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, 2000
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 July 31, 2000 there were 1,493,740 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 June 30, 2000 December 31, 1999
------ ------------- -----------------
<S> <C> <C>
Cash and Due from Banks $ 5,257 $ 5,623
Federal Funds Sold 3,135 4,000
Interest Bearing Deposits 44 130
Time Deposits in Other Banks 1,191 2,280
Securities:
Available for Sale, at Market Value 34,134 38,595
Held to maturity 6,448 7,929
--------- ---------
Total Securities 40,582 46,524
Loans held for sale 449 772
Loans (Net of Unearned Income) 94,239 84,834
Less: Allowance for Possible Loan Losses 920 837
--------- ---------
Net Loans 93,319 83,997
Premises and Equipment, Net 4,090 3,610
Federal Home Loan Bank Stock 693 693
Intangible Assets, Primarily Core Deposit Premiums 577 619
Cash Surrender Value of Life Insurance Policy 1,010 0
Other Assets 2,126 1,878
--------- ---------
Total Assets $ 152,473 $ 150,126
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 24,613 $ 24,357
Savings 66,804 68,187
Time 47,316 46,004
--------- ---------
Total Deposits 138,733 138,548
Fed Funds Purchased 4,000 1,990
Other Liabilities 452 499
--------- ---------
Total Liabilities 143,185 141,037
Stockholders' Equity:
Common Stock, No Par Value
Authorized 5,000,000 Shares, issued and outstanding
1,422,845 in 2000 and 1,420,899 in 1999, respectively 5,735 5,687
Retained Earnings 4,435 4,136
Treasury Stock (121) (71)
Net Unrealized Gain (Loss) on Securities
Available for Sale, net of income taxes (761) (663)
--------- ---------
Total Stockholders' Equity 9,288 9,089
Total Liabilities and Stockholders' Equity $ 152,473 $ 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 Six
Months Ended Months Ended
June 30, 2000 June 30, 2000
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 1,829 $ 1,455 $ 3,560 $ 2,861
Interest on Time Deposits 20 31 53 33
Interest on Securities:
Taxable 544 502 1115 941
Exempt from Federal Income Tax 75 111 162 196
Interest on Federal Funds Sold 54 165 111 364
----------- ----------- ----------- -----------
Total Interest Income 2,522 2,264 5,001 4,395
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits 504 417 1010 795
Interest on Time Deposits 587 665 1137 1334
----------- ----------- ----------- -----------
Total Interest Expense on Deposits 1,091 1,082 2,147 2,129
Interest Expense on Federal Funds Purchased 49 0 116 0
----------- ----------- ----------- -----------
Total Interest Expense 1,140 1,082 2,263 2,129
Net Interest Income 1,382 1,182 2,738 2,266
Provision for Possible Loan Losses 63 48 111 81
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses 1,319 1,134 2,627 2,185
NON-INTEREST INCOME
Trust Income 2 0 0 1
Service charges on Deposit Accounts 114 116 224 228
Gain (loss) on Sale of Securities, Available for (8) 0 (8) 3
Sale
Other Income 101 94 183 274
----------- ----------- ----------- -----------
Total Non-Interest Income 209 210 399 506
NON-INTEREST EXPENSE
Salaries and Employee Benefits 673 637 1345 1210
Occupancy Expense, Net 113 83 221 177
Furniture and Equipment Expense 138 117 270 237
Data Processing Expense 20 22 42 42
Amortization of Intangibles 21 21 42 42
Other Expenses 323 306 608 585
----------- ----------- ----------- -----------
Total Non-Interest Expense 1,288 1,186 2,528 2,293
Income Before Provision for Income Taxes 240 158 498 398
Provision for Income Taxes 56 4 114 52
----------- ----------- ----------- -----------
Net Income $ 184 $ 154 $ 384 $ 346
=========== =========== =========== ===========
Net Income Per Common Share-Basic and Diluted $ 0.12 $ 0.10 $ 0.26 $ 0.23
=========== =========== =========== ===========
Weighted Average Shares Outstanding-Basic 1,494,298 1,494,641 1,494,186 1,494,366
Weighted Average Shares Outstanding-Diluted 1,504,257 1,513,329 1,504,158 1,512,759
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $184 $154 $384 $346
Other comprehensive income, net of tax
Unrealized (loss) on available for sale securities (30) (295) (98) (421)
-----------------------------------------------
Comprehensive income (loss) $154 ($141) $286 ($75)
===============================================
</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 384 384
Cash Dividends (85) (85)
Shares issued through dividend reinvestment plan 48 48
Treasury shares purchased (50) (50)
Change in unrealized gain on securities, available for sale (98) (98)
--------------------------------------------------------------------
Balance June 30, 2000 $5,735 $4,435 ($121) ($761) $9,288
=====================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $384 $346
Adjustments to reconcile net income
to net cash (used in) provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 237 196
Amortization of Intangible Assets 42 42
Premium amortization (discount accretion) of securities, net 62 80
Provision for Possible Loan Loses 83 68
Loss (Gain) on Sale of Securities, Available for Sale 8 (3)
Accretion (Amortization) of Loan origination and commitment fees, net (21) 39
Decrease in Loans Held for Sale 323 354
Deferred Federal income tax (91) (26)
Decrease (Increase) in Accrued Interest Receivable 46 (495)
(Increase) in Cash Value of Life Insurance Policy (1,010) 0
(Increase) in Other Assets (139) (182)
(Decrease) Increase in Accrued Interest and Other Liabilities (47) 39
--------------- --------------
Net Cash (Used In) Provided by Operating Activities ($123) $458
--------------- --------------
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns 3,885 3,128
Proceeds from Sales/Calls Prior to Maturity 1,993 507
Purchases (1,631) (18,706)
Securities Held to maturity:
Proceeds from Maturities 2,113 204
Purchases (650) (5,323)
Proceeds from Maturities of Time Deposits in Other Banks 1,089 0
Net Increase in Loans Outstanding (9,384) (3,353)
Capital Expenditures (717) (148)
Net Increase (Decrease) in Other Real Estate 0 (8)
--------------- --------------
Net Cash (Used In) Investing Activities ($3,302) ($23,699)
--------------- --------------
Cash Flows from Financing Activities:
Net Increase in Total Deposits 185 6,663
Net Increase in Federal Funds Purchased 2,010 0
Exercise of stock options 0 11
Payment of dividends net of reinvestment (37) (58)
Purchase of Treasury Stock (50) (78)
--------------- --------------
Net Cash Provided by Financing Activities $2,108 $6,538
--------------- --------------
Net (Decrease) in Cash and Cash Equivalents ($1,317) ($16,703)
Cash and Cash Equivalents, Beginning of Period 9,753 30,660
--------------- --------------
Cash and Cash Equivalents, End of Period $8,436 $13,957
=============== ==============
</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 June 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>
June 30, 2000 December 31, 1999
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Available For Sale
US Treasury securities $ 5,555 $ 5,425 $ 5,567 $ 5,450
US Government Mortgage Backed 25,515 24,532 26,288 25,476
Debt Securities 3,483 3,407 6,996 6,907
Equity Securities 850 770 850 762
------- ------- ------- -------
Total $35,403 $34,134 $39,701 $38,595
===================== =====================
<CAPTION>
<S> <C> <C> <C> <C>
Held to maturity
Obligations of State and
Political subdivisions $ 6,448 $ 6,264 $ 7,929 $ 7,737
------- ------- ------- -------
Total $ 6,448 $ 6,264 $ 7,929 $ 7,737
------- ------- ======= =======
Total Securities $41,851 $40,398 $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.
On June 21, 2000, the Corporation's Board of Directors authorized a 5%
stock dividend which was distributed on July 28, 2000. Basic and diluted
net income per common share have been retroactively restated to give
effect to the stock dividend.
8
<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,
2000 and June 30, 1999.
OVERVIEW
The Company realized net income of $184 thousand for the second quarter of 2000,
an increase of $30 thousand over the $154 thousand reported for the same period
in 1999. Basic earnings per share increased from $.10 in the second quarter of
1999 to $.12 for the second quarter of 2000. Diluted earnings per share also
increased from $.10 in the second quarter of 1999 to $.12 per share in the
quarter ended June 30, 2000.
For the six months ended June 30, 2000, net income was $384 thousand, an
increase of $38 thousand from the $346 thousand reported for the same period in
1999. Basic and diluted earnings per share were $.26 for the six months ended
June 30, 2000 compared to $.23 for the six months ended June 30, 1999.
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 $258 thousand, or 11.4%, to
$2.5 million for the quarter ended June 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 $374 thousand and an increase in interest on taxable securities
of $42 thousand. Offsetting these increases was a $111 thousand decline in
interest income on federal funds sold, a $36 thousand decrease in interest
earned on tax exempt securities and an $11 thousand decrease in interest on time
deposits from the second quarter of 1999 to the second quarter of 2000. This net
increase in interest income is attributable to a $5.1 million increase in
average interest earning assets, primarily in the loan portfolio. While the
average balance in the loan portfolio increased $19.9 million from the second
quarter of 1999 to the second quarter of 2000, investment securities and other
earning assets declined $14.8 million over the same period. The yield on average
interest-earning assets on a fully taxable equivalent basis increased 45 basis
points from 6.82% for the second quarter of 1999 to 7.27% for the second quarter
of 2000. This increase reflects the results of the Company's emphasis on
originating commercial and industrial loans.
For the six months ended June 30, 2000, interest income increased $606 thousand,
or 13.8%, to $5.0 million from the $4.4 million reported for the same period in
1999. This growth in interest income is the result of an $8.6 million, or 6.5%
increase in the average balance of interest-earning assets over the comparable
period last year. The average balance in the loan portfolio increased $17.9
million and securities and other interest bearing assets declined $9.3 million
during the first six 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 44 basis points from 6.76% from the
first half of 1999 to 7.20% for the same period in 2000.
Interest Expense. The Company's interest expense for the second quarter of 2000
increased $58 thousand, or 5.4% to $1.14 million from $1.08 million for the same
period last year. The average balance of interest bearing liabilities increased
$2.9 million, or 2.6%, from the same period last year. The largest component of
the increase was the addition of $3.0 million in borrowed funds during the
second quarter of 2000, which was not present in the second quarter of 1999.
This increase was offset by a nominal decrease in total interest bearing
deposits of $72 thousand from $131.1 million during the second quarter of 1999
to $131.0 million in the same period this year. Within the components of
interest bearing deposits, savings deposits increased $5.6 million, or 13.6%, in
the second quarter of 2000 compared to the same period in 1999. Offsetting this
increase was a $6.2 million decline in average time deposits from June 30, 1999
compared to the same period in 2000. The Company's average cost of funds
increased to 3.92% for the second quarter of 2000 from 3.83% for the second
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 six months ended June 30, 2000 interest expense increased $134 thousand,
or 6.3%, to $2.3 million from $2.1 million for the same period last year. This
increase was largely due to interest expense of $116 thousand on borrowed funds
during the first half of 2000, which was not present during the first six months
of 1999. In the first six months of 2000 the average balance in savings accounts
increased $7.2 million, or 18.2%, over the average balance for the six months
ended June 30, 1999. This increase was primarily due to the continued promotion
of a special account for senior citizens. Time deposits decreased $6.6 million,
or 12.7%, over the same period last year. The average rate paid on savings
accounts increased 21 basis points from the first six months of 1999 compared to
the first six months of 2000, while the average rate paid on time deposits fell
13 basis points during the same period. As a result, the Company's average rate
paid on interest bearing liabilities increased by only 3 basis points, to 3.88%
for the six months ended June 30, 2000 from 3.85% for the six months ended June
30, 1999. The average balance of non-interest bearing demand deposits increased
by $3.3 million to $23.0 million for the first six months of 2000 from $19.7
million for the same period in 1999.
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 six months
ended June 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.
9
<PAGE>
Comparative Average
Balance Sheets
Six Months Ended June 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) $89,179 $3,560 7.98% $71,285 $2,861 8.03%
Tax exempt securities 8,109 208 5.13% 10,262 252 4.91%
Taxable investment securities 36,502 1092 5.98% 32,962 918 5.57%
Other (1) 6,464 187 5.79% 17,184 420 4.89%
----------------------------------- -----------------------------------------
Total earning assets 140,254 5,047 7.20% 131,693 4,451 6.76%
Non-interest earning assets: 10,056 9,140
Allowance for possible
loan losses (883) (704)
------------ -------------
Total Assets $149,427 $140,129
============ =============
Liabilities and Shareholders' Equity
Interest bearing liabilities:
NOW deposits $14,244 $88 1.24% $14,522 $101 1.39%
Savings deposits 46,595 793 3.40% 39,431 629 3.19%
Money market deposits 6,808 129 3.79% 4,574 65 2.84%
Time deposits 45,353 1,137 5.01% 51,951 1,334 5.14%
Borrowed Funds 3,741 116 6.20% 0 0 0.00%
----------------------------------- -----------------------------------------
Total interest bearing liabilities 116,741 2,263 3.88% 110,478 2,129 3.85%
Non-interest bearing liabilities:
Demand Deposits 22,987 19,730
Other liabilities 622 785
------------ -------------
Total non-interest bearing liabilities 23,609 20,515
Shareholders' equity: 9,077 9,136
------------ -------------
Total liabilities and shareholders'
equity $149,427 $140,129
============ =============
Net interest differential $2,784 $2,322
Net Interest Spread 3.32% 2.91%
Net yield on interest-earning
assets 3.97% 3.53%
</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 second quarter of 2000 was an increase in net interest
income of $200 thousand, or 16.9%, compared to the second quarter of 1999. The
net interest spread, on a fully taxable equivalent basis, increased 34 basis
points and the net yield on interest-bearing assets increased 40 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 six months ended June 30, 2000 increased $472
thousand, or 20.8%, over the same period last year. The net interest spread
increased, on a fully taxable equivalent basis, 41 basis points and the net
yield on interest-bearing assets improved by 44 basis points between the first
six month periods of 1999 to 2000.
Provision for Loan Losses. For the three months ended June 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 $111 thousand for the six months ended June 30, 2000 as compared to $81
thousand for the same period last year. The increase in the provision for loan
losses over the three 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, 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 second quarter of 2000, total non-interest income
decreased by a nominal $1 thousand from the same period in 1999. Service charges
on deposit accounts decreased $2 thousand in the second quarter of 2000 compared
to the three months ended June 30, 1999. Other income increased $7 thousand, or
7.4%, in the second quarter of 2000 from the same period last year. This
increase was offset by an $8 thousand loss on the sale of available for sale
securities recorded in the second 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 six months ended June 30, 2000, non-interest income decreased $107
thousand, or 21.1%, from the same period in 1999. The largest component of the
decrease was a $91 thousand, or 33.2%, decrease in other income. This decrease
was due to the reduced volume of large commercial mortgage originations by our
mortgage banking subsidiary and reduced fees generated by the non-deposit
investment products offered by our third party provider, IBFS. In the first six
months of 2000, $8 thousand in available for sale securities losses were
recorded compared to $3 thousand in gains during the first six months of 1999.
Non-Interest Expense. For the quarter ended June 30, 2000, non-interest expense
increased $102 thousand, or 8.6%, 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 following increases in
non-interest expense: salaries and employee benefits increased $36 thousand, or
5.7%; occupancy expense increased $30 thousand, or 36.1%; furniture and
equipment expense increased $21 thousand, or 17.9%; and other expenses increased
by $17 thousand, or 5.6%, from second quarter 1999 to second quarter 2000.
For the six months ended June 30, 2000, non-interest expense increased $235
thousand, or 10.2%, from the same period last year. Salaries and employee
benefits increased $135 thousand, or 11.2%, occupancy expense increased $44
thousand, or 24.9%, furniture and fixture expense increased $33 thousand, or
13.9%, and other expenses increased $23 thousand or 3.9%. These increases to
non-interest expense are mostly due to the additional costs associated with
operating and promoting the Company's new and renovated locations.
Income Taxes. Income tax expense increased $52 thousand to $56 thousand for the
three months ended June 30, 2000 as compared to $4 thousand for the same period
in 1999. Income taxes also increased for the six months ended June 30, 2000 to
$114 thousand as compared to $52 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
June 30, 2000 as compared to December 31, 1999
Total assets increased to $152.5 million at June 30, 2000, a $2.4 million
increase from total assets of $150.1 million at December 31, 1999. During the
first six months of 2000 the Company continued to reposition its balance sheet,
as total loans increased by $9.4 million while total securities and time
deposits in other banks declined by $7.0 million. The Company funded new loan
originations from maturing investments.
Total loans at June 30, 2000 increased $9.4 million, or 11.1%, to $94.2 million
from year-end 1999. Commercial and industrial loans increased $2.0 million,
residential and commercial real estate loans increased $6.7 million and
construction loans increased $520 thousand from year-end 1999. Consumer and
other loans also increased $216 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>
June 30 December 31
2000 1999
-----------------------------------------------------
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial .... $ 5,770 6.12% $ 3,811 4.49%
Real Estate non residential
properties .............. 22,838 24.23% 19,759 23.29%
Residential properties ....... 54,042 57.35% 50,411 59.42%
Construction ................. 7,594 8.06%
7,074 8.34%
Consumer ..................... 2,370 2.51%
2,295 2.71%
Other Loans .................. 1,625 1.72% 1,484 1.75%
------- -------- ------- ------
Total Loans ................. $94,239 100.00% $84,834 100.00%
======= ======== ======= ======
</TABLE>
Federal funds sold decreased by $865 thousand from $4 million at December 31,
1999 to $3.1 million on June 30, 2000.
Total securities decreased $5.9 million, or 12.8%, from $46.5 million at
year-end 1999 to $40.6 million on June 30, 2000. Securities, available for sale,
at market value, decreased $4.5 million, or 11.6%, from $38.6 million on
December 31, 1999 to $34.1 million on June 30, 2000. The Company purchased $1.6
million in new securities, available for sale, during the first six months of
2000, sold $2.0 million in available for sale securities and $3.9 million in
available for sale securities matured and were repaid. There were $163 thousand
in recorded unrealized losses in the available of sale portfolio during the
first six months of 2000. Held to maturity securities decreased to $6.4 million
on June 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 six months of 2000.
The reductions in the federal funds sold and securities portfolios were used to
fund new loan originations.
Total average deposits increased $2.5 million, or 18.3% during the first half of
2000 from $133.5 million at December 31, 1999 to $136.0 million on June 30,
2000. Savings deposits increased by $4.4 million, money market accounts
increased by $1.6 million, and demand deposits increased by $1.7 million. These
increases were offset by a decrease in time deposits by $5.0 million. 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>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------------------------------------------------------
Average Balance % Average Balance %
---------------- -- ----------------- --
<S> <C> <C> <C> <C>
Deposits:
NOW deposits................................. $14,244 10.47% $14,561 10.90%
Savings deposits............................. 46,595 34.26% 42,159 31.57%
Money market deposits........................ 6,808 5.01% 5,196 3.89%
Time deposits................................ 45,353 33.35% 50,387 37.73%
Demand deposits.............................. 22,987 16.90% 21,239 15.90%
---------------------------- -----------------------------
Total interest-bearing liabilities......... $135,987 100.00% $133,542 100.00%
======== ======= ======== =======
</TABLE>
12
<PAGE>
ASSET QUALITY
At June 30, 2000, non-performing loans increased $75 thousand, to $407 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:
June 30 December 31
2000 1999
---- ----
Non-accrual loans................................ $ 407 $ 332
Non-accrual loans to total loans................. 0.43% 0.39%
Non-performing loans to total assets............. 0.27% 0.22%
Allowance for possible loan losses as a
percentage of non-performing loans............. 226.04% 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 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, 2000, the allowance for possible loan losses was $920 thousand, up
9.9% from $837 thousand at year-end 1999. The Company recognized $28 thousand in
net charge-offs for the first six months of 2000, as compared to $13 thousand
during the first six months of 1999.
LIQUIDITY MANAGEMENT
At June 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 June 30, 2000, liquid investments totaled $8.4 million, and all mature within
30 days.
CAPITAL RESOURCES
Total stockholders' equity increased $199 thousand to $9.3 million at June 30,
2000 from the $9.1 million at year end 1999. The increase was due to net income
of $384 thousand and shares issued through the dividend reinvestment plan of $48
thousand. These increases were offset by an increase in the net unrealized loss
on securities available for sale of $98 thousand, cash dividends of $85 thousand
and the purchase of treasury shares of $50 thousand.
At June 30, 2000, 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, 2000 for both the Company and the Bank as well as the
minimum regulatory requirements.
<TABLE>
<CAPTION>
Amount Ratio Minimum Amount Minimum Ratio
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
The Company
Leverage Capital $9,424 6.30% $4,488 3-5%
Tier 1 - Risk Based 9,424 10.11% 3,730 4%
Total Risk-Based 10,344 11.09% 7,460 8%
The Bank
Leverage Capital 9,095 6.08% 4,488 3-5%
Tier 1 Risk-Based 9,095 9.76% 3,727 4%
Total Risk-Based 10,015 10.75% 7,453 8%
</TABLE>
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
---------------------------------------------------
On June 28, 2000, 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
--- ------------------
Donald L Kovach 1,114,102 27,834
Joel Marvil 1,114,106 27,830
Mark Hontz 1,114,102 27,834
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
