements shall conform to the terms and conditions of
the Plan. Such agreements may provide that the grant of any Option under the
Plan, or that Stock acquired pursuant to the exercise of any Option, shall be
subject to such other conditions (whether or not applicable to the Option or
Stock received by any other optionee) as the Committee determines appropriate,
including, without limitation, provisions conditioning exercise upon the
occurrence of certain events or performance or the passage of time, provisions
to assist the optionee in financing the purchase of Stock through the exercise
of Options, provisions for forfeiture, or restrictions on resale or other
disposition, of shares acquired under the Plan, provisions giving the Bank the
right to repurchase shares acquired under the Plan in the event the Participant
elects to dispose of such shares, and provisions to comply with federal and
state securities laws and federal and state income tax and other payroll tax
withholding requirements.
6.1 OPTION PRICE. The exercise price for each Option granted under the Plan
shall be determined by the Committee or Subcommittee; provided, however, that it
shall not be less than the fair market value of the Common Stock on the date of
grant. The fair market value shall be determined for all purposes of the Plan as
<PAGE>
follows: (A) if the Shares are admitted to quotation on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable
quotation system and have been designated as a National Market System ("NMS")
security, fair market value on any date shall be the last sale price reported
for the Shares on such system on such date or on the last day preceding such
date on which a sale was reported, (B) if the Shares are admitted to quotation
on NASDAQ and have not been designated an NMS security, fair market value on any
date shall be the average of the highest bid and lowest asked prices of the
Shares on such system on such date, or (C) if on such date, the Common Stock is
not so quoted or listed, the fair market value shall be the average of (i) the
highest closing bid price for the Common Stock quoted by any Fair Market Value
Broker on such date and (ii) the lowest closing asked price for the Common Stock
quoted by any Fair Market Value Broker on such date or, if no Fair Market Value
Broker quotes a closing asked price for the Common Stock on such date, the
highest closing bid price quoted by any Fair Market Value Broker on such date.
6.2 EXERCISABILITY AND TERMS OF OPTIONS. The Committee or Subcommittee shall
determine the dates after which Options may be exercised, in whole or in part,
and may establish a vesting schedule that must be satisfied before Options may
be exercised; provided, however, that no Option may be exercisable within six
months of the date it is granted. If an Option is exercisable in installments,
installments which are exercisable and not exercised shall remain exercisable
during the term of the Option.
Prior to the exercise of any Option granted pursuant to this
Plan, a certificate made by two officers of the Bank, one of whom shall be the
president or a vice-president, shall be filed with the New Jersey Department of
Banking and Insurance, stating:
(i) the date upon which the Plan was adopted by the Board of Directors and
approved by the stockholders in accordance with Article XIII;
(ii) the Date upon which the Options were granted pursuant to such Plan;
(iii) the consideration paid for the purchase of the Common Stock;
(iv) the fair market value of the Shares subject to the Option on the date
the Option was granted;
(v) the amount of the Shares of the Bank to be issued; and
(vi) the amount of the capital stock and surplus of the Bank after the
exercise of such Option and the issuance of capital stock pursuant thereto.
All Options shall have a term of no more than ten years from
the date of grant; provided, however, that upon the Termination of Service of a
Participant due to (i) voluntary resignation or involuntary dismissal without
Cause, or (ii) his Retirement, Options that have not become exercisable before
the date the Participant Terminates Service shall be forfeited and terminated
immediately. The Participant may exercise an Option to the extent it was
exercisable by him on the date immediately preceding such Termination within the
lesser of (i) one month from the date of Termination (six months from the date
of Termination in the case of Retirement), or (ii) the balance of the stated
term of the Option. If a Participant shall be terminated with Cause, all Options
granted to such Participant that have not been exercised prior to such
Termination for Cause shall, whether or not exercisable, be forfeited
immediately upon such Termination.
<PAGE>
6.3 ACCELERATED VESTING AND EXERCISE OF STOCK OPTIONS. If a Participant shall
Terminate Service by reason of his death or Disability, all Options granted to
such Participant that have not become exercisable on or before the date of such
Termination may, at the discretion of the Committee, become exercisable as of
such date. All options held by such Participant may be exercised by the
Participant, his estate or beneficiary, or his representative, as the case may
be, for a period of one year from the date of such Termination, or until the
expiration of the stated term of such Option, whichever period is shorter.
In the event of a Change In Control, any Option granted under
the Plan to a Participant which has not, as of the date of the Change In
Control, become exercisable shall become fully exercisable.
6.4 NONTRANSFERABILITY OF OPTION RIGHTS. No Option shall be transferable except
by will or the laws of descent and distribution, and then shall be limited by
Section 6.2. During the lifetime of the Participant, the Option shall be
exercisable only by him. The Committee may, however, in its sole discretion,
allow for transfers of Nonqualified Options to family members, subject to such
conditions or limitations as it may establish to ensure compliance with Rule
16b-3 promulgated pursuant to the Exchange Act, or for other purposes.
6.5 NO OBLIGATION TO EXERCISE OPTION. The grant of an Option shall impose no
obligation on the Participant to exercise such Option.
6.6 CANCELLATION OF OPTIONS. The Committee, or Subcommittee, in its discretion,
may, with the consent of any Participant, cancel any outstanding Option.
6.7. NO RIGHTS AS A STOCKHOLDER. A Participant or a transferee of an Option
shall have no rights as a stockholder with respect to any Share covered by his
Option until he shall have become the holder of record of such Share, and he
shall not be entitled to any dividends or distributions or other rights in
respect of such Share for which the record date is prior to the date on which he
shall have become the holder of record thereof.
6.8. SPECIAL PROVISIONS APPLICABLE TO INCENTIVE OPTIONS. No Incentive Option may
be granted to an individual who, at the time the Option is granted, owns
directly, or indirectly within the meaning of Section 424(d) of the Code, stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Bank or of any parent or Subsidiary thereof, unless such
Option (i) has an Option price of at least 110 percent of the fair market value
of the Stock on the date of the grant of such option; and (ii) cannot be
exercised more than five years after the date it is granted.
Each Participant who receives an Incentive Option must agree
to notify the Bank in writing immediately after the Participant makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
Incentive Option. A disqualifying disposition is any disposition (including any
sale) of such Stock before the later of (i) two years after the date the
optionee was granted the Incentive Option or (ii) one year after the date the
Participant acquired Stock by exercising the Incentive Option. Any transfer of
ownership to a broker or nominee shall be deemed to be a disposition unless the
Participant provides proof satisfactory to the Committee of his continued
beneficial ownership of the Stock.
Any other provision of the Plan to the contrary
notwithstanding, no Incentive Option shall be granted after the date which is
ten years from the date this Plan is adopted, or the date the Plan is approved
by the stockholders, whichever is earlier.
<PAGE>
6.9 GRANT OF REPLACEMENT OPTIONS. The Committee may from time to time, in its
discretion, adopt a policy, which policy shall not remain in effect for longer
than 12 months at a time, but which may be adopted for successive 12-month
periods, under which each Participant who exercises an Option ("Exercised
Option") while the policy is in effect and pays the exercise price, in whole or
in part, by delivery of shares of Common Stock shall be granted, subject to
Article IV, additional Options ("Replacement Options") in an amount equal to the
number of shares of Common Stock tendered to exercise the Exercised Option. The
Committee may, in its discretion, provide that the Replacement Option policy
shall not apply to Options which would expire within such period as the
Committee determines, in its discretion, from the effective date of the policy.
A Replacement Option can under no circumstances be issued if the exercise price
of the Exercised Option is greater than the fair market value of the Common
Stock on the date of exercise of the Exercised Option.
Replacement Options shall be subject to the following terms and conditions:
(i) the date of grant for each Replacement Option shall be the date of exercise
of the Exercised Option to which it relates;
(ii) the Replacement Option may be exercised at any time after the second
anniversary of the date of grant of such Replacement Option during the unexpired
term of the Exercised Option (subject to earlier termination thereof as provided
in the Plan and in the applicable Option Agreement);
(iii) the terms of the Replacement Option shall be the same as the terms of the
Exercised Option to which it relates, except that the exercise price shall be
the fair market value of the Common Stock on the date of grant of the
Replacement Option; and
(iv) the Replacement Option shall be forfeited by the Participant and become
null and void if the Participant shall sell or otherwise dispose of the Shares
acquired upon the exercise of the Exercised Option within two years of the date
they were purchased; provided, however, that for this purpose, the use of Shares
to exercise an Option shall not be considered a sale or other disposition. Each
Participant who is to receive Shares subject to this restriction shall be issued
a stock certificate in respect of such Shares, registered in the name of the
Participant, which shall bear an appropriate legend referring to the
restrictions in this clause (iv), to read substantially in the following form:
"The transfer of this certificate and the shares of stock represented hereby
are, until _______________, _______ subject to the terms and conditions of the
Sussex County State Bank 1995 Incentive Stock Option Plan. A copy of such Plan
is on file in the offices of Sussex County State Bank, 399 Route 23, Franklin,
New Jersey 07416."
ARTICLE VII. EXERCISE OF OPTION
Any Option may be exercised in whole or in part at any time
subsequent to such Option becoming exercisable during the term of such Option;
provided, however, that each partial exercise shall be for whole Shares only.
Each Option, or any exercisable portion thereof, may only be exercised by
delivery to the Secretary or his office of (i) notice in writing signed by the
Participant (or other person then entitled to exercise such Option) that such
Option, or a specified portion thereof, is being exercised; (ii) payment in full
for the purchased Shares (as specified in Section 7.2 below); (iii) such
representations and documents as are necessary or advisable to effect compliance
with all applicable provisions of Federal or state securities laws or
<PAGE>
regulations; (iv) in the event that the Option or portion thereof shall be
exercised pursuant to Section 6.3 by any person or persons other than the
Participant, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof; and (v) full payment to the Bank of all
amounts which, under federal or state law, it is required to withhold upon
exercise of the Option.
7.1 SHARE CERTIFICATES. Upon receiving notice and payment, the Bank will cause
to be delivered to the Participant, as soon as practicable, a certificate in the
Participant's name for the Shares purchased. The Shares issuable and deliverable
upon the exercise of a Stock Option shall be fully paid and non-assessable. The
Bank shall not be required to issue or deliver any certificate or certificates
for Shares purchased upon the complete or partial exercise of the Stock Option
prior to fulfillment of (i) the completion of any registration or other
qualification of such Shares under any federal or state law or under rulings or
regulations of the Securities and Exchange Commission or of any other
governmental regulatory body which may be necessary or advisable; and (ii) the
obtaining of any approval or other clearance from any federal or state
governmental agency which may be necessary or advisable.
7.2 PAYMENT FOR SHARES. Payment for Shares purchased under an Option granted
hereunder shall be made in full upon exercise of the Option, by one or more of
the following, unless otherwise prohibited by the terms of an Option agreement:
(i) by certified or bank cashier's check payable to the order of the Bank,; (ii)
in the form of unrestricted Shares already owned by the Participant based in any
such instance on the fair market value of the Stock on the date the Option is
exercised; (iii) by a combination thereof, in each case in the manner provided
in the Option agreement; or (iv) by any other means acceptable to the Bank. To
the extent the Option exercise price may be paid in Shares as provided above,
Shares delivered by the Participant may be Shares which were received by the
Participant upon exercise of one or more Incentive Options, but only if such
Shares have been held by the Participant for at least the greater of (a) two
years from the date the Incentive Options were granted or (b) one year after the
transfer of Shares to the Participant.
To facilitate the foregoing, the Bank may enter into agreements for coordinated
procedures with one or more Fair Market Value Brokers, or make a loan, or assist
a Participant in obtaining a loan from a financial institution, of funds
sufficient to exercise an Option, subject to such conditions or limitations as
it may establish to ensure compliance with Regulation O.
ARTICLE VIII. ADJUSTMENT FOR RECAPITALIZATION, ETC.
The aggregate number of Shares which may be purchased pursuant
to Options granted, the number of Shares covered by each outstanding Option, and
the price per share thereof in each such Option shall be appropriately adjusted
for any increase or decrease in the number of outstanding Shares resulting from
a stock split or other subdivision or consolidation of Shares or for other
capital adjustments or payments of stock dividends or distributions, other
increases or decreases in the outstanding Shares effected without receipt of
consideration by the Bank, or reorganization, merger or consolidation, or other
similar change affecting the Shares.
Such adjustment to an Option shall be made without a change to
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of Share
quantities or prices). Any such adjustment made by the Committee shall be final
<PAGE>
and binding upon all Participants, the Bank, their representatives, and all
other interested persons. No fractional Shares shall be issued as a result of
such adjustment.
In the event of a transaction involving (i) the liquidation or
dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not
the surviving corporation or (iii) the sale or disposition of all or
substantially all of the Bank's assets, provision shall be made in connection
with such transaction for the assumption of Options theretofore granted under
the Plan, or the substitution for such Options of new options of the successor
corporation, with appropriate adjustment as to the number and kind of Shares and
the purchase price for Shares thereunder, or, in the discretion of the
Committee, the Plan and the Options issued hereunder shall terminate on the
effective date of such transaction if appropriate provision is made for payment
to the Participant of an amount in cash equal to the fair market value of the
Options less the exercise price for such Options; provided, however, that in no
event shall the Committee take any action or make any determination under this
Article VIII which would prevent a transaction described in clause (ii) or (iii)
above from being treated as a pooling of interests under generally accepted
accounting principles.
ARTICLE IX. GOVERNMENT REGULATIONS AND REGISTRATION OF SHARES
The Plan, and the grant and exercise of Options thereunder,
and the Bank's obligation to sell and deliver stock under such Options, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any regulatory or governmental agency as may be required.
Each Option is subject to the requirement that if, at any
time, the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or NASDAQ or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance of Shares, no
Shares shall be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained, free of any
conditions not acceptable to the Committee. The Bank shall not be deemed, by
reason of the granting of any Option, to have any obligation to register the
Shares subject to such Option under the Securities Act or to maintain in effect
any registration of such Shares which may be made at any time under the
Securities Act.
Unless a registration statement under the Securities Act and
the applicable rules and regulations thereunder is then in effect with respect
to Shares issued upon exercise of any Option (which registration shall not be
required), the Bank shall require that the offer and sale of such shares be
exempt from the registration provisions of said Act. In furtherance of such
exemption, the Bank may require, as a condition precedent to the exercise of any
Option, that the person exercising the Option give to the Bank written
representation and undertaking, satisfactory in form and substance to the Bank,
that he is acquiring the Shares for his own account for investment and not with
a view to the distribution or resale thereof and otherwise establish to the
Bank's satisfaction that the offer or sale of the Shares issuable upon exercise
of the Option will not constitute or result in any breach or violation of the
Securities Act or any similar state act or statute or any rules or regulations
thereunder. In the event a Registration Statement under the Securities Act is
not then in effect with respect to the Shares issued upon exercise of an Option,
the Bank shall place upon any stock certificate an appropriate legend referring
to the restrictions on disposition under the Act.
<PAGE>
The Bank is relieved from any liability for the nonissuance or
non-transfer or any delay in issuance or transfer of any Shares subject to
Options under the Plan which results from the inability of the Bank to obtain,
or in any delay in obtaining, from any regulatory body having jurisdiction, all
requisite authority to issue or transfer Shares upon exercise of the Options
under the Plan if counsel for the Bank deems such authority necessary for lawful
issuance or transfer of any such Shares. Appropriate legends may be placed on
the stock certificates evidencing Shares issued upon exercise of Options to
reflect such transfer restrictions.
ARTICLE X. OTHER PROVISIONS
The validity, interpretation and administration of the Plan
and any rules, regulations, determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of New Jersey.
As used herein, the masculine gender shall include the
feminine gender.
The headings in the Plan are for reference purposes only and
shall not affect the meaning or interpretation of the Plan.
All notices or other communications made or given pursuant to
this Plan shall be in writing and shall be sufficiently made or given if
hand-delivered or mailed by certified mail, addressed to any Participant at the
address contained in the records of the Bank or to the Bank at its principal
office.
The proceeds received from the sale of Shares pursuant to the
Plan shall be used for general corporate purposes.
Nothing in the Plan or in any Option granted hereunder shall
confer on any Participant or eligible Employee any right to continue in the
employ of the Bank or any of its Subsidiaries, or to interfere in any way with
the right of the Bank or any of its Subsidiaries to terminate such Participant's
or Employee's employment at any time.
The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act, and the Committee shall interpret and administer the
provisions of the Plan or any Option in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
All expenses and costs incurred in connection with the
operation of the Plan shall be borne by the Bank.
The adoption of this Plan shall not affect any other
compensation or incentive plans in effect for the Bank. Nothing in this Plan
shall be construed to limit the right of the Bank (i) to establish, alter or
terminate any other forms of incentives, benefits or compensation for Employees
of the Bank, including, without limitation, conditioning the right to receive
other incentives, benefits or compensation on an Employee not participating in
this Plan; or (ii) to grant or assume options otherwise than under this Plan in
connection with any proper corporate purpose, including, without limitation, the
grant or assumption of stock options in connection with the acquisition by
purchase, lease, merger, consolidation or otherwise, of the business, stock, or
assets of any corporation, firm or association.
<PAGE>
Participants shall have no rights as shareholders unless and
until certificates for Shares are registered in their names in satisfaction of a
properly exercised Option.
If the Committee or Subcommittee shall find that any person to
whom any amount is payable under the Plan is unable to care for his affairs
because of illness or accident, or is a minor, or has died, then any payment due
to such person or his estate (unless a prior claim therefore has been made by a
duly appointed legal representative), may, if the Committee or Subcommittee so
directs the Bank, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Committee and the Bank therefore.
ARTICLE XI. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan is effective as of April 1, 1995, subject to approval
by the stockholders of the Bank in a manner which complies with Rule 16b-3 under
the Exchange Act, Section 422 of the Code, and Article 7B, Sections 27.50
through 27.54 of the New Jersey Banking Law and other applicable state law. The
expiration date of the Plan, after which no Option may be granted hereunder,
shall be March 31, 2005.
ARTICLE XII. AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Bank's stockholders
or Participants under the Plan, at any time terminate the Plan entirely, and at
any time or from time to time amend or modify the Plan, provided that no such
action shall adversely affect Options theretofore granted hereunder without the
Participant's consent, and provided further that no such action by the Board,
without approval of the stockholders, may (i) increase the total number of
Shares which may be purchased or acquired pursuant to Options granted under the
Plan, either in the aggregate or for any Participant or eligible Employee,
except as contemplated in Article VIII; (ii) expand the class of employees
eligible to receive Options under the Plan; (iii) decrease the minimum Option
price; (iv) extend the maximum term of Options granted hereunder; (v) extend the
term of the Plan; or (vi) take any other action requiring stockholder approval
under Rule 16b-3 under the Exchange Act. No amendment or modification may become
effective if it would cause the Plan to fail to meet the applicable requirements
of Rule 16b-3.
ARTICLE XIII. SHAREHOLDER APPROVAL
Anything in the Plan to the contrary notwithstanding, the
grant of Options hereunder shall be of no force or effect, and no Option granted
hereunder shall vest or become exercisable in any respect, unless and until the
Plan is approved by the affirmative vote of the holders of two-thirds of the
shares outstanding within 12 months after March 15, 1995.
SUSSEX COUNTY STATE BANK
1995 STOCK OPTION PLAN
FOR NONEMPLOYEE DIRECTORS
ARTICLE I. PURPOSES
The Sussex County State Bank 1995 Stock Option Plan For
Nonemployee Directors (the "Plan") is hereby established to advance the
interests of Sussex County State Bank (the "Bank") and its shareholders by
providing Nonemployee Directors with an equity interest in the Bank. The Plan
will enhance the ability of the Bank (i) to attract, retain and motivate members
of its Board of Directors and (ii) to provide additional incentive to such
members by encouraging them to invest in shares of the Bank's common stock and
thereby acquire a proprietary interest in the Bank and an increased personal
interest in the Bank's continued success and progress, to the mutual benefit of
directors, employees and shareholders. To achieve these objectives, the Plan
provides for the granting of nonqualified stock options.
ARTICLE II. DEFINITIONS
Whenever the following terms are used in this Plan, they shall
have the meaning specified below:
"Affiliate" shall mean the Bank, a Subsidiary, or any employee benefit plan
established or maintained by the Bank or a Subsidiary.
"Board" shall mean the Board of Directors of the Bank, or of any Affiliate of
the Bank.
"Change in Control" shall mean the occurrence of one or more of the following
events: (i) the Bank acquires actual knowledge that any person (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than an
Affiliate is or becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Bank representing
15% or more of the combined voting power of the Bank's then outstanding
securities, (ii) the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by an Affiliate),
(iii) the approval by the Bank's stockholders of (a) a merger or consolidation
of the Bank with or into another corporation (other than a merger or
consolidation in which the Bank is the surviving corporation and which does not
result in any reclassification or reorganization of the Bank's then outstanding
shares of Common Stock or a change in the Bank's directors, other than the
addition of not more than three directors), (b) a sale or disposition of all or
substantially all of the Bank's assets or (c) a plan of liquidation or
dissolution of the Bank, (iv) during any period of two consecutive calendar
years, individuals who at the beginning of such period constitute the Board of
Directors of the Bank cease for any reason to constitute at least two-thirds
thereof, unless the election or nomination for the election by the Bank's
stockholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period, or (v) a sale of (a) Common Stock of the Bank if after such sale any
person (as defined above) other than an Affiliate owns a majority of the Bank's
common stock or (b) all or substantially all of the Bank's assets (other than in
the ordinary course of business). Notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred for purposes of clause (i) above if a
<PAGE>
person is or becomes the beneficial owner, directly or indirectly, of more than
15% but less than 25% of the combined voting power of the Bank's then
outstanding securities if the acquisition of all voting securities in excess of
15% was approved in advance by two-thirds of the directors then in office.
"Code" shall mean the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered).
"Common Stock" shall mean the common stock of the Bank, no par value.
"Disability" shall mean permanent and total disability as defined in the Bank's
employee welfare benefit plan offering a long term disability benefit, or, if no
such benefit is offered, as defined by Section 105(d)(4) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value Broker" shall mean one or more broker-dealers designated by
the Board from time to time; provided however, that if on the applicable date
one or more broker-dealers have been designated by the Board as a "Designated
Broker" for purposes of the Bank's dividend reinvestment plan, such
broker-dealer or broker-dealers shall constitute the sole "Fair Market Value
Brokers" hereunder.
"Nonemployee Director" shall mean a member of the Board who is not a common law
employee of the Bank or any Subsidiary on the date such member is granted an
Option or at any time during the preceding 12 month period.
"Option" shall mean a right to purchase Common Stock which is awarded in
accordance with the terms of this Plan.
"Participant" shall mean a Nonemployee Director who has been granted an Option
under the Plan.
"Retirement Date" shall mean the date on which a Nonemployee Director is
required to resign from, or is required to forego reelection to, the Board as a
result of mandatory retirement provisions applicable to such Nonemployee
Director. "Retirement" shall mean a Nonemployee Director's resignation from, or
the act of foregoing election to, the Board as a result of any such mandatory
retirement provision.
"Secretary" shall mean the corporate secretary of the Bank.
"Securities Act" shall mean the Securities Act of 1933.
"Shares" shall mean shares of Common Stock.
"Subsidiary(ies)" shall mean any corporation or other legal entity, domestic or
foreign, more than 50% of the voting power of which is, as of the date of the
adoption of this Plan or at any time subsequent thereto, owned or controlled,
directly or indirectly by the Bank.
"Terminate (Termination of) Service (or Termination)" shall mean the time at
which the Participant ceases to provide services to the Bank in any capacity,
including, but not limited to, services as a director or as a common law
employee, but shall not include a lapse in providing services which the
Committee determines to be a temporary leave of absence.
"Year(s) of Service" shall mean any calendar year during which the applicable
person served as a director of the Bank for at least seven months.
<PAGE>
ARTICLE III. ADMINISTRATION
The Plan shall be administered by the Board of Directors of
the Bank, which shall hold meetings at such times as may be necessary for the
proper administration of the Plan. The Board shall keep minutes of its meetings.
A majority of the Board shall constitute a quorum and a majority of the quorum
may authorize any action. No member of the Board shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or any Option granted pursuant thereto. All members of the Board shall
be indemnified by the Bank with respect to any such action, determination or
interpretation to the fullest extent permitted by law.
Subject to the express terms and conditions set forth herein,
the Board shall have the power from time to time:
a) to construe and interpret the Plan and the Options granted
thereunder and to establish, amend and revoke rules and regulations for
the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Option, in the manner and to the
extent it shall deem necessary or advisable to make the Plan fully
effective; provided, however, that the Board shall have no discretion
with respect to designating (i) the recipient of an Option, (ii) the
number of shares of Common Stock that are subject to an Option, or
(iii) the exercise price for an Option. All decisions and
determinations by the Board in the exercise of this power shall be
final and binding upon the Bank, its Subsidiaries and the Participants;
b) to determine the duration and purposes for leaves of absence which
may be granted to a Participant without constituting a Termination of
Service for purposes of the Plan; and
c) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Bank
with respect to the Plan.
ARTICLE IV. SHARES SUBJECT TO PLAN
The maximum number of Shares that may be made subject to Stock
Options granted pursuant to the Plan is 32,000 (or the number and kind of shares
of stock or other securities which are substituted for those Shares or to which
those Shares are adjusted pursuant to the provisions of Article VIII of the
Plan). The Bank shall reserve such number of Shares for the purposes of the
Plan, out of its authorized but unissued Shares or out of Shares held in the
Bank's treasury, or partly out of each, as shall be determined by the Board. No
fractional shares of Common Stock shall be issued with respect to Options
granted under the Plan.
In the event that any outstanding Option under the Plan for
any reason expires, is terminated, forfeited or is canceled prior to the
expiration date of the Plan, the Shares called for by the unexercised portion of
such Option may, to the extent permitted by Rule 16b-3 under the Exchange Act,
again be subject to an Option under the Plan.
<PAGE>
ARTICLE V. ELIGIBILITY FOR AWARD AND GRANTS OF OPTIONS
5.1 GRANT OF SERVICE OPTIONS. Following the approval of this Plan by the Bank's
shareholders pursuant to Article XIII hereof, each person who was a director of
the Bank as of the date of such approval and who will continue as a director
after the date of the shareholder meeting at which such approval is granted
shall be granted an Option to purchase 2,500 Shares. Such Option shall be
granted in recognition of the valuable services provided by the directors to the
Bank during those years prior to the adoption of the Plan. Before any Options
are granted under this Section, a copy thereof shall be filed with the New
Jersey Department of Banking and Insurance, together with a certificate made by
two officers, one of whom shall be the president or a vice-president, stating
that the Plan has been adopted and approved in accordance with Article XIII.
5.2 ANNUAL OPTION GRANT. Each person who is not an employee of the Bank or any
Subsidiary at any annual or special meeting of shareholders of the Bank or any
Subsidiary at which directors are elected who will continue as a director after
the date of such meeting or who is elected or reelected a director of the Bank
or any Subsidiary at such meeting of shareholders of the Bank or any Subsidiary,
as of the date of each such annual or special meeting of shareholders, shall
automatically be granted an option to purchase 500 shares of the Bank's Common
Stock; provided, however, that (i) no Nonemployee Director of the Bank or any
Subsidiary shall receive an option or options to purchase more than 500 shares
of Common Stock in any calendar year regardless of the number of committees of
the Board of Directors on which he serves or to which he is appointed or
reappointed, and (ii) the maximum number of shares as to which options may be
granted to any Nonemployee Director under this plan shall be 7,500 shares.
Before any Options are granted under this Section, a copy thereof shall be filed
with the New Jersey Department of Banking and Insurance, together with a
certificate made by two officers, one of whom shall be the president or a
vice-president, stating that the Plan has been adopted and approved in
accordance with Article XIII.
The grant of any Options shall be evidenced by a written
Option contract, in a form determined by the Board, executed by the Bank and the
Participant. The Option contract shall state the number of Shares that are
subject to the Option evidenced thereby, the other essential terms of the Option
determined in accordance with Article VI hereof, and other terms, as the Board
may deem appropriate, that are not inconsistent with requirements of this Plan.
ARTICLE VI. TERMS AND CONDITIONS
6.1 OPTION PRICE. The exercise price for each Option granted under the Plan
shall be determined by the Board; provided, however, that it shall not be less
than the fair market value of the Common Stock on the date of grant. The fair
market value shall be determined for all purposes of the Plan as follows: (A) if
the Shares are admitted to quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or other comparable quotation
system and have been designated as a National Market System ("NMS") security,
fair market value on any date shall be the last sale price reported for the
Shares on such system on such date or on the last day preceding such date on
which a sale was reported, (B) if the Shares are admitted to quotation on NASDAQ
and have not been designated an NMS security, fair market value on any date
shall be the average of the highest bid and lowest asked prices of the Shares on
such system on such date, (C) if on such date, the Common Stock is not so quoted
or listed, the fair market value shall be the average of (i) the highest closing
<PAGE>
bid price for the Common Stock quoted by any Fair Market Value Broker on such
date and (ii) the lowest closing asked price for the Common Stock quoted by any
Fair Market Value Broker on such date or, if no Fair Market Value Broker quotes
a closing asked price for the Common Stock on such date, the highest closing bid
price quoted by any Fair Market Value Broker on such date, or (D) if there are
no bid and asked prices available on such date, the average of the high bid and
asked prices available on the closest preceding date to such date, or if no bid
and asked prices are available for the ninety trading days preceding such date,
then a price determined by the Board on the basis of such information as it
considers best reflects market value.
6.2 EXERCISABILITY AND TERMS OF OPTIONS. Options granted pursuant to Section 5.1
shall be exercisable in their entirety six months after the date such Options
are granted. Unless the exercise date of an Option granted pursuant to Section
5.2 is accelerated pursuant to Section 6.3 hereof, the following provisions
shall apply with respect to the exercise of such Options:
(a) until six months after the grant of the Option, such
Option shall not be exercisable; and
(b) from the first day of the seventh month after the grant of
the Option to the end of the eighteenth month after such grant, such Option may
only be exercised as to up to 33 1/3% of the shares of Common Stock covered
thereby; and
(c) from the first day of the nineteenth month after the grant
of the Option to the end of the twenty-ninth month after such grant, such Option
may only be exercised as to up to 66 2/3% of the shares of Common Stock covered
thereby; and
(d) an Option may be exercised in its entirety or as to any
portion thereof at any time on or after the first day of the thirtieth month
after such grant, until the term of such Option expires or otherwise ends.
Installments which become exercisable and not exercised shall remain exercisable
during the term of the Option.
Prior to the exercise of any Option granted pursuant to this
Plan, a certificate made by two officers of the Bank, one of whom shall be the
president or a vice-president, shall be filed with the New Jersey Department of
Banking and Insurance, stating:
(i) the date upon which the Plan was adopted by the Board of Directors and
approved by the stockholders in accordance with Article XIII;
(ii) the Date upon which the Options were granted pursuant to such Plan;
(iii) the consideration paid for the purchase of the Common Stock;
(iv) the fair market value of the Shares subject to the Option on the date
the Option was granted;
(v) the amount of the Shares of the Bank to be issued; and
(vi) the amount of the capital stock and surplus of the Bank after the
exercise of such Option and the issuance of capital stock pursuant thereto.
All Options shall have a term of no more than ten years from
the date of grant; provided, however, that upon the Termination of Service of a
Participant, Options that have not become exercisable before the date the
<PAGE>
Participant Terminates Service shall be forfeited and terminated immediately.
The Participant may exercise an Option to the extent it was exercisable by him
on the date immediately preceding such Termination within the lesser of one
month from the date of Termination, or the balance of the stated term of the
Option.
Without limiting the foregoing, no Option shall be exercisable
after the date of termination, if the Termination of Service is by the Bank or
any Subsidiary for Cause. For purposes of this Plan, "Cause" shall mean (i) the
conviction of the Participant of a felony by a court of competent jurisdiction,
(ii) the indictment of the Participant by a state or federal grand jury of
competent jurisdiction for embezzlement or misappropriation of funds of the
Bank, or for any act of dishonesty or lack of fidelity towards the Bank, (iii)
the written confession by the Participant of any act of dishonesty towards the
Bank or any embezzlement or misappropriation of the Bank's funds, or (iv)
willful or gross neglect of the duties for which the Participant was
responsible, all as the Committee, in its sole discretion, may determine.
6.3 ACCELERATED VESTING AND EXERCISE OF STOCK OPTIONS. If a Participant shall
Terminate Service by reason of his Retirement, death or Disability, all Options
granted to such Participant that have not become exercisable on or before the
date of such Termination may, at the discretion of the Board, become exercisable
as of such date; provided, however, that no Option may be exercised within six
months of the date it is granted. All Options held by such Participant may be
exercised by the Participant, his estate or beneficiary, or his representative,
as the case may be, for a period of one year from the date of such Termination,
or until the expiration of the stated term of such Option, whichever period is
shorter.
In the event of a Change In Control, any Option granted under
the Plan to a Participant which has not, as of the date of the Change In
Control, become exercisable shall become fully exercisable.
6.4 NONTRANSFERABILITY OF OPTION RIGHTS. No Option shall be transferable except
by will or the laws of descent and distribution, and then shall be limited by
Section 6.2. During the lifetime of the Participant, the Option shall be
exercisable only by him. The Board may, however, in its sole discretion, allow
for transfers of Options to family members, subject to such conditions or
limitations as it may establish to ensure compliance with Rule 16b-3 promulgated
pursuant to the Exchange Act, or for other purposes.
6.5 NO OBLIGATION TO EXERCISE OPTION. The grant of an Option shall impose no
obligation on the Participant to exercise such Option.
6.6 CANCELLATION OF OPTIONS. The Board, in its discretion, may, with the con-
sent of any Participant, cancel any outstanding Option.
6.7. NO RIGHTS AS A STOCKHOLDER. A Participant or a transferee of an Option
shall have no rights as a stockholder with respect to any Share covered by his
Option until he shall have become the holder of record of such Share, and he
shall not be entitled to any dividends or distributions or other rights in
respect of such Share for which the record date is prior to the date on which he
shall have become the holder of record thereof.
<PAGE>
ARTICLE VII. EXERCISE OF OPTION
Any Option may be exercised in whole or in part at any time
subsequent to such Option becoming exercisable during the term of such Option;
provided, however, that each partial exercise shall be for whole Shares only.
Each Option, or any exercisable portion thereof, may only be exercised by
delivery to the Secretary or his office of (i) notice in writing signed by the
Participant (or other person then entitled to exercise such Option) that such
Option, or a specified portion thereof, is being exercised; (ii) payment in full
for the purchased Shares (as specified in Section 7.2 below); (iii) such
representations and documents as are necessary or advisable to effect compliance
with all applicable provisions of Federal or state securities laws or
regulations; and (iv) in the event that the Option or portion thereof shall be
exercised pursuant to Section 6.3 by any person or persons other than the
Participant, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.
7.1 SHARE CERTIFICATES. Upon receiving notice and payment, the Bank will cause
to be delivered to the Participant, as soon as practicable, a certificate in the
Participant's name for the Shares purchased. The Shares issuable and deliverable
upon the exercise of a Stock Option shall be fully paid and non-assessable. The
Bank shall not be required to issue or deliver any certificate or certificates
for Shares purchased upon the complete or partial exercise of the Stock Option
prior to fulfillment of (i) the completion of any registration or other
qualification of such Shares under any federal or state law or under rulings or
regulations of the Securities and Exchange Commission or of any other
governmental regulatory body which may be necessary or advisable; and (ii) the
obtaining of any approval or other clearance from any federal or state
governmental agency which may be necessary or advisable.
7.2 PAYMENT FOR SHARES. Payment for Shares purchased under an Option granted
hereunder shall be made in full upon exercise of the Option, by one or more of
the following, unless otherwise prohibited by the terms of an Option agreement:
(i) by certified or bank cashier's check payable to the order of the Bank,; (ii)
in the form of unrestricted Shares already owned by the Participant based in any
such instance on the fair market value of the Stock on the date the Option is
exercised; (iii) by a combination thereof, in each case in the manner provided
in the Option agreement; or (iv) by any other means acceptable to the Bank.
To facilitate the foregoing, the Bank may enter into
agreements for coordinated procedures with one or more Fair Market Value
Brokers, or make a loan, or assist a Participant in obtaining a loan from a
financial institution, of funds sufficient to exercise an Option, subject to
such conditions or limitations as it may establish to ensure compliance with
Regulation O.
ARTICLE VIII. ADJUSTMENT FOR RECAPITALIZATION, ETC.
The aggregate number of Shares which may be purchased pursuant
to Options granted, the number of Shares covered by each outstanding Option, and
the price per share thereof in each such Option shall be appropriately adjusted
for any increase or decrease in the number of outstanding Shares resulting from
a stock split or other subdivision or consolidation of Shares or for other
capital adjustments or payments of stock dividends or distributions, other
increases or decreases in the outstanding Shares effected without receipt of
consideration by the Bank, or reorganization, merger or consolidation, or other
similar change affecting the Shares.
<PAGE>
Such adjustment to an Option shall be made without a change to
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of Share
quantities or prices). Any such adjustment made by the Committee shall be final
and binding upon all Participants, the Bank, their representatives, and all
other interested persons. No fractional Shares shall be issued as a result of
such adjustment.
In the event of a transaction involving (i) the liquidation or
dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not
the surviving corporation or (iii) the sale or disposition of all or
substantially all of the Bank's assets, provision shall be made in connection
with such transaction for the assumption of Options theretofore granted under
the Plan, or the substitution for such Options of new options of the successor
corporation, with appropriate adjustment as to the number and kind of Shares and
the purchase price for Shares thereunder, or, in the discretion of the
Committee, the Plan and the Options issued hereunder shall terminate on the
effective date of such transaction if appropriate provision is made for payment
to the Participant of an amount in cash equal to the fair market value of the
Options less the exercise price for such Options; provided, however, that in no
event shall the Committee take any action or make any determination under this
Article VIII which would prevent a transaction described in clause (ii) or (iii)
above from being treated as a pooling of interests under generally accepted
accounting principles.
ARTICLE IX. GOVERNMENT REGULATIONS AND REGISTRATION OF SHARES
The Plan, and the grant and exercise of Options thereunder,
and the Bank's obligation to sell and deliver stock under such Options, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any regulatory or governmental agency as may be required.
Each Option is subject to the requirement that if, at any
time, the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or NASDAQ or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance of Shares, no
Shares shall be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained, free of any
conditions not acceptable to the Committee. The Bank shall not be deemed, by
reason of the granting of any Option, to have any obligation to register the
Shares subject to such Option under the Securities Act or to maintain in effect
any registration of such Shares which may be made at any time under the
Securities Act.
Unless a registration statement under the Securities Act and
the applicable rules and regulations thereunder is then in effect with respect
to Shares issued upon exercise of any Option (which registration shall not be
required), the Bank shall require that the offer and sale of such shares be
exempt from the registration provisions of said Act. In furtherance of such
exemption, the Bank may require, as a condition precedent to the exercise of any
Option, that the person exercising the Option give to the Bank written
representation and undertaking, satisfactory in form and substance to the Bank,
that he is acquiring the Shares for his own account for investment and not with
a view to the distribution or resale thereof and otherwise establish to the
Bank's satisfaction that the offer or sale of the Shares issuable upon exercise
<PAGE>
of the Option will not constitute or result in any breach or violation of the
Securities Act or any similar state act or statute or any rules or regulations
thereunder. In the event a Registration Statement under the Securities Act is
not then in effect with respect to the Shares issued upon exercise of an Option,
the Bank shall place upon any stock certificate an appropriate legend referring
to the restrictions on disposition under the Act.
The Bank is relieved from any liability for the nonissuance or
non-transfer or any delay in issuance or transfer of any Shares subject to
Options under the Plan which results from the inability of the Bank to obtain,
or in any delay in obtaining, from any regulatory body having jurisdiction, all
requisite authority to issue or transfer Shares upon exercise of the Options
under the Plan if counsel for the Bank deems such authority necessary for lawful
issuance or transfer of any such Shares. Appropriate legends may be placed on
the stock certificates evidencing Shares issued upon exercise of Options to
reflect such transfer restrictions.
ARTICLE X. OTHER PROVISIONS
The validity, interpretation and administration of the Plan
and any rules, regulations, determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of New Jersey.
As used herein, the masculine gender shall include the
feminine gender.
The headings in the Plan are for reference purposes only and
shall not affect the meaning or interpretation of the Plan.
All notices or other communications made or given pursuant to
this Plan shall be in writing and shall be sufficiently made or given if
hand-delivered or mailed by certified mail, addressed to any Participant at the
address contained in the records of the Bank or to the Bank at its principal
office.
The proceeds received from the sale of Shares pursuant to the
Plan shall be used for general corporate purposes.
The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act, and the Committee shall interpret and administer the
provisions of the Plan or any Option in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
All expenses and costs incurred in connection with the
operation of the Plan shall be borne by the Bank.
Nothing in this Plan or in any Option granted hereunder shall
confer upon any Participant any right to continue to serve as a director of the
Bank or shall interfere with or restrict in any way the right, which right is
hereby expressly reserved, to remove any Participant as a director in accordance
with the by-laws and certificate of incorporation of the Bank and applicable
law.
If the Board shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
<PAGE>
estate (unless a prior claim therefore has been made by a duly appointed legal
representative), may, if the Board so directs the Bank, be paid to his spouse,
child, relative, an institution maintaining or having custody of such person, or
any other person deemed by the Board to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be a complete
discharge of the liability of the Board and the Bank therefore.
ARTICLE XI. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan shall become effective on the date of its adoption by
the Board, subject to approval by the stockholders of the Bank in a manner which
complies with Rule 16b-3 under the Exchange Act, New Jersey Administrative Code
3:4-2.1, Article 7B, Sections 27.50 through 27.54 of the New Jersey Banking Law,
and other applicable state law. The expiration date of the Plan, after which no
Option may be granted hereunder, shall be the date ten years subsequent to the
Plan's effective date.
ARTICLE XII. AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Bank's stockholders
or Participants under the Plan, at any time terminate the Plan entirely, and at
any time or from time to time amend or modify the Plan, provided that no such
action shall adversely affect Options theretofore granted hereunder without the
Participant's consent, and provided further that no such action by the Board,
without approval of the stockholders, may (i) materially increase the total
number of Shares which may be purchased or acquired pursuant to Options granted
under the Plan, either in the aggregate or for any Participant pursuant to the
formulas described in Article V, except as contemplated in Article VIII; (ii)
materially expand the class of directors eligible to receive Options under the
Plan; (iii) decrease the minimum Option price; (iv) materially increase the
benefits accruing to Participants under the Plan; or (v) take any other action
requiring stockholder approval under Rule 16b-3 under the Exchange Act.
Notwithstanding anything herein to the contrary, no provision of the Plan shall
be amended, if at all, more than once every six months, other than to comport
with changes in the Code, the Act or the rules thereunder. No amendment or
modification may become effective if it would cause the Plan to fail to meet the
applicable requirements of Rule 16b-3.
ARTICLE XIII. SHAREHOLDER APPROVAL
Anything in the Plan to the contrary notwithstanding, the
grant of Options hereunder shall be of no force or effect, and no Option granted
hereunder shall vest or become exercisable in any respect, unless and until the
Plan is approved by the affirmative vote of the holders of two-thirds of the
shares outstanding within 12 months after March 15, 1995.
SUSSEX COUNTY STATE BANK
Terms and Conditions for Exercise of Incentive & Nonqualified Stock Options
Issued Pursuant to the
1988 Nonqualified Stock Option Plan
- - --------------------------------------------------------------------------------
I. METHOD OF EXERCISE
------------------
When you decide to exercise a stock option, you must follow the steps set
forth below:
A. Notice of Exercise
------------------
Send a Notice of Exercise Letter (Form for Exercising an Employee
Stock Option) to:
Sussex County State Bank
399 Route 23
Franklin, New Jersey 07416
Attention: Corporate Secretary
The Notice of Exercise Letter should follow the format of the sample
letter enclosed in this package. Your letter must set forth the
following information:
1. The number of shares that you wish to exercise, the grant date of
those options being exercised and the type of option you are
exercising, an Incentive Stock Option or a Nonqualified Stock
Option;
2. The method of payment: by check, by Sussex County State Bank Common
Stock, or by a combination;
3. The number of certificates to be prepared, and the address to which
they should be delivered.
A separate Notice of Exercise Letter should be prepared for stock
options grants awarded at different dates. We will not accept oral
Notices of Exercise and you must purchase a minimum of 100 shares.
<PAGE>
B. Payment
-------
Your option exercise payment (see next page) must accompany your Notice
of Exercise Letter. Notice of Exercise Letters received without payment
will not be processed.
Payment may be made (1) by check, (2) by Sussex County State Bank
Common Stock, * or (3) by a combination of Sussex County State Bank
Common Stock and check as follows:
1. Payment by Check - Send a certified or bank check, payable to
Sussex County State Bank, for the full amount of the exercise
price.
2. Payment with Shares of Sussex County State Bank Common Stock* -
You may pay for the exercise of this option by delivering to the
Bank shares of Sussex County State Bank Common Stock which you own
having a value (see (b) below) equal to or greater than the
exercise price as follows:
a) Delivery of Stock Certificate(s)
--------------------------------
The stock certificate(s) must be delivered to the Corporation
either:
(i) endorsed to Sussex County State Bank;
or
(ii) accompanied by a stock power endorsed to Sussex
County State Bank.
The endorsement must be identical to the registrant's name
indicated on the face of the certificate. The signature of
endorsement must be guaranteed by a bank or stock broker.
(Note: If the certificate is mailed, you might consider making
the endorsement on a stock power (ii above), and then mailing
it separately).
b) Valuation of Shares
-------------------
Any shares delivered as either partial or full payment of the
exercise price of this option will be valued at the fair
market value (last sale price reported) of the Bank's Common
Stock on NASDAQ as of the date they are received, duly
endorsed, by the Bank's Personnel Department, or by the price
quoted by Ryan Beck or such other licensed securities dealer
actively marketing the Bank's common stock at the time.
If the stock submitted for payment exceeds the number of
shares required, a certificate will be returned to you for the
balance. No fractional share certificates will be issued. If
you deliver too few shares, only a part of your option can be
exercised on the date you specified.
- - -------------------------------------
* It is important to note that shares acquired through the exercise of an
ISO cannot be used as payment for the exercise of another ISO unless
those shares have been held for at least two years from the date of
grant and one year from the date of exercise.
<PAGE>
As noted above, shares of Bank Common Stock used in payment of
your stock option exercise will be valued as of the date they
are received. Since, at the time of exercise, the fair market
value of the shares tendered usually will not be known, you
will owe the Bank a check (certified) for the excess of the
exercise price over the value of the tendered shares. Failure
to pay the full purchase price within 5 days of the date of
exercise will void the Notice of Exercise.
II. WITHHOLDING TAXES
-----------------
You must pay all withholding taxes required by law. You may make your
payment by personal check.
A. Nonqualified Options- Withholding taxes, as required by law, will be
promptly requested by the Bank after receipt of your Notice of Exercise
Letter and the full purchase price.
B. Incentive Stock Options - There are no applicable withholding taxes
required on the exercise of an ISO.
III. REGISTRATION AND DELIVERY OF SHARES
-----------------------------------
Stock certificates(s) issued upon the exercise of this option will be
registered in the name(s) specified in your Notice of Exercise and
delivered to you as expeditiously as possible, after the receipt of full
payment.
Please note that in order to be considered a shareholder of record for
dividend purposes, the shares must be registered in your name before the
close of business on the dividend record date.
IV. OTHER PROVISIONS
----------------
A. Neither you nor any person entitled to exercise your rights in the
event of your death shall have any of the rights of a stockholder with
respect to the shares of common stock subject to this option, unless,
and until, you have exercised the options, paid the full price thereof,
and have received the certificate for the shares so acquired.
B. The Bank is not liable for the non-issuance or non-transfer or any
delay in the issuance or transfer of any shares of common stock subject
to this option which results from the inability of the Bank to obtain,
or in any delay in obtaining, from each regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of
common stock of the Bank in satisfaction of the option, if counsel for
the Bank deems such authority necessary for the lawful issuance or
transfer of any such shares.
<PAGE>
C. This option is subject to all of the terms and conditions of the Plan
and your acceptance hereof shall constitute your agreement to the terms
and conditions of the Plan and the administrative regulations of the
Committee. Your exercise of this option constitutes your agreement that
the shares of common stock acquired hereunder will not be sold or
otherwise disposed of by you in violation of any applicable securities
laws or regulations. You may obtain a copy of the Plan by making a
request to the Personnel Department.
D. This option shall be exercised in accordance with such additional
administrative regulations as the Committee may from time to time
adopt. All decisions of the Committee regarding any questions arising
under the Plan or under these terms and conditions shall be conclusive
and binding.
E. If you dispose of the shares of common stock acquired on the exercise
of an ISO by sale or exchange or other disqualifying disposition within
one year after the acquisition of such shares, or two years from the
date of grant of such ISO, you shall notify the Bank promptly of such
disposition and the amount realized by you upon such disposition.
Please retain this document in your permanent records. If you have any questions
regarding the Plan or your option grant, please contact the Personnel
Department.
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The Sussex County State Bank.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 5,291 3,652
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 1,575 10,550
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 22,116 21,564
<INVESTMENTS-CARRYING> 1,690 2,142
<INVESTMENTS-MARKET> 0 0
<LOANS> 63,026 52,148
<ALLOWANCE> 506 476
<TOTAL-ASSETS> 98,778 94,870
<DEPOSITS> 90,041 85,925
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,075 1,336
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 1,681 1,618
<OTHER-SE> 5,981 5,991
<TOTAL-LIABILITIES-AND-EQUITY> 98,778 94,870
<INTEREST-LOAN> 3,652 4,567
<INTEREST-INVEST> 1,330 1,483
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 4,982 6,050
<INTEREST-DEPOSIT> 1,990 2,267
<INTEREST-EXPENSE> 1,990 2,267
<INTEREST-INCOME-NET> 2,992 3,783
<LOAN-LOSSES> 85 64
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,703 3,644
<INCOME-PRETAX> 709 755
<INCOME-PRE-EXTRAORDINARY> 709 755
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 440 501
<EPS-PRIMARY> .67 .78
<EPS-DILUTED> .67 .78
<YIELD-ACTUAL> 0 0
<LOANS-NON> 1,005 1,597
<LOANS-PAST> 251 93
<LOANS-TROUBLED> 172 279
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 476 478
<CHARGE-OFFS> 58 68
<RECOVERIES> 3 2
<ALLOWANCE-CLOSE> 506 476
<ALLOWANCE-DOMESTIC> 506 476
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
