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, 1999
or
[ ] TRANSITION REPORTPURSUANT 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.)
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 November 3, 1999 there were 1,420,899 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)
ASSETS September 30, 1999 December 31, 1998
- ------ ------------------ -----------------
<S> <C> <C>
Cash and Due from Banks ...................... $ 6,504 $ 4,060
Interest bearing deposits in other banks ..... 3,172 150
Federal Funds Sold ........................... 7,300 26,450
Securities:
Available for Sale, at Market Value ........ 40,346 26,645
Held to maturity ........................... 8,850 5,939
--------- ---------
Total Securities ....................... 49,196 32,584
Loans held for sale .......................... 206 354
Loans (Net of Unearned Income) ............... 76,856 70,011
Less: Allowance for Possible
Loan Losses ........................ 781 665
--------- ---------
Net Loans .................. 76,075 69,700
Premises and Equipment, Net .................. 3,102 2,956
Other Real Estate ............................ -0- 36
Intangible Assets,
Primarily
Core Deposit Premiums ...................... 640 703
Other Assets ...................... 1,958 828
--------- ---------
Total Assets ........................ $ 148,153 $ 137,467
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand .................................... $ 23,723 $ 19,793
Savings ................................... 65,246 54,357
Time ...................................... 49,472 53,564
--------- ---------
Total Deposits ...................... 138,441 127,714
Other Liabilities ............................ 665 509
--------- ---------
Total Liabilities ................... 139,106 128,223
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Stockholders' Equity:
Common Stock, No Par Value
Authorized 5,000,000 Shares,
Issued and outstanding
1,418,961 in 1999 and
1,422,260 in 1998, respectively ........... 5,673 5,635
Retained Earnings ............................ 3,954 3,547
Treasury Stock
(71) (2)
Net Unrealized Gain on Securities
Available for Sale,
net of income taxes ....................... (509) 64
--------- ---------
Total Stockholders' Equity ................... 9,047 9,244
Total Liabilities and
Stockholders' Equity ...................... $ 148,153 $ 137,467
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Nine Months Ended
1999 1998
----- -----
<S> <C> <C>
Net Income ............................................ $ 535 $ 519
Other comprehensive income,
Net of tax
Unrealized gain (loss) on available-for-sale
Securities ................................. (509) 89
----- -----
Comprehensive income .................................. $ 26 $ 608
----- -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans .............. $ 1,498 $ 1,391 $ 4,359 $ 4,157
Interest on Time Deposits ............... 40 2 71 5
Interest on Securities:
Taxable ............................. 563 461 1,528 1,264
Exempt from Federal Income Tax ...... 129 31 303 71
Interest on Federal Funds Sold .......... 105 213 469 601
----------- ----------- ----------- -----------
Total Interest Income .......... 2,335 2,098 $ 6,730 $ 6,098
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits ........ 448 297 1,243 873
Interest on Time Deposits ........... 648 692 1,982 1,879
----------- ----------- ----------- -----------
Total Interest Expense ......... 1,096 989 3,225 2,752
Net Interest Income ................. 1,239 1,109 3,505 3,346
Provision for Possible
Loan Losses ....................... 48 21 129 63
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Possible Loan Losses 1,191 1,088 3,376 3,283
NON-INTEREST INCOME
Trust Income ........................ (1) (3) -0- 1
Service charges
on Deposit Accounts .............. 113 123 341 369
Other Income ........................ 72 111 349 249
----------- ----------- ----------- -----------
Total Non-interest Income ...... 184 231 690 619
NON-INTEREST EXPENSE
Salaries and Employee Benefits ...... 600 534 1,810 1,584
Occupancy Expense, Net .............. 87 89 264 269
Furniture and Equipment Expense ..... 121 111 358 316
Data Processing Expense ............. 21 36 63 73
Amortization of Intangibles ......... 21 22 63 63
Other Expenses ...................... 302 270 888 821
----------- ----------- ----------- -----------
Total Non-Interest Expense ..... 1,152 1,062 3,446 3,126
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income Before Provision for Income Taxes 222 257 620 776
Provision for Income Taxes .............. 33 79 85 257
----------- ----------- ----------- -----------
Net Income ..................... $ 189 $ 178 $ 535 $ 519
=========== =========== =========== ===========
Net Income Per Common Share ......... $ 0.13 $ 0.13 $ .38 $ .37
=========== =========== =========== ===========
Weighted Average Shares Outstanding ..... 1,418,961 1,414,620 1,423,434 1,413,872
</TABLE>
See Notes to Consolidated Financial Statements
<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 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 535 535
Cash Dividends (128) (128)
Shares issued through
dividend reinvestment plan 27 27
Stock Option Exercised 11 11
Treasury Stock purchased (69) (69)
Change in unrealized gain on
securities available for sale (573) (573)
------ ------ ---- ----- ------
Balance September 30, 1999 $5,673 $3,954 $(71) $(509) $9,047
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended
September
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ..................................... $ 535 $ 519
Adjustments to reconcile net income
to net cash provided by Operating
Activities:
Depreciation and Amortization of Premises
and Equipment .................................. 296 261
Amortization of Intangible Assets .................. 63 63
Premium amortization (discount accretion)
of securities, net ............................. 124 69
Provision for Possible Loan Loses .................. 116 63
(Gain) on Sale of Securities, Available for Sale ... (3) 0
Accretion of Loan origination and
commitment fees, net ........................... 45 (79)
Decrease (Increase) Loans Held for Sale ............ 148 --
Deferred Federal income tax benefit
(increase) ..................................... (26) 267
Decrease (Increase) in Accrued Interest
Receivable ..................................... (478) (148)
Decrease (Increase) in Other Assets ................ (245) (290)
Decrease (Increase) in Accrued Interest
and Other Liabilities .......................... 156 195
-------- --------
Net Cash Provided by Operating Activities ... $ 731 $ 920
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns ....... 4,216 4,000
Proceeds from Sales/Calls Prior to Maturity . 507 9,300
Purchases ................................... (19,476) (18,347)
Securities Held to maturity:
Proceeds from Maturities .................... 3,043 489
Purchases ................................... (5,977) (3,317)
Net Increase in Loans Outstanding .............. (6,890) (1,039)
Capital Expenditures ........................... (442) (366)
Net decrease (increase) in Other Real Estate ... 36 (367)
-------- --------
Net Cash Provided by (used in)
Investing Activities ...................... $(24,983) $ (9,647)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended
September
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Financing Activities:
Net (Decrease) Increase Total Deposits ...... 10,727 15,610
Exercise of stock options ................... 11 --
Payment of Dividends net of reinvestment .... (101) (285)
Purchase of Treasury Stock .................. (69) --
-------- --------
Net Cash (used in) Provided by
Financing Activities ................... $ 10,568 $ 15,325
Net increase (Decrease) in Cash and
Cash Equivalents ........................ (13,684) 6,929
Cash and Cash Equivalents,
Beginning of Period ..................... 30,660 13,668
Cash and Cash Equivalents,
End of Period .......................... $ 16,976 $ 20,597
======== ========
</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 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
September 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>
September 30, 1999 December 31, 1998
------------------ -------- --------
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities Available
For Sale -
U. S. Treasury Securities ..... $ 5,573 $ 5,494 $ 5,589 $ 5,710
U. S. Government
Backed Securities ...... 27,019 26,370 19,407 19,411
Equity Securities ................. 1,596 1,531 1,543 1,524
Debt Securities ................... 7,005 6,951 -- --
------- ------- ------- -------
Total ................. $41,193 $40,346 $26,539 $26,645
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -------- --------
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities Held to Maturity -
Obligations of State and
Political Subdivisions ........ $ 8,850 $ 8,666 $ 5,939 $ 5,949
------- ------- ------- -------
Total .................. $ 8,850 $ 8,666 $ 5,939 $ 5,949
Total Securities .................. $50,043 $49,012 $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.
<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, 1999 and September 30, 1998.
OVERVIEW
The Company realized net income of $189 thousand for the third quarter of 1999,
an increase of $11 over the $178 thousand reported for the same period in 1998.
Basic earnings per share for each of the quarters ended September 30, 1999 and
1998 was $.13. Diluted earnings per share increased from $.12 in the third
quarter of 1998 to $.13 per share in the third quarter of 1999.
For the nine months ended September 30, 1999, net-income was $535 thousand, an
increase of $16 thousand from the $519 thousand reported for the same period in
1998. Basic earnings per share were $.38 and $.37 for each of the nine month
periods ending September 30, 1999 and 1998, respectively. Diluted earnings per
share were $.37 for the nine month period ending September 30, 1999 and $.36 for
the same period in 1998.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $237 thousand, or 11.3%, to
$2.3 million for the quarter ended September 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 $107 thousand, an increase in interest on time deposits of
$38 thousand, and an increase in interest and dividends on securities of $200
thousand. This increase in interest income is 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 13 basis points from 7.08% for the third
quarter of 1998 to 6.95% for the third quarter of 1999, reflecting lower
interest rates on the Company's interest earning assets.
For the nine months ended September 30, 1999, interest income increased $632
thousand, or 10.4%, to $6.7 million from the $6.1 million reported for the same
period in 1998. The growth in interest income is the result of a $19.7 million,
or 17.3%, increase in the average balance of interest-earning assets over the
comparable period of last year. This was partially offset by a decrease in the
average yield on total interest-earning assets to 6.90% during the nine months
ended September 30, 1999, compared to 7.17% during the same period in 1998. The
decline in average yield reflects the declining market interest rates from the
first nine months of 1998 compared to the same period in 1999.
Interest Expense. The Company's interest expense for the third quarter of 1999
increased $107 thousand, or 10.8% to $1.1 million from $1.0 million for the same
period last year. The average balance of interest bearing deposits increased
$16.4 million, or 16.6%, from the same period last year. The largest component
of the increase was in savings deposits, which increased $12.5 million, or 39.8%
in the third quarter of 1999 compared to the same period in 1998. This increase
was primarily due to the promotion of a special higher yielding savings account
for senior citizens, our senior select account. The Company's average cost of
funds decreased to 3.81% for the third quarter of 1999 from 4.02% for the third
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.
<PAGE>
For the nine months ended September 30, 1999 interest expense increased $473
thousand, or 17.2%, to 3.2 million from $2.7 million for the same period last
year. In the first nine months of 1999 the average balance in savings accounts
increased $11.8 million, or 40.2%, over the average balance for the nine months
ended September 30, 1998. This increase reflects the promotional account
described above. Time deposits increased $5.3 million, or 11.3%, over the same
period of last year. The average cost of interest-bearing deposits decreased to
3.84% during the current period from the 3.94% for the same period last year.
While the average rate paid on savings accounts increased 50 basis points from
the first nine months of 1998 to the first nine months of 1999, the decrease in
the average cost of interest bearing liabilities reflects lower rates offered by
the Company on time deposits.
<PAGE>
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, 1999 and
1998. The average balance of loans includes non-accrual loans, and associated
yields include loan fees, which are considered adjustment to yields.
<TABLE>
<CAPTION>
Comparative Average
Balance Sheets
Nine Months Ended September 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) ....................... $ 72,544 $ 4,359 8.01% $68,695 $ 4,157 8.07%
Tax exempt securities ......... 10,605 303 6.25% 2,361 71 6.56%
Taxable investment securities . 36,075 1,528 5.65% 28,724 1,264 5.87%
Interest bearing deposits ..... 1,843 71 5.14% 95 5 6.70%
Federal Funds sold ............ 12,816 469 4.88% 14,303 601 5.60%
Total earning assets .......... 133,883 6,730 6.90% 114,178 6,098 7.17%
Non-interest earning assets ... 9,076 8,236
Allowance for possible
loan losses ................. (722) (703)
Total Assets ............ $ 142,237 $ 121,711
Liabilities and Shareholders' Equity
Interest bearing liabilities:
NOW deposits ................... $ 14,493 144 1.32% $ 13,395 193 1.92%
Savings deposits ............... 41,171 992 3.21% 29,361 596 2.71%
Money market deposits .......... 4,874 107 2.93% 4,424 84 2.52%
Time deposits ...................... 51,407 1,982 5.14% 46,051 1,879 5.44%
Total interest bearing
liabilities .......... 111,945 3,225 3.84% 93,231 2,752 3.94%
Non-interest bearing liabilities:
Demand Deposits ................ $ 20,433 $ 19,239
Other liabilities .............. 745 808
Total non-interest bearing
liabilities ........................ 21,178 20,047
Shareholders' equity ........... 9,114 8,433
Total liabilities and
shareholders' equity ......... $ 142,237 $ 121,711
New interest differential ...... $ 3,505 $ 3,346
Net yield on interest-earning
assets ........................ 3.06% 3.23%
</TABLE>
<PAGE>
Net-Interest Income. The net effect of the changes in interest income and
interest expense for the third quarter of 1999 was an increase in net interest
income of $130 thousand, or 11.7%, compared to the third quarter of 1998. The
net interest spread, on a fully taxable equivalent basis, increased 8 basis
points from the same period last year.
Net interest income for the nine months ended September 30, 1999 increased by
$159 thousand, or 4.8%, over the same period last year. The net interest spread
for the first nine months of 1999 decreased 17 basis points. Although there is a
decline in the net interest spread for the first nine months of 1999 of 17 basis
points, the third quarter 1999 results show an 8 basis point increase over the
third quarter of 1998. This is attributable to reinvesting lower yielding
federal funds sold into higher yielding investment securities and loans, and the
Company's close monitoring of its cost of funds, primarily seen in lowering the
interest rate paid on NOW deposits and time deposits.
Provision for Loan Losses. For the three months ended September 30, 1999, the
provision for possible loan losses was $48 thousand compared to the $21 thousand
provision for the same period last year. The provision for possible loan losses
was $129 thousand for the nine months ended September 30, 1999, as compared to
$63 thousand for the same period last year. The increase in the provision for
loan losses over the three and nine 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, as well as in the
average balance of the portfolio over both periods. 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 third quarter of 1999, total non-interest income
decreased $47 thousand, or 20.3%, from the same period in 1998. Service charges
on deposit accounts decreased $10 thousand in the third quarter of 1999 compared
to the three months ended September 30, 1998. Other income decreased $39
thousand, or 35.0%, in the third quarter of 1999 over the same period last year.
The decrease was mainly the result of reporting a $10 thousand gain on
securities in the third quarter of 1998, while no gains were reported in the
current period, and recording an $11 thousand loss on the sale of an OREO
property in the third quarter of 1999.
For the nine months ended September 30, 1999, non-interest income increased $71
thousand, or 11.5%, from the same period in 1998. Other income increased $100
thousand, or 40.2%, in the first nine months of 1999 to $349 thousand from $ 249
thousand reported during the same period in 1998. This is due primarily to fees
generated by the non-deposit investment products offered by our third party
provider, IBFS and commission income from Sussex Bancorp Mortgage Company, our
mortgage banking subsidiary. This increase was partially offset by a decrease of
$28 thousand, or 7.6%, in service charges on deposit accounts for the same
period.
Non-Interest Expense. For the quarter ended September 30, 1999, non-interest
expense increased $90 thousand from the same period last year. Salaries and
employee benefits increased $66 thousand, or 12.4%, as salaries increased $48
thousand and employee benefits increased $18 thousand, reflecting the addition
of staff and normal salary increases. Furniture and equipment expense increased
$10 thousand, or 9.0%, as a result of an increase in depreciation expense. Other
expenses increased by $32 thousand, or 11.9%, due to increased advertising
expenses to promote a savings account for senior citizens and various loan
products.
<PAGE>
For the nine months ended September 30, 1999, non-interest expense increased
$320 thousand, or 10.2%, from the same period last year. Salaries and employee
benefits increased $226 thousand, or 14.3%. Furniture and equipment expense
increased $42 thousand, or 13.3%, which reflects an increase in depreciation
expense of $36 thousand as a result of upgrades to the Company's in-house
computer system. Other expenses increased $67 thousand. The increase includes an
increase in advertising expenses of $24 thousand and an increase of $20 thousand
in loan appraisal and filing fees over the same period last year.
Income Taxes. Income taxes expense decreased $172 thousand to $85 thousand for
the nine months ended September 30, 1999 as compared to $257 thousand for the
same period in 1998. The decrease in income taxes resulted from higher levels of
tax-exempt income in 1999.
FINANCIAL CONDITION
September 30, 1999 as compared to December 31, 1998
Total assets increased to $148.2 million, a $10.7 million, or 7.8%, increase
from total assets of $137.5 million at December 31, 1998. Increases in total
assets included increases of $16.6 million in total securities, $6.8 million in
total loans and $3.0 million in interest bearing deposits in other banks. These
increases were offset by a decrease of $19.2 million in federal funds sold, as
the Company's excess liquidity was used to fund purchases of investment
securities and new loan originations.
Total loans at September 30, 1999 increased $6.8 million to $76.9 million from
year-end 1998. Residential and commercial real estate loans increased $4.0
million, construction loans increased $2.5 million and consumer loans increased
$494 thousand from year-end 1998. These increases were offset by a decrease of
$168 thousand in commercial and industrial loans from year-end 1998.
<PAGE>
The following schedule presents the components of loans, net of unearned income,
by type, for each period presented:
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
----------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial ........... $3,574 4.65% $ 3,742 5.34%
Real Estate non residential
properties ..................... 15,403 20.04% 11,612 16.59%
Residential properties ......... 49,372 64.24% 49,198 70.27%
Construction ....................... 4,819 6.27% 2,352 3.36%
Lease financing .................... 240 0.31% 142 .20%
Consumer ........................... 3,459 4.49% 2,965 4.24%
------- ------ ------- ------
Total Loans ........................ $76,856 100.00% $70,011 100.00%
======= ====== ======= ======
</TABLE>
Federal funds sold decreased by $19.2 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 securities increased $16.6 million, or 51.0%, from $32.6 million at
year-end 1998 to $49.2 million on September 30, 1999. Securities, available for
sale, at market value, increased $13.7 million, or 51.4%, from $26.6 million on
December 31, 1998 to $40.3 million on September 30, 1999. The Company purchased
$19.4 million in government agency securities and corporate debt securities in
the first nine months of 1999. These purchases were offset by $4.7 million in
available for sale maturities and paydowns, and $742 thousand in recorded
unrealized losses in the available of sale portfolio during the nine month
period. Held to maturity securities increased to $8.9 million on September 30,
1999 from $5.9 million at year-end 1998. This increase of $3.0 million was the
net of $6.0 million in new held to maturity purchases and $3.0 million in
maturities during the first nine months of 1999.
Total average deposits increased $15.1 million, or 13.2%. Time deposits
increased by $4.0 million, savings deposits increased by $10.5 million, demand
deposits increased by $1.5 million and NOW deposits increased by $997 thousand.
As discussed earlier, the increase in savings deposits is primarily attributable
to the Company's senior select product. 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>
September 30, 1999 December 31, 1998
------------------------- ------------------------
Average Balance % Average Balance %
--------------- - --------------- -
<S> <C> <C> <C> <C>
Deposits:
NOW deposits ........................... $ 14,493 10.95% $ 13,496 11.73%
Savings deposits ....................... 41,171 31.10% 30,646 26.64%
Money market deposits .................. 4,874 3.68% 4,590 3.99%
Time deposits .......................... 51,407 38.83% 47,398 41.20%
Demand deposits ........................ 20,433 15.44% 18,912 16.44%
-------- ------ -------- ------
Total interest-bearing liabilities ... $130,208 100.00% $115,042 100.00%
======== ====== ======== ======
</TABLE>
ASSET QUALITY
At September 30, 1999, non-performing loans decreased $86 thousand, as compared
to December 31, 1998 to $312 thousand. 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>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
Non-accrual loans ............................ $ 312 $ 398
Non-accrual loans to
total loans ............................... 0.41% 0.57%
Non-performing assets
to total assets ........................... 0.21% 0.32%
Allowance for possible
loan losses as a percentage of
non-performing loans ....................... 250.32% 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.
<PAGE>
At September 30, 1999, the allowance for possible loan losses was $781 thousand,
up 17.4% from the $665 thousand at year-end 1998. The Company recognized $13
thousand in net charge-offs for the first nine months of 1999.
LIQUIDITY MANAGEMENT
At September 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 September 30, 1999, liquid investments totaled $9.7 million, and all mature
within 30 days.
CAPITAL RESOURCES
Total stockholders' equity decreased $197 thousand to $9.0 million at September
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 $573
thousand, the purchase of $69 thousand in treasury stock and cash dividends of
$128 thousand. This decrease was partially offset by net income of $535
thousand, exercised stock options of $11 thousand and shares issued through the
dividend reinvestment plan of $27 thousand.
At September 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 September 30, 1999 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 $8,877 6.09% $4,372 3-5%
Tier 1 - Risk Based 8,877 11.05% 3,212 4%
Total Risk-Based 9,658 12.03% 6,424 8%
The Bank
Leverage Capital 8,499 5.84% 4,287 3-5%
Tier 1 Risk-Based 8,499 10.59% 3,048 4%
Total Risk-Based 9,280 11.56% 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 done 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
<PAGE>
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 mot
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 expensed $10,000 for Year 2000 compliance 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 the 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 the majority of its individual borrowers 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 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 as well as the vendors we communicate with, are compliant. 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 Contingency
Plan in May of 1999 and testing of this plan was done during the third quarter.
The Company will continue to update and test the Contingency Plan, as needed,
through the remainder of 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.
<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,m the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUSSEX BANCORP
Date: November 15, 1999 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-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 6,504 4,060
<INT-BEARING-DEPOSITS> 3,172 150
<FED-FUNDS-SOLD> 7,300 26,450
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 40,346 26,645
<INVESTMENTS-CARRYING> 8,850 5,939
<INVESTMENTS-MARKET> 0 0
<LOANS> 76,856 70,011
<ALLOWANCE> 781 665
<TOTAL-ASSETS> 148,153 137,467
<DEPOSITS> 138,441 127,714
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 665 509
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,673 5,635
<OTHER-SE> 3,374 3,609
<TOTAL-LIABILITIES-AND-EQUITY> 148,153 137,467
<INTEREST-LOAN> 4,359 5,601
<INTEREST-INVEST> 2,371 2,694
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 6,730 8,295
<INTEREST-DEPOSIT> 3,225 3,818
<INTEREST-EXPENSE> 3,225 3,818
<INTEREST-INCOME-NET> 3,505 4,477
<LOAN-LOSSES> 129 19
<SECURITIES-GAINS> 3 65
<EXPENSE-OTHER> 3,446 4,287
<INCOME-PRETAX> 620 1,040
<INCOME-PRE-EXTRAORDINARY> 620 1,040
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 535 710
<EPS-BASIC> 0.38 0.50
<EPS-DILUTED> 0.37 0.50
<YIELD-ACTUAL> 312 389
<LOANS-NON> 0 0
<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> 781 665
<ALLOWANCE-DOMESTIC> 781 665
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
