-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OJyyRtptCDI1+54E3ovclgFqm2Sb4nPQp1ysvFDSdNTpXOxyNyP3mTYBctw0XP3x RSAxpGvdLkUIRWp8keOb0g== 0000914317-96-000450.txt : 19970108 0000914317-96-000450.hdr.sgml : 19970108 ACCESSION NUMBER: 0000914317-96-000450 CONFORMED SUBMISSION TYPE: 8-B12G PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUSSEX BANCORP CENTRAL INDEX KEY: 0001028954 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 223475473 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-B12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-29030 FILM NUMBER: 96680510 BUSINESS ADDRESS: STREET 1: 399 RTE 23 CITY: FRANKLIN STATE: NJ ZIP: 07416 BUSINESS PHONE: 2018272917 MAIL ADDRESS: STREET 1: 399 RTE 23 CITY: FRANKLIN STATE: NJ ZIP: 07416 8-B12B 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------- FORM 8-B FOR REGISTRATION OF SECURITIES OF CERTAIN SUCCESSOR ISSUERS FILED PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 SUSSEX BANCORP (Exact Name of Registrant as Specified in Its Charter) NEW JERSEY 22-3475473 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 399 Route 23, Franklin, NJ 07416 (Address of Principal Executive (Zip Code) Offices) Securities to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which to be so Registered Each Class is to be Registered None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, no par value - - -------------------------------------------------------------------------------- (Title of Class) ITEM 1. GENERAL INFORMATION a) The Registrant was organized in January, 1996 as a business corporation under the laws of the State of New Jersey. b) The Registrant's fiscal year end is December 31. ITEM 2. TRANSACTION OF SUCCESSION a) The Sussex County State Bank b) The Registrant was established by the Board of Directors of The Sussex County State Bank (the "Bank") to become a holding company for the Bank. Pursuant to the New Jersey Banking Act of 1948, as amended (the "Banking Act"), and pursuant to the approval of the shareholders of the Bank, the Registrant acquired all of the shares of the Bank in exchange for its own shares, on a share per share basis. The Bank is now the wholly-owned subsidiary of the Company. ITEM 3. SECURITIES TO BE REGISTERED 1) The Registrant's Certificate of Incorporation authorizes 5,000,000 shares of common stock, no par value. 2) 674,996. 3) None. ITEM 4. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED Capital Structure The Registrant's certificate of incorporation provides for an authorized capitalization consisting of 5,000,000 shares of common stock, without par value. The Registrant has 674,996 shares of common stock outstanding, leaving 4,325,004 shares of authorized common stock available to be issued when and if the Board of Directors of the Registrant determines it is advisable to do so. Under New Jersey law, the Board of Directors is generally empowered to issue authorized common stock without shareholder approval. Dividend Rights The holders of the Registrant's common stock are entitled to dividends, when, as, and if declared by the Registrant's Board of Directors, subject to the restrictions imposed by New Jersey law. The only statutory limitation applicable to the Registrant is that dividends may not be paid if the Registrant is insolvent. However, as a practical matter, unless the Registrant expands its activities, its only source of income will be the earnings of the Bank. Under the Banking Act, dividends may be paid only if, after the payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank's surplus. Voting Rights Each share of the Common Stock is entitled to one vote per share. Cumulative voting is not permitted. Under New Jersey corporate law, the affirmative vote of a majority of the votes cast is required to approve any merger, consolidation or disposition of substantially all of the Registrant's assets. Preemptive Rights Under New Jersey law, shareholders may have preemptive rights if these rights are provided in the certificate of incorporation. The Certificate of Incorporation of the Registrant does not provide for preemptive rights. Appraisal Rights Under New Jersey law, dissenting shareholders of the Registrant will have appraisal rights (subject to the broad exception set forth in the next sentence) upon certain mergers or consolidations. Appraisal rights are not available in any such transaction if shares of the corporation are listed for trading on a national securities exchange or held of record by more than 1,000 holders. In addition, appraisal rights are not available to shareholders of an acquired corporation if, as a result of the transaction, shares of the acquired corporation are exchanged for any of the following: (i) cash; (ii) any securities listed on a national securities exchange or held of record by more than 1,000 holders; or (iii) any combination of the above. New Jersey law also provides that a corporation may grant appraisal rights in other types of transactions or regardless of the consideration received by providing for such rights in its Certificate of Incorporation. The Registrant's Certificate of Incorporation does not provide appraisal rights beyond those called for under New Jersey law. Directors Under New Jersey law and the Registrant's Certificate of Incorporation, the Registrant is to have a minimum of 3 directors and a maximum of 25, with the number of directors at any given time to be fixed by the Board of Directors. The Registrant currently has seven directors. Indemnification The Certificate of Incorporation of the Registrant provides that the Registrant will indemnify any person who was or is a party to any threatened, pending or completed action, whether civil or criminal, administrative or investigative by reason of the fact that such person is or was a director or officer of the Registrant, or is or was serving as a director or officer of any other entity at the request of the Registrant against expenses, judgments, fines and amounts paid in settlement incurred by such person in connection with such action, provided that the director or officer acted in good faith in a manner he reasonably believed to be in or not opposed to the best interest of the Registrant and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In addition, in the event that such action is in the name of the Registrant, a director or officer may not be indemnified if he is found liable to the Registrant unless a court determines that, despite the finding of liability, the officer or director is fairly and reasonably entitled to indemnification. Limitation of Liability The Certificate of Incorporation of the Registrant contains provisions which may limit the liability of any director or officer of the Registrant to the Registrant or its shareholders for damages for an alleged breach of any duty owed to the Registrant or its shareholders. This limitation will not relieve an officer or director from liability based on any act or omission (i) which was in breach of such person's duty of loyalty to the Registrant or its shareholders; (ii) which was not in good faith or involved a knowing violation of law; or (iii) which resulted in receipt by such officer or director of an improper personal benefit. These provisions are explicitly permitted by New Jersey law. Shareholders Protection Act A provision of New Jersey law, the New Jersey Shareholders Protection Act (the "Shareholders Act") prohibits certain transactions involving an "interested stockholder" and a company. An "interested stockholder" is generally defined as one who is the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding stock of the corporation. The Shareholders Act prohibits certain business combinations between an interested stockholder and a New Jersey corporation subject to the Shareholders Act for a period of five years after the date the interested stockholder acquired his stock, unless the transaction was approved by the corporation's board of directors prior to the time the interested stockholder acquired their shares. After the five year period expires, the prohibition on business combinations with an interested stockholder continues unless certain conditions are met. The conditions include (i) that the business combination is approved by the Board of Directors of the target corporation; (ii) that the business combination is approved by a vote of two-thirds of the voting stock not owned by the interested shareholder; and (iii) that the shareholders of the corporation receive a price in accordance with a fair price formula set forth in the statute. The Shareholders Act as applicable to the Registrant could inhibit unsolicited offers to acquire the Registrant. Restrictions on Acquisition of the Registrant The Certificate of Incorporation of the Registrant permits the Board of Directors, consistent with their fiduciary duty and as already permitted by statute, to consider, in connection with any proposed acquisition of the corporation, any fact which the Board of Directors deems relevant, including the impact of such an acquisition of the Registrant on its employees and the communities which the Registrant serves. This provision, along with the provisions of the Shareholders Act described above could have the effect of delaying, deferring or preventing a change in control of the Registrant. ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS (A) (1) Annual Report of The Sussex County State Bank on Form F-2 for the year ended December 31, 1995. (2) Quarterly Report of The Sussex County State Bank on Form F-4 for the quarter ended September 30, 1996. (B) (1) Plan of Acquisition of All the Outstanding Shares of The Sussex County State Bank by Sussex Bancorp. (3) (i) Certificate of Incorporation of Sussex Bancorp. (ii) By-laws of Sussex Bancorp. (10)(a) 1995 Incentive Stock Option Plan. (b) 1995 Stock Option Plan for Non-Employee Directors. (c) 1988 Non Qualified Stock Option Plan. (21) Subsidiaries of the Registrant (27) Financial Data Schedule. SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereto duly authorized. SUSSEX BANCORP Date: November 7, 1996 By/s/ Donald L. Kovach -------------------- Donald L. Kovach President EX-99.1 2 EXHIBIT (A)(1) ANNUAL REPORT Form F-2 ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1995 FDIC Certificate No.: 22221-6 THE SUSSEX COUNTY STATE BANK - - -------------------------------------------------------------------------------- (Exact Name of bank as specified in its charter): New Jersey 22-2087704 - - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 Route 23, Franklin, NJ 07416 - - -------------------------------------------------------------------------------- (Address of principal office) (ZIP Code) Bank's Telephone number, including area code: (201) 827-2914 Securities registered under section 12(b) of the Act: Title of each class: None Name of each exchange on which registered: The Bank's stock is not registered on any exchange. Securities registered under Section 12(g) of the Act: (Title of Class): Common - $2.50 Par Value Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The aggregate market value of the voting stock held by non-affiliates of the bank, as of February 23, 1996, was approximately $8,151,806.00 The number of shares outstanding of the bank's common stock, as of February 23, 1996 was 649,862 shares of Common Stock, $2.50 Par Value. DOCUMENTS INCORPORATED BY REFERENCE The Sussex County State Bank Financial Statements for the year ended December 31, 1995 (Parts II and IV). PART I ITEM I - BUSINESS The Sussex County State Bank (the "Bank") was chartered in 1975 under the laws of New Jersey and conducts a commercial retail banking business embracing most of the traditional deposit and lending services typically offered by community-based banks. The Bank's services consist chiefly of receiving demand, time and savings deposits of individuals, firms and corporations and making commercial, and consumer loans, including residential and commercial real estate and home improvement loans and secured and unsecured commercial business loans. The Bank also offers traveler's checks, safe deposit services, automated teller machines, money orders and U. S. Savings Bonds. The Bank's deposits are insured by the FDIC, but it is not a member of the Federal Reserve System. The Bank is subject to regulation, supervision and examination by the Department of Banking of New Jersey and FDIC. The Bank is subject to intense competition from banks and other institutions which provide financial services, however, management believes that because of its size, philosophy and commitment to Sussex County, it can more effectively serve the needs of individuals, small businesses and local communities, than can the competition. The Bank's operations are conducted at its main office in Franklin, six full-service branches located in Vernon, Sparta Township, Montague, Andover, Newton and Wantage, New Jersey. As of December 31, 1995, the Bank employed 66 full-time equivalent employees, including officers, bookkeepers, secretaries, tellers and other support staff. The Bank considers its relations with its employees to be excellent. In the opinion of management, there are no seasonal fluctuations or single depositor relationship that adversely affect the operations of the Bank. ITEM 2 - PROPERTIES The Bank owns property at 399 Route 23, Franklin, the site of the Bank's main office. The Bank also owns property located at 395 Route 23, Franklin, which serves as the Bank's Administrative Offices. The Vernon, Wantage, Andover and Newton offices are also owned by the Bank. The remaining two branches, located in Sparta and Montague, are leased by the Bank. The Sparta and Montague leases expire in 1997 and are subject to renewal options. ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings other than ordinary routine litigation incidental to the business, to which the Bank is a party or of which any of their property is the subject. ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth the persons who owned beneficially more than 5% of the Common Stock of the Bank as of February 23, 1996. ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (CONTINUED)
NAME AND ADDRESS AMOUNT AND NATURE OF % TO TOTAL NO. OF OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP SHARES OUTSTANDING ------------------- -------------------- ------------------ Donald L. Kovach, Esq. R.D. 6, Box 526 Branchville, NJ 07826 72,424 (1) (4) 11.14 (1) (4) William E. Kulsar 80 Fox Ridge Road Sparta, NJ 07871 59,985 (3) (4) 9.23 (3) (4) Ambrose Hamm P. O. Box E Branchville, NJ 07826 66,216 (2) 10.19 (2)
(1) Includes 7,746 shares held in the name of his wife, Betty Jane Kovach, and the following shares held in the name of his children; Jennifer Kovach - 2 shares. Also includes 3,551 shares registered in the name of Kovach, Fitzgibbons & Goovaerts, P.A., Profit Sharing Plan and 297 shares registered in the name of Kovach, Fitzgibbons & Goovaerts, P.A., Profit Sharing FBO Donald L. Kovach. (2) Includes 4,969 shares held in the name of his wife, Lillian Hamm. Also includes 4,003 shares registered in the name of Keilley Hamm Trust dated 3/26/82, 4,698 shares registered in the name of Keith Hamm Trust dated 3/26/82 and 21 shares registered in the name of Keilley Hamm UGTMA Ambrose Hamm, Custodian. (3) Includes 10,924 shares registered in the name of Caristia, Kulsar & Wade, P.A., Profit Sharing Plan. Also includes 10,105 shares in the name of William E. Kulsar IRA, Newton Trust Custodian. (4) Includes 38,671 shares in which Mr. Kovach, and Mr. Kulsar have shared voting authority as administrator(s) for shares registered in the name Sussex County State Bank ESOP. The following information is furnished with respect to ownership of the Bank's Common Stock by directors and officers of the bank as of December 31, 1995.
Name of Individual or Amount and Nature Number of Persons in Group of Beneficial Ownership Percent of Class -------------------------- ----------------------- ---------------- Irvin Ackerson 10,010 (2) 1.55% Donald L. Kovach 72,395 (3) (6) 11.19% William E. Kulsar 59,560 (4) (6) 9.35% Joel Marvil 15,253 2.36% Richard Scott 19,078 2.95% Joseph Zitone 32,230 (5) 4.98% Directors and Principal Officers as a Group 169,855 26.24%
(1) Unless otherwise noted the person as to whom the information is provided has sole voting and investment power over the shares of stock shown as beneficially owned. (2) Includes 4,931 shares owned by Mr. Ackerson's wife. (3) Includes 7,748 shares owned by Mr. Kovach's wife and children. Also includes 3,523 shares registered in the name of Kovach, Fitzgibbons & Goovaerts Employee Profit Sharing Trust and 295 shares registered in the name of Kovach, Fitzgibbons & Goovaerts Employee Profit Sharing FBO Donald L. Kovach. (4) Includes 9,962 shares registered in the name of Caristia, Kulsar & Wade, P.A., Profit Sharing Plan. Also includes 10,028 shares in the name of Keogh Plan, and 220 shares in the name of Merrill Lynch, Caristia, (5) Also includes 4,611 shares in the name of Zitone Construction & Supply Co., Inc., Profit Sharing Plan Trust. (6) Includes 38,671 shares in which Mr. Kovach, and Mr. Kulsar have shared voting authority as administrator(s) for shares registered in the name Sussex County State Bank ESOP. PART II ITEM 5 - MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The following table shows the 1995 and 1994 quarterly range of bid prices of the Bank's common stock which is traded over-the-counter. These quotations represent prices between dealers and do not include retail markups, markdowns, or commissions and do not necessarily reflect actual transactions. This information has been obtained from the National Quotation Bureau for the year 1994 and 1995.
1995 1994 HIGH LOW HIGH LOW BID BID BID BID --- --- --- --- 1st Quarter $11.25 $11.25 $10.00 $ 9.00 2nd Quarter $11.25 $11.25 $11.00 $ 9.50 3rd Quarter $13.00 $11.25 $11.25 $ 9.50 4th Quarter $15.00 $12.50 $11.25 $11.25
The number of holders of the Bank's common stock was approximately 709 at February 23, 1996. The Bank paid cash dividends during 1995 of $.46 per share and $.34 per share during 1994. The New Jersey Banking Act of 1948 imposes restrictions on the ability of the Bank to pay dividends out of surplus. Under such restrictions no dividend may be paid by the Bank unless, after giving effect to the dividend, the Bank will have a surplus at least equal to 50% of its capital stock or, if not, the payment of such dividend would not reduce the surplus of the Bank. Payment of dividends depends on other factors as well, including the need for internally generated capital to support asset growth. The Banks current policy is to maintain a dividend payout ratio in the range of 30% to 45%. ITEM 6 - SELECTED FINANCIAL DATA The schedule entitled "Five Year Summary" which can be found in Exhibit A, sets forth, in summary form, certain financial data for the five years ended December 31, 1995, which is not covered by the independent accountants report and should be read in conjunction with the other financial statements and notes thereunto of The Sussex County State Bank found elsewhere herein. PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the following section, the financial condition and operating results of the Bank for the years ended December 31, 1995, 1994, and 1993 are reviewed and analyzed. Reference should be made to the statements of condition, statements of income and related notes presented elsewhere herein. RESULTS OF OPERATIONS COMPARISON OF THE YEARS 1995 AND 1994 SUMMARY The Bank reported a decrease in earnings from operations in 1995 with net income of $501,000 representing an decrease of 16.5% compared to $600,000 earned in 1994. Earnings per share in 1995 was $.78 compared to $.94 in the year 1994. The decrease is attributable to a one time expense related to the termination of services of the bank's Chief Executive Officer. AVERAGE BALANCES AND NET INTEREST INCOME The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A sets forth for the years ended December 31, 1995 and 1994 the average daily balance sheet items, the interest earned or paid, the average interest rates earned on assets on a fully taxable equivalent basis and the average rates paid on liabilities (dollars in thousands). RATE/VOLUME ANALYSIS The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A shows the approximate effect on the Bank's net interest of volume, rate and number of days changes for the year 1995. For the purposes of this schedule, changes which are not solely due to balance changes, solely due to rate changes or solely due to changes in the total number of days in the year are allocated to such categories based on the respective percentage changes in average balances and average rates. NET INTEREST INCOME Net interest income, the primary source of earnings for the Bank, is the difference between interest and fees earned on loans and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is directly affected by changes in volume and mix of interest-earning assets and interest-bearing liabilities which support those assets, as well as changing interest rates when differences exist in repricing dates of assets and liabilities. Net interest income, on a fully taxable equivalent basis, declined by $77,000 in 1995 compared to 1994. The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A shows the 1995 decrease in net interest income resulted from a 30 basis-point decline in the net interest spread due to the offering of promotional certificates of deposit during 1995. PART II (CONTINUED) ITEM 7 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER INCOME Other income consists primarily of service charges on deposit accounts. Other income becomes a more significant source of stable income given the ever increasing volatility of our interest rate environment. After excluding the gain on sale of other real estate and equipment, other income increased $85,000 or 14% in 1995 compared to a decrease of $165,000 or 2.6% in 1994. OTHER EXPENSES Other expenses were reduced by $194,000 or 5.6% to a total of $3,644,000 in 1995 following a decrease of $85,000 or 2.4% in 1994. Salaries and employee benefits, a major component of other expenses increased $146,000 or 9.1% during 1995 which represents an accrued expense related to the terminated services of the bank's chief executive officer. Expenses for Net Occupancy decreased a modest $1,000 or .3% during 1995, while furniture and equipment expense increased $69,000 or 27%, this increase is primarily attributable to the installation of automated deposit and loan origination software and the addition of Automated Teller Machines at our Andover and Montague offices. Other operating expenses decreased $20,000 or 1.6% during 1995. Inclusive in other operating expenses was a decrease in FDIC insurance assessments of $60,000, and increased legal expense of $70,000. PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level considered by management to be adequate to provide for potential losses. The 1995 provision for possible loan losses was $64,000 as compared to $187,000 for 1994. Charge-offs net of recoveries amounted to $66,000 in 1995 as compared to $149,000 in 1994. At December 31, 1995 and 1994, the allowance for possible loan losses as a percentage of total loans amounted to .90% and .92% respectively. ASSETS Total assets increased $12,627,000 or 15% for the year 1995. Total assets at year-end were $94,870,000 compared to $82,243,000 at year-end 1994. This increase was primarily the result of offering promotional Certificates of Deposit in 1995. LOANS Total loans increased $681,000 for the year 1995. Loans secured by 1 to 4 family residential properties, which represent 75% of the total loan portfolio at December 31, 1995, increased a modest 1.5% in 1995 to $39,620,000. The portfolio is primarily made up of one year adjustable, three, five, and ten year balloon mortgages and 15 year fixed rate mortgages. Loans secured by nonresidential properties, which represents 18.6% of the total loans at December 31, 1995, declined 2.5% in 1995 to $9,796,000. Loans to individuals, which represents 3.1% of the total loans at December 31, 1995, declined .7% in 1995 to $1,615,000. PART II (CONTINUED) ITEM 7 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Commercial loans, which represents 3.1% of the total loans at December 31, 1995, increased 29.3% to $1,647,000. Other loans, which represents .1% of the total loans at December 31, 1995, decreased .08% to $69,000. LIQUIDITY Liquidity involves the Bank's ability to meet loan demand, deposit withdrawals, and maturity of liabilities. Funds to meet liquidity needs are generally raised through increased deposits, liquidation, or maturity of loans and investments and short-term borrowings. At December 31, 1995, liquid assets comprised of cash and due from banks, Federal funds sold, interest bearing deposits with banks, and investments at book value with a maturity of one year amounted to $18,333,000. These liquid assets coupled with the access to purchase funds from correspondent banks and supplemented by an amortizing loan portfolio provides for a liquidity position which is adequate to meet the Bank's commitments. The maturity schedule of the investment portfolio, at book value, indicates that 17.5% of the portfolio matures within one year, while 82.5% matures in five years or less. INTEREST RATE SENSITIVITY An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. Interest rate sensitivity is the volatility of a Bank's earnings resulting from a movement in market interest rates. The Bank has developed an Asset and Liability Management Policy. The policy provides for the Bank to generally maintain a relatively balanced position between interest rate sensitive assets and interest rate sensitive liabilities. At December 31, 1995, the interest rate sensitivity position evident for periodic intervals out to December 31, 1995 reflected a slight asset sensitive position. CAPITAL RESOURCES Stockholders' equity inclusive of Unrealized Gain (Loss) on Securities Available for Sale, net of income taxes was $7,609,000 at December 31, 1995. The Bank's regulators have classified and defined bank capital into the following components - (1) Tier I capital which includes tangible stockholders' equity for common stock and certain perpetual preferred stock and (2) Tier II capital which includes a portion of the allowance for possible loan losses, certain qualifying long-term debt and preferred stock which does not qualify for Tier I capital. The Bank's regulators have implemented risk-based capital guidelines which require a bank to maintain certain minimum capital as a percent of such bank's assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). As of December 31, 1995, a bank is required to maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets of 4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted assets of 8.0%. As of December 31, 1995, the Bank's Tier I and combined Tier I and II capital ratios were 15.25% and 16.33% (unaudited), respectively. PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to the risk-based guidelines discussed above, the Bank's regulators require that a bank which meets the regulators' highest performance and operation standards maintain a minimum leverage ratio (Tier I capital as a percent of tangible assets) of 3%. For those banks with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased. Minimum leverage ratios for each bank will be evaluated through the ongoing regulatory examination process. As of December 31, 1995, the Bank has a leverage ratio of 11.10% which management believes will meet the regulators' required minimum ratio. DIVIDENDS The Bank's dividend policy is structured to balance both the current and future values of its stock with the need for growth in equity capital necessary to pursue growth opportunities. This balance is thought to be achieved by a dividend payout ratio in the area of 30% to 45%. During 1995, cash dividends totaling $.46 per share were paid providing for a dividend payout ratio of 59%. The following table shows the 1994 dividend payments.
Per Share Amount/Percent Date of Record Payment Date - - -------------- -------------- ------------ $.10 Cash Dividend 3/31/95 5/01/95 $.11 Cash Dividend 7/03/95 8/01/95 $.12 Cash Dividend 10/02/95 11/01/95 $.13 Cash Dividend 1/02/96 1/31/96
STOCK PRICES The following table shows the 1995 and 1994 quarterly range of bid prices of the Bank's common stock. These quotations represent prices between dealers and do not include retail markups, markdowns, or commissions and do not necessarily reflect actual transactions. This information has been obtained from National Quotation Bureau for the years 1995 and 1994.
1995 1994 High Low High Low Bid Bid Bid Bid --- --- --- --- 1st Quarter $11.25 $11.25 $10.00 $ 9.00 2nd Quarter $11.25 $11.25 $11.00 $ 9.50 3rd Quarter $13.00 $11.25 $11.25 $ 9.50 4th Quarter $15.00 $12.50 $11.25 $11.25
PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EFFECTS OF INFLATION Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, the level of interest rates has a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or change with the same magnitude as the prices of goods and services since such prices are affected by inflation. Accordingly, the liquidity, interest rate sensitivity and maturity characteristics of the Bank's assets and liabilities are more indicative of its ability to maintain acceptable performance levels. RESULTS OF OPERATIONS COMPARISON OF THE YEARS 1994 AND 1993 SUMMARY The Bank reported an increase in earnings from operations in 1994 with net income of $600,000 representing an increase of 71% compared to $350,000 earned in 1993. Earnings per share in 1994 was $.94 compared to $.55 in the year 1993. The improvement in performance is primarily attributable to higher net interest income coupled with lower other expenses, and increased earning assets. AVERAGE BALANCES AND NET INTEREST INCOME The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A sets forth for the years ended December 31, 1994 and 1993 the average daily balance sheet items, the interest earned or paid, the average interest rates earned on assets on a fully taxable equivalent basis and the average rates paid on liabilities (dollars in thousands). RATE/VOLUME ANALYSIS The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A shows the approximate effect on the Bank's net interest of volume, rate and number of days changes for the year 1994. For the purposes of this schedule, changes which are not solely due to balance changes, solely due to rate changes or solely due to changes in the total number of days in the year are allocated to such categories based on the respective percentage changes in average balances and average rates. NET INTEREST INCOME Net interest income, the primary source of earnings for the Bank, is the difference between interest and fees earned on loans and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is directly affected by changes in volume and mix of interest-earning assets and interest-bearing liabilities which support those assets, as well as changing interest rates when differences exist in repricing dates of assets and liabilities. PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net interest income, on a fully taxable equivalent basis, increased by $381,000 or 11% in 1994 compared to 1993. The schedule "Comparative Consolidated Average Balances and Summary of Net Interest Margin" found in Appendix A shows the 1994 increase in net interest income resulted principally from lower interest expense on deposits, a shift in the mix of assets from Federal Funds Sold and Securities to an increase in Home Equity and residential Mortgage Loans, coupled with an increase in earning assets. OTHER INCOME Other income consists primarily of service charges on deposit accounts. Other income becomes a more significant source of stable income given the ever increasing volatility of our interest rate environment. After excluding the gain on sale of other real estate and equipment, and the gain on sale of investment securities, other income decreased $16,000 or 2.6% in 1994 compared to an increase of $93,000 or 18% in 1993. OTHER EXPENSES Other expenses were reduced by $85,000 or 2.4% to a total of $3,450,000 in 1994 following an increase of $242,000 or 7.3% in 1993. Salaries and employee benefits, a major component of other expenses decreased $71,000 or 4.2% during 1994. Expenses for Net Occupancy decreased $87,000 or 20.6% during 1994 as a result of the closure of the Byram Office, while furniture and equipment expense decreased $10,000 or 3.7% during 1994. Other operating expenses increased $83,000 or 7.1% during 1994. Inclusive in other operating expenses were expenses related to the maintenance, operation and adjustments in the carrying values of other real estate owned properties of $61,000, and increased expenses of $22,000 associated with the introduction of the Bank's NYCE/ATM service. PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES The 1994 provision for possible loan losses was $187,000 as compared to $101,000 for 1993. Charge-offs net of recoveries amounted to $149,000 in 1994 compared to $101,000 in 1993. At December 31, 1994 and 1993, the allowance for possible loan losses as a percentage of total loans amounted to .92% and .94% respectively. ASSETS Total assets decreased $201,000 or .24% for the year 1994. Total assets at year-end were $82,243,000 compared to $82,444,000 at year-end 1993. PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LOANS Total loans increased $5,271,000 for the year 1994. The increase was primarily the result of the promotion of home equity and mortgage products. Loans secured by 1 to 4 family residential properties, which represent 75% of the total loan portfolio at December 31, 1994, increased 23% in 1994 to $39,039,000. The portfolio is primarily made up of one year adjustable, three, five, ten year balloon mortgages and fifteen year fixed rate mortgages. Loans secured by nonresidential properties, which represents 19.3% of the total loans at December 31, 1994, declined 4.2% in 1994 to $10,051,000. Loans to individuals, which represents 3.1% of the total loans at December 31, 1994, declined 29.4% in 1994 to $1,627,000. Commercial loans, which represents 2.5% of the total loans at December 31, 1994, declined 8.8% to $1,274,000. Other loans, which represents .1% of the total loans at December 31, 1994, decreased 90% to $75,000. LIQUIDITY Liquidity involves the Bank's ability to meet loan demand, deposit withdrawals, and maturity of liabilities. Funds to meet liquidity needs are generally raised through increased deposits, liquidation, or maturity of loans and investments and short-term borrowings. At December 31, 1994, liquid assets comprised of cash and due from banks, Federal funds sold, interest bearing deposits with banks, and investments at book value with a maturity of one year amounted to $13,326,000. These liquid assets coupled with the access to purchase funds from correspondent banks and supplemented by an amortizing loan portfolio provides for a liquidity position which is adequate to meet the Bank's commitments. The maturity schedule of the investment portfolio, at book value, indicates that 38.4% of the portfolio matures within one year, while 57.6% matures in five years or less. INTEREST RATE SENSITIVITY An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. Interest rate sensitivity is the volatility of a Bank's earnings resulting from a movement in market interest rates. The Bank has developed an Asset and Liability Management Policy. The policy provides for the Bank to generally maintain a relatively balanced position between interest rate sensitive assets and interest rate sensitive liabilities. At December 31, 1994, the interest rate sensitivity position evident for periodic intervals out to December 31, 1995 reflected a slight asset sensitive position. Please refer to "Rate Sensitivity Analysis" found in Appendix A. PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES Stockholders' equity inclusive of Unrealized Gain (Loss) on Securities Available for Sale, net of income taxes was $6,646,000 at December 31, 1994. The growth in stockholders' equity is generated primarily through earnings retention. The Bank's regulators have classified and defined bank capital into the following components - (1) Tier I capital which includes tangible stockholders' equity for common stock and certain perpetual preferred stock and (2) Tier II capital which includes a portion of the allowance for possible loan losses, certain qualifying long-term debt and preferred stock which does not qualify for Tier I capital. The Bank's regulators have implemented risk-based capital guidelines which require a bank to maintain certain minimum capital as a percent of such bank's assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). As of December 31, 1994, a bank is required to maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets of 4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted assets of 8.0%. As of December 31, 1994, the Bank's Tier I and combined Tier I and II capital ratios were 13.65% and 14.81% (unaudited), respectively. In addition to the risk-based guidelines discussed above, the Bank's regulators require that a bank which meets the regulators' highest performance and operation standards maintain a minimum leverage ratio (Tier I capital as a percent of tangible assets) of 3%. For those banks with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased. Minimum leverage ratios for each bank will be evaluated through the ongoing regulatory examination process. As of December 31, 1994, the Bank has a leverage ratio of 7.51% which management believes will meet the regulators' required minimum ratio. DIVIDENDS The Bank's dividend policy is structured to balance both the current and future values of its stock with the need for growth in equity capital necessary to pursue growth opportunities. This balance is thought to be achieved by a dividend payout ratio in the area of 30% to 45%. During 1994, cash dividends totaling $.34 per share were paid providing for a dividend payout ratio of 36%. The following table shows the 1994 dividend payments.
Per Share Amount/Percent Date of Record Payment Date - - -------------- -------------- ------------ $.07 Cash Dividend 4/01/94 5/02/94 $.08 Cash Dividend 7/01/94 8/01/94 $.09 Cash Dividend 10/03/94 11/02/94 $.10 Cash Dividend 1/02/95 1/31/95
PART II (CONTINUED) ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EFFECTS OF INFLATION Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, the level of interest rates has a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or change with the same magnitude as the prices of goods and services since such prices are affected by inflation. Accordingly, the liquidity, interest rate sensitivity and maturity characteristics of the Bank's assets and liabilities are more indicative of its ability to maintain acceptable performance levels. PART III ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK (a) Directors of the Bank The following information is furnished with respect to each Director.
NAME OF DIRECTOR TERM OF DIRECTOR AGE PRINCIPAL OCCUPATION AND PLACE OF EMPLOYMENT SINCE OFFICE EXPIRES - - -------- --- -------------------------------------------- ----- -------------- Irvin Ackerson 73 Excavating Contractor, Ackerson Contracting Co. 1976 4/95 Donald L. Kovach 60 Attorney-at-Law, Kovach Fitzgibbons & Goovaerts, P.A. 1976 4/95 William E. Kulsar 58 Certified Public Accountant William E. Kulsar, P.A. 1976 4/95 Joel D. Marvil 61 President/CEO Ames Rubber Corporation 1989 4/95 Richard Scott 59 Dentist, Richard Scott, DDS 1976 4/95 Joseph Zitone 64 General Contractor, Zitone Construction 1984 4/95
Family relationships. None of the Directors or principal officers are related by blood, marriage or adoption. Involvement in certain legal proceedings. There are no events which occurred during the last five years and which are material to an evaluation of the ability or integrity of any principal officer, director or person nominated to become a director of the Bank. (b) Executive Officers of the Bank
NAME OF EXECUTIVE OFFICER BUSINESS OFFICER AGE POSITION WITH BANK SINCE EXPERIENCE - - ------- --- ------------------ ----- ---------- Donald L. Kovach 60 Chairman of Board/CEO 1976 Attorney-at-Law Actively practiced in Franklin, NJ for 30 years
PART III (CONTINUED) ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS The following table sets forth the aggregate remuneration paid to all executive officers, officers making $60,000 or greater and directors during the years 1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards Payouts Restricted Other Annual Stock Options/ LTIP All Other Salary Bonus Compensation Award(s) SARs Payouts Compensation Name and Principal Position Year ($) ($) ($)(3) ($) (#) ($) ($) --------------------------- ---- --- --- ------ --- --- --- --- Larry C. Farmer 1995 $106,945 0 $ 877(3) 0 0 0 $2,941 President/CEO 1994 $107,095 0 $ 1,217(1)(3) 0 0 0 $ 833 1993 $104,216 0 $ 9,484(1)(3) 0 0 0 0 Seven persons 1995 $151,245(2) 0 $ 877(3) 0 0 0 0 Directors & 1994 $150,895(2) 0 $ 1,217(3) 0 0 0 $ 833 Executive Officers 1993 $147,861(2) 0 $ 9,484(1)(3) 0 0 0 0
Footnotes: (1) Bank provides additional life insurance, automobile and private golf club membership for Larry C. Farmer. The use made thereof for personal purposes does not exceed 10% of the total cash compensation which is the sum of base salary and bonus and therefore is not included in the above table. (2) The Bank's Director Fee and Remuneration Policy is as follows: a) Director Annual Retainer - The Bank pays each outside director an annual retainer of $1,000 with the exception of the Chairman of the Board, who is paid an annual retainer of $5,800. b) Director Fee Per Meeting - The Bank pays each outside director a fee of $400 for each regular monthly Board Meeting or Special Board Meeting attended. c) Committee Member Fee Per Meeting - The Bank pays each outside director, who serves as a committee member, $100 for each scheduled committee meeting attended. d) Special Project Hourly Rate - The Bank pays an hourly rate of $100 to outside directors who undertake special projects which are assigned to them by management with Board of Director approval. PART III (CONTINUED) ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS (CONTINUED) (3) The Bank maintains a trusteed non-contributory qualified employee stock ownership plan covering all officers and employees who have been in the Bank's employ six months or more. The cost of the plan is charged to operations as incurred. The plan provides that a contribution not to exceed that allowed by the Internal Revenue Service may be made at the discretion of the Board of Directors. The monies contributed to the plan are used to purchase stock of the Bank which is then allocated to eligible employees, each receiving a percentage equal to the percent their salary bears to the total salary figure for the entire group. The employees become vested in the shares allocated to them in accordance with a schedule established in the plan. Full vesting is achieved after six or more full years of service with the Bank. Since inception of the plan on January 1, 1981 the total contribution of the Bank thereto attributable to Larry C. Farmer is $40,352. The total contribution attributable to directors and other principal officers of the Bank has been $63,435. The total contribution attributable to all employees of the bank eligible to participate has been $472,683. The Bank provides no other personal benefits, insurance benefits, securities, property or reimbursement other than which is generally available to all salaried employees. (4) The Bank has no Long Term Compensation plans in effect. (5) The Bank maintains a 401(k) Plan (a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code of 1986) under which the Bank matches 50% on the first 3% of the voluntary contribution by an employee of the employees base salary. All employees are eligible to participate in the Plan after reaching the age of 21 and completing one year of service. Full vesting is achieved after 6 or more full years of service with the Bank. Summary Compensation Table Terminology: Stock Appreciation Rights (SAR) - A right to demand a payment in the form of cash, stock or a combination thereof from the company at some time in the future. Long-term Incentive Plan (LTIP) - Any plan providing compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, but excluding restricted stock, stock option and SAR plans. Non-qualified stock option plan: During 1988, the stockholders approved a non-qualified stock option plan. As of December 31, 1995, there were 31,857 authorized shares of the Bank's common stock to be granted. Options may be granted to any officer of the Bank, at a grant price not to be less than the higher of the par value of the stock or 85% of its fair market value at the grant date. Options are exercisable when granted with the option period determined by the Bank's Board of Directors, but not to exceed five years. As of December 31, 1995, no options have been granted. Officers receiving compensation in the form of salary: The Bank has 15 full time operating officers who are the only officers to receive compensation in the form of salary from the Bank. PART III (CONTINUED) ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS (CONTINUED) The Sussex County State Bank paid $88,336.00 to Kovach, Fitzgibbons & Goovaerts, P.A., Attorneys at Law at which Donald L. Kovach, Director and Chairman of the Board of the Sussex County State Bank is a member, for legal services rendered to the Bank for the year 1994. Said firm continues to render legal services to the Bank on a continuing basis. The Sussex County State Bank paid $15,062.00 to Caristia, Kulsar & Wade, P.A., Certified Public Accountants, at which William E. Kulsar, Secretary and a Director of the Sussex County State Bank is a member, for accounting services rendered to the Bank for Internal Revenue filing purposes and other accounting services beyond those provided by the annually retained independent public accountants. Caristia, Kulsar, & Wade, P.A. continues to render accounting services to the Bank. The Sussex County State Bank paid $12,200.00 to Irvin Ackerson for appraisal services rendered to the Bank. Irvin Ackerson continues to render appraisal services to the Bank. The Bank leases its Montague Branch Office from Montague Mini Mall, Inc., for an aggregate annual rental of $18,000 for 1200 square feet. Said lease was initially entered into on April 1, 1982 and covered 500 square feet. An additional 700 square feet was obtained via a remodification of the lease agreement dated April 1, 1987. The said lease agreement expires March 31, 1997. Mr. Joseph Zitone, a Director of the Bank is a majority stockholder of Montague Mini Mall, Inc. Mr. Zitone was not a Director of the Bank at the time of the initial lease agreement and was a Director at the time said lease was modified and the additional square footage obtained. The Bank considers that the lease terms are comparable to those which exist with unaffiliated third parties. Directors and principal officers of the Bank and their associates were customers of, and had transactions with, the Bank in the ordinary course of business during the current and in prior operating years. Transactions prior to June 21, 1989 involving loans and commitments were made at terms which provided for a 1.00% discount on loan and commitment interest rates during the period of time in which the director or principal officer remained a director or employee of the Bank. Effective June 21, 1989, the policy of providing 1.00% discount on loan and commitment interest rates was discontinued with all existing loan and commitment rates adjusted to reflect prevailing interest rates at the time for comparable transactions. Additional transactions may be expected to take place with the Bank in the ordinary course of business throughout the succeeding calendar year. All such transactions will be made (i) on substantially the same terms including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; (ii) in the ordinary course of business and, (iii) not involving more than normal risk of collectibility or other unfavorable features. Aggregate extensions of credit to directors, principal officers and principal shareholders of the Bank, including organizations in which they are officers or have significant ownership, have exceeded 20% of the Bank's equity capital in the past. On December 31, 1995 the aggregate sum of credit extended to principal officers, directors and principal shareholders, including organizations in which they are officers or had a significant interest was $1,534,821.00. The highest sum of such aggregate extensions during the year 1995 was $1,534,821.00. Since December 31, 1995 such aggregate extensions have not increased but, rather, have decreased through normal payments.
SUSSEX COUNTY STATE BANK LOANS TO PRINCIPAL OFFICERS, DIRECTORS, NOMINEES, PRINCIPAL SECURITY HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS 12/31/94 NATURE OF INDEBTEDNESS NAME & RELATIONSHIP BALANCE OR TRANSACTION RATE - - ------------------- ------- -------------- ---- Larry Farmer (1) $181,283 1st Mortgage Loan 8.125% -------- $181,283 % of Capital = 2.51% Leatham Electrical (5) $ 3,059 Commercial Loan Secured SCSB Prime + 2% Robert & Candace Leatham (1) $ 36,688 Installment Loan Secured 8.00% -------- $ 41,747 % of Capital = .58% Patricia Lettieri (1) $151,703 1st Mortgage Loan 7.00% Patricia Lettieri (1) $ 12,790 Installment Loan Secured 6.25% -------- $164,493 % of Capital = 2.28% Valerie Seufert (1) $ 17,500 Installment Loan Secured WSJ Prime + 2% Valerie Seufert (1) $ 47,791 Installment Loan Secured -------- $ 65,291 % of Capital = 7.50% .90% Terry H. Thompson (1) $ 9,500 Commercial Loan Secured 9.50% -------- $ 9,500 % of Capital = .13% Samuel K. Tolley (1) $ 29,377 2nd Mortgage Loan WSJ Prime + 2% -------- $ 29,377 % of Capital = .41% K. F. & G. Assoc. (5) $ 48,300 Commercial Loan Unsecured 9.00% K. F. & G. Assoc. (5) $ 9,024 Line of Credit WSJ Prime + 1% Franklin Renaissance (5) $ 87,052 1st Mortgage Loan 10.75% Kulko Realty (5) $ 17,997 Installment Loan Unsecured 8.50% -------- $162,372 % of Capital = 2.25%
(1) Principal Officer (2) Director (3) Nominee (4) Principal Security Holder (5) Associate of Principal Officer, Director, Nominee or Principal Security Holder. PART III (CONTINUED) ITEM 10 - MANAGEMENT RENUMERATIONS AND TRANSACTIONS (CONTINUED)
THE SUSSEX COUNTY STATE BANK LOANS TO PRINCIPAL OFFICERS, DIRECTORS, NOMINEES, PRINCIPAL SECURITY HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS 12/31/95 NATURE OF INDEBTEDNESS NAME & RELATIONSHIP BALANCE OR TRANSACTION RATE - - ------------------- ------- -------------- ---- Kulko Realty (5) $ 17,997 Installment Loan Unsecured 8.50% William Kulsar (2) $141,532 1st Mortgage Loan 7.25% -------- $159,529 % of Capital = 2.21% Montague Mini Mall (5) $134,225 1st Mortgage Loan 7.50% Zitone Lois (5) $ 33,506 2nd Mortgage Loan 8.00% Zitone Construction (5) $ 74,059 1st Mortgage Loan 8.00% Zitone Construction (5) $250,000 Commercial Loan Unsecured WSJ Prime + 1% Big Z Stables $ 14,000 Commercial Loan Unsecured WSJ Prime + 1% -------- $505,790 % of Capital = 7.00% Irvin Ackerson (2) $ 10,000 Commercial Line of Credit WSJ Prime + 1% Todd Hackett (5) $ 2,500 Commercial Loan Secured 5.35% Joseph Hackett (5) $ 20,960 Commercial Loan Secured 5.35% Thomas Hackett (5) $ 7,833 Commercial Loan Secured 5.35% -------- $ 41,293 % of Capital = 8.50% Joel Marvil (2) $ 11,686 1st Mortgage .57% -------- $ 11,686 % of Capital = .16% Ambrose Hamm (4) $156,662 1st Mortgage Loan 7.875% Hamm's Sanitation, Inc. (5) $ 47,914 Commercial Loan Secured 13.00% HSS, Inc. (5) $148,856 Commercial Loan Unsecured WSJ Prime + 1.5% Lillian Hamm (5) $ 17,500 Commercial Loan Unsecured 13.50% -------- $370,932 % of Capital = .51%
(1) Principal Officer (2) Director (3) Nominee (4) Principal Security Holder (5) Associate of Principal Officer, Director, Nominee or Principal Security Holder. PART IV ITEM 11 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT OF FORM F-3 (a) 1- Financial Statements: Report of Independent Public Accountants Consolidated Statements of Condition Consolidated Statements of Income Consolidated Statements of Changes in Stockholders' Equity Five-Year Summary Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Rate Sensitivity Analysis Comparative Consolidated Average Balances and Summary of Net Interest Margin 1995 Compared to 1994 Comparative Consolidated Average Balances and Summary of Net Interest Margin 1994 Compared to 1993 (a) 5- Financial Statement Schedules Schedule I. U. S. Treasury Securities, Obligations of Other U.S. Government Agencies and Corporations, Obligations of States and Political Subdivision and Other Bonds, Notes and Debentures Information is included in Footnote 2 of the Bank's Financial Statements. Schedule II. Loans Information is included in Footnote 3 of the Bank's Financial Statements. Schedule III. Bank Premises and Equipment Information is included in Footnote 6 of the Bank's Financial Statements. Schedule IV. Allowance for Possible Loan Losses Information is included in Footnote 4 of the Bank's Financial Statements. (b) Reports on Form F-3 No reports on Form F-3 have been filed during the last quarter of the period covered by this report. (c) Exhibits Appendix A Financial Statements of The Sussex County State Bank for the year ended December 31, 1995. FEDERAL DEPOSIT INSURANCE ACT SEC. 36. EARLY IDENTIFICATION OF NEEDED IMPROVEMENTS IN FINANCIAL MANAGEMENT Management's Responsibilities for Preparing Financial Statements: Section 36(b)(2)(A)(i) of the FDI Act specifically requires that each insured depository institution prepare a management report which includes a statement of the management's responsibilities for preparing financial statements. The financial management of the Sussex County State Bank is responsible for the compilation of the financial information incorporated within this report. The accompanying consolidated financial information has been audited by the Bank's audit firm of Arthur Andersen LLP in accordance with generally accepted auditing standards. The firm of Arthur Andersen LLP has expressed an audit opinion which is incorporated within Appendix A entitled, "Report of Independent Public Accountants". SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE SUSSEX COUNTY STATE BANK Date: March 24, 1996 /s/Candace Leatham ------------------ Candace Leatham Vice President & Treasurer /s/Donald L. Kovach -------------------- Donald L. Kovach Chairman of the Board/CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURES March 24, 1996 /s/Irvin Ackerson ------------------- Irvin Ackerson Director March 24, 1996 /s/Donald L. Kovach ------------------- Donald L. Kovach Director March 24, 1996 /s/Joseph Zitone ---------------- Joseph Zitone Director March 24, 1996 /s/William E. Kulsar -------------------- William E. Kulsar Director March 24, 1996 /s/Joel D. Marvil ----------------- Joel D. Marvil Director APPENDIX A SUSSEX COUNTY STATE BANK FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements Report of Independent Public Accountants Consolidated Statements of Condition Consolidated Statements of Income Consolidated Statements of Changes in Stockholders' Equity Five-Year Summary Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Rate Sensitivity Analysis Comparative Consolidated Average Balances and Summary of Net Interest Margin 1995 Compared to 1994 Comparative Consolidated Average Balances and Summary of Net Interest Margin 1994 Compared to 1993 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Sussex County State Bank: We have audited the accompanying consolidated statements of condition of The Sussex County State Bank (a New Jersey State Chartered Bank) and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Sussex County State Bank and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/Arthur Anderson LLP ---------------------- Arthur Anderson LLP Roseland, New Jersey February 22, 1996
CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1995 AND 1994 ASSETS 1995 1994 ------------ ----------- CASH AND DUE FROM BANKS (Notes 2 and 11) $ 3,652,000 $ 4,325,000 FEDERAL FUNDS SOLD (Note 2): Overnight 9,050,000 500,000 Term 1,500,000 100,000 INTEREST BEARING DEPOSITS WITH BANKS -- 100,000 ------------ ----------- Cash and cash equivalents 14,202,000 5,025,000 ------------ ----------- SECURITIES (Notes 2 and 3): Available for sale, at market value 21,564,000 15,369,000 Held to maturity, at amortized cost (market value of $2,142,000 in 1995 and $5,260,000 in 1994) 2,142,000 5,259,000 Total securities 23,706,000 20,628,000 ------------ ----------- LOANS (Notes 2, 4 and 5) 52,747,000 52,066,000 Less - Unearned income 123,000 163,000 Allowance for possible loan losses 476,000 478,000 ------------ ----------- Net loans 52,148,000 51,425,000 ------------ ----------- PREMISES AND EQUIPMENT, net (Notes 2 and 7) 2,307,000 2,262,000 ------------ ----------- ACCRUED INTEREST RECEIVABLE 582,000 585,000 ------------ ----------- OTHER REAL ESTATE (Note 2) 329,000 599,000 OTHER ASSETS (Note 9): Intangibles 954,000 1,038,000 Other 642,000 681,000 ------------ ----------- Total other assets 1,596,000 1,719,000 ------------ ----------- Total assets $94,870,000 $82,243,000 ============ =========== LIABILITIES AND STOCKHOLDERS' EOUITY LIABILITIES: Deposits: Demand-- noninterest bearing $13,010,000 $12,227,000 Savings-- interest bearing 26,451,000 29,012,000 Time -- interest bearing (includes deposits $100,000 and over of $2,346,000 in 1995 and $1,289,000 in 1994) 46,464,000 33,848,000 ------------ ----------- Total deposits 85,925,000 75,087,000 Accrued interest payable and other liabilities 1,336,000 510,000 ------------ ----------- Total liabilities 87,261,000 75,597,000 ------------ ----------- COMMITMENTS AND CONTINGENCIES (Note 11) CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1995 AND 1994 (continued) 1995 1994 ------------ ----------- STOCKHOLDERS' EQUITY (Notes 2, 3, 8, 10 and 12): Common stock -- par value per share of $2.50, authorized 2,000,000 shares in 1995 and 1994; issued and outstanding 647,236 in 1995 and 636,711 in 1994 1,618,000 1,592,000 Additional paid-in capital 2,914,000 2,813,000 Retained earnings 3,023,000 2,818,000 Unrealized gain (loss) on securities available for sale, net of income taxes 54,000 (577,000) ------------ ----------- Total stockholders'equity 7,609,000 6,646,000 ------------ ----------- Total liabilities and stockholders' equity $94,870,000 $82,243,000 ============ =========== The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1995 1994 1993 ---------- ---------- ---------- INTEREST INCOME: Interest and fees on loans $4,567,000 $4,386,000 $3,950,000 Interest on Federal funds sold 262,000 81,000 345,000 Interest on deposits with banks 2,000 4,000 4,000 Interest on securities - Taxable 1,051,000 886,000 1,022,000 Exempt from Federal income tax 168,000 159,000 61,000 ---------- ---------- ---------- Total interest income 6,050,000 5,516,000 5,382,000 ---------- ---------- ---------- INTEREST EXPENSE 2,267,000 1,656,000 1,903,000 ---------- ---------- ---------- Net interest income 3,783,000 3,860,000 3,479,000 PROVISION FOR POSSIBLE LOAN LOSSES (Notes 2 and 5) 64,000 187,000 101,000 ---------- ---------- ---------- Net interest income after provision for possible loan losses 3,719,000 3,673,000 3,378,000 ---------- ---------- ---------- OTHER INCOME: Service charges on deposit accounts 509,000 443,000 480,000 Gain on sale of other real estate and equipment 3,000 19,000 28,000 Safe deposit rental income 31,000 31,000 30,000 Trust department income (Note 2) 12,000 11,000 9,000 Other income 125,000 107,000 89,000 ---------- ---------- ---------- Total other income 680,000 611,000 636,000 ---------- ---------- ---------- CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1995 1994 1993 ---------- ---------- ---------- OTHER EXPENSES: Salaries and employee benefits (Note 11) 1,755,000 1,609,000 1,680,000 Net occupancy expense 334,000 335,000 422,000 Furniture and equipment expense 328,000 259,000 269,000 Other operating expenses (Note 2) 1,227,000 1,247,000 1,164,000 ---------- ---------- ---------- Total other expenses 3,644,000 3,450,000 3,535,000 ---------- ---------- ---------- Income before provision for income taxes 755,000 834,000 479,000 PROVISION FOR INCOME TAXES (Notes 2 and 8) 254,000 234,000 129,000 ---------- ---------- ---------- Net income $501,000 $600,000 $350,000 ---------- ---------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 640,404 635,151 635,151 ---------- ---------- ---------- NET INCOME PER COMMON SHARE (Note 2) $.78 $.94 $.55 ========== ========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Unrealized Gain Common Stock Additional Retained (Loss) on Securities Shares Amount Paid-in Capital Earnings Available for Sale Total ------ ------ --------------- -------- ------------------ ----- BALANCE, December 31, 1992 634,838 $1,587,000 $2,796,000 $2,211,000 $ -- $6,594,000 Net income-- 1993 -- -- -- 350,000 -- 350,000 Cash dividends ($.20 per share) -- -- -- (127,000) -- (127,000) Change in unrealized gain on securities available for sale, net of income taxes (Note 3) -- -- -- -- 106,000 106,000 ------- ---------- ---------- ---------- -------- ---------- BALANCE, December 31, 1993 634,838 1,587,000 2,796,000 2,434,000 106,000 6,923,000 Net income-- 1994 -- -- -- 600,000 -- 600,000 Cash dividends ($.34 per share) -- -- -- (216,000) -- (216,000) Shares issued through dividend reinvestment plan 1,873 5,000 17,000 -- -- 22,000 Change in unrealized loss on securities available for sale, net of income taxes (Note 3) -- -- -- -- 683,000) (683,0000) ------- ---------- ---------- ---------- -------- ---------- BALANCE, December 31, 1994 636,711 1,592,000 2,813,000 2,818,000 577,000) 6,646,000 Net income-- 1995 -- -- -- 501,000 -- 501,000 Cash dividends ($.46 per share) -- -- -- (296,000) -- (296,000) Shares issued through dividend reinvestment plan 10,525 26,000 101,000 -- -- 127,000 Change in unrealized gain on securities available for sale, net of income taxes (Note 3) -- -- -- -- 631,000 631,000 ------- ---------- ---------- ---------- -------- ---------- BALANCE, December 31, 1995 647,236 $1,618,000 $2,914,000 $3,023,000 $ 54,000 $7,609,000 ======= ========== ========== ========== ======== ========== The accompanying notes to consolidated financial statements are an integral part of these statements.
FIVE-YEAR SUMMARY (not covered by report of independent public accountants) December 31 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- SUMMARY OF INCOME: Interest income $ 6,050,000 $ 5,516,000 $ 5,382,000 $ 5,525,000 $ 5,640,000 Interest expense 2,267,000 1,656,000 1,903,000 2,483,000 2,950,000 ---------- ---------- ---------- ---------- ---------- Net interest income 3,783,000 3,860,000 3,479,000 3,042,000 2,690,000 Provision for possible loan losses 64,000 187,000 101,000 23,000 47,000 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses 3,719,000 3,673,000 3,378,000 3,019,000 2,643,000 Other income 680,000 611,000 636,000 555,000 408,000 Other expense 3,644,000 3,450,000 3,535,000 3,293,000 2,762,000 ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes 755,000 834,000 479,000 281,000 289,000 Provision for income taxes 254,000 234,000 129,000 89,000 101,000 ---------- ---------- ---------- ---------- ---------- Net income $ 501,000 $ 600,000 $ 350,000 $ 192,000 $ 188,000 =========== =========== =========== =========== =========== AVERAGE NUMBER OF SHARES OUTSTANDING (a) 640,404 635,151 635,151 635,151 635,151 PER SHARE INFORMATION: Net income $.78 $.94 $.55 $.30 $.30 Cash dividends (b) $.46 $.34 $.20 $0 $.14 Stock dividends (b) 1.7% .3% 0% 5% 4.5% PERFORMANCE YIELDS: Return on average assets .57% .73% .43% .25% .30% Return on average stockholders' equity 6.98% 8.84% 5.20% 2.96% 2.96% END OF PERIOD DATA: Total assets $94,870,000 $82,243,000 $82,444,000 $90,962,000 $64,373,000 Total deposits 85,925,000 75,087,000 75,107,000 84,190,000 57,627,000 Total stockholders' equity 7,609,000 6,646,000 6,923,000 6,594,000 6,405,000 Average assets 88,535,000 82,344,000 82,122,000 78,179,000 63,271,000 Average stockholders' equity 7,178,000 6,785,000 6,735,000 6,485,000 6,359,000 =========== =========== =========== =========== =========== (a) The average number of shares outstanding was computed based on the average number of shares outstanding during each period as adjusted for stock dividends. (b) Cash and stock dividends per common share are based on the actual number of common shares outstanding on the dates of record as adjusted for subsequent stock dividends.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1995 1994 1993 ----------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 501,000 $ 600,000 $ 350,000 ----------- ---------- ----------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation 259,000 197,000 270,000 Amortization 84,000 84,000 87,000 Provision for possible loan losses 64,000 187,000 101,000 Premium amortization and (discount accretion) on securities, net 127,000 177,000 162,000 Accretion of loan origination and commitment fees, net (40,000) (50,000) (86,000) Gain on sale of equipment -- (10,000) (18,000) Loss (gain) on sale of other real estate 2,000 (9,000) (10,000) Deferred Federal income tax provision (benefit) (6,000) 11,000 6,000 Decrease in accrued interest receivable 3,000 12,000 42,000 Decrease in other assets (385,000) (353,000) (130,000) Increase (decrease) in accrued interest payable and other liabilities 834,000 (95,000) 164,000 ----------- ---------- ----------- Total adjustments 942,000 151,000 588,000 ----------- ---------- ----------- Net cash provided by operating activities 1,443,000 751,000 938,000 ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities - Held to maturity 5,366,000 4,390,000 6,622,000 Available for sale 11,280,000 1,588,000 -- Proceeds from sales of securities - Available for sale (16,627,000) -- -- Purchases of securities - Held to maturity (2,171,000) (4,871,000) (11,737,000) Proceeds from sale of other real estate 698,000 565,000 265,000 Proceeds from sale of equipment -- 10,000 20,000 Increase (decrease) in other real estate, net of sales (13,000) 209,000 227,000 Net increase in loans (1,164,000) (5,134,000) (3,713,000) Capital expenditures (304,000) (659,000) (61,000) ----------- ---------- ----------- Net cash used in investing activities (2,935,000) (3,902,000) (8,377,000) ----------- ---------- ----------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (continued) 1995 1994 1993 ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in demand deposits and savings accounts ($1,778,000) ($719,000) ($2,089,000) Net increase (decrease) in time deposits 12,616,000 699,000 (6,994,000) Payment of dividends, net of reinvestment (169,000) (216,000) (127,000) ----------- ---------- ----------- Net cash (used in) provided by financing activities 10,669,000 (236,000) (9,210,000) ----------- ---------- ----------- Net increase (decrease) in cash and cash equivalents 9,177,000 (3,387,000) (16,649,000) ----------- ---------- ----------- CASH AND CASH EQUIVALENTS, beginning of year 5,025,000 8,412,000 25,061,000 ----------- ---------- ----------- CASH AND CASH EQUIVALENTS, end of year $14,202,000 $ 5,025,000 $ 8,412,000 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for - Interest $ 1,715,000 $ 1,670,000 $ 1,952,000 Income taxes 201,000 138,000 90,000 =========== =========== =========== The accompanying notes to consolidated financial statements are an integral part of these statements.
TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) NATURE OF OPERATIONS: The Sussex County State Bank, (the "Bank") a New Jersey State Chartered commercial bank, commenced operation in 1976. It provides commercial banking and trust services for a broad range of individual and corporate customers and various community bodies. The Bank operates seven branches in Sussex County, New Jersey. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A summary of significant accounting policies of the Bank applied in the preparation of the accompanying consolidated financial statements follows. Basis of Presentation and Use of Estimates - The consolidated financial statements include the accounts of the Bank and an inactive wholly-owned subsidiary. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities - Securities for which the Bank has the ability and intent to hold until maturity are classified as held to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts on a straight-line basis which is not materially different from the interest method. Securities which are held for indefinite periods of time which management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at fair value. Differences between an investment's amortized cost and fair value is charged/credited directly to stockholders' equity, net of income taxes. The cost of securities sold is determined on a specific identification basis. Gains and losses on sales of securities are recognized in the income statement upon sale. The Bank has no securities held for trading purposes as of December 31, 1995 and 1994. Loans - Interest is accrued on loans primarily based upon the principal amount outstanding over the terms of the respective loan instruments. The general policy of the Bank is to discontinue the accrual of interest income on loans where principal or interest is past due 90 days or more and timely collection thereof is doubtful. Loan origination and commitment fees are deferred and accreted as a yield adjustment over the contractual life of the related loans. The unaccreted balance is included in unearned income. 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 allowance is increased by provisions charged to expense and reduced by net charge-offs. The level of the allowance is based on management's evaluation of potential losses in the loan portfolio, after consideration of appraised collateral values, financial condition of borrowers, as well as prevailing and anticipated economic conditions. Credit reviews of the loan portfolio, designed to identify potential charges to the allowance, are made on a periodic basis during the year by senior management. Impaired Loans - The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures, as of January 1, 1995. SFAS No. 114 requires that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loans original effective interest rate. As a practical expedient, impairment may be measured based on the loans observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. This statement is not applicable to large groups of smaller-homogeneous loans, such as residential mortgage loans, credit card loans and consumer loans, which are collectively evaluated for impairment. The Bank had previously measured the allowance for credit losses using methods similar to those prescribed in SFAS No. 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. Other Real Estate - Other real estate includes loan collateral that has been formally repossessed. All amounts have been transferred into and carried in other real estate at the lower of the loan value or fair market value less estimated costs to sell the underlying collateral. During 1995 and 1994, the Bank incurred expenses and received rents related to the operation of such properties and made adjustments to their carrying values resulting in net income of $17,000 in 1995 and net expenses of $61,000 and $81,000 in 1994 and 1993, respectively, which is included in other operating expenses in the accompanying financial statements. Intangibles - Core deposit intangibles relating to premiums paid on the acquisition of deposits are amortized on a straight-line basis over 15 years. Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the shorter of the estimated lives of the related assets or the lease term. Maintenance and repairs are charged to operations as incurred. Income Taxes - The Bank uses the liability method of computing deferred income taxes. Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. Statement Of Cash Flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest bearing amounts due from banks and Federal funds sold. Generally, overnight Federal funds sold are for a one day period and term Federal funds are sold for a 30 to 60-day period. Net Income Per Common Share - Per share amounts are computed by dividing net income by the weighted average number of common shares outstanding during the year. The dilutive effect of stock options is not material. Trust Operations - Trust income is recorded on a cash basis, which approximates the accrual basis. Securities and other property held by the Bank in fiduciary or agency capacities for customers of the trust department are not assets of the Bank and, accordingly, are not included in the accompanying consolidated financial statements. New Financial Accounting Standards - The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in March 1995. This statement is effective for the year ended December 31, 1996. Statement No. 121 requires that long-lived assets to be held and used by the Bank be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Bank is currently completing its review of the impact of Statement 121 on its financial statements but does not expect it to be material. (3) SECURITIES: Information relative to the Bank's securities portfolio as of December 31, is as follows -
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- -------- ----------- ----------- 1995 Available for Sale - U. S. Treasury securities $ 7,637,000 $121,000 ($11,000) $ 7,747,000 U. S. Government mortgage-backed securities 13,835,000 41,000 (59,000) 13,817,000 ----------- -------- ----------- ----------- Total $21,472,000 $162,000 ($70,000) $21,564,000 =========== ======== =========== =========== Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- -------- ----------- ----------- 1995 Held to Maturity - Obligations of state and political subdivisions $ 1,671,000 $ -- $ -- $ 1,671,000 Other debt securities 471,000 -- -- 471,000 ----------- -------- ----------- ----------- Total $ 2,142,000 $ -- $ -- $ 2,142,000 =========== ======== =========== =========== 1994 Available for Sale - U. S. Treasury securities $ 7,186,000 $ -- ($246,000) $ 6,940,000 U. S. Government mortgage-backed securities 9,145,000 1,000 (717,000) 8,429,000 ----------- -------- ----------- ----------- Total $16,331,000 $ 1,000 ($963,000) $15,369,000 =========== ======== =========== =========== Held to Maturity - Obligations of state and political subdivisions $ 4,865,000 $ 1,000 $ -- $ 4,866,000 Other debt securities 394,000 -- -- 394,000 ----------- -------- ----------- ----------- Total $ 5,259,000 $ 1,000 $ -- $ 5,260,000 =========== ======== =========== ===========
The amortized cost and estimated market value of securities at December 31, 1995, by contractual maturity, are shown below for securities to be held to maturity and available for sale. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated Cost Market Value ----------- ----------- Available for sale - Due in one year or less $ 2,000,000 $ 1,989,000 Due after one year through five years 12,137,000 12,291,000 ----------- ----------- Total 14,137,000 14,280,000 U. S. Government mortgage-backed securities 7,335,000 7,284,000 ----------- ----------- Total available for sale $21,472,000 $21,564,000 =========== =========== Held to maturity - Due in one year or less $ 2,142,000 $ 2,142,000 =========== ===========
Securities available for sale as of December 31, 1995 have been recorded at their fair value with the net unrealized gain of $92,000 (net of income tax effect of $36,000) reflected as a decrease to stockholders' equity. At December 31, 1995, U. S. Treasury securities having a book value of $300,000 were pledged to secure public deposits and for other purposes as required by law. (4) LOANS: Loans outstanding by classification at December 31 are as follows -
1995 1994 ----------- ----------- Loans secured by one to four family residential properties $39,620,000 $39,039,000 Loans secured by nonresidential properties 9,796,000 10,051,000 Loans to individuals 1,615,000 1,627,000 Commercial loans 1,647,000 1,274,000 Other loans 69,000 75,000 ----------- ----------- Gross loans $52,747,000 $52,066,000 =========== ===========
Loans made by the Bank are generally made in the local and surrounding communities in which it operates. (5) ALLOWANCE FOR POSSIBLE LOAN LOSSES: The allowance for possible loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reflected in operations in the periods in which they become known. Changes in the allowance for possible loan losses are summarized as follows -
1995 1994 1993 -------- -------- -------- Balance, beginning of year $478,000 $440,000 $440,000 Provision charged to expense 64,000 187,000 101,000 Loans charged off (68,000) (183,000) (168,000) Recoveries of charged off loans 2,000 34,000 67,000 -------- -------- -------- Balance, end of year $476,000 $478,000 $440,000 ======== ======== ========
Nonperforming loans include nonaccrual loans, renegotiated loans and loans which are 90 days delinquent. Nonaccrual loans include loans for which accrual of interest income has been discontinued. Renegotiated loans are loans for which the terms have been modified to provide a reduction or deferral of interest or principal due to a deterioration in the financial position of the borrower. The principal amounts of nonperforming loans were $1,714,000 and $1,794,000 at December 31, 1995 and 1994, respectively, which includes $1,621,000 and $1,791,000 of nonaccrual loans, respectively. If interest had been accrued on the nonaccrual loans, the effect on net interest income would have been approximately $101,000 and $310,000, respectively. In accordance with SFAS No. 114, the Bank utilized the following information when measuring its allowance for possible loan losses. A loan is considered impaired when it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. These loans consist primarily of nonaccrual loans but may include performing loans to the extent that situations arise which would reduce the probability of collection in accordance with the contractual terms. As of December 31, 1995, the Bank's recorded investment in impaired loans and the related valuation allowance calculated under SFAS No. 114 are as follows -
Recorded Valuation Investment Allowance ---------- --------- Impaired loans - Valuation allowance required $2,310,000 $370,000 No valuation allowance required -- -- ---------- -------- Total impaired loans $2,310,000 $370,000 ========== ========
This valuation allowance is included in the allowance for possible loan losses on the accompanying statement of condition. The average recorded investment in impaired loans for the period ended December 31, 1995 was $2,213,000. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions of principal. The Bank recognized interest income on impaired loans of $152,000 for the period ended December 31, 1995. (6) RELATED PARTIES: The Bank has extended credit in the ordinary course of business to various directors, executive officers and their associates. A summary of the changes in such loans are as follows -
Balance, beginning of year $1,354,000 New loans 407,000 Repayments (367,000) ---------- Balance, end of year $1,394,000
As of December 31, 1995, all loans to directors, executive officers and their associates were current as to principal and interest payments. Certain directors of the Bank are associated with legal and accounting firms that rendered various services to the Bank. The Bank paid the firms approximately $99,000, $66,000 and $97,000 during 1995, 1994 and 1993, respectively for legal and tax services. (7) PREMISES AND EQUIPMENT: A summary of premises and equipment as of December 31 are as follows -
1995 1994 ---------- ---------- Land $ 417,000 $ 417,000 Buildings 1,513,000 1,503,000 Furniture and equipment 2,505,000 2,228,000 Leasehold improvements 163,000 153,000 ---------- ---------- 4,598,000 4,301,000 Less-Accumulated depreciation and amortization 2,291,000 2,039,000 ---------- ---------- $2,307,000 $2,262,000 ========== ==========
(8) EMPLOYEE BENEFIT PLANS: The Bank maintains a qualified nonleveraged employee stock ownership plan for substantially all employees. The plan provides that a contribution not to exceed that allowed by the Internal Revenue Service may be made at the discretion of the Board of Directors. The plan expense for the year ended December 31, 1993 amounted to $111,000. No contributions were approved in 1995 and 1994. In July 1994, the Bank established a 401(k) savings plan covering substantially all employees. Under the plan, the Bank matches 50% of employee contributions for all participants, not to exceed 6% of their salary. Contributions made by the Bank were approximately $24,000 in 1995 and $8,000 in 1994. (9) INCOME TAXES: The components of the provision for income taxes for 1995, 1994 and 1993, are as follows -
1995 1994 1993 --------- --------- --------- Federal income taxes (benefit) - Current ............................. $ 190,000 $ 183,000 $ 92,000 Deferred ............................ (6,000) 11,000 6,000 State .................................. 70,000 40,000 31,000 --------- --------- --------- Total ............................ $ 254,000 $ 234,000 $ 129,000 ========= ========= =========
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Bank's assets and liabilities. Cumulative temporary differences at December 31, 1995 and 1994 are as follows-
Deferred Tax Asset (Liability) 1995 1994 -------- -------- Allowance for possible loan losses $162,000 $163,000 Loan fee income recognition 42,000 55,000 Accrued liabilities 51,000 -- Depreciation and amortization (114,000) (83,000) Unrealized (gain) loss on securities available for sale (36,000) 385,000 -------- -------- $105,000 $520,000
As of December 31, 1995, the Bank had recorded a cumulative net deferred tax asset of approximately $105,000. A comparison of income tax expense at the Federal statutory rate in 1995, 1994 and 1993 to the Bank's provision for income taxes is as follows -
1995 1994 1993 -------- -------- -------- At statutory rate $257,000 $284,000 $163,000 Increase (decrease) from statutory rate resulting from - Tax-exempt interest income (46,000) (45,000) (24,000) State income taxes, net of Federal tax benefit 46,000 27,000 20,000 Alternative minimum tax credit -- -- (23,000) Other (3,000) (32,000) (7,000) -------- -------- -------- Provision for income taxes $254,000 $234,000 $129,000
(10) STOCKHOLDERS' EQUITY: Nonqualified Stock Option Plan - During 1988, the stockholders approved a nonqualified stock option plan (the Plan). As of December 31, 1995, there were 31,857 authorized shares of the Bank's common stock to be granted. Options may be granted to any officer of the Bank, at a grant price not to be less than the higher of the par value of the stock or 85% of its fair market value at the grant date. Options are exercisable when granted with the option period determined by the Bank's Board of Directors, but not to exceed five years. As of December 31, 1995, no options have been granted. Stock Option Plan for Nonemployee Directors - During 1995, the stockholders approved a stock option plan for nonemployee directors (the Director Plan). As of December 31, 1995, there were 32,000 authorized shares of the Bank's common stock to be granted. Upon approval of the Director Plan, each director was granted an option to purchase 2,500 shares. In addition to the foregoing, each person serving as a nonemployee director on the date of each annual meeting of the shareholders who is elected or reelected as a nonemployee director of the Bank at such annual meeting of stockholders, shall be granted an option to purchase 500 shares of the Bank's common stock with a maximum of 7,500 shares total. The option price under each grant shall not be less than the fair market value on the date of the grant. Options are exercisable in their entirety six months after the date of the grant and expire after 10 years. As of December 31, 1995, 18,000 options at $11.25 were outstanding, none were exercisable and none have been forfeited. Incentive Stock Option - Plan During 1995, the stockholders approved an incentive stock option plan for executives of the bank (the Executive Plan). As of December 31, 1995 there were 64,000 authorized shares of the Bank's common stock to be granted. Executive Plan options are granted at the sole discretion of the Bank. The option price under each grant shall not be less than the fair market value on the date of grant. The Bank may establish a vesting schedule that must be satisfied before the options may be exercised; but not within six months after the date of grant and have a term not longer than 10 years from the date of grant. No options were granted or outstanding during 1995. (11) COMMITMENTS AND CONTINGENCIES: Litigation - The Bank from time-to-time may be a defendant in legal proceedings relating to the conduct of its business. In management's judgment, the consolidated financial position or results of operations of the Bank will not be affected materially by the outcome of any present legal proceedings. Commitments With Off-Balance Sheet Risk - The statement of condition does not reflect various commitments relating to financial instruments which are used in the normal course of business. Management does not anticipate that the settlement of those financial instruments will have a material adverse effect on the Bank's financial position. These instruments include commitments to extend credit and letters of credit. These financial instruments carry various degrees of credit risk, which is defined as the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. Commitments to extend credit are legally binding loan commitments with set expiration dates. They are intended to be disbursed, subject to certain conditions, upon request of the borrower. The Bank receives a fee for providing a commitment. The Bank was committed to advance $6,102,000 to its borrowers as of December 31, 1995; such commitments generally expire within one year. Standby letters of credit are provided to customers to guarantee their performance, generally in the production of goods and services or under contractual commitments in the financial markets. The Bank has entered into standby letter of credit contracts with its customers totaling $15,000 as of December 31, 1995, which generally expire within one year. Executive Severance Arrangement - On December 27, 1995, the Bank terminated the services of its chief executive officer effective January 17, 1996. The Bank is currently negotiating an appropriate severance arrangement with the officer since no formal employment agreement was in existence. As of December 31, 1995, the Bank accrued approximately $150,000 representing its estimate of the settlement amount, including related payroll taxes. Required Cash Balances - Cash balances reserved to meet regulatory requirements amounted to approximately $400,000 at December 31, 1995 and 1994, respectively. Operating Leases The Bank leases one of its branch offices from a company which is majority owned by a director at an annual rental of $20,000. The minimum annual rental commitments for all noncancellable leases for bank premises subsequent to December 31, 1995, are as follows -
Amount ------- 1996 $ 45,300 1997 45,300 1998 19,600 1999 3,000 2000 and thereafter 52,500 -------- Total $165,700 ========
Total rental expense amounted to $53,000, $54,000 and $93,000 in 1995, 1994 and 1993, respectively. (12) REGULATORY CAPITAL REQUIREMENTS: The Bank's regulators provide that the Bank must adhere to three minimum capital requirements. These regulations require, at a minimum, Tier I capital to risk-weighted assets of at least 4%, total capital of at least 8% of risk-weighed assets, and a leverage ratio of at least 3% to 5% of adjusted assets. At December 31, 1995, they had Tier I capital, total capital and leverage ratios of 15.25%, 16.33% and 7.33%, respectively. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following is a summary of fair value versus the carrying value of the Bank's financial instruments. For the Bank, as for most financial institutions, the bulk of its assets and liabilities are considered financial instruments. Many of the Bank's financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Bank's general practice and intent to hold its financial instruments to maturity and not engage in trading or sales activities. Therefore, significant estimations and present value calculations were used by the Bank for the purpose of this disclosure. Estimated fair values have been determined by the Bank using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and the recorded book balances, were as follows Financial instruments actively traded in the secondary market have been valued using available market prices.
December 31, 1995 -------------------------------- Carrying Estimated Value Fair Value ----------- ----------- Cash and cash equivalents $ 4,925,000 $ 4,925,000 Securities available for sale (Note 3) 15,369,000 15,369,000 Securities held to maturity (Note 3) 2,142,000 2,142,000
Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. For those loans and deposits with floating interest rates, it is assumed that estimated fair values generally approximate the recorded book balances.
December 31, 1995 -------------------------------- Carrying Estimated Value Fair Value ----------- ----------- Loans, including accrued interest $52,754,000 $53,023,000 Deposits, including accrued interest 86,604,000 87,400,000
There is no material difference between the notional amount and the estimated fair value of off-balance sheet unfunded loan commitments which totaled $6,102,000 at December 31, 1995. Standby letters of credit totaling $15,000 as of December 31, 1995 are based on fees charged for similar agreements; accordingly, the estimated fair value of standby letters of credit is nominal. See also Note 11 for additional discussion relating to these off balance-sheet activities. Sussex County State Bank Rate Sensitivity Analysis December 31, 1995 (Dollars in Thousands)
1-30 31-90 91-180 181 Days- Over Subject to Rate Change within: Days Days Days 1 Year 1 Year ---- ---- ---- ------ ------ Interest Earning Assets $ 9,540 $ 2,360 $ 7,368 $ 10,956 $ 71,564 Interest Earning Liabilities $ 13,020 $ 2,737 $ 4,303 $ 39,923 $ 62,861 Cumulative Dollar Gap $ (3,480) $ (377) $ 3,065 $(28,967) $ 8,703 Cumulative Gap Ratio (Assets\Liabilities) .73 .76 .96 .50 1.14
Sussex County State Bank Comparative Consolidated Average Balances and Summary of Net Interest Margin (Fully Taxable Equivalent Basis) -------------------- (Dollars in Thousands) 1995 Comparted With 1994 ------------------------------------------------------------------------- 1995 1994 ------------------------------------ --------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ASSETS Short-Term Investments: Federal Funds Sold ................. $ 4,472 263 5.88% $ 2,132 82 3.85% Interest Bearing Deposits with Banks 45 0 0.00 100 1 1.00 Other Short-Term Investments ....... 0 0 0.00 0 0 0.00 -------- ----- ------- ----- Total Short-Term Investments . 4,517 263 5.82 2,232 83 3.72 Investments Securities: U.S. Treasury ...................... 7,525 398 5.29 7,938 384 4.84 U.S. Government Agency ............. 10,121 617 6.10 9,136 469 5.13 State & Municipal .................. 3,823 242 6.32 4,896 227 4.64 Other Securities ................... 463 35 7.56 391 29 7.42 -------- ----- ------- ----- Total Investment Securities .. 21,932 1,292 5.89 11,686 1,109 4.96 Trading Account Securities............. 0 0 0.00 0 0 0.00 Loans: Commercial ......................... 3,211 282 8.78 2,963 246 8.29 Consumer ........................... 14,567 1,308 8.98 13,851 1,229 8.87 Real Estate Mortgages .............. 35,198 2,904 8.25 34,066 2,808 8.24 Lease Financing .................... 0 0 0.00 0 0 0.00 -------- ----- ------- ----- Total Loans 52,976 4,494 8.48 50,880 4,283 8.42 -------- ----- ------- ----- Total Earning Assets ......... 79,425 6,049 7.62 75,473 5,475 7.25 -------- ----- ------- ----- Allowance for Loan Losses ............. (492) (517) Cash & Due from Banks ................. 3,411 3,365 Premises & Equipment .................. 2,284 1,981 Other Real Estate ..................... 386 672 Other Assets .......................... 2,305 2,086 -------- --------- Total Assets ................. $ 87,319 $ 83,060 ======== ========= Rate/Volume Analysis (Fully Taxable Equivalent Basis) --------------------------------- Increase/Decrease in Interest --------------------------------- Due to Change in Volume Rate Days Total ------ ---- ---- ----- ASSETS Short-Term Investments: Federal Funds Sold ...................... $ 122 $ 59 0 181 Interest Bearing Deposits with Banks .... 0 (1) 0 (1) Other Short-Term Investments ............ 0 0 0 0 ----- ---- - --- Total Short-Term Investments ...... 122 58 0 180 Investments Securities: U.S. Treasury ........................... (21) 35 0 14 U.S. Government Agency .................. 54 94 0 148 State & Municipal ....................... (56) 71 0 15 Other Securities ........................ 0 0 0 6 ----- ---- - --- Total Investment Securities ....... (23) 200 0 183 Trading Account Securities ................. 0 0 0 0 Loans: Commercial .............................. 21 15 0 36 Consumer ................................ 64 15 0 79 Real Estate Mortgages ................... 93 3 0 96 Lease Financing ......................... 0 0 0 0 ----- ---- - --- Total Loans 178 33 0 211 ----- ---- - --- Total Earning Assets .............. 277 291 0 574 ----- ---- - --- Allowance for Loan Losses Cash & Due from Banks Premises & Equipment Other Real Estate Other Assets Total Assets Sussex County State Bank Comparative Consolidated Average Balances and Summary of Net Interest Margin (Fully Taxable Equivalent Basis) -------------------- (Dollars in Thousands) (CONTINUED) 1995 Comparted With 1994 ---------------------------------------------------------------------- 1995 1994 ---------------------------------- --------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- LIABILITIES & STOCKHOLDERS' EQUITY Interest Bearing Deposits: NOW Accounts ........................... $11,446 $ 208 1.82 $11,927 216 1.81 Money Market Accounts .................. 5,203 115 2.21 6,689 149 2.23 Savings ................................ 26,849 669 2.49 30,582 755 2.47 CD's IRA ............................... 5,157 254 4.93 4,829 176 3.64 CD's $100,000 & Over ................... 2,206 102 4.62 1,344 36 2.68 Other Time Deposits .................... 16,618 918 5.52 9,031 314 3.48 -------- ------- ------- ----- Total Interest Bearing Deposits .. 67,479 2,266 3.36 63,241 1,646 2.56 Short-Term Borrowings Federal Funds Purchased ................ 11 0 0.00 32 2 0.00 Repurchase Agreements .................. 0 0 0.00 0 0 0.00 Other Short-Term Borrowings ............ 0 0 0.00 0 0 0.00 -------- ------- ------- ----- Total Short-Term Borrowings ...... 11 0 0.00 32 2 0.00 Long-Term Debt ............................ 0 0 0.00 0 0 0.00 -------- ------- ------- ----- Total Interest Bearing Liabilities 67,490 2,266 3.36 64,434 1,648 2.55 ------- ----- Demand Deposits ........................... 11,879 11,562 Other Liabilities ......................... 796 431 Stockholders' Equity ...................... 7,154 6,633 -------- ------- Total Liabilities & Stockholder's Equity ........................ $87,319 $83,060 ======= ======= Average Rate Paid to Fund Earning Assets .. 2.85 2.18 ---- ---- NET INTEREST SPREAD ....................... $ 3,783 4.77% $ 3,827 5.07% ======= ==== ======= ==== Rate/Volume Analysis (Fully Taxable Equivalent Basis) --------------------------------- Increase/Decrease in Interest --------------------------------- Due to Change in Volume Rate Days Total ------ ---- ---- ----- LIABILITIES & STOCKHOLDERS' EQUITY Interest Bearing Deposits: NOW Accounts ............................. (9) 1 0 (8) Money Market Accounts .................... (33) (1) 0 (34) Savings .................................. (92) 6 0 (86) CD's IRA ................................. 13 65 0 78 CD's $100,000 & Over ..................... 31 35 0 66 Other Time Deposits ...................... 356 248 0 604 --- --- - --- Total Interest Bearing Deposits .... 266 354 0 620 Short-Term Borrowings Federal Funds Purchased .................. 0 0 0 (2) Repurchase Agreements .................... 0 0 0 0 Other Short-Term Borrowings .............. 0 0 0 0 --- --- - --- Total Short-Term Borrowings ........ 0 0 0 (2) Long-Term Debt .............................. 0 0 0 0 --- --- - --- Total Interest Bearing Liabilities . 266 354 0 618 --- --- - --- Demand Deposits Other Liabilities Stockholders' Equity Total Liabilities & Stockholder's Equity Average Rate Paid to Fund Earning Assets .... NET INTEREST SPREAD ......................... $ 11 $(631) 0 (44) ===== ===== = ===
Sussex County State Bank Comparative Consolidated Average Balances and Summary of Net Interest Margin (Fully Taxable Equivalent Basis) -------------------- (Dollars in Thousands) 1994 Comparted With 1993 ------------------------------------------------------------------------- 1994 1993 ------------------------------------ --------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ASSETS Short-Term Investments: Federal Funds Sold ................. $ 2,132 82 3.85% $11,297 344 3.05 % Interest Bearing Deposits with Banks 100 1 1.00 100 1 1.00 Other Short-Term Investments ....... 0 0 0.00 0 0 0.00 -------- ----- ---- ------ ----- ---- Total Short-Term Investments . 2,232 83 3.72 11,397 345 3.03 Investments Securities: U.S. Treasury ...................... 7,938 384 4.84 7,188 389 5.41 U.S. Government Agency ............. 9,136 469 5.13 9,569 618 6.46 State & Municipal .................. 4,896 227 4.64 1,349 88 6.55 Other Securities ................... 391 29 7.42 207 18 8.70 -------- ----- ------ ----- ---- Total Investment Securities .. 22,361 1,109 4.96 18,313 1,113 6.08 Trading Account Securities ............ 0 0 0.00 0 0 0.00 Loans: Commercial ......................... 2,963 246 8.29 3,273 278 8.48 Consumer ........................... 13,851 1,229 8.87 11,283 967 8.57 Real Estate Mortgages .............. 34,066 2,808 8.24 29,160 2,571 8.82 Lease Financing .................... 0 0 0.00 0 0 0.00 -------- ----- ------ ----- ---- Total Loans 50,880 4,283 8.42 43,716 3,816 8.73 -------- ----- ------ ----- ---- Total Earning Assets ......... 75,473 5,475 7.25 73,426 5,274 7.18 -------- ----- ---- ------ ----- ---- Allowance for Loan Losses ............. (517) (459) Cash & Due from Banks ................. 3,365 3,862 Premises & Equipment .................. 1,981 1,930 Other Real Estate ..................... 672 1,235 Other Assets .......................... 2,086 2,128 -------- ------- Total Assets ................. $ 83,060 $82,122 ======== ======= Rate/Volume Analysis (Fully Taxable Equivalent Basis) --------------------------------- Increase/Decrease in Interest --------------------------------- Due to Change in Volume Rate Days Total ------ ---- ---- ----- ASSETS Short-Term Investments: Federal Funds Sold ....................... $(335) $ 73 0 (262) Interest Bearing Deposits with Banks ..... 0 0 0 0 Other Short-Term Investments ............. 0 0 0 0 ----- ----- - ---- Total Short-Term Investments ....... (335) 73 0 (262) Investments Securities: U.S. Treasury ............................ 38 (43) 0 (5) U.S. Government Agency ................... (27) (122) 0 (149) State & Municipal ........................ 172 (33) 0 139 Other Securities ......................... 14 (3) 0 11 ----- ----- - ---- Total Investment Securities ........ 197 (201) 0 (4) Trading Account Securities .................. 0 0 0 0 Loans: Commercial ............................... (26) (6) 0 (32) Consumer ................................. 227 35 0 262 Real Estate Mortgages .................... 414 (177) 0 237 Lease Financing .......................... 0 0 0 0 ----- ----- - ---- Total Loans ........................ 615 (148) 0 467 ----- ----- - ---- Total Earning Assets ............... 477 (276) 0 201 ----- ----- - ---- Allowance for Loan Losses Cash & Due from Banks Premises & Equipment Other Real Estate Other Assets Total Assets Sussex County State Bank Comparative Consolidated Average Balances and Summary of Net Interest Margin (Fully Taxable Equivalent Basis) -------------------- (Dollars in Thousands) (CONTINUED) 1994 Comparted With 1993 ---------------------------------------------------------------------- 1994 1993 ---------------------------------- --------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- LIABILITIES & STOCKHOLDERS' EQUITY Interest Bearing Deposits: NOW Accounts ........................... $11,927 216 1.81 $11,023 234 2.12 Money Market Accounts .................. 6,689 149 2.23 6,858 167 2.44 Savings ................................ 30,582 755 2.47 28,207 802 2.84 CD's IRA ............................... 4,829 176 3.64 5,870 258 4.40 CD's $100,000 & Over ................... 1,344 36 2.68 1,358 47 3.46 Other Time Deposits .................... 9,031 314 3.48 10,637 395 3.71 ------ ----- ------- ----- Total Interest Bearing Deposits .. 64,402 1,646 2.56 63,953 1,903 2.98 Short-Term Borrowings Federal Funds Purchased ................ 32 2 0.00 0 0 0.00 Repurchase Agreements .................. 0 0 0.00 0 0 0.00 Other Short-Term Borrowings ............ 0 0 0.00 0 0 0.00 ------ ----- ------- ----- Total Short-Term Borrowings ...... 32 2 0.00 0 0 0.00 Long-Term Debt ............................ 0 0 0.00 0 0 0.00 ------ ----- ------- ----- Total Interest Bearing Liabilities 64,354 1,648 2.55 63,953 1,903 2.98 Demand Deposits ........................... 11,562 11,007 Other Liabilities ......................... 431 427 Stockholders' Equity ...................... 6,633 6,735 ------- ------- Total Liabilities & Stockholder's Equity ........................ $83,060 $82,122 ======= ======= Average Rate Paid to Fund Earning Assets .. 2.18 2.59 ---- ---- NET INTEREST SPREAD ....................... $ 3,827 5.07% $ 3,371 4.59% ======= ==== ======= ==== Rate/Volume Analysis (Fully Taxable Equivalent Basis) --------------------------------- Increase/Decrease in Interest --------------------------------- Due to Change in Volume Rate Days Total ------ ---- ---- ----- LIABILITIES & STOCKHOLDERS' EQUITY Interest Bearing Deposits: NOW Accounts ........................... 18 (36) 0 (18) Money Market Accounts .................. (4) (14) 0 (18) Savings ................................ 63 (110) 0 (47) CD's IRA ............................... (42) (40) 0 (82) CD's $100,000 & Over ................... 0 (11) 0 (11) Other Time Deposits .................... (57) (24) 0 (81) ----- ---- - ----- Total Interest Bearing Deposits .. (22) (235) 0 (257) Short-Term Borrowings Federal Funds Purchased ................ 0 0 0 2 Repurchase Agreements .................. 0 0 0 0 Other Short-Term Borrowings ............ 0 0 0 0 ----- ---- - ----- Total Short-Term Borrowings ...... 0 0 0 0 Long-Term Debt ............................ 0 0 0 0 ----- ---- - ----- Total Interest Bearing Liabilities (22) (235) 0 (235) Demand Deposits Other Liabilities Stockholders' Equity Total Liabilities & Stockholder's Equity Average Rate Paid to Fund Earning Assets .. NET INTEREST SPREAD ....................... $ 499 $ (41) $ 0 $456 ===== ===== ===== ====
EX-99.2 3 EXHIBIT (A)(2) FORM F-4 FORM F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1996 F. D. I. C. INSURANCE CERTIFICATE NUMBER 22221-6 SUSSEX COUNTY STATE BANK 399 ROUTE 23 FRANKLIN, NEW JERSEY 07416 (201) 827-2914 Indicate by check mark whether the Bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) YES [X] NO [ ] (2) YES [X] NO [ ] 672,460 SHARES OF $2.50 PAR VALUE COMMON STOCK OUTSTANDING AT 10/09/96 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The changes in Sussex County State Bank's balance sheet during the third quarter of 1996 are detailed in the following analysis. The $10.9 million increase in our loan portfolio is primarily attributable to the offering of competitive interest rates on Home Equity products and mortgages in the 15 year category. Also the decrease that is reflective in the federal funds sold category is synonomous with the increase in our loan portfolio as well. Total Stockholders Equity reflects an increase of $381 thousand which reflects a 3% stock dividend paid to shareholders in May, and also includes our shareholders enrollment in the Bank's Dividend Reinvestment Plan and as it relates to Undivided Profits results from year-to-date earnings of $440 thousand less a cash dividend payment of $154 thousand or $.23 per share. As it relates to unrealized gain on securities available-for-sale, there was a $328 thousand decrease. RESULTS OF OPERATIONS For the nine months ended September 30, 1996, net income was $440 thousand, representing a $25 thousand increase from the $415 thousand earned during the same period last year. This is primarily attributable to higher net interest income coupled with higher non-interest income. This is primarily the result of growth in the Bank's loan portfolio. Interest Expense on deposits has increased by $394 thousand as compared to the same period last year. This is attributable to our increase in Time Deposits by offering competitive rates. Also our Provision for Loan Loss has increased $55 thousand as compared to the same period last year. The primary reason is due to the increase in our loan portfolio. Salaries and employee benefits shows an increase of $52 thousand which is the combination of a salary program instituted and an increase in enrollment in our 401K program.
SUSSEX COUNTY STATE BANK BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (000 Omitted) Sept. 30, Dec. 31, ASSETS 1996 1995 ---- ---- Cash and due from banks: (1) interest bearing deposits ......................... $ 0 $ 0 (2) non-interest bearing deposits and cash ............ 5,291 3,652 U. S. Treasury securities and securities of U. S. Government agencies - AFS ....................................... 22,116 21,564 Obligations of states and political subdivisions - HTM ..... 1,690 2,142 Federal Funds Sold ......................................... 1,575 10,550 Loans, less reserve for loan losses and unearned discount .. 63,026 52,148 Bank premises and equipment, net ........................... 2,212 2,307 Accrued interest receivable ................................ 688 582 Other assets ............................................... 2,180 1,925 -------- -------- TOTALS .............................................. $ 98,778 $ 94,870 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposits ....................................... $ 13,648 $ 13,010 Savings deposits ...................................... 27,042 26,451 Time deposits ......................................... 49,351 46,464 -------- -------- Total Deposits ...................................... $ 90,041 $ 85,925 -------- -------- Accrued interest payable .............................. 886 679 Other Liabilities...................................... 189 657 -------- -------- Total Liabilities ................................... $ 1,075 $ 87,262 -------- -------- Stockholders' Equity: Common stock, $2.50 par value; 2,000,000 shares authorized, 672,460 shares outstanding .......................... $ 1,681 $ 1,618 Surplus ............................................... 3,278 2,914 Undivided profits ..................................... 2,977 3,023 Unrealized gain (loss) net on AFS ..................... (274) 54 -------- -------- Total Stockholders' Equity .......................... $ 7,662 $ 7,609 -------- -------- TOTALS .............................................. $ 98,778 $ 94,870 ======== ========
SUSSEX COUNTY STATE BANK STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (000 Omitted) Qtr. Ending Qtr. Ending Year-to-date Year-to-date Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995 ------------- ------------- ------------- ------------- Interest Income: Interest and fees on loans .............................. $1,262 $1,145 $3,652 $3,429 Interest on investment securities U. S. Treasury securities and securities of U. S. Government agencies............... 361 264 1,140 691 Obligations of states and political subdivisions ............................... 6 46 31 141 Interest on balances due from depository institutions .............................. 0 0 0 2 Other interest income, federal funds sold ........................................... 26 112 159 184 ------ ------ ------ ------ Total Interest Income ......................... $1,655 $1,567 $4,982 $4,447 Interest Expense, interest on deposits ..................... 654 629 1,990 1,596 ------ ------ ------ ------ Net Interest Income ...................................... $1,001 $ 938 $2,992 $2,851 Provision for loan losses ................................ 45 15 85 30 ------ ------ ------ ------ Net Interest Income After Provision for Loan Losses ............................... $ 956 $ 923 $2,907 $2,821 ------ ------ ------ ------ Other Income: Service charges on deposit accounts ............................................. $ 130 $ 139 $ 385 $ 392 Other Operating Income .................................. 26 12 120 101 ------ ------ ------ ------ Total Other Income ............................ $ 156 $ 151 $ 505 $ 493 Other Expenses: Salaries and employees' benefits ........................ $ 440 $ 403 $1,284 $1,231 Net occupancy expense of premises and furniture ......................................... 159 161 515 497 Other expenses .......................................... 287 371 904 1,021 ------ ------ ------ ------ Total Other Expenses .......................... $ 886 $ 935 $2,703 $2,749 ------ ------ ------ ------ Income Before Income Tax Expense ........................ $ 226 $ 139 709 565 Income tax expense ...................................... 87 8 269 150 ------ ------ ------ ------ Income ........................................ $ 139 $ 131 $ 440 $ 415 ------ ------ ------ ------ Earnings per Share, Net Income .......................... $ .21 $ .20 $ .67 $ .64 ------ ------ ------ ------
Calculation 1995 - Average share's outstanding - 644,402/income = Earnings per Share 1996 - Average share's outstanding - 659,821/income = Earnings per Share
SUSSEX COUNTY STATE BANK STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED SEPT 30, 1996 AND 1995 (000 Omitted) Unrealized Gain Total Common Undivided (Loss) Equity Stock Surplus Profits on AFS Capital ----- ------- ------- ------ ------- BALANCES - January 1, 1996 ........................... $ 1,618 $ 2,914 $ 3,023 $ 54 $ 7,609 Net Income - for six months ended Sept 30, 1996 ................................ 440 440 Stock Dividends .................................... 62 360 422 Cash Dividends ..................................... (486) (486) Unrealized Gain (Loss) AFS Net ..................... (328) (328) Stock Option ....................................... 1 4 5 ------- ------- ------- ------- ------- BALANCES - Sept 30, 1996 ............................. $ 1,681 $ 3,278 $ 2,977 $ (274) $ 7,662 ------- ------- ------- ------- ------- BALANCES - January 1, 1995 ........................... $ 1,591 $ 2,813 $ 2,818 $ (577) $ 6,645 Net Income - for six months ended June 30, 1995 ................................ 415 415 Stock Dividends .................................... 20 68 88 Cash Dividends ..................................... (211) (211) Unrealized Gain (Loss) AFS Net ..................... 485 485 ======= ======= ======= ======= ======= BALANCES - June 30, 1995 ............................. $ 1,611 $ 2,881 $ 3,022 (92) $ 7,422 ======= ======= ======= ======= =======
SUSSEX COUNTY STATE BANK STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPT 30, 1996 AND DECEMBER 31, 1995 (000 Omitted) Sept 1996 Dec. 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................... $ 440 $ 501 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .............................. 195 343 Provision for possible loan losses ......................... 85 64 Premium amortization (discount accretion) on investment securities, net ............................ 25 127 Accretion of Loan origination and commitment fees .......................................... (26) (40) Loss on sale of investment securities ......................... 9 -- Loss on sale of other real estate ............................. (14) 2 Deferred Federal income tax benefit increase ............... 59 (6) Decrease in accrued interest receivable .................... (106) 3 Decrease in other assets ................................... (132) (385) Decrease in accrued interest and other liabilities ......... (261) 834 -------- -------- Total Adjustments ....................... (184) 942 Net cash provided by operating activities............. $ 256 $ 1,443 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from maturities of investment/ sale of investments securities - AFS ....................... $ 9,498 $ 11,280 Proceeds from maturities of investment securities - HTM ..... 1,671 5,366 Purchases of investment securities - HTM .................... (1,220) (2,171) Purchases of investment securities - AFS .................... (10,526) (16,627) Proceeds from sale of other real estate ..................... 0 698 Net increase in other real estate ........................... 0 (13) Net (increase) decrease in loans ............................ (10,818) (1,164) Capital expenditures ........................................ (100) (304) -------- -------- Net cash provided by investing activities ............ $(11,555) $ (2,935) -------- -------- SUSSEX COUNTY STATE BANK STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPT 30, 1996 AND DECEMBER 31, 1995 (000 Omitted) (continued) Sept 1996 Dec. 1995 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease)in demand deposit and savings accounts ............................... $ 1,228 $ (1,778) Net increase (decrease) in time deposits .................... 2,890 12,616 Payment of dividends ........................................ (154) (169) -------- -------- Net cash provided by financing activities ............ $ 3,964 $ 10,669 -------- -------- Net increase in cash and cash equivalent ............. $ (7,335) $ 9,177 Cash and cash equivalents, beginning of year .................. $ 14,202 $ 5,025 -------- -------- Cash and cash equivalents, end of quarter ..................... $ 6,867 $ 14,202 -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest .................................................. $ 1,890 $ 1,715 Income taxes .............................................. 186 201 -------- --------
SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUSSEX COUNTY STATE BANK Date /s/Donald L. Kovach ---------------- Donald L. Kovach President/CEO Date /s/Candace Leatham --------------- Candace Leatham Vice President & Treasurer EX-99.3 4 EXHIBIT (B)(1) PLAN OF ACQUISITION PLAN OF ACQUISITION OF ALL THE OUTSTANDING STOCK OF THE SUSSEX COUNTY STATE BANK BY SUSSEX BANCORP THIS PLAN OF ACQUISITION (the "Plan") is entered into as of this 24 day of January, 1996, by THE SUSSEX COUNTY STATE BANK, a commercial bank organized under the laws of the State of New Jersey, with its principal office at 399 Route 23, Franklin, New Jersey 07416, (the "Bank") and Sussex Bancorp, a corporation organized under the laws of the state of New Jersey, with its principal office at 399 Route 23, Franklin, New Jersey 07416 ("CORP"). WHEREAS, the Bank is desirous of forming a bank holding company because it believes that the holding company will provide it with future flexibility in undertaking the Bank's current activities and future new activities and assist the Bank in remaining an independent institution, if the Board determines that remaining independent is in the best interests of the Bank and its shareholders; and WHEREAS, the Bank's Board of Directors has determined that the formation of a holding company is in the best interest of the Bank's shareholders; and WHEREAS, CORP was formed under the New Jersey Business Corporation Act on behalf of the Bank at the direction of the Bank's Board of Directors; and WHEREAS, N.J.S. 17:9A-355 et seq. authorizes a New Jersey corporation and a state-chartered bank to enter into a plan of acquisition to exchange shares in the bank for shares in the holding company, to submit the plan to the New Jersey Department of Banking for approval and implement the plan if it is approved by the bank's shareholders, subject to the right of the bank's shareholders to dissent and receive the fair value of their shares; and WHEREAS, the Boards of Directors of the Bank and CORP have adopted this Plan pursuant to the provisions of N.J.S. 17:9A-357. NOW, THEREFORE, the parties hereto agree as follows: 1.0 PLAN OF ACQUISITION REQUIRED BY SECTION 17:9A-357. 1.1 Name of Acquiring Corporation. The name and the address of the acquiring corporation is: Sussex Bancorp, 399 Route 23, Franklin, New Jersey 07416. 1.2 Name of Participating Bank. The name and address of the participating bank is: The Sussex County State Bank, 399 Route 23, Franklin, New Jersey 07416. 1.3 Names and Address of Directors. The names and addresses of the members of the Board of Directors of CORP are:
Name Address - - ---- ------- Donald L. Kovach 399 Route 23 Franklin, NJ 07416 William E. Kulsar 399 Route 23 Franklin, NJ 07416 Irvin Ackerson 399 Route 23 Franklin, NJ 07416 Joel D. Marvil 399 Route 23 Franklin, NJ 07416 Richard Scott 399 Route 23 Franklin, NJ 07416 Joseph Zitone 399 Route 23 Franklin, NJ 07416
1.4 Shares of Other Banks Owned by CORP. CORP does not own any shares of capital stock of any other bank. 1.5 Terms and Conditions of Acquisition. The terms and conditions of the acquisition are the terms set forth in Sections 2, 3, 5, and 6 hereof. 1.6 Effective Date. The effective date shall be the date determined under Section 7 hereof. 1.7 Other Provisions. There are no other provisions of the Plan except as set forth herein. 2.0 CAPITALIZATION; TERMS OF ACQUISITION. 2.1 Capitalization of CORP. CORP is authorized to issue 5,000,000 shares of capital stock without nominal or par value ("Common Stock"). CORP shall not issue any of its shares of Common Stock prior to the Effective Date. 2.2 Capitalization of the Bank. The Bank is authorized to issue 2,000,000 shares of common stock, par value $2.50 per share (the "Bank Common Stock"). As of December 31, 1995, 647,236 shares were issued and outstanding. In addition, as of December 31, 1995, options to purchase 18,000 shares of Bank Common Stock had been issued to non-employee directors of the Bank. 2.3 Terms of Exchange. Upon the Effective Date, each share of the Bank Common stock shall be converted into one share of Common Stock, subject to the rights of dissenting shareholders as provided in Section 4 hereof, and each option to purchase shares of Bank Common Stock shall be converted into options to purchase the same number of shares of Common Stock on the same terms and conditions. 3.0 MODE OF CARRYING INTO EFFECT THE PLAN OF EXCHANGE. 3.1 Exchange Effective Immediately. Upon the Effective Date, each certificate representing shares of the Bank Common Stock shall by virtue of the Plan, and without any action on the part of the holder thereof, be deemed to represent the same number of shares of Common Stock, and shall no longer represent the Bank Common Stock. As set forth in Section 4 hereof, after the Effective Date any dissenting shareholder who complies with the requirements of N.J.S. 17:9A-360 et seq. shall have only the rights accorded dissenting shareholders and such stockholder certificates shall not be deemed to represent shares of Common Stock or the Bank Common Stock. 3.2 Issuance of Shares of Bank to CORP. Upon the Effective Date, the Bank shall issue to CORP one share of its Common Stock, par value $2.50 per share, for each share of Bank common stock outstanding on the Effective Date. 3.3 Means of Effecting Exchange of Certificates of Bank Stock for Certificates in CORP. Upon or immediately after the Effective Date, the Bank shall notify each Bank stockholder of record on the Effective Date (except a holder who is a dissenting shareholder as provided in Section 4 hereof) of the procedure by which certificates representing the Bank Common Stock may be exchanged for certificates of Common Stock. The Bank shall act as exchange agent in effecting the exchange of certificates. After receipt of such notification, each holder shall be obligated to surrender the certificates representing the Bank Common Stock for exchange into certificates of Common Stock as promptly as possible. 4.0 DISSENTING SHAREHOLDER. Any shareholder of the Bank who desires to dissent from the transactions contemplated by the Plan shall have the right to dissent by complying with all of the requirements set forth in N.J.S. 17:9A-360 et seq., and, if the transactions contemplated by the Plan are consummated, shall be entitled to be paid the fair value of his shares in accordance with those provisions. 5.0 CONDITIONS FOR CONSUMMATION OF THE PLAN AND RIGHT OF THE BANK TO TERMINATE THE PLAN PRIOR TO CONSUMMATION. 5.1 Conditions for Consummation. Consummation of the Plan is conditioned upon the following: (a) Approval of the Plan by the Commissioner of Banking of the State of New Jersey; (b) Approval of the Plan by the holders of two-thirds (2/3) or more of the outstanding Bank Common Stock entitled to vote; (c) The non-objection of the Board of Governors of the Federal Reserve System to a notification by CORP of its acquisition of Bank; (d) The Bank's Board of Directors not terminating the Plan prior to the Effective Date as permitted by Section 5.2 hereof. 5.2 Right of Bank to Terminate Plan Prior to the Effective Date. At any time prior to the Effective Date, the Board of Directors of the Bank may terminate the Plan if in the judgment of the Board of Directors the consummation of the Plan is inadvisable for any reason. To terminate the Plan the Bank's Board of Directors shall adopt a resolution terminating the Plan and in the event such termination occurs after the shareholders of the Bank have voted on the Plan, promptly give written notice that the Plan has been terminated to the shareholders of the Bank. Upon the adoption of the Board resolution, the Plan shall be of no further force or effect and the Bank and CORP shall not be liable to each other, to any shareholder of the Bank or to any other person by reason of the Plan or the termination thereof. Without limiting the reasons for which the Bank's Board may terminate the Plan, the Board may terminate the Plan if: (a) The number of shareholders dissenting from the Plan and demanding payment of the fair value of their shares would in the judgment of the Board render the Plan inadvisable; or (b) The Bank or CORP fails to receive, or fails to receive in form and substance satisfactory to the Bank or CORP, any permit, license or qualification from any federal or state authority required in connection with the consummation of the Plan. 6.0 EXPENSES. Bank will bear all of the expenses incurred by the Bank and by CORP in connection with the Plan, including, without limiting the foregoing, all attorneys, accountants, and printing fees and all licensing fees incurred in connection with the Plan and the formation of CORP. 7.0 EFFECTIVE DATE. The Plan shall become effective upon a date selected by the mutual agreement in writing of the parties hereto (the "Effective Date"). The date so selected shall be within a reasonable period after the conditions set forth in Section 5.1 have been complied with and the Bank has received any approvals or consents without which it might terminate the Plan under Section 5.2. At least one week prior to the agreed upon effective date, the Plan shall be filed with the Department of Banking of the State of New Jersey together with the writing specifying the Effective Date and a certification by the president or a vice president of the Bank that the Bank's shareholders have approved the Plan. IN WITNESS WHEREOF, the Boards of Directors of The Sussex County State Bank and Sussex Bancorp have authorized the execution of the Plan and caused the Plan to be executed as of the date first written above. ATTEST: THE SUSSEX COUNTY STATE BANK By:/s/Donald L. Kovach ------------------- DONALD L. KOVACH Chief Executive Officer ATTEST: SUSSEX BANCORP By:/s/Donald L. Kovach ------------------- DONALD L. KOVACH Chief Executive Officer EX-99.4 5 EXHIBIT (B)(3)(I) CERTIFICATE OF INC. CERTIFICATE OF INCORPORATION OF SUSSEX BANCORP THIS IS TO CERTIFY THAT, there is hereby organized a corporation under and by virtue of N.J.S. 14A:1-1 et seq., the "New Jersey Business Corporation Act." ARTICLE I Corporate Name The name of the Corporation shall be Sussex Bancorp. ARTICLE II Registered Office and Registered Agent The address of the Corporation's registered office is: Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, New Jersey 07416 The name of the registered agent at that address is: William E. Kulsar ARTICLE III Initial Board of Directors and Number of Directors The number of directors shall be governed by the By-laws of the Corporation. The number of directors constituting the initial Board of Directors shall be six (6). The names and addresses of the initial Board of Directors are as follows:
Name Address ---- ------- Donald L. Kovach c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416 William E. Kulsar c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416 Irvin Ackerson c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416 Joel D. Marvil c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416 Richard Scott c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416 Joseph Zitone c/o Sussex Bancorp 399 Route 23 P.O. Box 353 Franklin, NJ 07416
ARTICLE IV Corporate Purpose The purpose for which the Corporation is organized is to engage in any activities for which corporations may be organized under the New Jersey Business Corporation Act. ARTICLE V Capital Stock The Corporation is authorized to issue 5,000,000 shares of common stock, without par value. ARTICLE VI Limitation of Liability Subject to the following, a director or officer of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders. The preceding sentence shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to the Corporation or its shareholders, (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. If the New Jersey Business Corporation Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer or both of the Corporation shall be eliminated or limited to the fullest extent permitted by the New Jersey Business Corporation Act as so amended. Any amendment to this Certificate of Incorporation, or change in law which authorizes this paragraph shall not adversely affect any then existing right or protection of a director or officer of the Corporation. ARTICLE VII Indemnification The Corporation shall indemnify its officers, directors, employees and agents and former officers, directors, employees and agents, and any other persons serving at the request of the Corporation as an officer, director, employee or agent of another corporation, association, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees, judgments, fines and amounts paid in settlement) incurred in connection with any pending or threatened action, suit, or proceeding, whether civil, criminal, administrative or investigative, with respect to which such officer, director, employee, agent or other person is a party, or is threatened to be made a party, to the full extent permitted by the New Jersey Business Corporation Act. The indemnification provided herein (i) shall not be deemed exclusive of any other right to which any person seeking indemnification may be entitled under any by-law, agreement, or vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity, and (ii) shall inure to the benefit of the heirs, executors, and the administrators of any such person. The Corporation shall have the power, but shall not be obligated, to purchase and maintain insurance on behalf of any person or persons enumerated above against any liability asserted against or incurred by them or any of them arising out of their status as corporate directors, officers, employees, or agents whether or not the Corporation would have the power to indemnify them against such liability under the provisions of this article. The Corporation shall, from time to time, reimburse or advance to any person referred to in this article the funds necessary for payment of expenses, including attorneys' fees, incurred in connection with any action, suit or proceeding referred to in this article, upon receipt of a written undertaking by or on behalf of such person to repay such amount(s) if a judgment or other final adjudication adverse to the director or officer establishes that the director's or officer's acts or omissions (i) constitute a breach of the director's or officer's duty of loyalty to the corporation or its shareholders, (ii) were not in good faith, (iii) involved a knowing violation of law, (iv) resulted in the director or officer receiving an improper personal benefit, or (v) were otherwise of such a character that New Jersey law would require that such amount(s) be repaid. ARTICLE VIII Name and Address of Incorporator The name and address of the incorporator is: Robert A. Schwartz, Esq. McCarter & English Four Gateway Center 100 Mulberry Street P.O. Box 652 Newark, New Jersey 07101-0652 IN WITNESS WHEREOF, I, the incorporator of the above named Corporation, being over eighteen years of age, have signed this Certificate of Incorporation on the 19th day of January, 1996. /s/Robert A. Schwartz, Esq. ------------------------ Robert A. Schwartz, Esq. EX-99.5 6 EXHIBIT (B)(3)(II) BY-LAWS BY-LAWS OF SUSSEX BANCORP ARTICLE I Law, Certificate of Incorporation and By-Laws Section 1. These By-laws are subject to the Certificate of Incorporation of the Corporation. In these Bylaws, reference to law, Certificate of Incorporation and By-laws mean the law of the State of New Jersey and any other applicable laws governing the operations of the Corporation, the provisions of the Certificate of Incorporation as in effect from time to time and the provisions of these By-laws in effect from time to time. ARTICLE II Meetings of Stockholders Section 1. Place of Meetings, Inc. Except as otherwise provided in these By-laws, all meetings of the stockholders shall be held at such dates, time and places, within or without the State of New Jersey, as shall be determined by the Board or Chief Executive Officer and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of New Jersey. Section 2. Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of such other business as properly may be brought before the meeting shall be held on such date after the close of the Corporation's fiscal year as the Board may from time to time determine. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board or the Chief Executive Officer and shall be called by the Chief Executive Officer or the Secretary upon the written request of a majority of the holders of the outstanding shares of the corporation entitled to vote. The request shall state the date, time, place and purpose or purposes of the proposed meetings. Section 4. Notice of Meetings. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and time of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the list of stockholders provided for in Section 8 of this Article II is available for examination, unless such list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, the notice shall be given when deposited in the United States mail, postage prepaid, and shall be directed to each stockholder at his address as it appears on the record of stockholders, or to such other address which such stockholder may have furnished by written request to the Secretary of the Corporation. Notice of any meeting of stockholders shall be deemed waived by any stockholder who attends the meeting, except when the stockholder attends the meeting for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice need not be given to any stockholder who submits, either before or after the meeting, a signed waiver of notice. Unless the Board, after the adjournment of a meeting, shall fix a new record date for the adjourned meeting, or unless the adjournment is for more than thirty (30) days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned is announced at the meeting at which the adjournment is taken. Section 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the outstanding shares of the Corporation entitled to vote at the meeting shall be present in person or by proxy in order to constitute a quorum for the transaction of business. Section 6. Voting. Except as otherwise provided by the Certificate of Incorporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by not less than a majority of the votes cast at a meeting by the stockholders present in person or by proxy and entitled to vote thereon. Directors shall be elected as provided in Section 2 of Article III of these By-laws. Written ballots shall not be required for voting on any matter unless ordered by the Chairman of the meeting. Section 7. Proxies. Every proxy shall be executed in writing by the stockholder or by his attorney-in-fact. Section 8. List of Stockholders. At least ten (10) days before every meeting of stockholders, a list of stockholders (including their addresses) entitled to vote at the meeting and their record holdings as of the record date shall be open for examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list also shall be kept at and throughout the meeting. Section 9. Conduct of Meetings. At each meeting of the stockholders, the Chairman of the Board or, in his absence, the President, shall act as Chairman of the meeting. The Secretary or, in his absence, any person appointed by the Chairman of the meeting shall act as Secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the Chairman of the meeting. Section 10. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted in person or by proxy and shall be delivered to the Corporation in accordance with the laws of the State of New Jersey. Every written consent shall bear the date of signature of each stockholder signing the consent. In no event shall any corporate action referred to in any consent be effective unless written consents signed by a sufficient number of stockholders to take action are duly delivered to the Corporation within sixty (60) days of the earliest dated consent delivered in accordance with the laws of the State of New Jersey. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing, but who were entitled to vote on the matter. ARTICLE III Board of Directors Section 1. Number of Board Members. The Board shall consist of not less than one nor more than 25 directors. The number of directors may be reduced or increased from time to time by action of a majority of the entire Board, but no decrease may shorten the term of an incumbent director. When used in these By-laws, the phrase "entire Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. Election and Term. Except as otherwise provided by law or by the By-laws, directors shall be elected at each annual meeting of the stockholders. The persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death or resignation each director shall hold office until his successor shall have been duly elected and shall have qualified. Section 3. Resignations. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified herein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 4. Vacancies. Any vacancy in the Board arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Subject to his earlier death or resignation, each director so elected shall hold office until his successor shall have been duly elected and shall have qualified. Directors appointed to fill vacancies on the Board shall be placed in a class in a manner designed to keep equality between the classes, to the extent possible. Section 5. Place of Meetings. Except as otherwise provided in these By-laws, all meetings of the Board shall be held at such places, within or without the State of New Jersey, as the Board determines from time to time. Section 6. Annual Meeting. The annual meeting of the Board shall be held either (a) without notice immediately after the annual meeting of stockholders and in the same place, or (b) as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines. Section 7. Regular Meetings. Regular meetings of the Board shall be held on such dates and at such places and times as the Board determines. Notice of regular meetings need not be given, except as otherwise required by law. Section 8. Special Meetings. Special meetings of the Board may be called by or at the direction of the Chief Executive Officer, and shall be called by the Chief Executive Officer or the Secretary upon the written request of a majority of the directors. The request shall state date, time, place and purpose or purposes of the proposed meeting. Section 9. Notice of Meetings. Notice of each special meeting of the Board (and of each annual meeting held pursuant to subdivision (b) of Section 6 of this Article III) shall be given, not later than 24 hours before the meeting is scheduled to commence, by the Chief Executive Officer or the Secretary and shall state the place, date and time of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director orally (whether by telephone or in person) or mailed or telegraphed to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, and if telegraphed, the notice shall be deemed to have been given when the contents of the telegram immediately be dispatched. Notice of any meeting need not be given to any director who shall submit, either before or after the meeting, a signed waiver of notice or who shall attend the meeting, except if such director shall attend for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of any adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, as well as to the other directors unless the place, date and time of the new meeting is announced at the adjourned meeting. Section 10. Quorum. Except as otherwise provided by law or in these By-laws, at all meetings of the Board a majority of the entire Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 11. Conduct of Meetings. At each meeting of the Board, the Chief Executive Officer or, in his absence, a director chosen by a majority of the directors present, shall act as Chairman of the meeting. The Secretary of, in his absence, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the Chairman of the meeting. Section 12. Committee of the Board. The Board, by resolution adopted by a majority of the entire Board, may designate an executive committee and other committees, each consisting of one (1) or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board and shall keep minutes of its meetings and report the same to the Board. The Board may designate one or more directors as alternate members of any committee. Alternate members may replace any absent or disqualified member or members at any meeting of a committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board, the members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of the absent or disqualified member. Section 13. Operation of Committees. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. Section 14. Compensation. Directors shall be entitled to such compensation for their services as directors and to such reimbursement for any reasonable expenses incurred in attending directors' meetings as may from time to time be fixed by the Board. The compensation of directors may be on such basis as is determined by the Board. Any director may waive compensation for any meeting. Any director may waive compensation for any meeting. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement from reasonable expenses for such other services. Section 15. Written Consent to Action in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. Meetings Held Other Than in Person. Members of the Board or any committee may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. Section 17. Interested Directors and Officers. (a) No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of the Corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because the director's or officer's votes are counted for such purpose, if any one of the following is true: (1) The material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the shareholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. ARTICLE IV Officers Section 1. Executive Officers, etc. The executive officers of the Corporation shall be a President, a Secretary and a Treasurer. The Board also may elect or appoint a Chairman of the Board, one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Section 2. Duties. (a) The Chairman of the Board of Directors. The Chairman of the Board shall preside at all meetings of the stockholders and the Board, and shall be an ex officio a member of all committees established. (b) The President. The President shall have general management of the business and affairs of the Corporation, subject to the control of the Board, and shall have such other powers and duties as the Board assigns to him. (c) The Vice President. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President and shall have such other powers and duties as the Board or the President assigns to him or to them. (d) The Secretary. Except as otherwise provided in these By-laws or as directed by the Board, the Secretary shall attend all meetings of the stockholders and the Board; shall record the minutes of all proceedings in books to be kept for that purpose; shall give notice of all meetings of the stockholders and special meetings of the Board; and shall keep in safe custody the seal of the Corporation and, when authorized by the Board, shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (e) The Treasurer. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; shall perform all other duties incident to the office of Treasurer; and shall have such other powers and duties as the Board or the President assigns to him. (f) Election; Removal. Subject to his earlier death, resignation or removal as hereinafter provided, each officer shall hold his office until his successor shall have been duly elected and shall have qualified. Any officer may be removed at any time, with or without cause, by the Board. Section 3. Resignations. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified herein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 4. Vacancies. If an office becomes vacant for any reason, the Board or the stockholders may fill the vacancy, and each officer so elected shall serve for the remainder of his predecessor's term. ARTICLE V Provisions Relating to Stock Certificates and Stockholders Section 1. Certificates. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board. Each certificate shall be signed in the name of the Corporation by the Chairman, if any, or the President or any Vice President and by the Secretary, the Treasurer or any Assistant Secretary or any Assistant Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation or its employees, the signature of any officer of the Corporation may be a facsimile signature. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature was placed on any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued nevertheless by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. Lost Certificates, etc. The Corporation may issue a new certificate for shares in place of any certificate theretofore issued by it, alleged to have been lost, mutilated, stolen or destroyed and the Board may require the owner of the lost, mutilated, stolen or destroyed certificate, or his legal representatives, to make an affidavit of that fact and to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, mutilation, theft or destruction of the certificate or the issuance of a new certificate. Section 3. Transfers of Shares. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor appropriately indorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. Record Date. The Board may fix a record date for the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof. The record date fixed for such purpose shall not precede the date upon which the resolution fixing the record date is adopted by the Board and shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board does not fix a record date for such purpose, the record date for such purpose shall be at the close of business on the day next preceding the day on which notice is given and, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The Board may fix a record date for the purpose of determining stockholders entitled to consent to action in writing in lieu of a meeting. The record date fixed for such purpose shall not precede the date upon which the resolution fixing the record date is adopted by the Board and shall not be more than ten (10) days after the adoption of such resolution fixing the record date. If the Board does not fix a record date, the record date for the purpose of determining stockholders entitled to consent to action in writing in lieu of a meeting when no prior action by the Board is required by the laws of the State of New Jersey or these By-laws, shall be the first date on which a signed written consent with respect to the action taken or proposed to be taken is delivered to the Corporation in accordance with the laws of the State of New Jersey. If the Board does not fix a record date and prior action by the Board is required by the laws of the State of New Jersey or these By-laws, the date for determining stockholders entitled to consent to action in writing in lieu of a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. The Board may fix a record date for the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or for the purpose of any other action. The record date fixed for such purpose shall not precede the date upon which the resolution fixing the record date is adopted and shall be no more than sixty (60) days prior to such action. If the Board does not fix a record date, the record date for determining the stockholders for any such purpose shall at the close of business on the date on which the Board adopts the resolution relating thereto. ARTICLE VI General Provisions Section 1. Dividends, etc. To the extent permitted by law, the Board shall have full power and discretion, subject to the provisions of the Certificate of Incorporation and the terms of any other corporate document or instrument binding upon the Corporation, to determine the amount of any dividends or distributions which shall be declared and paid or made. Section 2. Seal. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board. Section 3. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board. Section 4. Voting Shares in Other Corporations. Unless otherwise directed by the Board, shares in other corporations which are held by the Corporation shall be represented and voted only by the Chief Executive Officer or by a proxy or proxies appointed by him. ARTICLE VII Amendments These By-laws may be made, altered or repealed by the Board, subject to the right of the stockholders to alter or repeal any by-law made by the Board. EX-99.6 7 EXHIBIT (B)(10)(A) INCENTIVE SUSSEX COUNTY STATE BANK 1995 INCENTIVE STOCK OPTION PLAN ARTICLE I. PURPOSES The purposes of the 1995 Incentive Stock Option Plan are (i) to attract and retain highly-qualified executives, (ii) to align executive and stockholder long-term interests by creating a direct link between executive compensation and stockholder return, (iii) to enable executives of Sussex County State Bank (the "Bank") to develop and maintain stock ownership positions in the Bank, and (iv) to provide incentives to such executives to contribute to the success of the Bank. To achieve these objectives, the Plan provides for the granting of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. ARTICLE II. DEFINITIONS Whenever the following terms are used in this Plan, they shall have the meaning specified below: "Affiliate" shall mean the Bank, a Subsidiary, or any employee benefit plan established or maintained by the Bank or a Subsidiary. "Board" shall mean the Board of Directors of the Bank. "Cause" shall mean (i) the conviction of the Participant of a felony by a court of competent jurisdiction, (ii) the indictment of the Participant by a state or Federal grand jury of competent jurisdiction for embezzlement or misappropriation of funds of the Bank or for any act of dishonesty or lack of fidelity towards the Bank, (iii) the written confession by the Participant of any act of dishonesty towards the Bank or any embezzlement or misappropriation of the Bank's funds, or (iv) willful or gross neglect of the duties for which the Participant was responsible, all as the Committee, in its sole discretion, may determine. "Change in Control" shall mean the occurrence of one or more of the following events: (i) the Bank acquires actual knowledge that any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than an Affiliate is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Bank representing 15% or more of the combined voting power of the Bank's then outstanding securities, (ii) the first purchase of Common Stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by an Affiliate), (iii) the approval by the Bank's stockholders of (a) a merger or consolidation of the Bank with or into another corporation (other than a merger or consolidation in which the Bank is the surviving corporation and which does not result in any reclassification or reorganization of the Bank's then outstanding shares of Common Stock or a change in the Bank's directors, other than the addition of not more than three directors), (b) a sale or disposition of all or substantially all of the Bank's assets, or (c) a plan of liquidation or dissolution of the Bank, (iv) during any period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least two-thirds thereof, unless the election or nomination for the election by the Bank's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, or (v) a sale of (a) Common Stock of the Bank if after such sale any person (as defined above) other than an Affiliate owns a majority of the Bank's Common Stock or (b) all or substantially all of the Bank's assets (other than in the ordinary course of business). Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred for purposes of clause (i) above if a person is or becomes the beneficial owner, directly or indirectly, of more than 15% but less than 25% of the combined voting power of the Bank's then outstanding securities if the acquisition of all voting securities in excess of 15% was approved in advance by two-thirds of the directors then in office. "Code" shall mean the Internal Revenue Code of 1986, as now in effect or as hereafter amended. (All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.). "Committee" shall mean the committee consisting of at least three (3) directors of the Bank appointed by the Board to administer the Plan pursuant to the provisions of Article III of the Plan. "Common Stock" shall mean the common stock of the Bank, no par value. "Disability" shall mean permanent and total disability as defined in the Bank's employee welfare benefit plan offering a long term disability benefit, or, if no such benefit is offered, as defined by Section 105(d)(4) of the Code. "Employee" shall mean a common law employee (as defined in accordance with the regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of an Affiliate. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value Broker" shall mean one or more broker-dealers designated by the Committee from time to time; provided however, that if on the applicable date one or more broker-dealers have been designated by the Board as a "Designated Broker" for purposes of the Bank's dividend reinvestment plan, such broker-dealer or broker-dealers shall constitute the sole "Fair Market Value Brokers" hereunder. "Incentive Option" shall mean an Option whose terms satisfy the requirements imposed by Section 422(b) of the Code and which is intended by the Committee to be treated as an Incentive Option. "Option" shall mean a right to purchase Common Stock which is awarded in accordance with the terms of this Plan. "Participant" shall mean an Employee who has been granted an Option under the Plan. "Plan" shall mean the Sussex County State Bank 1995 Incentive Stock Option Plan, as may be amended from time to time. "Retirement" shall mean any normal or early retirement by a Participant pursuant to the terms of any pension, profit sharing or 401(k) plan, or policy of the Bank or any Subsidiary which is applicable to such Participant at the time of his Termination of Service. "Secretary" shall mean the corporate secretary of the Bank. "Securities Act" shall mean the Securities Act of 1933. "Shares" shall mean shares of Common Stock. "Subsidiary(ies)" shall mean any corporation or other legal entity, domestic or foreign, more than 50% of the voting power of which is, as of the date of the adoption of this Plan or at any time subsequent thereto, owned or controlled, directly or indirectly by the Bank. "Terminate (Termination of) Service (or Termination)" shall mean the time at which the Participant ceases to provide services to the Bank as an Employee, but shall not include a lapse in providing services which the Committee determines to be a temporary leave of absence. ARTICLE III. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") selected by the Board from among its members, which shall consist of not less than three members, each of whom must be a "disinterested person" within the meaning of the rules promulgated under Section 16(b) of the Exchange Act. The Committee shall hold meetings at such times as may be necessary for the proper administration of the Plan and shall keep minutes of its meetings. A majority of the Committee shall constitute a quorum and a majority of the quorum may authorize any action. Subject to the provisions of the Plan, the Committee shall have sole authority, in its absolute discretion: (i) to determine which of the eligible Employees of the Bank shall be granted Options; (ii) to grant Options; (iii) to determine the times when Options may be granted and the number of Shares that may be purchased pursuant to such Options; (iv) to determine the exercise price of the Shares subject to each Option, which price shall be not less than the minimum specified in Section 6.1; (v) to determine the time or times when each Option becomes exercisable, the duration of the exercise period, and any other restrictions on the exercise of Options issued hereunder; (vi) to prescribe the form or forms of the Option agreements under the Plan; (vii) to determine the circumstances under which the time for exercising Options should be accelerated and to accelerate the time for exercising outstanding Options; (viii) to determine the duration and purposes for leaves of absence which may be granted to a Participant without constituting a Termination of Service for purposes of the Plan; (ix) to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan; and (x) to construe and interpret the Plan, the rules and regulations and the Option agreements under the Plan, and to make all other determinations deemed necessary or advisable for the administration of the Plan; provided, however, that with respect to those eligible Employees who are not "officers" of the Bank, within the meaning of Section 16(b) of the Exchange Act, the Committee may delegate to any person or persons ("Subcommittee") all or any part of its authority as set forth in (i) through (x) above. All references in the Plan to the powers of a Subcommittee to act for the Committee shall be applicable only to the extent consistent with the forgoing provision and only to the extent consistent with the powers which have actually been delegated to it. All decisions, determinations and interpretations of the Committee, or Subcommittee, to the extent consistent with such delegation, shall be final and binding. The provisions of this Article III shall survive any termination of the Plan. ARTICLE IV. SHARES SUBJECT TO PLAN The maximum number of Shares that may be made subject to Options granted pursuant to the Plan is 64,000 (or the number and kind of Shares or other securities which are substituted for those Shares or to which those Shares are adjusted pursuant to the provisions of Article VIII of the Plan). The Bank shall reserve such number of Shares for the purposes of the Plan out of its authorized but unissued shares, or out of Shares held in the Bank's treasury, or partly out of each, as shall be determined by the Board. No fractional Shares of shall be issued with respect to Options granted under the Plan. In the event that any outstanding Option under the Plan for any reason expires, is terminated, forfeited or is canceled prior to the expiration date of the Plan, the Shares called for by the unexercised portion of such Option may, to the extent permitted by Rule 16b-3 under the Exchange Act, again be subject to an Option under the Plan. ARTICLE V. ELIGIBILITY FOR AWARD OF OPTIONS The Committee may designate any officer of the Bank, any group or divisional officer, and any other key Employee of the Bank as eligible to receive Options under the Plan. Non-employee directors shall not be eligible to participate in the Plan. However, a person who otherwise is an eligible officer or Employee shall not be disqualified from participation in the Plan by virtue of being a director of the Bank or any Subsidiary. ARTICLE VI. GRANT OF OPTIONS The Committee or Subcommittee may in its sole discretion grant Incentive Options to such officers and key Employees of the Bank as it determines appropriate consistent with Article V. Incentive Options shall be evidenced by Option agreements (which need not be identical) in such forms as the Committee may from time to time approve. Before any Options are granted under this Plan, a copy thereof shall be filed with the New Jersey Department of Banking and Insurance, together with a certificate made by two officers, one of whom shall be the president or a vice-president, stating that the Plan has been adopted and approved in accordance with Article XIII. Option agreements shall conform to the terms and conditions of the Plan. Such agreements may provide that the grant of any Option under the Plan, or that Stock acquired pursuant to the exercise of any Option, shall be subject to such other conditions (whether or not applicable to the Option or Stock received by any other optionee) as the Committee determines appropriate, including, without limitation, provisions conditioning exercise upon the occurrence of certain events or performance or the passage of time, provisions to assist the optionee in financing the purchase of Stock through the exercise of Options, provisions for forfeiture, or restrictions on resale or other disposition, of shares acquired under the Plan, provisions giving the Bank the right to repurchase shares acquired under the Plan in the event the Participant elects to dispose of such shares, and provisions to comply with federal and state securities laws and federal and state income tax and other payroll tax withholding requirements. 6.1 OPTION PRICE. The exercise price for each Option granted under the Plan shall be determined by the Committee or Subcommittee; provided, however, that it shall not be less than the fair market value of the Common Stock on the date of grant. The fair market value shall be determined for all purposes of the Plan as follows: (A) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, fair market value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on NASDAQ and have not been designated an NMS security, fair market value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date, or (C) if on such date, the Common Stock is not so quoted or listed, the fair market value shall be the average of (i) the highest closing bid price for the Common Stock quoted by any Fair Market Value Broker on such date and (ii) the lowest closing asked price for the Common Stock quoted by any Fair Market Value Broker on such date or, if no Fair Market Value Broker quotes a closing asked price for the Common Stock on such date, the highest closing bid price quoted by any Fair Market Value Broker on such date. 6.2 EXERCISABILITY AND TERMS OF OPTIONS. The Committee or Subcommittee shall determine the dates after which Options may be exercised, in whole or in part, and may establish a vesting schedule that must be satisfied before Options may be exercised; provided, however, that no Option may be exercisable within six months of the date it is granted. If an Option is exercisable in installments, installments which are exercisable and not exercised shall remain exercisable during the term of the Option. Prior to the exercise of any Option granted pursuant to this Plan, a certificate made by two officers of the Bank, one of whom shall be the president or a vice-president, shall be filed with the New Jersey Department of Banking and Insurance, stating: (i) the date upon which the Plan was adopted by the Board of Directors and approved by the stockholders in accordance with Article XIII; (ii) the Date upon which the Options were granted pursuant to such Plan; (iii) the consideration paid for the purchase of the Common Stock; (iv) the fair market value of the Shares subject to the Option on the date the Option was granted; (v) the amount of the Shares of the Bank to be issued; and (vi) the amount of the capital stock and surplus of the Bank after the exercise of such Option and the issuance of capital stock pursuant thereto. All Options shall have a term of no more than ten years from the date of grant; provided, however, that upon the Termination of Service of a Participant due to (i) voluntary resignation or involuntary dismissal without Cause, or (ii) his Retirement, Options that have not become exercisable before the date the Participant Terminates Service shall be forfeited and terminated immediately. The Participant may exercise an Option to the extent it was exercisable by him on the date immediately preceding such Termination within the lesser of (i) one month from the date of Termination (six months from the date of Termination in the case of Retirement), or (ii) the balance of the stated term of the Option. If a Participant shall be terminated with Cause, all Options granted to such Participant that have not been exercised prior to such Termination for Cause shall, whether or not exercisable, be forfeited immediately upon such Termination. 6.3 ACCELERATED VESTING AND EXERCISE OF STOCK OPTIONS. If a Participant shall Terminate Service by reason of his death or Disability, all Options granted to such Participant that have not become exercisable on or before the date of such Termination may, at the discretion of the Committee, become exercisable as of such date. All options held by such Participant may be exercised by the Participant, his estate or beneficiary, or his representative, as the case may be, for a period of one year from the date of such Termination, or until the expiration of the stated term of such Option, whichever period is shorter. In the event of a Change In Control, any Option granted under the Plan to a Participant which has not, as of the date of the Change In Control, become exercisable shall become fully exercisable. 6.4 NONTRANSFERABILITY OF OPTION RIGHTS. No Option shall be transferable except by will or the laws of descent and distribution, and then shall be limited by Section 6.2. During the lifetime of the Participant, the Option shall be exercisable only by him. The Committee may, however, in its sole discretion, allow for transfers of Nonqualified Options to family members, subject to such conditions or limitations as it may establish to ensure compliance with Rule 16b-3 promulgated pursuant to the Exchange Act, or for other purposes. 6.5 NO OBLIGATION TO EXERCISE OPTION. The grant of an Option shall impose no obligation on the Participant to exercise such Option. 6.6 CANCELLATION OF OPTIONS. The Committee, or Subcommittee, in its discretion, may, with the consent of any Participant, cancel any outstanding Option. 6.7. NO RIGHTS AS A STOCKHOLDER. A Participant or a transferee of an Option shall have no rights as a stockholder with respect to any Share covered by his Option until he shall have become the holder of record of such Share, and he shall not be entitled to any dividends or distributions or other rights in respect of such Share for which the record date is prior to the date on which he shall have become the holder of record thereof. 6.8. SPECIAL PROVISIONS APPLICABLE TO INCENTIVE OPTIONS. No Incentive Option may be granted to an individual who, at the time the Option is granted, owns directly, or indirectly within the meaning of Section 424(d) of the Code, stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Bank or of any parent or Subsidiary thereof, unless such Option (i) has an Option price of at least 110 percent of the fair market value of the Stock on the date of the grant of such option; and (ii) cannot be exercised more than five years after the date it is granted. Each Participant who receives an Incentive Option must agree to notify the Bank in writing immediately after the Participant makes a disqualifying disposition of any Stock acquired pursuant to the exercise of an Incentive Option. A disqualifying disposition is any disposition (including any sale) of such Stock before the later of (i) two years after the date the optionee was granted the Incentive Option or (ii) one year after the date the Participant acquired Stock by exercising the Incentive Option. Any transfer of ownership to a broker or nominee shall be deemed to be a disposition unless the Participant provides proof satisfactory to the Committee of his continued beneficial ownership of the Stock. Any other provision of the Plan to the contrary notwithstanding, no Incentive Option shall be granted after the date which is ten years from the date this Plan is adopted, or the date the Plan is approved by the stockholders, whichever is earlier. 6.9 GRANT OF REPLACEMENT OPTIONS. The Committee may from time to time, in its discretion, adopt a policy, which policy shall not remain in effect for longer than 12 months at a time, but which may be adopted for successive 12-month periods, under which each Participant who exercises an Option ("Exercised Option") while the policy is in effect and pays the exercise price, in whole or in part, by delivery of shares of Common Stock shall be granted, subject to Article IV, additional Options ("Replacement Options") in an amount equal to the number of shares of Common Stock tendered to exercise the Exercised Option. The Committee may, in its discretion, provide that the Replacement Option policy shall not apply to Options which would expire within such period as the Committee determines, in its discretion, from the effective date of the policy. A Replacement Option can under no circumstances be issued if the exercise price of the Exercised Option is greater than the fair market value of the Common Stock on the date of exercise of the Exercised Option. Replacement Options shall be subject to the following terms and conditions: (i) the date of grant for each Replacement Option shall be the date of exercise of the Exercised Option to which it relates; (ii) the Replacement Option may be exercised at any time after the second anniversary of the date of grant of such Replacement Option during the unexpired term of the Exercised Option (subject to earlier termination thereof as provided in the Plan and in the applicable Option Agreement); (iii) the terms of the Replacement Option shall be the same as the terms of the Exercised Option to which it relates, except that the exercise price shall be the fair market value of the Common Stock on the date of grant of the Replacement Option; and (iv) the Replacement Option shall be forfeited by the Participant and become null and void if the Participant shall sell or otherwise dispose of the Shares acquired upon the exercise of the Exercised Option within two years of the date they were purchased; provided, however, that for this purpose, the use of Shares to exercise an Option shall not be considered a sale or other disposition. Each Participant who is to receive Shares subject to this restriction shall be issued a stock certificate in respect of such Shares, registered in the name of the Participant, which shall bear an appropriate legend referring to the restrictions in this clause (iv), to read substantially in the following form: "The transfer of this certificate and the shares of stock represented hereby are, until _______________, _______ subject to the terms and conditions of the Sussex County State Bank 1995 Incentive Stock Option Plan. A copy of such Plan is on file in the offices of Sussex County State Bank, 399 Route 23, Franklin, New Jersey 07416." ARTICLE VII. EXERCISE OF OPTION Any Option may be exercised in whole or in part at any time subsequent to such Option becoming exercisable during the term of such Option; provided, however, that each partial exercise shall be for whole Shares only. Each Option, or any exercisable portion thereof, may only be exercised by delivery to the Secretary or his office of (i) notice in writing signed by the Participant (or other person then entitled to exercise such Option) that such Option, or a specified portion thereof, is being exercised; (ii) payment in full for the purchased Shares (as specified in Section 7.2 below); (iii) such representations and documents as are necessary or advisable to effect compliance with all applicable provisions of Federal or state securities laws or regulations; (iv) in the event that the Option or portion thereof shall be exercised pursuant to Section 6.3 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option or portion thereof; and (v) full payment to the Bank of all amounts which, under federal or state law, it is required to withhold upon exercise of the Option. 7.1 SHARE CERTIFICATES. Upon receiving notice and payment, the Bank will cause to be delivered to the Participant, as soon as practicable, a certificate in the Participant's name for the Shares purchased. The Shares issuable and deliverable upon the exercise of a Stock Option shall be fully paid and non-assessable. The Bank shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the complete or partial exercise of the Stock Option prior to fulfillment of (i) the completion of any registration or other qualification of such Shares under any federal or state law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body which may be necessary or advisable; and (ii) the obtaining of any approval or other clearance from any federal or state governmental agency which may be necessary or advisable. 7.2 PAYMENT FOR SHARES. Payment for Shares purchased under an Option granted hereunder shall be made in full upon exercise of the Option, by one or more of the following, unless otherwise prohibited by the terms of an Option agreement: (i) by certified or bank cashier's check payable to the order of the Bank,; (ii) in the form of unrestricted Shares already owned by the Participant based in any such instance on the fair market value of the Stock on the date the Option is exercised; (iii) by a combination thereof, in each case in the manner provided in the Option agreement; or (iv) by any other means acceptable to the Bank. To the extent the Option exercise price may be paid in Shares as provided above, Shares delivered by the Participant may be Shares which were received by the Participant upon exercise of one or more Incentive Options, but only if such Shares have been held by the Participant for at least the greater of (a) two years from the date the Incentive Options were granted or (b) one year after the transfer of Shares to the Participant. To facilitate the foregoing, the Bank may enter into agreements for coordinated procedures with one or more Fair Market Value Brokers, or make a loan, or assist a Participant in obtaining a loan from a financial institution, of funds sufficient to exercise an Option, subject to such conditions or limitations as it may establish to ensure compliance with Regulation O. ARTICLE VIII. ADJUSTMENT FOR RECAPITALIZATION, ETC. The aggregate number of Shares which may be purchased pursuant to Options granted, the number of Shares covered by each outstanding Option, and the price per share thereof in each such Option shall be appropriately adjusted for any increase or decrease in the number of outstanding Shares resulting from a stock split or other subdivision or consolidation of Shares or for other capital adjustments or payments of stock dividends or distributions, other increases or decreases in the outstanding Shares effected without receipt of consideration by the Bank, or reorganization, merger or consolidation, or other similar change affecting the Shares. Such adjustment to an Option shall be made without a change to the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of Share quantities or prices). Any such adjustment made by the Committee shall be final and binding upon all Participants, the Bank, their representatives, and all other interested persons. No fractional Shares shall be issued as a result of such adjustment. In the event of a transaction involving (i) the liquidation or dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not the surviving corporation or (iii) the sale or disposition of all or substantially all of the Bank's assets, provision shall be made in connection with such transaction for the assumption of Options theretofore granted under the Plan, or the substitution for such Options of new options of the successor corporation, with appropriate adjustment as to the number and kind of Shares and the purchase price for Shares thereunder, or, in the discretion of the Committee, the Plan and the Options issued hereunder shall terminate on the effective date of such transaction if appropriate provision is made for payment to the Participant of an amount in cash equal to the fair market value of the Options less the exercise price for such Options; provided, however, that in no event shall the Committee take any action or make any determination under this Article VIII which would prevent a transaction described in clause (ii) or (iii) above from being treated as a pooling of interests under generally accepted accounting principles. ARTICLE IX. GOVERNMENT REGULATIONS AND REGISTRATION OF SHARES The Plan, and the grant and exercise of Options thereunder, and the Bank's obligation to sell and deliver stock under such Options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. Each Option is subject to the requirement that if, at any time, the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or NASDAQ or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Shares, no Shares shall be issued, in whole or in part, unless such listing, registration, qualification, consent or approval has been effected or obtained, free of any conditions not acceptable to the Committee. The Bank shall not be deemed, by reason of the granting of any Option, to have any obligation to register the Shares subject to such Option under the Securities Act or to maintain in effect any registration of such Shares which may be made at any time under the Securities Act. Unless a registration statement under the Securities Act and the applicable rules and regulations thereunder is then in effect with respect to Shares issued upon exercise of any Option (which registration shall not be required), the Bank shall require that the offer and sale of such shares be exempt from the registration provisions of said Act. In furtherance of such exemption, the Bank may require, as a condition precedent to the exercise of any Option, that the person exercising the Option give to the Bank written representation and undertaking, satisfactory in form and substance to the Bank, that he is acquiring the Shares for his own account for investment and not with a view to the distribution or resale thereof and otherwise establish to the Bank's satisfaction that the offer or sale of the Shares issuable upon exercise of the Option will not constitute or result in any breach or violation of the Securities Act or any similar state act or statute or any rules or regulations thereunder. In the event a Registration Statement under the Securities Act is not then in effect with respect to the Shares issued upon exercise of an Option, the Bank shall place upon any stock certificate an appropriate legend referring to the restrictions on disposition under the Act. The Bank is relieved from any liability for the nonissuance or non-transfer or any delay in issuance or transfer of any Shares subject to Options under the Plan which results from the inability of the Bank to obtain, or in any delay in obtaining, from any regulatory body having jurisdiction, all requisite authority to issue or transfer Shares upon exercise of the Options under the Plan if counsel for the Bank deems such authority necessary for lawful issuance or transfer of any such Shares. Appropriate legends may be placed on the stock certificates evidencing Shares issued upon exercise of Options to reflect such transfer restrictions. ARTICLE X. OTHER PROVISIONS The validity, interpretation and administration of the Plan and any rules, regulations, determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of the State of New Jersey. As used herein, the masculine gender shall include the feminine gender. The headings in the Plan are for reference purposes only and shall not affect the meaning or interpretation of the Plan. All notices or other communications made or given pursuant to this Plan shall be in writing and shall be sufficiently made or given if hand-delivered or mailed by certified mail, addressed to any Participant at the address contained in the records of the Bank or to the Bank at its principal office. The proceeds received from the sale of Shares pursuant to the Plan shall be used for general corporate purposes. Nothing in the Plan or in any Option granted hereunder shall confer on any Participant or eligible Employee any right to continue in the employ of the Bank or any of its Subsidiaries, or to interfere in any way with the right of the Bank or any of its Subsidiaries to terminate such Participant's or Employee's employment at any time. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act, and the Committee shall interpret and administer the provisions of the Plan or any Option in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. All expenses and costs incurred in connection with the operation of the Plan shall be borne by the Bank. The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Bank. Nothing in this Plan shall be construed to limit the right of the Bank (i) to establish, alter or terminate any other forms of incentives, benefits or compensation for Employees of the Bank, including, without limitation, conditioning the right to receive other incentives, benefits or compensation on an Employee not participating in this Plan; or (ii) to grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, without limitation, the grant or assumption of stock options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock, or assets of any corporation, firm or association. Participants shall have no rights as shareholders unless and until certificates for Shares are registered in their names in satisfaction of a properly exercised Option. If the Committee or Subcommittee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefore has been made by a duly appointed legal representative), may, if the Committee or Subcommittee so directs the Bank, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Bank therefore. ARTICLE XI. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN The Plan is effective as of April 1, 1995, subject to approval by the stockholders of the Bank in a manner which complies with Rule 16b-3 under the Exchange Act, Section 422 of the Code, and Article 7B, Sections 27.50 through 27.54 of the New Jersey Banking Law and other applicable state law. The expiration date of the Plan, after which no Option may be granted hereunder, shall be March 31, 2005. ARTICLE XII. AMENDMENT OR DISCONTINUANCE OF PLAN The Board may, without the consent of the Bank's stockholders or Participants under the Plan, at any time terminate the Plan entirely, and at any time or from time to time amend or modify the Plan, provided that no such action shall adversely affect Options theretofore granted hereunder without the Participant's consent, and provided further that no such action by the Board, without approval of the stockholders, may (i) increase the total number of Shares which may be purchased or acquired pursuant to Options granted under the Plan, either in the aggregate or for any Participant or eligible Employee, except as contemplated in Article VIII; (ii) expand the class of employees eligible to receive Options under the Plan; (iii) decrease the minimum Option price; (iv) extend the maximum term of Options granted hereunder; (v) extend the term of the Plan; or (vi) take any other action requiring stockholder approval under Rule 16b-3 under the Exchange Act. No amendment or modification may become effective if it would cause the Plan to fail to meet the applicable requirements of Rule 16b-3. ARTICLE XIII. SHAREHOLDER APPROVAL Anything in the Plan to the contrary notwithstanding, the grant of Options hereunder shall be of no force or effect, and no Option granted hereunder shall vest or become exercisable in any respect, unless and until the Plan is approved by the affirmative vote of the holders of two-thirds of the shares outstanding within 12 months after March 15, 1995. EX-99.7 8 EXHIBIT (B)(10)(B) STOCK OPTION PLAN SUSSEX COUNTY STATE BANK 1995 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS ARTICLE I. PURPOSES The Sussex County State Bank 1995 Stock Option Plan For Nonemployee Directors (the "Plan") is hereby established to advance the interests of Sussex County State Bank (the "Bank") and its shareholders by providing Nonemployee Directors with an equity interest in the Bank. The Plan will enhance the ability of the Bank (i) to attract, retain and motivate members of its Board of Directors and (ii) to provide additional incentive to such members by encouraging them to invest in shares of the Bank's common stock and thereby acquire a proprietary interest in the Bank and an increased personal interest in the Bank's continued success and progress, to the mutual benefit of directors, employees and shareholders. To achieve these objectives, the Plan provides for the granting of nonqualified stock options. ARTICLE II. DEFINITIONS Whenever the following terms are used in this Plan, they shall have the meaning specified below: "Affiliate" shall mean the Bank, a Subsidiary, or any employee benefit plan established or maintained by the Bank or a Subsidiary. "Board" shall mean the Board of Directors of the Bank, or of any Affiliate of the Bank. "Change in Control" shall mean the occurrence of one or more of the following events: (i) the Bank acquires actual knowledge that any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than an Affiliate is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Bank representing 15% or more of the combined voting power of the Bank's then outstanding securities, (ii) the first purchase of Common Stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by an Affiliate), (iii) the approval by the Bank's stockholders of (a) a merger or consolidation of the Bank with or into another corporation (other than a merger or consolidation in which the Bank is the surviving corporation and which does not result in any reclassification or reorganization of the Bank's then outstanding shares of Common Stock or a change in the Bank's directors, other than the addition of not more than three directors), (b) a sale or disposition of all or substantially all of the Bank's assets or (c) a plan of liquidation or dissolution of the Bank, (iv) during any period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least two-thirds thereof, unless the election or nomination for the election by the Bank's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, or (v) a sale of (a) Common Stock of the Bank if after such sale any person (as defined above) other than an Affiliate owns a majority of the Bank's common stock or (b) all or substantially all of the Bank's assets (other than in the ordinary course of business). Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred for purposes of clause (i) above if a person is or becomes the beneficial owner, directly or indirectly, of more than 15% but less than 25% of the combined voting power of the Bank's then outstanding securities if the acquisition of all voting securities in excess of 15% was approved in advance by two-thirds of the directors then in office. "Code" shall mean the Internal Revenue Code of 1986, as now in effect or as hereafter amended. (All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered). "Common Stock" shall mean the common stock of the Bank, no par value. "Disability" shall mean permanent and total disability as defined in the Bank's employee welfare benefit plan offering a long term disability benefit, or, if no such benefit is offered, as defined by Section 105(d)(4) of the Code. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value Broker" shall mean one or more broker-dealers designated by the Board from time to time; provided however, that if on the applicable date one or more broker-dealers have been designated by the Board as a "Designated Broker" for purposes of the Bank's dividend reinvestment plan, such broker-dealer or broker-dealers shall constitute the sole "Fair Market Value Brokers" hereunder. "Nonemployee Director" shall mean a member of the Board who is not a common law employee of the Bank or any Subsidiary on the date such member is granted an Option or at any time during the preceding 12 month period. "Option" shall mean a right to purchase Common Stock which is awarded in accordance with the terms of this Plan. "Participant" shall mean a Nonemployee Director who has been granted an Option under the Plan. "Retirement Date" shall mean the date on which a Nonemployee Director is required to resign from, or is required to forego reelection to, the Board as a result of mandatory retirement provisions applicable to such Nonemployee Director. "Retirement" shall mean a Nonemployee Director's resignation from, or the act of foregoing election to, the Board as a result of any such mandatory retirement provision. "Secretary" shall mean the corporate secretary of the Bank. "Securities Act" shall mean the Securities Act of 1933. "Shares" shall mean shares of Common Stock. "Subsidiary(ies)" shall mean any corporation or other legal entity, domestic or foreign, more than 50% of the voting power of which is, as of the date of the adoption of this Plan or at any time subsequent thereto, owned or controlled, directly or indirectly by the Bank. "Terminate (Termination of) Service (or Termination)" shall mean the time at which the Participant ceases to provide services to the Bank in any capacity, including, but not limited to, services as a director or as a common law employee, but shall not include a lapse in providing services which the Committee determines to be a temporary leave of absence. "Year(s) of Service" shall mean any calendar year during which the applicable person served as a director of the Bank for at least seven months. ARTICLE III. ADMINISTRATION The Plan shall be administered by the Board of Directors of the Bank, which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Board shall keep minutes of its meetings. A majority of the Board shall constitute a quorum and a majority of the quorum may authorize any action. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or any Option granted pursuant thereto. All members of the Board shall be indemnified by the Bank with respect to any such action, determination or interpretation to the fullest extent permitted by law. Subject to the express terms and conditions set forth herein, the Board shall have the power from time to time: a) to construe and interpret the Plan and the Options granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Option, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective; provided, however, that the Board shall have no discretion with respect to designating (i) the recipient of an Option, (ii) the number of shares of Common Stock that are subject to an Option, or (iii) the exercise price for an Option. All decisions and determinations by the Board in the exercise of this power shall be final and binding upon the Bank, its Subsidiaries and the Participants; b) to determine the duration and purposes for leaves of absence which may be granted to a Participant without constituting a Termination of Service for purposes of the Plan; and c) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Bank with respect to the Plan. ARTICLE IV. SHARES SUBJECT TO PLAN The maximum number of Shares that may be made subject to Stock Options granted pursuant to the Plan is 32,000 (or the number and kind of shares of stock or other securities which are substituted for those Shares or to which those Shares are adjusted pursuant to the provisions of Article VIII of the Plan). The Bank shall reserve such number of Shares for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Bank's treasury, or partly out of each, as shall be determined by the Board. No fractional shares of Common Stock shall be issued with respect to Options granted under the Plan. In the event that any outstanding Option under the Plan for any reason expires, is terminated, forfeited or is canceled prior to the expiration date of the Plan, the Shares called for by the unexercised portion of such Option may, to the extent permitted by Rule 16b-3 under the Exchange Act, again be subject to an Option under the Plan. ARTICLE V. ELIGIBILITY FOR AWARD AND GRANTS OF OPTIONS 5.1 GRANT OF SERVICE OPTIONS. Following the approval of this Plan by the Bank's shareholders pursuant to Article XIII hereof, each person who was a director of the Bank as of the date of such approval and who will continue as a director after the date of the shareholder meeting at which such approval is granted shall be granted an Option to purchase 2,500 Shares. Such Option shall be granted in recognition of the valuable services provided by the directors to the Bank during those years prior to the adoption of the Plan. Before any Options are granted under this Section, a copy thereof shall be filed with the New Jersey Department of Banking and Insurance, together with a certificate made by two officers, one of whom shall be the president or a vice-president, stating that the Plan has been adopted and approved in accordance with Article XIII. 5.2 ANNUAL OPTION GRANT. Each person who is not an employee of the Bank or any Subsidiary at any annual or special meeting of shareholders of the Bank or any Subsidiary at which directors are elected who will continue as a director after the date of such meeting or who is elected or reelected a director of the Bank or any Subsidiary at such meeting of shareholders of the Bank or any Subsidiary, as of the date of each such annual or special meeting of shareholders, shall automatically be granted an option to purchase 500 shares of the Bank's Common Stock; provided, however, that (i) no Nonemployee Director of the Bank or any Subsidiary shall receive an option or options to purchase more than 500 shares of Common Stock in any calendar year regardless of the number of committees of the Board of Directors on which he serves or to which he is appointed or reappointed, and (ii) the maximum number of shares as to which options may be granted to any Nonemployee Director under this plan shall be 7,500 shares. Before any Options are granted under this Section, a copy thereof shall be filed with the New Jersey Department of Banking and Insurance, together with a certificate made by two officers, one of whom shall be the president or a vice-president, stating that the Plan has been adopted and approved in accordance with Article XIII. The grant of any Options shall be evidenced by a written Option contract, in a form determined by the Board, executed by the Bank and the Participant. The Option contract shall state the number of Shares that are subject to the Option evidenced thereby, the other essential terms of the Option determined in accordance with Article VI hereof, and other terms, as the Board may deem appropriate, that are not inconsistent with requirements of this Plan. ARTICLE VI. TERMS AND CONDITIONS 6.1 OPTION PRICE. The exercise price for each Option granted under the Plan shall be determined by the Board; provided, however, that it shall not be less than the fair market value of the Common Stock on the date of grant. The fair market value shall be determined for all purposes of the Plan as follows: (A) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, fair market value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on NASDAQ and have not been designated an NMS security, fair market value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date, (C) if on such date, the Common Stock is not so quoted or listed, the fair market value shall be the average of (i) the highest closing bid price for the Common Stock quoted by any Fair Market Value Broker on such date and (ii) the lowest closing asked price for the Common Stock quoted by any Fair Market Value Broker on such date or, if no Fair Market Value Broker quotes a closing asked price for the Common Stock on such date, the highest closing bid price quoted by any Fair Market Value Broker on such date, or (D) if there are no bid and asked prices available on such date, the average of the high bid and asked prices available on the closest preceding date to such date, or if no bid and asked prices are available for the ninety trading days preceding such date, then a price determined by the Board on the basis of such information as it considers best reflects market value. 6.2 EXERCISABILITY AND TERMS OF OPTIONS. Options granted pursuant to Section 5.1 shall be exercisable in their entirety six months after the date such Options are granted. Unless the exercise date of an Option granted pursuant to Section 5.2 is accelerated pursuant to Section 6.3 hereof, the following provisions shall apply with respect to the exercise of such Options: (a) until six months after the grant of the Option, such Option shall not be exercisable; and (b) from the first day of the seventh month after the grant of the Option to the end of the eighteenth month after such grant, such Option may only be exercised as to up to 33 1/3% of the shares of Common Stock covered thereby; and (c) from the first day of the nineteenth month after the grant of the Option to the end of the twenty-ninth month after such grant, such Option may only be exercised as to up to 66 2/3% of the shares of Common Stock covered thereby; and (d) an Option may be exercised in its entirety or as to any portion thereof at any time on or after the first day of the thirtieth month after such grant, until the term of such Option expires or otherwise ends. Installments which become exercisable and not exercised shall remain exercisable during the term of the Option. Prior to the exercise of any Option granted pursuant to this Plan, a certificate made by two officers of the Bank, one of whom shall be the president or a vice-president, shall be filed with the New Jersey Department of Banking and Insurance, stating: (i) the date upon which the Plan was adopted by the Board of Directors and approved by the stockholders in accordance with Article XIII; (ii) the Date upon which the Options were granted pursuant to such Plan; (iii) the consideration paid for the purchase of the Common Stock; (iv) the fair market value of the Shares subject to the Option on the date the Option was granted; (v) the amount of the Shares of the Bank to be issued; and (vi) the amount of the capital stock and surplus of the Bank after the exercise of such Option and the issuance of capital stock pursuant thereto. All Options shall have a term of no more than ten years from the date of grant; provided, however, that upon the Termination of Service of a Participant, Options that have not become exercisable before the date the Participant Terminates Service shall be forfeited and terminated immediately. The Participant may exercise an Option to the extent it was exercisable by him on the date immediately preceding such Termination within the lesser of one month from the date of Termination, or the balance of the stated term of the Option. Without limiting the foregoing, no Option shall be exercisable after the date of termination, if the Termination of Service is by the Bank or any Subsidiary for Cause. For purposes of this Plan, "Cause" shall mean (i) the conviction of the Participant of a felony by a court of competent jurisdiction, (ii) the indictment of the Participant by a state or federal grand jury of competent jurisdiction for embezzlement or misappropriation of funds of the Bank, or for any act of dishonesty or lack of fidelity towards the Bank, (iii) the written confession by the Participant of any act of dishonesty towards the Bank or any embezzlement or misappropriation of the Bank's funds, or (iv) willful or gross neglect of the duties for which the Participant was responsible, all as the Committee, in its sole discretion, may determine. 6.3 ACCELERATED VESTING AND EXERCISE OF STOCK OPTIONS. If a Participant shall Terminate Service by reason of his Retirement, death or Disability, all Options granted to such Participant that have not become exercisable on or before the date of such Termination may, at the discretion of the Board, become exercisable as of such date; provided, however, that no Option may be exercised within six months of the date it is granted. All Options held by such Participant may be exercised by the Participant, his estate or beneficiary, or his representative, as the case may be, for a period of one year from the date of such Termination, or until the expiration of the stated term of such Option, whichever period is shorter. In the event of a Change In Control, any Option granted under the Plan to a Participant which has not, as of the date of the Change In Control, become exercisable shall become fully exercisable. 6.4 NONTRANSFERABILITY OF OPTION RIGHTS. No Option shall be transferable except by will or the laws of descent and distribution, and then shall be limited by Section 6.2. During the lifetime of the Participant, the Option shall be exercisable only by him. The Board may, however, in its sole discretion, allow for transfers of Options to family members, subject to such conditions or limitations as it may establish to ensure compliance with Rule 16b-3 promulgated pursuant to the Exchange Act, or for other purposes. 6.5 NO OBLIGATION TO EXERCISE OPTION. The grant of an Option shall impose no obligation on the Participant to exercise such Option. 6.6 CANCELLATION OF OPTIONS. The Board, in its discretion, may, with the con- sent of any Participant, cancel any outstanding Option. 6.7. NO RIGHTS AS A STOCKHOLDER. A Participant or a transferee of an Option shall have no rights as a stockholder with respect to any Share covered by his Option until he shall have become the holder of record of such Share, and he shall not be entitled to any dividends or distributions or other rights in respect of such Share for which the record date is prior to the date on which he shall have become the holder of record thereof. ARTICLE VII. EXERCISE OF OPTION Any Option may be exercised in whole or in part at any time subsequent to such Option becoming exercisable during the term of such Option; provided, however, that each partial exercise shall be for whole Shares only. Each Option, or any exercisable portion thereof, may only be exercised by delivery to the Secretary or his office of (i) notice in writing signed by the Participant (or other person then entitled to exercise such Option) that such Option, or a specified portion thereof, is being exercised; (ii) payment in full for the purchased Shares (as specified in Section 7.2 below); (iii) such representations and documents as are necessary or advisable to effect compliance with all applicable provisions of Federal or state securities laws or regulations; and (iv) in the event that the Option or portion thereof shall be exercised pursuant to Section 6.3 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. 7.1 SHARE CERTIFICATES. Upon receiving notice and payment, the Bank will cause to be delivered to the Participant, as soon as practicable, a certificate in the Participant's name for the Shares purchased. The Shares issuable and deliverable upon the exercise of a Stock Option shall be fully paid and non-assessable. The Bank shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the complete or partial exercise of the Stock Option prior to fulfillment of (i) the completion of any registration or other qualification of such Shares under any federal or state law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body which may be necessary or advisable; and (ii) the obtaining of any approval or other clearance from any federal or state governmental agency which may be necessary or advisable. 7.2 PAYMENT FOR SHARES. Payment for Shares purchased under an Option granted hereunder shall be made in full upon exercise of the Option, by one or more of the following, unless otherwise prohibited by the terms of an Option agreement: (i) by certified or bank cashier's check payable to the order of the Bank,; (ii) in the form of unrestricted Shares already owned by the Participant based in any such instance on the fair market value of the Stock on the date the Option is exercised; (iii) by a combination thereof, in each case in the manner provided in the Option agreement; or (iv) by any other means acceptable to the Bank. To facilitate the foregoing, the Bank may enter into agreements for coordinated procedures with one or more Fair Market Value Brokers, or make a loan, or assist a Participant in obtaining a loan from a financial institution, of funds sufficient to exercise an Option, subject to such conditions or limitations as it may establish to ensure compliance with Regulation O. ARTICLE VIII. ADJUSTMENT FOR RECAPITALIZATION, ETC. The aggregate number of Shares which may be purchased pursuant to Options granted, the number of Shares covered by each outstanding Option, and the price per share thereof in each such Option shall be appropriately adjusted for any increase or decrease in the number of outstanding Shares resulting from a stock split or other subdivision or consolidation of Shares or for other capital adjustments or payments of stock dividends or distributions, other increases or decreases in the outstanding Shares effected without receipt of consideration by the Bank, or reorganization, merger or consolidation, or other similar change affecting the Shares. Such adjustment to an Option shall be made without a change to the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of Share quantities or prices). Any such adjustment made by the Committee shall be final and binding upon all Participants, the Bank, their representatives, and all other interested persons. No fractional Shares shall be issued as a result of such adjustment. In the event of a transaction involving (i) the liquidation or dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not the surviving corporation or (iii) the sale or disposition of all or substantially all of the Bank's assets, provision shall be made in connection with such transaction for the assumption of Options theretofore granted under the Plan, or the substitution for such Options of new options of the successor corporation, with appropriate adjustment as to the number and kind of Shares and the purchase price for Shares thereunder, or, in the discretion of the Committee, the Plan and the Options issued hereunder shall terminate on the effective date of such transaction if appropriate provision is made for payment to the Participant of an amount in cash equal to the fair market value of the Options less the exercise price for such Options; provided, however, that in no event shall the Committee take any action or make any determination under this Article VIII which would prevent a transaction described in clause (ii) or (iii) above from being treated as a pooling of interests under generally accepted accounting principles. ARTICLE IX. GOVERNMENT REGULATIONS AND REGISTRATION OF SHARES The Plan, and the grant and exercise of Options thereunder, and the Bank's obligation to sell and deliver stock under such Options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. Each Option is subject to the requirement that if, at any time, the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or NASDAQ or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Shares, no Shares shall be issued, in whole or in part, unless such listing, registration, qualification, consent or approval has been effected or obtained, free of any conditions not acceptable to the Committee. The Bank shall not be deemed, by reason of the granting of any Option, to have any obligation to register the Shares subject to such Option under the Securities Act or to maintain in effect any registration of such Shares which may be made at any time under the Securities Act. Unless a registration statement under the Securities Act and the applicable rules and regulations thereunder is then in effect with respect to Shares issued upon exercise of any Option (which registration shall not be required), the Bank shall require that the offer and sale of such shares be exempt from the registration provisions of said Act. In furtherance of such exemption, the Bank may require, as a condition precedent to the exercise of any Option, that the person exercising the Option give to the Bank written representation and undertaking, satisfactory in form and substance to the Bank, that he is acquiring the Shares for his own account for investment and not with a view to the distribution or resale thereof and otherwise establish to the Bank's satisfaction that the offer or sale of the Shares issuable upon exercise of the Option will not constitute or result in any breach or violation of the Securities Act or any similar state act or statute or any rules or regulations thereunder. In the event a Registration Statement under the Securities Act is not then in effect with respect to the Shares issued upon exercise of an Option, the Bank shall place upon any stock certificate an appropriate legend referring to the restrictions on disposition under the Act. The Bank is relieved from any liability for the nonissuance or non-transfer or any delay in issuance or transfer of any Shares subject to Options under the Plan which results from the inability of the Bank to obtain, or in any delay in obtaining, from any regulatory body having jurisdiction, all requisite authority to issue or transfer Shares upon exercise of the Options under the Plan if counsel for the Bank deems such authority necessary for lawful issuance or transfer of any such Shares. Appropriate legends may be placed on the stock certificates evidencing Shares issued upon exercise of Options to reflect such transfer restrictions. ARTICLE X. OTHER PROVISIONS The validity, interpretation and administration of the Plan and any rules, regulations, determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of the State of New Jersey. As used herein, the masculine gender shall include the feminine gender. The headings in the Plan are for reference purposes only and shall not affect the meaning or interpretation of the Plan. All notices or other communications made or given pursuant to this Plan shall be in writing and shall be sufficiently made or given if hand-delivered or mailed by certified mail, addressed to any Participant at the address contained in the records of the Bank or to the Bank at its principal office. The proceeds received from the sale of Shares pursuant to the Plan shall be used for general corporate purposes. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act, and the Committee shall interpret and administer the provisions of the Plan or any Option in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. All expenses and costs incurred in connection with the operation of the Plan shall be borne by the Bank. Nothing in this Plan or in any Option granted hereunder shall confer upon any Participant any right to continue to serve as a director of the Bank or shall interfere with or restrict in any way the right, which right is hereby expressly reserved, to remove any Participant as a director in accordance with the by-laws and certificate of incorporation of the Bank and applicable law. If the Board shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefore has been made by a duly appointed legal representative), may, if the Board so directs the Bank, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Board to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Board and the Bank therefore. ARTICLE XI. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN The Plan shall become effective on the date of its adoption by the Board, subject to approval by the stockholders of the Bank in a manner which complies with Rule 16b-3 under the Exchange Act, New Jersey Administrative Code 3:4-2.1, Article 7B, Sections 27.50 through 27.54 of the New Jersey Banking Law, and other applicable state law. The expiration date of the Plan, after which no Option may be granted hereunder, shall be the date ten years subsequent to the Plan's effective date. ARTICLE XII. AMENDMENT OR DISCONTINUANCE OF PLAN The Board may, without the consent of the Bank's stockholders or Participants under the Plan, at any time terminate the Plan entirely, and at any time or from time to time amend or modify the Plan, provided that no such action shall adversely affect Options theretofore granted hereunder without the Participant's consent, and provided further that no such action by the Board, without approval of the stockholders, may (i) materially increase the total number of Shares which may be purchased or acquired pursuant to Options granted under the Plan, either in the aggregate or for any Participant pursuant to the formulas described in Article V, except as contemplated in Article VIII; (ii) materially expand the class of directors eligible to receive Options under the Plan; (iii) decrease the minimum Option price; (iv) materially increase the benefits accruing to Participants under the Plan; or (v) take any other action requiring stockholder approval under Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, no provision of the Plan shall be amended, if at all, more than once every six months, other than to comport with changes in the Code, the Act or the rules thereunder. No amendment or modification may become effective if it would cause the Plan to fail to meet the applicable requirements of Rule 16b-3. ARTICLE XIII. SHAREHOLDER APPROVAL Anything in the Plan to the contrary notwithstanding, the grant of Options hereunder shall be of no force or effect, and no Option granted hereunder shall vest or become exercisable in any respect, unless and until the Plan is approved by the affirmative vote of the holders of two-thirds of the shares outstanding within 12 months after March 15, 1995. EX-99.8 9 EXHIBIT (B)(10)(C) NON QUALIFIED SUSSEX COUNTY STATE BANK Terms and Conditions for Exercise of Incentive & Nonqualified Stock Options Issued Pursuant to the 1988 Nonqualified Stock Option Plan - - -------------------------------------------------------------------------------- I. METHOD OF EXERCISE ------------------ When you decide to exercise a stock option, you must follow the steps set forth below: A. Notice of Exercise ------------------ Send a Notice of Exercise Letter (Form for Exercising an Employee Stock Option) to: Sussex County State Bank 399 Route 23 Franklin, New Jersey 07416 Attention: Corporate Secretary The Notice of Exercise Letter should follow the format of the sample letter enclosed in this package. Your letter must set forth the following information: 1. The number of shares that you wish to exercise, the grant date of those options being exercised and the type of option you are exercising, an Incentive Stock Option or a Nonqualified Stock Option; 2. The method of payment: by check, by Sussex County State Bank Common Stock, or by a combination; 3. The number of certificates to be prepared, and the address to which they should be delivered. A separate Notice of Exercise Letter should be prepared for stock options grants awarded at different dates. We will not accept oral Notices of Exercise and you must purchase a minimum of 100 shares. B. Payment ------- Your option exercise payment (see next page) must accompany your Notice of Exercise Letter. Notice of Exercise Letters received without payment will not be processed. Payment may be made (1) by check, (2) by Sussex County State Bank Common Stock, * or (3) by a combination of Sussex County State Bank Common Stock and check as follows: 1. Payment by Check - Send a certified or bank check, payable to Sussex County State Bank, for the full amount of the exercise price. 2. Payment with Shares of Sussex County State Bank Common Stock* - You may pay for the exercise of this option by delivering to the Bank shares of Sussex County State Bank Common Stock which you own having a value (see (b) below) equal to or greater than the exercise price as follows: a) Delivery of Stock Certificate(s) -------------------------------- The stock certificate(s) must be delivered to the Corporation either: (i) endorsed to Sussex County State Bank; or (ii) accompanied by a stock power endorsed to Sussex County State Bank. The endorsement must be identical to the registrant's name indicated on the face of the certificate. The signature of endorsement must be guaranteed by a bank or stock broker. (Note: If the certificate is mailed, you might consider making the endorsement on a stock power (ii above), and then mailing it separately). b) Valuation of Shares ------------------- Any shares delivered as either partial or full payment of the exercise price of this option will be valued at the fair market value (last sale price reported) of the Bank's Common Stock on NASDAQ as of the date they are received, duly endorsed, by the Bank's Personnel Department, or by the price quoted by Ryan Beck or such other licensed securities dealer actively marketing the Bank's common stock at the time. If the stock submitted for payment exceeds the number of shares required, a certificate will be returned to you for the balance. No fractional share certificates will be issued. If you deliver too few shares, only a part of your option can be exercised on the date you specified. - - ------------------------------------- * It is important to note that shares acquired through the exercise of an ISO cannot be used as payment for the exercise of another ISO unless those shares have been held for at least two years from the date of grant and one year from the date of exercise. As noted above, shares of Bank Common Stock used in payment of your stock option exercise will be valued as of the date they are received. Since, at the time of exercise, the fair market value of the shares tendered usually will not be known, you will owe the Bank a check (certified) for the excess of the exercise price over the value of the tendered shares. Failure to pay the full purchase price within 5 days of the date of exercise will void the Notice of Exercise. II. WITHHOLDING TAXES ----------------- You must pay all withholding taxes required by law. You may make your payment by personal check. A. Nonqualified Options- Withholding taxes, as required by law, will be promptly requested by the Bank after receipt of your Notice of Exercise Letter and the full purchase price. B. Incentive Stock Options - There are no applicable withholding taxes required on the exercise of an ISO. III. REGISTRATION AND DELIVERY OF SHARES ----------------------------------- Stock certificates(s) issued upon the exercise of this option will be registered in the name(s) specified in your Notice of Exercise and delivered to you as expeditiously as possible, after the receipt of full payment. Please note that in order to be considered a shareholder of record for dividend purposes, the shares must be registered in your name before the close of business on the dividend record date. IV. OTHER PROVISIONS ---------------- A. Neither you nor any person entitled to exercise your rights in the event of your death shall have any of the rights of a stockholder with respect to the shares of common stock subject to this option, unless, and until, you have exercised the options, paid the full price thereof, and have received the certificate for the shares so acquired. B. The Bank is not liable for the non-issuance or non-transfer or any delay in the issuance or transfer of any shares of common stock subject to this option which results from the inability of the Bank to obtain, or in any delay in obtaining, from each regulatory body having jurisdiction, all requisite authority to issue or transfer shares of common stock of the Bank in satisfaction of the option, if counsel for the Bank deems such authority necessary for the lawful issuance or transfer of any such shares. C. This option is subject to all of the terms and conditions of the Plan and your acceptance hereof shall constitute your agreement to the terms and conditions of the Plan and the administrative regulations of the Committee. Your exercise of this option constitutes your agreement that the shares of common stock acquired hereunder will not be sold or otherwise disposed of by you in violation of any applicable securities laws or regulations. You may obtain a copy of the Plan by making a request to the Personnel Department. D. This option shall be exercised in accordance with such additional administrative regulations as the Committee may from time to time adopt. All decisions of the Committee regarding any questions arising under the Plan or under these terms and conditions shall be conclusive and binding. E. If you dispose of the shares of common stock acquired on the exercise of an ISO by sale or exchange or other disqualifying disposition within one year after the acquisition of such shares, or two years from the date of grant of such ISO, you shall notify the Bank promptly of such disposition and the amount realized by you upon such disposition. Please retain this document in your permanent records. If you have any questions regarding the Plan or your option grant, please contact the Personnel Department. EX-21 10 EXHIBIT 21 SUBSIDIARY OF THE REGISTRANT The Sussex County State Bank. EX-27 11
9 9-MOS 9-MOS DEC-31-1996 DEC-31-1995 SEP-30-1996 DEC-31-1995 5,291 3,652 0 0 1,575 10,550 0 0 22,116 21,564 1,690 2,142 0 0 63,026 52,148 506 476 98,778 94,870 90,041 85,925 0 0 1,075 1,336 0 0 0 0 0 0 1,681 1,618 5,981 5,991 98,778 94,870 3,652 4,567 1,330 1,483 0 0 4,982 6,050 1,990 2,267 1,990 2,267 2,992 3,783 85 64 0 0 2,703 3,644 709 755 709 755 0 0 0 0 440 501 .67 .78 .67 .78 0 0 1,005 1,597 251 93 172 279 0 0 476 478 58 68 3 2 506 476 506 476 0 0 0 0
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