SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-29030
SUSSEX BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3475473
- ------------------------------- -------------------
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
399 Route 23, Franklin, New Jersey 07416
- ----------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(973) 827-2914
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of October 28, 1998 there were 1,416,827 shares of common stock, no par
value, outstanding.
<PAGE>
SUSSEX BANCORP
FORM 10-QSB
INDEX
Part I - Financial Information
Item I. Financial Statements and Notes to Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
September 30, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and Due from Banks ................ $ 4,959 $ 5,793
Federal Funds Sold ..................... 14,800 7,875
Securities:
Available for Sale, at Market Value .. 31,583 26,600
Held to maturity ..................... 5,529 2,706
--------- ---------
Total Securities ................. 37,112 29,306
Loans (Net of Unearned Income) ......... 69,050 68,035
Less: Allowance for Possible
Loan Losses .................. 709 685
--------- ---------
Net Loans ............ 68,341 67,350
Premises and Equipment, Net ............ 2,392 2,287
Other Real Estate ...................... 36 -0-
Intangible Assets, Primarily
Core Deposit Premiums ................ 724 787
Other Assets ................ 1,308 859
--------- ---------
Total Assets .................. $ 129,672 $ 114,257
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand .............................. 19,488 13,807
Savings ............................. 50,109 47,884
Time ................................ 50,089 38,971
--------- ---------
Total Deposits ................ 119,686 104,882
Other Liabilities ...................... 913 789
--------- ---------
Total Liabilities ............. 120,599 105,671
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
September 30, December 31,
1998 1998
--------- ---------
<S> <C> <C>
Stockholders' Equity:
Common Stock, No Par Value
Authorized 5,000,000 Shares,
Issued and outstanding
1,443,827 in 1998 and
1,391,971 in 1998, respectively ..... 5,586 5,412
Retained Earnings ...................... 3,401 3,162
Treasury Stock ......................... (2) (2)
Net Unrealized Gain on Securities
Available for Sale,
net of income taxes ................. 88 (14)
--------- ---------
Total Stockholders' Equity ............. 9,078 8,586
Total Liabilities and
Stockholders' Equity ................ $ 129,672 $ 114,257
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ............... $ 1,391 $ 1,409 $ 4,157 $ 4,114
Interest on Securities:
Taxable ................................. 463 376 1,269 1,070
Exempt from Federal Income Tax .......... 31 10 71 27
Interest on Federal Funds Sold .............. 213 97 601 246
----------- ----------- ----------- -----------
Total Interest Income .............. 2,098 1,892 $ 6,098 $ 5,457
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits ............ 243 180 789 518
Interest on Time Deposits ............... 746 597 1,963 1,744
----------- ----------- ----------- -----------
Total Interest Expense ............. 989 777 2,752 2,262
Net Interest Income ..................... 1,109 1,115 3,346 3,195
Provision for Possible
Loan Losses ........................... 21 45 63 195
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Possible Loan Losses ... 1,088 1,070 3,283 3,000
NON-INTEREST INCOME
Trust Income ............................ (3) 0 1 5
Service charges
on Deposit Accounts .................. 123 121 369 376
Other Income ............................ 111 46 249 156
----------- ----------- ----------- -----------
Total Non-interest Income .......... 231 167 619 537
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NON-INTEREST EXPENSE
Salaries and Employee Benefits .......... 534 487 1,584 1,409
Occupancy Expense, Net .................. 89 81 269 262
Furniture and Equipment Expense ......... 111 92 316 288
Data Processing Expense ................. 36 21 73 53
Amortization of Intangibles ............. 22 21 63 63
Other Expenses .......................... 270 269 821 761
----------- ----------- ----------- -----------
Total Non-Interest Expense ......... 1,062 971 3,126 2,836
Income Before Provision for Income Taxes .... 257 266 776 701
Provision for Income Taxes .................. 79 93 257 244
----------- ----------- ----------- -----------
Net Income ......................... $ 178 $ 173 $ 519 $ 457
=========== =========== =========== ===========
Net Income Per Common Share ............. $ 0.13 $ 0.12 $ 0.37 $ 0.33
=========== =========== =========== ===========
Weighted Average Shares Outstanding ......... 1,416,827 1,390,134 1,416,827 1,390,134
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
Net Income .............................................. $ 519 $ 457
Other comprehensive income,
Net of tax
Unrealized loss on available-for-sale Securities ..... 89 (14)
----- -----
Comprehensive income .................................... $ 608 $ 443
===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
Unrealized
Gain (Loss) on Total
Common Retained Treasury Securities Stockholders
Stock Earnings Stock Available Equity
-------- -------- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 5,412 $ 3,162 $ (2) $ 14 $ 8,586
-------- -------- ----- ----- -----------
Net Income for the Period 519 519
Cash Dividend ($.33 per share) (282) (282)
Shares issued through
dividend reinvestment plan 136 136
Stock Option Exercised 37 37
Change in unrealized gain on
securities available for sale 75 75
-------- -------- ----- ----- -----------
Balance Sept 30, 1998 $ 5,585 $ 3,399 $ (2) $ 89 $ 9,071
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ..................................... $ 519 $ 457
Adjustments to reconcile net income
to net cash provided by Operating
Activities:
Depreciation and Amortization of Premises
and Equipment .................................. 261 213
Amortization of Intangible Assets .................. 63 62
Premium amortization (discount accretion)
of securities, net ............................. 69 43
Provision for Possible Loan Loses .................. 63 195
Gain/Los on Sale of Other Real Estate .............. 0 24
Accretion of Loan origination and
commitment fees, net ........................... (79) 16
Deferred Federal income tax benefit
(increase) ..................................... 267 71
Decrease (Increase) in Accrued Interest
Receivable ..................................... (148) (195)
Decrease (Increase) in Other Assets ................ (290) 305
Decrease (Increase) in Accrued Interest
and Other Liabilities .......................... 195 (193)
Net Cash Provided by Operating Activities ... $ 920 $ 998
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Pay downs ...... 4,000 674
Proceeds from Sales/Calls Prior to Maturity . 9,300 --
Purchases ................................... (18,347) (2,658)
Securities Held to maturity:
Proceeds from Maturities .................... 489 682
Purchases ................................... (3,317) (1,125)
Net Increase in Loans Outstanding .............. (1,039) (3,493)
Capital Expenditures ........................... (366) (270)
Net Increase in Other Real Estate .............. (36) 410
-------- --------
Net Cash Provided by (used in)
Investing Activities ...................... $ (9,316) $ (5,780)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Financing Activities:
Net (Decrease) Increase Total Deposits ...... 15,610 7,874
Payment of dividends ........................... (285) (186)
-------- --------
Net Cash (used in) Provided by
Financing Activities ................... $ 15,325 $ 7,688
Net increase (Decrease) in Cash and
Cash Equivalents ........................ 6,929 2,906
Cash and Cash Equivalents,
Beginning of Period ..................... 13,668 8,964
Cash and Cash Equivalents,
End of Period .......................... $ 20,597 $ 11,870
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
SUSSEX BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Sussex Bancorp ("the Company"), a one-bank holding company registered with
the Federal Reserve under the Bank Holding Company Act of 1956, as amended, was
incorporated in January, 1996 to serve as a holding company for the Sussex
County State Bank ("the Bank"). The Company acquired the Bank and became its
holding company on November 20, 1996. The Bank is the only active subsidiary at
September 30, 1998. The Bank operates seven banking offices all located in
Sussex County, New Jersey. The Company is subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System (the "FRB").
The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The
operations of the Company and the Bank are subject to the supervision and
regulation of the FRB, FDIC and the New Jersey Department of Banking and
Insurance (the "Department").
The consolidated financial statements included herein have been prepared
without audit in accordance with the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results for interim
periods. All adjustments made were of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto that are included in the
Company's Annual Report on Form 10-KSB for the fiscal period ended December 31,
1997.
2. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds sold. Generally, federal funds are sold for
a one day period.
<PAGE>
3. Securities
The amortized cost and approximate market value of securities are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
----------------------- -----------------------
Amortized Market Amortized Market
Cash Value Cash Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities Available
For Sale -
U. S. Treasury Securities .. $ 8,605 $ 8,739 $ 8,049 $ 8,049
U. S. Government
Mortgage Backed Securities . 22,830 22,844 18,529 18,551
------- ------- ------- -------
Total Securities
Available for Sale .. $31,435 $31,583 $26,578 $26,600
Securities Held to Maturity -
Obligations of State and
Political Subdivisions ..... 4,836 4,843 2,082 2,089
Other Debt Securities 693 693 624 624
------- ------- ------- -------
Total Securities
Held to Maturity ...... $ 5,529 $ 5,536 $ 2,706 $ 2,713
------- ------- ------- -------
Total Securities ............... $36,964 $37,119 $29,284 $29,313
======= ======= ======= =======
</TABLE>
4. Recently Issued Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("Statement 130") effective March 31, 1998.
Statement 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Under Statement 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available-for-sale. Statement 130 became effective for interim and annual
periods beginning after December 15, 1997. Comparative financial statements
provided for earlier periods are reclassified to reflect application of the
provisions of the statement.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1998 and September 30, 1997.
OVERVIEW
The Company realized net income of $178 thousand for the third quarter of 1998,
a increase of $5 thousand from the $173 thousand reported for the same period of
1997. Basic earnings per share were $.13 and $.12 for the three month periods
ended September 30, 1998 and 1997, respectively. Diluted earnings per share were
$.12 and $.11 for the 1998 and 1997 periods, respectively.
For the nine months ended September 30, 1998, net-income was $519 thousand, an
increase of $62 thousand, or 13.6% from the $457 thousand reported for the same
period of 1997. Basic earnings per share were $.37 and $.33, for the 1998 and
1997 periods, respectively, and diluted earnings per share were $.36 and $.32,
respectively.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $206 thousand, or 10.9%, to
$2.1 million for the quarter ended September 30, 1998 from $1.9 million for the
same period of 1997. This was attributable to an increase in interest and
dividends on securities of $108 thousand and an increase in interest income on
Federal Funds sold of $116 thousand, offset by a decrease in interest income on
loans. The increase in interest income on securities and Federal funds sold
reflect increases in the average balance of investment securities and Federal
funds sold. The decrease in interest income on loans reflects reinvestment of
loan prepayments in a lower interest rate environment. The yield on average
interest-earning assets on a fully taxable equivalent basis decreased 21 basis
points from 7.24% for the third quarter of 1997 to 7.02% for the third quarter
of 1998.
The decline in average yield reflects reinvestment of mortgage principal
repayment and prepayments and amortization and cash flows from called and
maturing investment securities at lower current market rates of interest. The
increase in interest earning assets reflects the Company's continued efforts to
increase market share in its Sussex County, New Jersey trade area, as the
Company continued to experience deposit growth.
For the nine months ended September 30, 1998, interest income increased $641
thousand, or 11.7%, from the $5.5 million reported for the same period of 1997.
This growth in interest income is the result of a $24.9 million, or 25.8%
increase in the average balance of interest-earning assets over the comparable
period of last year, partially offset by a decrease in the average yield on
total interest-earning assets to 7.25% during the nine months ended September
30, 1998, compared to 7.48% during the same period in 1997. The majority of the
Company's asset growth over the first nine months of 1998 occurred in investment
securities and Federal funds sold as the Company's deposits increased more
rapidly than loan demand. The decline in average yield reflects reinvestment of
securities at lower rates of interest. The reduced interest rates for the nine
month periods reflect the same factors as were present in the three month
period.
<PAGE>
Interest Expense. The Company's interest expense for the third quarter of 1998
increased $212 thousand, or 27.3% to $989 thousand from $777 thousand for the
same period last year. For the nine months ended September 30, 1998 interest
expense increased $490 thousand, or 21.7%, to $2.8 million from $2.3 million for
the same period last year. The average balance of interest bearing deposits
increased $19.4 million, or 24%, from the same period of 1997, with growth in
time deposits the largest component of this increase. Interest on time deposits
increased $219 thousand for the nine months ended September 30, 1998 over the
comparable period of 1997. The Company's average cost of funds increased to
3.36% for the nine months ended September 30, 1998 from 3.15% during the same
period last year, reflecting a change in the composition of the Company's
deposit portfolio as average time deposits for the nine months ended September
30, 1998 increased by $11.3 million compared to the nine months ended September
30, 1997. This growth is primarily the result of an increase in the Company's
public funds on deposit, representing time deposits over $100,000. The Company
believes it will be able to generate additional customer relationships through
these public deposits. The average cost of the interest-bearing deposits
increased to 3.35% during the current period, from the 3.14% during the same
period last year.
Table 1 following presents a summary of the Company's interest-earning assets
and their average yields, and interest-bearing liabilities and their average
costs and shareholders' equity for the nine months ended September 30, 1998 and
1997. The average balance of loans includes non-accrual loans, and associated
yields include loan fees which are considered adjustment to yields.
<PAGE>
<TABLE>
<CAPTION>
Comparative Average
Balance Sheets Nine months ended September 30,
-----------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
Average Average
Interest Rates Rates
Average Income/ Earned/ Average Income Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- ---- --------- --------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning assets:
Taxable loans (net of unearned
income) ....................... $ 69,186 $ 4,157 8.13% $ 66,847 $ 4,114 8.11%
Tax exempt securities ......... 4,837 71 5.65% 841 27 6.01%
Taxable investment securities . 32,374 1,264 6.14% 22,748 1,070 6.80%
Interest bearing deposits ..... 100 5 5.96% 0 0 0.00%
Federal Funds sold ............ 14,826 601 5.72% 6,020 246 5.45%
Total earning assets .......... 121,323 6098 7.25% 96,456 5,457 7.48%
Non-interest earning assets ... 8,558 8,144
Allowance for possible
loan losses ................. (706) (606)
Total Assets ............ $ 129,175 $ 103,954
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comparative Average
Balance Sheets Nine months ended September 30,
-------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
Average Average
Interest Rates Rates
Average Income/ Earned/ Average Income Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest bearing liabilities:
NOW deposits ................................ $ 13,609 $ 193 1.90% $ 12,346 176 1.86%
Savings deposits ............................ 32,976 596 2.64% 27,574 518 2.49%
Money market deposits ....................... 4,120 84 2.50% 3,541 59 2.21%
Time Deposits ............................... 49,493 1,879 5.19% 37,315 1,509 5.40%
Fed Funds Purchased ......................... 0 0 0.00% 0 0 0.00%
Subordinated debt ........................... 0 0 0.00% 0 0 0.00%
Total interest bearing
liabilities ........................ 100,198 2,752 3.75% 80,776 2,262 3.71%
Non-interest bearing liabilities:
Demand Deposits ......................... $ 19,193 $ 14,515
Other liabilities ........................... 912 781
Total non-interest bearing
liabilities ........................ 20,105 15,296
Shareholders' equity ........................ 8,872 7,882
Total liabilities and shareholders'
equity ............................. $129,175 $103,954
New interest differential ................... $ 3,346 $ 3,195
Net yield on interest-earning
assets ............................. 4.05% 4.37%
</TABLE>
Net-Interest Income. The net effect of the changes in interest income and
interest expense for the third quarter of 1998 was a decrease of $6 thousand as
compared to the second quarter of 1997. The net interest spread on a fully tax
equivalent basis declined 64 basis points from the same period last year.
Net interest income for the nine months ended September 30, 1998, increased by
$151 thousand, or 4.7%, over the same period last year. The net interest spread
decreased 52 basis points.
<PAGE>
Provision for Loan Losses. For the nine months ended September 30, 1998, the
provision for possible loan losses was $21 thousand compared to the $45 thousand
for the same period of last year. The provision for possible loan losses was $63
thousand for the nine months ended September 30, 1998, as compared to $195
thousand for the same period of last year. The decrease in the provision for
loan losses reflects management's judgment concerning the risks inherent in the
Company's existing loan portfolio and the size of the allowance necessary to
absorb those risks. In setting the provision, management considers the amount
and type of lending being undertaken by the Company and economic conditions in
the Company's trade area, among other factors. Management reviews the adequacy
of its allowance on an ongoing basis and will provide for additional provisions
in future periods as may be necessary.
Non-Interest Income. For the third quarter of 1998, total non-interest income
increased by $64 thousand, or 38.3%, over the same period of last year.
For the nine months ended September 30, 1998, non-interest income increased $82
thousand from the same period in 1997, due primarily to fees generated by the
sale of non-deposit products such as annuities and mutual funds.
Non-Interest Expense. For the quarter ended September 30, 1998, non-interest
expense increased $91 thousand from the same period of 1997. Salaries and
employee benefits increased $47 thousand, or 9.7%, with salaries increaseing $65
thousand and employee benefits decreasing $18 thousand, reflecting the addition
of staff and normal salary increases. Furniture and equipment expense decreased
$20 thousand, or 21.5%, as a result of an increase to depreciation expense.
Other expenses increased by $41 thousand, or 14.6%, as a result of increases in
the Company's upgrade of its in-house computer system, increases in legal and
professional fees and increases in filing fees attributable to listing on the
American Stock Exchange.
For the nine months ended September 30, 1998, non-interest expense increased
$290 thousand, or 10.2%, from the same period last year. Salaries and employee
benefits increased $175 thousand, or 12.4%;with salaries and wages increasing
$166 thousand and employee benefits increasing $9 thousand. Furniture and
equipment expense increased $28 thousand, or 9.7%, which reflects an increase in
depreciation expense of $47 thousand as a result of upgrades to the Company's
in-house computer system, offset by a decrease in maintenance and repairs of $19
thousand. Other expenses increased $60 thousand, including an increase in legal
and professional fees of $20 thousand, or 29.3% , and an increase in ATM fees of
$14 thousand, or 50.3% as a result of communication costs increasing.
Income Taxes. Income taxe expense increased $13 thousand to $257 thousand for
the nine months ended September 30, 1998 as compared to $244 thousand for the
same period in 1997. The increase in income taxes resulted from higher levels of
taxable income in 1998.
<PAGE>
FINANCIAL CONDITION
September 30, 1998 compared to December 31, 1997
Total assets increased to $129.7 million, an increase of $15.4 million, or
13.5%, from total assets of $114.3 million at December 31, 1997. Increases in
total assets included increases of $6.9 million in Federal Funds sold, $7.8
million in total securities, $1.0 million in total loans, $105 thousand in
premises and equipment, $36 thousand in other real estate owned and $449
thousand in other assets. This was offset by a decrease of $897 thousand in cash
and due from banks and intangible assets.
Total loans at September 30, 1998 increased $1.0 million to $69.1 million from
year-end 1997. Within the portfolio, commercial and industrial loans increased
$483 thousand to $3.0 million, and residential and commercial real estate loans
declined $588 thousand from year-end 1997, reflecting prepayments.
The following schedule presents the components of loans, net of unearned income,
by type, for each periods presented.
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
---------------------- ----------------------
Amount Percent Amount Percent
------- ------ ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial ...... $ 2,982 4.32% $ 2,499 3.67%
Real Estate non residential
properties ................ 11,580 16.77% 10,665 15.67%
Residential properties .... 49,726 72.02% 51,257 75.30%
Construction .................. 1,618 2.34% 877 1.30%
Lease financing ................ 150 .22% 0 0
Consumer ...................... 2,990 4.33% 2,765 4.06%
------- ------ ------- ------
Total Loans ................... $69,046 100.00% $68,063 100.00%
======= ====== ======= ======
</TABLE>
At September 30, 1998, federal funds sold increased by $6.9 million over
December 31, 1997. The increase is attributable both to short term investment of
public deposits received by the Bank and cash from prepayments and repayments in
the investment portfolio exceeding new loan demand.
Total average deposits increased $19.6 million, or 20.01%. Time deposits over
$100,000 increased by $8.3 million, savings deposits increased by $4.0 million,
NOW deposits increased by $1.1 million and demand deposits increased by $3.3
million. The increase in time deposits over $100,000 reflects the Bank's
increase in public deposits as the Bank has sought to develop additional loan
and deposit relationships through public entities. The increase in savings
deposits is the result of a offering of a Senior Select account to increase
market share among senior citizens in the Company's market area. Management
continues to monitor the shift in deposits through its Asset/Liability
Committee.
<PAGE>
The following schedule presents the components of deposits, for each periods
presented.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------------- ---------------------------
Amount % Amount %
Balance Deposits:
<S> <C> <C> <C> <C>
NOW deposits ........ $ 13,706 11.65% $ 12,593 12.85%
Savings deposits .... 32,079 27.26% 28,109 28.67%
Money Market Deposits 4,458 3.79% 3,580 3.65%
Time deposits ....... 48,227 40.99% 37,874 38.63%
Demand deposits ..... 19,193 16.31% 15,886 16.20%
Total Deposits .... $117,663 100.00% $ 98,042 100.00%
======== ====== ========= ======
</TABLE>
ASSET QUALITY
At September 30, 1998, non-performing loans decreased $164 thousand, as compared
to December 31, 1997. The following table provides information on risk elements
in the loan portfolio.
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
Non-accrual loans ...................... $ 566 $ 730
Non-accrual loans to
total loans ......................... .82% 1.07%
Non-performing assets
to total assets ..................... .44% 0.64%
Allowance for possible
loan losses as a percentage of
non-performing loans ................. 79.83% 93.80%
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level deemed adequate
by management to provide for potential loan loses. The level of the allowance is
based on management's evaluation of potential losses in the portfolio, after
consideration of risk characteristics of the loans and prevailing and
anticipated economic conditions, among other factors. Although management
strives to maintain an allowance it deems adequate, future economic changes,
deterioration of borrowers' credit worthiness, and the impact of examination by
regulatory agencies all could cause changes to the Company's allowance for
possible loan loses.
<PAGE>
At September 30, 1998, the allowance for possible loan losses was $709, an
increase of 3.5% from the $685 thousand at year-end 1997. There were charge-offs
of $39 thousand for the third quarter of 1998.
LIQUIDITY MANAGEMENT
At September 30, 1998, the amount of liquid assets remain at a level management
deemed adequate to ensure that contractual liabilities, depositors' withdrawal
requirements, and other operational and customer credit needs could be
satisfied.
At September 30, 1998, liquid investments totaled $19.8 million, and all mature
within 30 days.
CAPITAL RESOURCES
Total stockholders' equity increased $487 thousand to $9.1 million at September
30, 1998 from $8.6 million at year-end 1997. The increase was due primarily to
net income of $519 thousand for the nine months ended September 30, 1998. This
increase was offset by a cash dividend of $282 thousand.
At September 30, 1998, both the Company and the Bank exceeded each of the
regulatory capital requirements applicable to it. The table below presents the
capital ratios at September 30, 1998 for both the Company and the Bank as well
as the minimum regulatory requirements.
<TABLE>
<CAPTION>
Amount Ratio Amount Minimum Ration
------ ----- ------ --------------
<S> <C> <C> <C> <C>
The Company
Leverage Capital .. $8,263 6.50% $3,245 3-5%
Tier 1 - Risk Based 8,263 13.61% 2,066 4%
Total Risk-Based .. 8,972 14.77% 4,326 8%
The Bank
Leverage Capital .. 7,847 6.21% 3,311 3-5%
Tier 1 Risk-Based . 7,847 12.44% 2,126 4%
Total Risk-Based .. 8,556 13.56% 4,240 8%
</TABLE>
<PAGE>
YEAR 2000 COMPLIANCE
The Company's data processing capabilities are critical to its business and its
ability to service customers. The Year 2000 problem is caused by many computer
programs that were written to identify only the last two digits of a year (a
common programming practice in the past to save computer memory). The
expectation is that programs may read the year 2000 as 00 or 1900, and to
compute interest, payments and other data incorrectly. The Company has put
together a team of senior management to evaluate both its data processing
systems (software and computers) and other systems, (i.e., vault timers, alarms,
heating an cooling systems) that are essential to its operations. The Company
has examined all of its non-data processing systems and has either received Year
2000 compliant certifications from third-party vendors or determined that the
systems should not be affected by the Year 2000 problem. The Company does not
expect any material costs to address non-data processing systems and has not
expended any material costs to date. The Company's present data processing
systems have more potential for Year 2000 risk than its non-data processing
systems. The Company has evaluated its data processing systems Year 2000 risk in
three areas: (1) its own computers, (2) computers and systems used by borrowers,
and (3) vendors who provide the Company with software systems.
Our Computers: The Company expects to have made capital expenditures of $200,000
by year end 1998 to upgrade our computer hardware and software systems,
primarily through the upgrade of its computer and primary application software.
These upgrades were anticipated in 1994 and planned and budgeted for in 1998,
and they were planned to permit the Company continued growth and expansion of
products and services. The Company has contracted to have its primary
applications software tested for Year 2000 compliance, with testing scheduled
for late November. By year-end 1998 these systems should be Year 2000 compliant.
The Company does not expect to have any material costs to address this risk area
unless it has to implement its contingency plan.
Computers of Others Used by Borrowers: The Company evaluated most of its
borrowers and does not believe that the Year 2000 problem should, on an
aggregate basis, impact their ability to repay their loans to the Bank. The
Company believes that the majority of its individual borrower are not dependent
on home computers for income and none of its commercial borrowers are so large
that a Year 2000 problem would render them unable to continue their businesses
and subsequently be unable to repay their obligations. The Company does not
anticipate any material costs to address this risk area.
Vendors Who Provide The Company Software Systems: As stated previously, the
Company's primary application software system has been upgraded and modified to
be Year 2000 compliant. The Company is in the process of having the critical
systems tested to confirm Year 2000 Compliance, which will be completed by
year-end 1998. Other peripheral software systems, which are not considered
critical systems, have been reviewed and tested for Year 2000 Compliance or will
be by year-end 1998.
Contingency Plan: If the Company's data processing hardware or primary
application software were to be found non-compliant for Year 2000 and were not
capable of remediation within a reasonable time-frame, the Company will contract
with an outside service bureau to become its backup. If the Company were to
migrate to the service bureau, because of Year 2000 compliance problems with its
present systems, the Company would incur material costs which will be known and
included within future budget projections. The Company is also preparing
contingency plans to operate manually, if necessary, in anticipation of possible
power and or communication problems beyond the Company's control pending the
availability of capable data processing services.
<PAGE>
Part II Other Information
Item 1 Legal Proceedings
The Company and the Bank are periodically involved in various legal
proceedings as a normal incident to their businesses. In the opinion of
management, no material loss is expected from any such pending lawsuit.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults Upon Served Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Not applicable
Item 6 Exhibits and Report on form 8-K
(a) Exhibits
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUSSEX BANCORP
Date: November , 1998 By: /s/Candace A. Leatham
---------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 4,859 5,693
<INT-BEARING-DEPOSITS> 100 100
<FED-FUNDS-SOLD> 14,800 7,875
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 31,583 26,600
<INVESTMENTS-CARRYING> 5,529 2,706
<INVESTMENTS-MARKET> 0 0
<LOANS> 69,050 67,351
<ALLOWANCE> 709 685
<TOTAL-ASSETS> 129,672 114,257
<DEPOSITS> 119,686 104,882
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,586 5,412
<OTHER-SE> 33,487 3,174
<TOTAL-LIABILITIES-AND-EQUITY> 129,672 114,257
<INTEREST-LOAN> 4,157 5,517
<INTEREST-INVEST> 1,542 1,866
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 6,098 7,383
<INTEREST-DEPOSIT> 2,752 3,063
<INTEREST-EXPENSE> 2,752 3,063
<INTEREST-INCOME-NET> 3,346 4,320
<LOAN-LOSSES> 63 210
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 3,126 3,753
<INCOME-PRETAX> 776 1,101
<INCOME-PRE-EXTRAORDINARY> 776 1,101
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 519 708
<EPS-PRIMARY> 0.37 1.03
<EPS-DILUTED> 0.36 1.02
<YIELD-ACTUAL> 0 0
<LOANS-NON> 566 730
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 99 344
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 685 542
<CHARGE-OFFS> 0 68
<RECOVERIES> 0 1
<ALLOWANCE-CLOSE> 709 685
<ALLOWANCE-DOMESTIC> 709 685
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
