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, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-29030
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SUSSEX BANCORP.
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(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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code) (973) 827-2914
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(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 31, 2000 there were 1,497,429 shares of common stock, no par
value, outstanding.
<PAGE>
SUSSEX BANCORP
FORM 10-QSB
INDEX
Part I - Financial Information Page(s)
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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, 2000 December 31, 1999
------ ------------------ -----------------
<S> <C> <C>
Cash and Due from Banks $5,341 $5,623
Federal Funds Sold 4,290 4,000
Interest Bearing Deposits 79 130
-- ---
Total Cash and Cash Equivalents 9,710 9,753
Time Deposits in Other Banks 1,090 2,280
Securities:
Available for Sale, at Market Value 33,607 38,595
Held to maturity 6,440 7,929
----- -----
Total Securities 40,047 46,524
Loans held for sale 298 772
Loans (Net of Unearned Income) 97,731 84,834
Less: Allowance for Possible Loan Losses 948 837
--- ---
Net Loans 96,783 83,997
Premises and Equipment, Net 4,197 3,610
Federal Home Loan Bank Stock 693 693
Intangible Assets, Primarily Core Deposit Premiums 556 619
Cash Surrender Value of Life Insurance Policy 1,024 0
Other Assets 2,040 1,878
----- -----
Total Assets $156,438 $150,126
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $24,850 $24,357
Savings 65,760 68,187
Time 51,494 46,004
------ ------
Total Deposits 142,104 138,548
Fed Funds Purchased 4,000 1,990
Other Liabilities 744 499
--- ---
Total Liabilities 146,848 141,037
Stockholders' Equity:
Common Stock, No Par Value
Authorized 5,000,000 Shares, issued
1,503,555 in 2000 and 1,420,899 in 1999. 6,329 5,687
Retained Earnings 3,941 4,136
Treasury Stock, 13,138 shares in 2000 and 6,836 shares in 1999 (121) (71)
Net Unrealized (Loss) on Securities
Available for Sale, net of income taxes (559) (663)
----- -----
Total Stockholders' Equity 9,590 9,089
Total Liabilities and Stockholders' Equity $156,438 $150,126
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
INTEREST INCOME 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and Fees on Loans $1,946 $1,498 $5,506 $4,359
Interest on Time Deposits 16 43 69 76
Interest on Securities:
Taxable 530 582 1645 1523
Exempt from Federal Income Tax 75 107 237 303
Interest on Federal Funds Sold 81 105 192 469
-- --- --- ---
Total Interest Income 2,648 2,335 7,649 6,730
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits 517 448 1527 1243
Interest on Time Deposits 669 648 1806 1982
--- --- ---- ----
Total Interest Expense on Deposits 1,186 1,096 3,333 3,225
Interest Expense on Federal Funds Purchased 71 0 187 0
-- -- --- --
Total Interest Expense 1,257 1,096 3,520 3,225
Net Interest Income 1,391 1,239 4,129 3,505
Provision for Possible Loan Losses 63 48 174 129
-- -- --- ---
Net Interest Income After Provision for Loan Losses 1,328 1,191 3,955 3,376
NON-INTEREST INCOME
Trust Income (2) (1) (2) 0
Service charges on Deposit Accounts 114 113 338 341
Gain (loss) on Sale of Securities, Available for Sale (6) 0 (14) 3
Other Income 114 72 297 346
---- --- --- ---
Total Non-Interest Income 220 184 619 690
NON-INTEREST EXPENSE
Salaries and Employee Benefits 705 600 2050 1810
Occupancy Expense, Net 111 87 332 264
Furniture and Equipment Expense 130 121 400 358
Data Processing Expense 23 21 65 63
Amortization of Intangibles 21 21 63 63
Other Expenses 305 303 913 888
--- ---- --- ---
Total Non-Interest Expense 1,295 1,153 3,823 3,446
Income Before Provision for Income Taxes 253 222 751 620
Provision for Income Taxes 61 33 175 85
-- -- --- --
Net Income $192 $189 $576 $535
==== ==== ==== ====
Net Income Per Common Share-Basic $0.13 $0.13 $0.39 $0.36
===== ===== ===== =====
Net Income Per Common Share-Diluted $0.13 $0.13 $0.38 $0.35
===== ===== ===== =====
Weighted Average Shares Outstanding-Basic 1,494,467 1,489,909 1,494,180 1,494,606
Weighted Average Shares Outstanding-Diluted 1,505,681 1,504,823 1,504,756 1,511,696
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Septermber 30, Septermber 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $192 $189 $576 $535
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale
securities 202 (152) 104 (573)
---------------------------------------------------------------------
Comprehensive income (loss) $394 $37 $680 ($38)
=====================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SUSSEX BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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, 1999 $5,687 $4,136 ($71) ($663) $9,089
Net Income for the Period 576 576
Stock Dividends 594 (594) 0
Cash Dividends (177) (177)
Shares issued through dividend reinvestment plan 48 48
Treasury shares purchased (50) (50)
Change in unrealized gain on securities, available for sale 104 104
-----------------------------------------------------------------------
Balance September 30, 2000 $6,329 $3,941 ($121) ($559) $9,590
=======================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $576 $535
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 356 296
Amortization of Intangible Assets 63 63
Premium Amortization of Securities, net 91 124
Provision for Possible Loan Losses 174 129
Loss (Gain) on Sale of Securities, Available for Sale 14 (3)
Accretion (Amortization) of Loan Origination and Commitment Fees, net (5) 45
Decrease in Loans Held for Sale 474 148
Deferred Federal Income Tax (Increase) (92) (26)
Decrease (Increase) in Accrued Interest Receivable 11 (478)
(Increase) in Cash Value of Life Insurance Policy (1,024) 0
(Increase) in Other Assets (152) (245)
Increase in Accrued Interest and Other Liabilities 245 156
---------------- --------------
Net Cash Provided by Operating Activities $731 $744
---------------- --------------
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns 4,714 4,216
Proceeds from Sales/Calls Prior to Maturity 3,487 507
Purchases (3,115) (19,476)
Securities Held to Maturity:
Proceeds from Maturities 2,113 3,043
Purchases (650) (5,977)
Proceeds from Maturities of Time Deposits on Other Banks 1,188 0
Net (Increase) in Loans Outstanding (12,955) (6,903)
Capital Expenditures (943) (442)
Net Decrease in Other Real Estate 0 36
---------------- --------------
Net Cash (Used In) Investing Activities ($6,161) ($24,996)
---------------- --------------
Cash Flows from Financing Activities:
Net Increase in Total Deposits 3,556 10,727
Net Increase in Federal Funds Purchased 2,010 0
Exercise of Stock Options 0 11
Payment of Dividends Net of Reinvestment (129) (101)
Purchase of Treasury Stock (50) (69)
---------------- --------------
Net Cash Provided by Financing Activities $5,387 $10,568
---------------- --------------
Net (Decrease) in Cash and Cash Equivalents ($43) ($13,684)
Cash and Cash Equivalents, Beginning of Period 9,753 30,660
---------------- --------------
Cash and Cash Equivalents, End of Period $9,710 $16,976
================ ==============
</TABLE>
See Notes to Consolidated Financial Statements
7
<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, 2000. The Bank operates eight 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,
1999.
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, 2000 December 31, 1999
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Available For Sale
US Treasury Securities $4,050 $3,975 $5,567 $5,450
US Government Mortgage Backed 26,157 25,419 26,288 25,476
Debt Securities 3,480 3,432 6,996 6,907
Equity Securities 850 781 850 762
--------------- --------------- --------------- ---------------
Total $34,537 $33,607 $39,701 $38,595
================================= ====================================
Held to Maturity
Obligations of State and
Political Subdivisions $6,440 $6,327 $7,929 $7,737
------ ------ ------ ------
Total $6,440 $6,327 $7,929 $7,737
================================== ====================================
---------------------------------- ------------------------------------
Total Securities $40,977 $39,934 $47,630 $46,332
================================== ====================================
</TABLE>
4. Net Income Per Common Share
Basic net income per share of common stock is calculated by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share is calculated
by dividing net income by the weighted average number of shares of common
stock outstanding during the period plus the potential dilutive effect of
outstanding stock options.
8
<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, 2000 and
September 30, 1999.
OVERVIEW
The Company realized net income of $192 thousand for the third quarter of 2000,
an increase of $3 thousand over the $189 thousand reported for the same period
in 1999. Basic and diluted earnings per share remained unchanged at $.13 for
both periods.
For the nine months ended September 30, 2000, net income was $576 thousand, an
increase of $41 thousand from the $535 thousand reported for the same period in
1999. Basic earnings per share were $.39 for the nine months ended September 30,
2000 compared to $.36 for the nine months ended September 30, 1999. Diluted
earnings per share were $.38 and $.35 for the nine month periods ending
September 30, 2000 and 1999, respectively.
Increases in income over all periods reflect the Company's efforts to shift its
earning assets towards higher yielding loans from investment securities and
federal funds.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $313 thousand, or 13.4%, to
$2.6 million for the quarter ended September 30, 2000 from $2.3 million for the
same period in 1999. This increase was attributable to an increase in interest
and fees on loans of $448 thousand, from $1.5 million in the third quarter of
1999 to $1.9 million in the quarter ended September 30, 2000. Offsetting this
increase was an $84 thousand decline in interest income in the securities
portfolio, a $27 thousand decrease in interest on time deposits, and a $24
thousand decrease in interest income earned on federal funds sold from the third
quarter of 1999 to the third quarter of 2000. The net increase in interest
income is attributable to a $6.5 million increase in average interest earning
assets, primarily in the loan portfolio. While the average balance in the loan
portfolio increased $21.3 million from the third quarter of 1999 to the third
quarter of 2000, investment securities and other earning assets declined by
$14.8 million over the same period. The yield on average interest-earning assets
on a fully taxable equivalent basis increased 54 basis points from 6.85% for the
third quarter of 1999 to 7.39% for the third quarter of 2000. This increase
reflects the results of the Company's emphasis on originating commercial and
residential real estate loans.
For the nine months ended September 30, 2000, interest income increased $919
thousand, or 13.7%, to $7.6 million from the $6.7 million reported for the same
period in 1999. This growth in interest income is the result of a $7.9 million,
or 5.9% increase in the average balance of interest-earning assets over the
comparable period last year. The average balance in the loan portfolio increased
$19.0 million and average securities and other interest bearing assets declined
$11.1 million during the first nine months of 2000 over the same period in 1999.
As a result of the shift in interest earning assets, the average yield on those
assets on a fully taxable equivalent basis increased 47 basis points from 6.79%
from the first nine months of 1999 to 7.26% for the same period in 2000.
Interest Expense. The Company's interest expense for the third quarter of 2000
increased $161 thousand, or 14.7% to $1.3 million from $1.1 million for the same
period last year. The average balance of interest bearing liabilities increased
$5.3 million, or 4.6%, from the same period last year. The largest component of
the increase was the addition of $4.0 million in borrowed funds during the third
quarter of 2000, while the Company had no borrowed funds in the third quarter of
1999. Total average interest bearing deposits increased $1.3 million from $114.8
million during the third quarter of 1999 to $116.1 million in the same period
this year. Within the components of interest bearing deposits, savings deposits
increased $1.7 million, or 3.8%, and money market deposits increased $1.2
million, or 22.7%, in the third quarter of 2000 compared to the same period in
1999. Offsetting these increases were a $1.3 million decline in average time
deposits from September 30, 1999 compared to the same period in 2000 and a
decrease in NOW deposits of $369 thousand from $14.4 million in the third
quarter of 1999 to $14.1 million in the third quarter of 2000. The Company's
average cost of funds increased to 4.18% for the third quarter of 2000 from
3.81% for the third quarter in 1999. This increase in the average cost of funds
was the result of the cost paid on borrowed funds and an increase on interest
rates paid on interest bearing deposits due to market changes.
For the nine months ended September 30, 2000 interest expense increased $295
thousand, or 9.1%, to $3.5 million from $3.2 million for the same period last
year. This increase was due to interest expense of $187 thousand on borrowed
funds during the first nine months of 2000, while the Company had no borrowed
funds during the first nine months of 1999. The interest expense on total
savings deposits also increased $284 thousand, or 22.8%, to $1.5 million during
the first nine months of 2000 from $1.2 million during the same period in 1999.
This increase in interest expense was offset by a decrease of $176 thousand in
interest expense on time deposits from $2.0 million during the first nine months
of 1999 to $1.8 million for the period ended September 30, 2000.
In the first nine months of 2000 the average balance in savings accounts
increased $5.3 million, or 12.9%, over the average balance for the nine months
ended September 30, 1999. The average rate paid on savings accounts increased 22
basis points from the first nine months of 1999 compared to the first nine
months of 2000. The increases in average balances and in the average rate paid
in savings accounts were due to the continued promotion of a variable rate
special account for senior citizens. The nine-month average balance on money
market deposits increased $1.9 million, or 39.0%, from $4.9 million in 1999 to
$6.8 million in 2000 as the average rate paid on money market deposits increased
93 basis points during the same period. The increase in the average rate paid on
money market accounts was due to an increase in the average balance of higher
costing variable rate business money market sweep accounts. Time deposit
nine-month average balances decreased $4.8 million, or 9.4%, from $51.4 million
in 1999 to $46.6 million in 2000. Although average balances on time deposits
decreased during the first nine months of 2000, the average rate paid increased
3 basis points due to market conditions. Comparing the first nine months of 1999
to the first nine months of 2000 interest bearing deposits shifted from higher
costing time deposits to lower costing savings deposits. However with the
addition of borrowed funds in the first nine months of 2000, the Company's
average rate paid on interest bearing liabilities increased by 14 basis points,
to 3.98% for the period ended September 30, 2000 from 3.84% for the nine months
ended September 30, 1999.
9
<PAGE>
The following table presents, on a tax equivalent basis, 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, 2000 and 1999. The average balance of loans includes
non-accrual loans, and associated yields include loan fees, which are considered
adjustment to yields.
Comparative Average
Balance Sheets
Nine Months Ended September 30,
<TABLE>
<CAPTION>
2000 1999
Interest Average Rates Interest Average 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) $91,564 $5,506 8.02% $72,544 $4,359 8.01%
Tax exempt securities 7,836 307 5.22% 10,605 389 4.89%
Taxable investment securities 35,719 1610 6.01% 35,242 1,487 5.63%
Other (1) 6,617 296 5.96% 15,492 581 5.00%
---------------------------------- ------------------------------------
Total earning assets 141,736 7,719 7.26% 133,883 6,816 6.79%
Non-interest earning assets 10,363 9,076
Allowance for possible loan losses (898) (722)
------------ ------------
Total Assets $151,201 $142,237
============ ============
Liabilities and Shareholders' Equity
Interest bearing liabilities:
NOW deposits $14,185 $134 1.26% $14,493 $144 1.32%
Savings deposits 46,496 1197 3.43% 41,171 992 3.21%
Money market deposits 6,774 196 3.86% 4,874 107 2.93%
Time deposits 46,588 1,806 5.17% 51,407 1,982 5.14%
Borrowed Funds 3,843 187 6.49% 0 0 0.00%
---------------------------------- ------------------------------------
Total interest bearing liabilities 117,886 3,520 3.98% 111,945 3,225 3.84%
Non-interest bearing liabilities:
Demand deposits 23,507 20,433
Other liabilities 622 745
------------ ------------
Total non-interest bearing liabilities 24,129 21,178
Shareholders' equity 9,186 9,114
------------ ------------
Total liabilities and shareholders' equity $151,201 $142,237
============ ============
Net interest differential $4,199 $3,591
Net Interest Margin 3.28% 2.95%
Net yield on interest-earning assets 3.95% 3.58%
</TABLE>
(1) Includes FHLB stock, federal funds sold, interest-bearing deposits, and time
deposits
10
<PAGE>
Net-Interest Income. The net effect of the changes in interest income and
interest expense for the third quarter of 2000 was an increase in net interest
income of $152 thousand, or 12.3%, compared to the third quarter of 1999. The
net interest spread, on a fully taxable equivalent basis, increased 16 basis
points and the net yield on interest-bearing assets increased 23 basis points
from the same period last year. This increase was largely attributable to the
increase in the average balance of higher yielding loans from lower yielding
federal funds sold.
Net interest income for the nine months ended September 30, 2000 increased $624
thousand, or 17.8%, over the same period last year. The net interest spread
increased, on a fully taxable equivalent basis, 33 basis points and the net
yield on interest-bearing assets improved by 37 basis points between the first
nine month periods of 1999 and 2000.
Provision for Loan Losses. For the three months ended September 30, 2000, the
provision for possible loan losses was $63 thousand compared to the $48 thousand
provision for the same period last year. The provision for possible loan losses
was $174 thousand for the nine months ended September 30, 2000 as compared to
$129 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 2000, total non-interest income
increased by $36 thousand over the same period in 1999. Other income increased
$42 thousand, or 58.3%, in the third quarter of 2000 from the same period last
year. This third quarter increase consisted of an increase of $15 thousand in
income from company owned life insurance and a $15 thousand increase in
brokerage services fee income. This increase was offset by an $6 thousand loss
on the sale of available for sale securities recorded in the third quarter of
2000. There were no gains or losses on the sale of securities, available for
sale, in the same period of 1999.
For the nine months ended September 30, 2000, non-interest income decreased $71
thousand, or 10.3%, from the same period in 1999. The largest component of the
decrease was a $49 thousand, or 14.2%, decrease in other income. This decrease
was due to the reduced volume of large commercial mortgage loans originated for
sale to third parties by our mortgage banking subsidiary. In the first nine
months of 2000, $14 thousand in available for sale securities losses were
recorded compared to $3 thousand in gains during the first nine months of 1999.
Non-Interest Expense. For the quarter ended September 30, 2000, non-interest
expense increased $142 thousand, or 12.3%, from the same period last year. The
opening of the Company's eighth branch and relocation of its Trust and
Investment Services to Augusta, New Jersey during the first quarter of 2000,
combined with continued growth in our existing locations, contributed to the
increase in non-interest expense. Salaries and employee benefits increased $105
thousand, or 17.5%; occupancy expense increased $24 thousand, or 27.6%;
furniture and equipment expense increased $9 thousand, or 7.4%; and other
expenses increased by $2 thousand, or 0.7%, from third quarter 1999 to third
quarter 2000.
For the nine months ended September 30, 2000, non-interest expense increased
$377 thousand, or 10.9%, from the same period last year. Salaries and employee
benefits increased $240 thousand, or 13.3%, occupancy expense increased $68
thousand, or 25.8%, furniture and fixture expense increased $42 thousand, or
11.7%, and other expenses increased $25 thousand or 2.8%. These increases to
non-interest expense are due to the additional costs associated with operating
and promoting the Company's new and renovated locations, plus the expansion of
the Company's loan department.
Income Taxes. Income tax expense increased $28 thousand to $61 thousand for the
three months ended September 30, 2000 as compared to $33 thousand for the same
period in 1999. Income taxes also increased for the nine months ended September
30, 2000 to $175 thousand as compared to $85 thousand for the same period in
1999. The increase in income taxes resulted from a higher level of income before
income taxes in combination with a reduced level of tax-exempt income.
11
<PAGE>
FINANCIAL CONDITION
September 30, 2000 as compared to December 31, 1999
Total assets increased to $156.4 million at September 30, 2000, a $6.3 million
increase from total assets of $150.1 million at December 31, 1999. During the
first nine months of 2000 the Company continued to reposition its balance sheet,
as total loans increased by $12.9 million while total securities and time
deposits in other banks declined by $7.7 million. The Company funded new loan
originations from maturing investments and borrowed funds.
Total loans at September 30, 2000 increased $12.9 million, or 15.2%, to $97.7
million from year-end 1999. Commercial real estate loans increased $5.1 million,
commercial and industrial loans increased $1.8 million and construction loans
increased $1.7 million from year-end 1999. Residential real estate loans
increased by $3.9 million, although they declined to 55.6% of the portfolio at
September 30, 2000 from 59.4% of the portfolio at December 31, 1999. Consumer
and other loans also increased $408 thousand from year-end 1999. During 2000,
the Company intends to continue to emphasize the origination of commercial,
industrial, and construction loans to increase the yield in its loan portfolio
and reduce its dependence on loans secured by 1-4 family properties.
The following schedule presents the components of loans, net of unearned income,
by type, for each period presented:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-----------------------------------------------------
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial .... $ 5,634 5.76% $ 3,811 4.49%
Real Estate non residential
properties .............. 24,808 25.38% 19,759 23.29%
Residential properties ....... 54,336 55.60% 50,411 59.42%
Construction ................. 8,766 8.97% 7,074 8.34%
Consumer ..................... 2,679 2.74% 2,295 2.71%
Other Loans .................. 1,508 1.54% 1,484 1.75%
Total Loans ................ $97,731 100.00% $84,834 100.00%
======= ======= ======= =======
</TABLE>
Federal funds sold increased by $290 thousand from $4.0 million at December 31,
1999 to $4.3 million on September 30, 2000.
Total securities decreased $6.5 million, or 13.9%, from $46.5 million at
year-end 1999 to $40.0 million on September 30, 2000. Securities, available for
sale, at market value, decreased $5.0 million, or 12.9%, from $38.6 million on
December 31, 1999 to $33.6 million on September 30, 2000. The Company purchased
$3.1 million in new securities, available for sale, during the first nine months
of 2000, sold $3.5 million in available for sale securities and $4.7 million in
available for sale securities matured and were repaid. There were $176 thousand
in recorded unrealized gains in the available of sale portfolio during the first
nine months of 2000. Held to maturity securities decreased to $6.4 million on
September 30, 2000 from $7.9 million at year-end 1999. There were $650 thousand
in held to maturity purchases and $2.1 million in maturing securities in the
held to maturity portfolio during the first nine months of 2000. Maturities in
excess of new purchases were used to fund new loan originations.
Total average deposits increased $4.0 million, or 3.0%, during the first nine
months of 2000 from $133.5 million at December 31, 1999 to $137.5 million on
September 30, 2000. Savings deposits increased by $4.3 million, money market
accounts increased by $1.6 million, and demand deposits increased by $2.3
million. These increases were offset by a decrease in time deposits by $3.8
million and a $376 thousand decrease in NOW deposits. The increase in savings
deposits is primarily attributable to the Company's senior select product and
the decrease in time deposits was due to the maturing of higher yielding time
deposits and management's decision not to match the highest rate offered by its
competitors. Management continues to monitor the shift in deposits through its
Asset/Liability Committee.
The following schedule presents the components of deposits, for each period
presented.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
(Dollars in Thousands)
Average % Average %
Balance Balance
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Deposits:
NOW Deposits 14,185 10.31% 14,561 10.90%
Savings Deposits 46,496 33.80% 42,159 31.57%
Money Market Deposits 6,774 4.92% 5,196 3.89%
Time Deposits 46,588 33.87% 50,387 37.73%
Demand Deposits 23,508 17.09% 21,239 15.90%
----------------------------- ----------------------------
Total interest-bearing deposits: 137,551 100.00% 133,542 100.00%
============================= ============================
</TABLE>
12
<PAGE>
ASSET QUALITY
At September 30, 2000, non-performing loans increased $49 thousand, to $381
thousand, as compared to $332 thousand at December 31, 1999. 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:
September 30 December 31
2000 1999
---- ----
Non-accrual loans............................. $ 381 $ 332
Non-accrual loans to total loans............... 0.39% 0.39%
Non-performing loans to total assets........... 0.24% 0.22%
Allowance for possible loan losses as a
percentage of non-performing loans........... 248.82% 252.11%
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 charged off loans, 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 September 30, 2000, the allowance for possible loan losses was $948 thousand,
up 13.3% from $837 thousand at year-end 1999. The Company recognized $63
thousand in net charged off loans for the first nine months of 2000, as compared
to $13 thousand during the first nine months of 1999.
LIQUIDITY MANAGEMENT
At September 30, 2000, 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, 2000, liquid investments totaled $9.7 million, and all mature
within 30 days.
CAPITAL RESOURCES
Total stockholders' equity increased $501 thousand to $9.6 million at September
30, 2000 from the $9.1 million at year-end 1999. The increase was due to net
income of $576 thousand, shares issued through the dividend reinvestment plan of
$48 thousand and a net unrealized gain on securities available for sale of $104
thousand. These increases were offset by $177 thousand in cash dividends paid
and the purchase of treasury shares of $50 thousand. The Company's declaration
of a 5% stock dividend in June of 2000 transferred $594 thousand from retained
earnings to common stock.
At September 30, 2000, 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, 2000 for the Company and the Bank as well as the minimum
regulatory requirements.
Amount Ratio Minimum Minimum
------ ----- ------- -------
Amount Ratio
------ -----
The Company:
Leverage Capital $9,552 6.17% $4,643 3%
Tier 1 - Risk Based 9,552 9.72% 3,931 4%
Total Risk-Based 10,500 10.68% 7,862 8%
The Bank:
Leverage Capital 9,241 5.97% 4,642 3%
Tier 1 Risk-Based 9,241 9.41% 3,926 4%
Total Risk-Based 10,189 10.38% 7,853 8%
13
<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 Senior 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
14
<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: By: /s/ Candace A. Leatham
----------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
15
