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 June 30, 1999
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)
Issuer's telephone number, including area code: (973) 827-2914
- --------------------------------------------------------------------------------
(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 August 11, 1999 there were 1,414,899 shares of common stock, no par value,
outstanding.
<PAGE>
SUSSEX BANCORP
FORM 10-QSB
INDEX
Part I - Financial Information Page(s)
Item 1. 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
2
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Six Months Ended
----------------
1999 1998
----- -----
<S> <C> <C>
Net Income ........................................... $ 346 $ 341
Other comprehensive income,
Net of tax
Unrealized loss on available-for-sale
Securities ................................ (357) (26)
----- -----
Comprehensive income ................................. $ (11) $ 315
----- -----
</TABLE>
4
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
ASSETS June 30, 1999 December 31, 1998
- ------ ------------- -----------------
<S> <C> <C>
Cash and Due from Banks .......................... $ 4,160 $ 4,060
Interest bearing deposits in other banks ......... 3,072 150
Federal Funds Sold ............................... 6,725 26,450
Securities:
Available for Sale, at Market Value .............. 40,952 26,645
Held to maturity ................................. 11,044 5,939
-------- --------
Total Securities ........................... 51,996 32,584
Loans held for sale .............................. -0- 354
Loans (Net of Unearned Income) ................... 73,325 70,011
Less: Allowance for Possible
Loan Losses ............................ 733 665
-------- --------
Net Loans ...................... 72,592 69,700
Premises and Equipment, Net ...................... 2,908 2,956
Other Real Estate ................................ 44 36
Intangible Assets, Primarily
Core Deposit Premiums .......................... 661 703
Other Assets .......................... 1,811 828
-------- --------
Total Assets ............................ $143,969 $137,467
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand ........................................ 20,997 19,793
Savings ................................. 62,301 54,357
Time .................................... 51,079 53,564
-------- --------
Total Deposits .......................... 134,377 127,714
Other Liabilities ................................ 548 509
-------- --------
Total Liabilities ....................... 134,925 128,223
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' Equity:
Common Stock, No Par Value
Authorized 5,000,000 Shares,
Issued and outstanding
1,420,246 in 1999 and
1,422,260 in 1998, respectively ......... 5,673 5,635
Retained Earnings .......................... 3,808 3,547
Treasury Stock ............................. (80) (2)
Net Unrealized Gain on Securities
Available for Sale,
net of income taxes ..................... (357) 64
--------- ---------
Total Stockholders' Equity ................. 9,044 9,244
Total Liabilities and
Stockholders' Equity .................... $ 143,969 $ 137,467
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
----------------- ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ........... $1,455 $1,382 $2,861 $2,766
Interest on Time Deposits ............ 29 2 31 3
Interest on Securities:
Taxable .......................... 526 400 965 803
Exempt from Federal Income Tax ....... 89 21 174 40
Interest on Federal Funds Sold ....... 165 244 364 388
------ ------ ------ ------
Total Interest Income ....... 2,264 2,049 $4,395 $4,000
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits ..... 417 278 795 544
Interest on Time Deposits ........ 665 654 1,334 1,219
------ ------ ------ ------
Total Interest Expense ............... 1,082 932 2,129 1,763
Net Interest Income .............. 1,182 1,117 2,266 2,237
Provision for Possible
Loan Losses .................... 48 21 81 42
------ ------ ------ ------
Net Interest Income After
Provision for Possible
Loan Losses ............. 1,134 1,096 2,186 2,195
NON-INTEREST INCOME
Trust Income ..................... -0- 4 1 4
Service charges
on Deposit Accounts ........... 116 122 228 246
Other Income ..................... 94 79 277 138
------ ------ ------ ------
Total Non-interest Income ... 210 205 506 388
NON-INTEREST EXPENSE
Salaries and Employee Benefits ... 637 539 1,210 1,050
Occupancy Expense, Net ........... 83 88 177 180
Furniture and Equipment Expense .. 117 110 237 205
Data Processing Expense .......... 22 19 42 37
Amortization of Intangibles ...... 21 20 42 41
Other Expenses ................... 306 289 586 551
------ ------ ------ ------
Total Non-Interest Expense ..... 1,186 1,065 2,293 2,064
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income Before Provision
for Income Taxes ........ 158 236 398 519
Provision for Income Taxes ... 4 77 52 178
---------- ---------- ---------- ----------
Net Income .......... $ 154 $ 159 $ 346 $ 341
========== ========== ========== ==========
Net Income Per Common Share $ 0.11 $ 0.11 $ .24 $ .24
========== ========== ========== ==========
Weighted Average Shares
Outstanding ............. 1,423,468 1,394,326 1,423,490 1,403,638
</TABLE>
See Notes to Consolidated Financial Statements
8
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
Unrealized
Gain (Loss) Total
Common Retained Treasury Securities Stockholders
Stock Earnings Stock Available for Sale Equity
----- -------- ----- ------------------ ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 ..... $ 5,635 $ 3,547 $ (2) $ 64 $ 9,244
Net Income for the Period ..... 346 346
Cash Dividends ................ (85) (85)
Shares issued through
dividend reinvestment plan . 27 27
Stock Option Exercised ........ 11 11
Treasury Stock purchased ...... (78) (78)
Change in unrealized gain on
securities available for sale (421) (421)
------- ------- ------- ------- -------
Balance June 30, 1999 ......... $ 5,673 $ 3,808 $ (80) $ (357) $ 9,044
</TABLE>
See Notes to Consolidated Financial Statements
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Six Months Ended
June
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ..................................... $ 346 $ 341
Adjustments to reconcile net income
to net cash provided by Operating
Activities:
Depreciation and Amortization of Premises
and Equipment .................................. 196 167
Amortization of Intangible Assets .................. 42 42
Premium amortization (discount accretion)
of securities, net ............................. 80 (40)
Provision for Possible Loan Loses .................. 68 42
(Gain) on Sale of Securities, Available for Sale ... (3) --
Accretion of Loan origination and
commitment fees, net ........................... 39 (69)
Decrease (Increase) Loans Held for Sale ............ 354 --
Deferred Federal income tax benefit
(increase) ..................................... (26) 200
Decrease (Increase) in Accrued Interest
Receivable ..................................... (495) (149)
Decrease (Increase) in Other Assets ................ (182) (310)
Decrease (Increase) in Accrued Interest
and Other Liabilities .......................... 39 (32)
-------- --------
Net Cash Provided by Operating Activities ... $ 458 $ 192
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns ....... 3,128 2,667
Proceeds from Sales/Calls Prior to Maturity . 507 5,650
Purchases ................................... (18,706) (10,216)
Securities Held to maturity:
Proceeds from Maturities .................... 204 489
Purchases ................................... (5,323) (536)
Net Increase in Loans Outstanding .............. (3,353) (306)
Capital Expenditures ........................... (148) (249)
Net Increase in Other Real Estate .............. (8) --
-------- --------
Net Cash Provided by (used in)
Investing Activities ...................... $(23,699) $ (2,501)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash Flows from Financing Activities:
Net (Decrease) Increase Total Deposits ...... 6,663 9,377
Exercise of stock options ................... 11 --
Payment of Dividends net of reinvestment .... (58) (183)
Purchase of Treasury Stock .................. (78) --
-------- --------
Net Cash (used in) Provided by
Financing Activities ................... $ 6,538 $ 9,194
Net increase (Decrease) in Cash and
Cash Equivalents ........................ (16,703) 6,885
Cash and Cash Equivalents,
Beginning of Period ..................... 30,660 13,668
Cash and Cash Equivalents,
End of Period .......................... $ 13,957 $ 20,553
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
11
<PAGE>
SUSSEX BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Sussex Bancorp ("the Company"), a one-bank holding company was
incorporated in January, 1996 to serve as the holding company for the Sussex
County State Bank ("the Bank"). The Bank is the only active subsidiary of the
Company at June 30, 1999. The Bank operates seven banking offices all located in
Sussex County. 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,
1998.
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.
3. Securities
The amortized cost and approximate market value of securities are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Amortized Market Amortized Market
Cost Value Cost Value
Securities Available
For Sale -
<S> <C> <C> <C> <C>
U. S. Treasury Securities .. $ 5,578 $ 5,488 $ 5,589 $ 5,710
U. S. Government
Backed Securities ....... 27,628 27,223 19,407 19,411
Equity Securities .............. 1,848 1,800 1,543 1,524
Debt Securities ................ 6,493 6,441 -- --
------- ------- ------- -------
Total .............. $41,547 $40,952 $26,539 $26,645
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Securities Held to Maturity -
Obligations of State and
Political Subdivisions ..... $11,044 $10,910 $ 5,939 $ 5,949
------- ------- ------- -------
Total ............... $11,044 $10,910 $ 5,939 $ 5,949
Total Securities ............... $52,591 $51,862 $32,478 $32,594
======= ======= ======= =======
</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.
13
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1999 and June 30, 1998.
OVERVIEW
The Company realized net income of $154 thousand for the second quarter of 1999,
relatively unchanged from the $159 thousand reported for the same period in
1998. Basic and diluted earnings per share for each of the quarters ended June
30, 1999 and 1998 were $.11.
For the six months ended June 30, 1999, net-income was $346 thousand, relatively
unchanged from the $341 thousand reported for the same period in 1998. Basic and
diluted earnings per share were $ .24 for each of the six month periods.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $215 thousand, or 10.5%, to
$2.3 million for the quarter ended June 30, 1999 from $2.1 million for the same
period in 1998. This increase was attributable to an increase in interest and
fees on loans of $73 thousand, an increase in interest on time deposits of $27
thousand, and an increase in interest and dividends on securities of $194
thousand. The increase in interest income is primarily attributable to the $19.0
million increase in average interest earning assets, primarily in the investment
securities portfolio. The yield on average interest-earning assets on a fully
taxable equivalent basis decreased 34 basis points from 7.23% for the second
quarter of 1998 to 6.89% for the second quarter of 1999 reflecting reinvestment
of federal funds sold in investment securities at lower current market rates of
interest.
For the six months ended June 30, 1999, interest income increased $395 thousand,
or 9.9%, to $4.4 million from the $4.0 million reported for the same period in
1998. This growth in interest income is the result of a $19.0 million, or 16.9%
increase in the average balance of interest-earning assets over the comparable
period last year, partially offset by a decrease in the average yield on total
interest-earning assets to 6.87% during the six months ended June 30, 1999,
compared to 7.18% during the same period in 1998. The decline in average yield
reflects the same factors as were present in the three month period.
Interest Expense. The Company's interest expense for the second quarter of 1999
increased $150 thousand, or 16.1% to $1.1 million from $932 thousand for the
same period last year. The average balance of interest bearing deposits
increased $19.9 million, or 21.4%, from the same period last year. The largest
component of the increase was in interest on savings deposits, which increased
$14.2 million, or 51.8%, in the second quarter of 1999 compared to the same
period in 1998. This increase was primarily due to the promotion of a special
account for senior citizens. The Company's average cost of funds decreased to
3.83% for the second quarter of 1999 from 4.00% for the second quarter in 1998.
This decline in the average cost of funds was the result of lowering interest
rates paid on time deposits and NOW accounts.
14
<PAGE>
For the six months ended June 30, 1999 interest expense increased $366 thousand,
or 20.7%, to 2.1 million from $1.8 million for the same period last year. In the
first six months of 1999 the average balance in savings accounts increased $11.5
million, or 21.4%, over the average balance for the six months ended June 30,
1998. Time deposits increased $7.0 million, or 15.6%, over the same period of
last year. The average cost of interest-bearing deposits decreased to 3.85%
during the current period from the 3.89% for the same period last year. While
the average rate paid on savings accounts increased 57 basis points from the
first six month of 1998 to the first six months of in 1999, the total interest
rate paid on interest bearing liabilities fell 4 basis points due to the lower
interest rate environment on time deposits.
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 six months ended June 30, 1999 and 1998.
The average balance of loans includes non-accrual loans, and associated yields
include loan fees which are considered adjustment to yields.
15
<PAGE>
<TABLE>
<CAPTION>
Comparative Average
Balance Sheets
Six Months Ended June 30,
-------------------------------------------------------------------------------------
1999 1998
------------------------------------------ --------------------------------------
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) .......................... $ 70,894 $ 2,861 8.07% $ 68,582 $ 2,766 8.07%
Tax exempt securities ............ 9,412 174 6.07% 1,980 40 6.63%
Taxable investment securities .... 34,457 965 5.60% 27,606 803 5.82%
Interest bearing deposits ........ 1,214 31 5.11% 93 3 6.45%
Federal Funds sold ............... 15,200 364 4.79% 13,934 388 5.57%
Total earning assets ............. 131,177 4,395 6.87% 112,195 4,000 7.18%
Non-interest earning assets ...... 8,656 8,209
Allowance for possible
loan losses .................... (704) (704)
Total Assets .............. $ 140,129 $ 119,700
Liabilities and Shareholders' Equity
Interest bearing liabilities:
NOW deposits ...................... $ 14,522 $ 101 1.39% $ 13,237 126 1.90%
Savings deposits .................. 39,431 629 3.19% 27,979 366 2.62%
Money market deposits ............. 4,574 65 2.84% 4,407 52 2.36%
Time deposits ......................... 51,951 1,334 5.14% 44,945 1,218 5.42%
Total interest bearing
liabilities ............. 110,478 2,129 3.85% 90,568 1,762 3.89%
Non-interest bearing liabilities:
Demand Deposits ................... $ 19,730 $ 18,849
Other liabilities ................. 785 838
Total non-interest bearing
liabilities ....................... 20,515 19,687
Shareholders' equity .............. 9,136 9,445
Total liabilities and shareholders'
equity ......................... $ 140,129 $ 119,700
New interest differential ........ $ 2,266 $ 2,238
Net yield on interest-earning
assets ......................... 3.02% 3.29%
</TABLE>
16
<PAGE>
Net-Interest Income. The net effect of the changes in interest income and
interest expense for the second quarter of 1999 was an increase of $65 thousand,
or 5.8%, in net interest income as compared to the second quarter of 1998. The
net interest spread, on a fully taxable equivalent basis, declined 17 basis
points from the same period last year.
Net interest income for the six months ended June 30, 1999 increased by $29
thousand, or 1.3%, over the same period last year. The net interest spread
decreased 27 basis points.
Provision for Loan Losses. For the three months ended June 30, 1999, the
provision for possible loan losses was $48 thousand compared to the $21 thousand
for the same period last year. The provision for possible loan losses was $81
thousand for the six months ended June 30, 1999, as compared to $42 thousand for
the same period last year. The increase in the provision for loan losses over
both the thee and six month periods reflects management's judgement concerning
the risks inherent in the Company's existing loan portfolio and the size of the
allowance necessary to absorb the risks. Management reviews the adequacy of its
allowance on an ongoing basis and will provide for additional provision in
future periods as management may deem necessary.
Non-Interest Income. For the second quarter of 1999, total non-interest income
increased $5 thousand, or 2.4%, from the same period in 1998. Service charges on
deposit accounts decreased $6 thousand in the second quarter of 1999 compared to
the three months ended June 30, 1998. Other income increased $15 thousand, or
19.0%, in the second quarter of 1999 over the same period last year. The
additional income was the result of increased revenue from non-deposit products
and commission income from Sussex Bancorp Mortgage Company, our mortgage banking
subsidiary.
For the six months ended June 30, 1999, non-interest income increased $118
thousand, or 30.4%, from the same period in 1998, due primarily to fees
generated by the non-deposit products offered by our third party provider IBFS
and commission income.
Non-Interest Expense. For the quarter ended June 30, 1999, non-interest expense
increased $121 thousand from the same period last year. Salaries and employee
benefits increased $98 thousand, or 18.2%, as salaries increased $96 thousand
and employee benefits increased $2 thousand, reflecting the addition of staff
and normal salary increases. Furniture and equipment expense increased $7
thousand, or 6.4%, as a result of an increase in depreciation expense. Other
expenses increased by $17 thousand, or 5.9%, as a result of increased
advertising and marketing expenses to promote a savings account for senior
citizens and the Bank's new mortgage banking subsidiary.
For the six months ended June 30, 1999, non-interest expense increased $229
thousand, or 11.1%, from the same period last year. Salaries and employee
benefits increased $160 thousand, or 15.2%. Furniture and equipment expense
increased $32 thousand, or 15.6%, which reflects an increase in depreciation
expense of $28 thousand as a result of upgrades to the Company's in-house
computer system. Other expenses increased $34 thousand. This includes an
increase in advertising and marketing expenses of $22 thousand, or 57.5%.
Income Taxes. Income taxes expense decreased $126 thousand to $54 thousand for
the six months ended June 30, 1999 as compared to $178 thousand for the same
period in 1998. The decrease in income taxes resulted from higher levels of
tax-exempt income in 1999.
17
<PAGE>
FINANCIAL CONDITION
June 30, 1999 as compared to December 31, 1998
Total assets increased to $144.0 million, a $6.5 million, or 4.7%, increase from
total assets of $137.5 million at December 31, 1998. Increases in total assets
included increases of $19.4 million in total securities, $3.3 million in total
loans and $2.9 million in interest bearing deposits in other banks. These
increases were offset by a decrease of $19.7 million in federal funds sold.
Total loans at June 30, 1999 increased $3.3 million to $73.3 million from
year-end 1998. Commercial and industrial loans increased $365 thousand,
commercial real estate loans increased $2.3 million and construction loans
increased $1.7 million from year-end 1998. These increases were offset by a
decrease of $377 thousand in residential and commercial real estate loans from
year-end 1998.
The following schedule presents the components of loans, net of unearned income,
by type, for each period presented:
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
----------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial ......... $ 4,107 5.60% $ 3,742 5.34%
Real Estate non residential
properties.................... 13,880 18.93% 11,162 16.59%
Residential properties ....... 48,821 66.58% 49,198 70.27%
Construction ..................... 4,069 5.55% 2,352 3.36%
Lease financing ................... 219 0.30% 142 .20%
Consumer ......................... 2,229 3.04% 2,965 4.24%
------- ------ ------- ------
Total Loans ...................... $73,325 100.00% $70,011 100.00%
======= ====== ======= ======
</TABLE>
Federal funds sold decreased by $19.7 million over December 31, 1998. The
decrease is attributable both to the withdrawal of short term public funds on
deposit and the investment of excess cash in new investment securities.
Total average deposits increased $15.2 million, or 13.2%. Time deposits
increased by $4.6 million, savings deposits increased by $8.8 million, NOW
deposits increased by $1.1 million and demand deposits by $818 thousand.
Management continues to monitor the shift in deposits through its
Asset/Liability Committee.
<PAGE>
The following schedule presents the components of deposits, for each period
presented.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- ----------------------
Average Average
Balance % Balance %
-------- ------ -------- ------
<S> <C> <C> <C> <C>
NOW deposits ......................... $ 14,522 11.15% $ 13,496 11.73%
Savings deposits ..................... 39,431 30.28% 30,646 26.64%
Money market deposits ................ 4,574 3.51% 4,590 3.99%
Time deposits ........................ 51,951 39.90% 47,398 41.20%
Demand deposits ...................... 19,730 15.15% 18,912 16.44%
-------- ------ -------- ------
Total interest-bearing liabilities . $130,208 100.00% $115,042 100.00%
======== ====== ======== ======
</TABLE>
18
<PAGE>
ASSET QUALITY
At June 30, 1999, non-performing loans decreased $90 thousand, as compared to
December 31, 1998. The decrease in non-performing loans was in real estate
loans. Management continues to work diligently to reduce the Company's
non-performing loans.
The following table provides information regarding risk elements in the loan
portfolio:
<TABLE>
<CAPTION>
June 30 December 31
1998 1998
--------- -----------
<S> <C> <C>
Non-accrual loans ..................... $ 305 $ 398
Non-accrual loans to total loans ...... 0.42% 0.57%
Non-performing assets to total assets . 0.24% 0.32%
Allowance for possible loan losses as a
percentage of non-performing loans 237.99% 167.09%
</TABLE>
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 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. The allowance is increased by provisions
charged to expense and reduced by charge-offs, net of recoveries. Although
management strives to maintain an allowance it deems adequate, future economic
changes, deterioration of borrowers' credit worthiness, and the impact of
examinations by regulatory agencies all could cause changes to the Company's
allowance for possible loan losses.
At June 30, 1999, the allowance for possible loan losses was $733 thousand, up
10.2% from the $665 thousand at year-end 1998. The Company recognized $13
thousand in net charge-offs for the first half of 1999.
LIQUIDITY MANAGEMENT
At June 30, 1999, the amount of liquid assets remained 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 June 30, 1999, liquid investments totaled $6 million, and all mature within
30 days.
CAPITAL RESOURCES
Total stockholders' equity decreased $200 thousand to $9.0 million at June 30,
1999 from the $9.2 million at year end 1998. The decrease was due to the
increase in the net unrealized loss on securities available for sale of $421
thousand, the purchase of $78 thousand in treasury stock and cash dividends of
$85 thousand. This decrease was offset by net income of $346 thousand.
19
<PAGE>
At June 30, 1999, each of the Company and the Bank exceeded each of the
regulatory capital requirements applicable to it. The table below presents the
capital ratios at June 30, 1999 for both the Company and the Bank as well as the
minimum regulatory requirements.
<TABLE>
<CAPTION>
Amount Ratio Amount Minimum
Ratio
------ ----- ------ -------
The Company
<S> <C> <C> <C> <C>
Leverage Capital .......... $8,711 6.09% $4,290 3-5%
Tier 1 - Risk Based ....... 8,711 11.46% 3,039 4%
Total Risk-Based .......... 9,444 12.43% 6,079 8%
The Bank
8,332 5.83% 4,287 3-5%
Leverage Capital
Tier 1 Risk-Based ......... 8,332 10.94% 3,048 4%
Total Risk-Based .......... 9,065 11.90% 6,095 8%
</TABLE>
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 on 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 and 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 certification 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 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 expended approximately $200,000 in 1998 to upgrade
its computer hardware and software systems, primarily our application software.
We have budgeted $10,000 for Year 2000 expenditures for 1999, which include a
software upgrade for one of our ATM's and various equipment and supplies
necessary for our Year 2000 Business Resumption Plan. The Company contracted to
have its primary mission-critical application software tested in the fall of
1998. The tests were completed and then evaluated in December 1998 and January
1999. The Company is satisfied with this results.
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 he majority of its individual borrower are not dependent
on home computers for income and none of its commercial borrowers are so
20
<PAGE>
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 With Software Systems: As stated previously, the
Company's primary mission-critical application software system has been upgraded
and modified to be Year 2000 compliant. The majority of our critical systems
have been deemed Year 2000 compliant, and tests have been completed to confirm
these systems are compliant as well as the vendors we communicate with. Other
peripheral software systems, which are not considered critical systems, have
been reviewed and tested for Year 2000 compliance.
Contingency Plan: The Company's remediation Contingency Plan was put in place in
1998 to provide alternatives in the event our primary hardware and software
systems were not deemed to be Year 2000 compliant by early 1999. Since our
primary systems have been upgraded and tested the remediation plan is no longer
necessary. The Company completed its Year 2000 Business Resumption Plan in May
of 1999 and testing of this plan will be completed prior to year end 1999.
Business Resumption Contingency Plans are to address the actions that will be
taken if critical business functions can't be handled in the normal manner due
to system or third-party failures, i.e., power outages, phone communication
problems, ATM network failures. These plans are additional to our normal
disaster recovery plans.
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
---------------------------------------------------
On April 28, 1999, the Registrant held its annual meeting of shareholders
to elect members of the Company's Board of Directors whose terms expired.
Nominees for election to the Board of Directors received the following votes:
Nominees:
For Withhold Authority Broker Non-Vote
--------- ----------------- ---------------
Richard W. Scott 1,167,735 4,585 0
Joseph Zitone 1,169,680 2,640 0
21
<PAGE>
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
Filing Date Item Number
----------- -----------------------------------
April 13, 1999 5-- Reporting first quarter results.
22
<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 thereunto duly authorized.
SUSSEX BANCORP
Date: August 12, 1999 By:/s/ Candace A. Leatham
-----------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 4,160 4,060
<INT-BEARING-DEPOSITS> 3,072 150
<FED-FUNDS-SOLD> 6,725 28,450
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 40,952 26,645
<INVESTMENTS-CARRYING> 11,044 5,939
<INVESTMENTS-MARKET> 0 0
<LOANS> 73,325 70,011
<ALLOWANCE> 433 665
<TOTAL-ASSETS> 143,969 137,467
<DEPOSITS> 134,377 127,714
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 548 509
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,673 5,635
<OTHER-SE> 3,371 3,609
<TOTAL-LIABILITIES-AND-EQUITY> 143,969 137,467
<INTEREST-LOAN> 2,861 5,601
<INTEREST-INVEST> 1,534 2,694
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 4,395 8,295
<INTEREST-DEPOSIT> 2,129 3,818
<INTEREST-EXPENSE> 2,129 3,818
<INTEREST-INCOME-NET> 2,266 4,477
<LOAN-LOSSES> 81 19
<SECURITIES-GAINS> 3 65
<EXPENSE-OTHER> 2,293 4,287
<INCOME-PRETAX> 398 1,040
<INCOME-PRE-EXTRAORDINARY> 398 1,040
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3484 7100
<EPS-BASIC> 0.24 0.50
<EPS-DILUTED> 0.25 0.50
<YIELD-ACTUAL> 0 0
<LOANS-NON> 305 389
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 665 685
<CHARGE-OFFS> 15 40
<RECOVERIES> 2 1
<ALLOWANCE-CLOSE> 733 665
<ALLOWANCE-DOMESTIC> 733 665
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
