-----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, UHYitaYzoY6KY2JNmMj1jpbaFTIm/VFR6I+NS0nWxYYhRrc3TI+urJy5nNYgrM6C EuYwQajjtFyPBgoCks6jjA== 0000914317-98-000721.txt : 19981118 0000914317-98-000721.hdr.sgml : 19981118 ACCESSION NUMBER: 0000914317-98-000721 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUSSEX BANCORP CENTRAL INDEX KEY: 0001028954 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 223475473 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-12569 FILM NUMBER: 98752185 BUSINESS ADDRESS: STREET 1: 399 RTE 23 STREET 2: 9 CITY: FRANKLIN STATE: NJ ZIP: 07416 BUSINESS PHONE: 9738272914 MAIL ADDRESS: STREET 1: 399 RTE 23 CITY: FRANKLIN STATE: NJ ZIP: 07416 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------- FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 0-29030 SUSSEX BANCORP - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-3475473 - ------------------------------- ------------------- (State of other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 399 Route 23, Franklin, New Jersey 07416 - ----------------------------------- ---------- (Address of principal executive offices) (Zip Code) (973) 827-2914 - -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of October 28, 1998 there were 1,416,827 shares of common stock, no par value, outstanding. SUSSEX BANCORP FORM 10-QSB INDEX Part I - Financial Information Item I. Financial Statements and Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial condition and Results of Operations Part II - Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP CONSOLIDATED BALANCE SHEETS (in Thousands, Except Share Data) (Unaudited) September 30, December 31, 1998 1997 --------- --------- ASSETS Cash and Due from Banks ................ $ 4,959 $ 5,793 Federal Funds Sold ..................... 14,800 7,875 Securities: Available for Sale, at Market Value .. 31,583 26,600 Held to maturity ..................... 5,529 2,706 --------- --------- Total Securities ................. 37,112 29,306 Loans (Net of Unearned Income) ......... 69,050 68,035 Less: Allowance for Possible Loan Losses .................. 709 685 --------- --------- Net Loans ............ 68,341 67,350 Premises and Equipment, Net ............ 2,392 2,287 Other Real Estate ...................... 36 -0- Intangible Assets, Primarily Core Deposit Premiums ................ 724 787 Other Assets ................ 1,308 859 --------- --------- Total Assets .................. $ 129,672 $ 114,257 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Demand .............................. 19,488 13,807 Savings ............................. 50,109 47,884 Time ................................ 50,089 38,971 --------- --------- Total Deposits ................ 119,686 104,882 Other Liabilities ...................... 913 789 --------- --------- Total Liabilities ............. 120,599 105,671
SUSSEX BANCORP CONSOLIDATED BALANCE SHEETS (in Thousands, Except Share Data) (Unaudited) September 30, December 31, 1998 1998 --------- --------- Stockholders' Equity: Common Stock, No Par Value Authorized 5,000,000 Shares, Issued and outstanding 1,443,827 in 1998 and 1,391,971 in 1998, respectively ..... 5,586 5,412 Retained Earnings ...................... 3,401 3,162 Treasury Stock ......................... (2) (2) Net Unrealized Gain on Securities Available for Sale, net of income taxes ................. 88 (14) --------- --------- Total Stockholders' Equity ............. 9,078 8,586 Total Liabilities and Stockholders' Equity ................ $ 129,672 $ 114,257 ========= =========
See Notes to Consolidated Financial Statements
SUSSEX BANCORP CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited) Three Months Ended Nine Months Ended Sept. 30 Sept. 30 ---------------------------- --------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- INTEREST INCOME Interest and Fees on Loans ............... $ 1,391 $ 1,409 $ 4,157 $ 4,114 Interest on Securities: Taxable ................................. 463 376 1,269 1,070 Exempt from Federal Income Tax .......... 31 10 71 27 Interest on Federal Funds Sold .............. 213 97 601 246 ----------- ----------- ----------- ----------- Total Interest Income .............. 2,098 1,892 $ 6,098 $ 5,457 INTEREST EXPENSE Interest on Deposits: Interest on Savings Deposits ............ 243 180 789 518 Interest on Time Deposits ............... 746 597 1,963 1,744 ----------- ----------- ----------- ----------- Total Interest Expense ............. 989 777 2,752 2,262 Net Interest Income ..................... 1,109 1,115 3,346 3,195 Provision for Possible Loan Losses ........................... 21 45 63 195 ----------- ----------- ----------- ----------- Net Interest Income After Provision for Possible Loan Losses ... 1,088 1,070 3,283 3,000 NON-INTEREST INCOME Trust Income ............................ (3) 0 1 5 Service charges on Deposit Accounts .................. 123 121 369 376 Other Income ............................ 111 46 249 156 ----------- ----------- ----------- ----------- Total Non-interest Income .......... 231 167 619 537
SUSSEX BANCORP CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited) (continued) Three Months Ended Nine Months Ended Sept. 30 Sept. 30 ---------------------------- --------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- NON-INTEREST EXPENSE Salaries and Employee Benefits .......... 534 487 1,584 1,409 Occupancy Expense, Net .................. 89 81 269 262 Furniture and Equipment Expense ......... 111 92 316 288 Data Processing Expense ................. 36 21 73 53 Amortization of Intangibles ............. 22 21 63 63 Other Expenses .......................... 270 269 821 761 ----------- ----------- ----------- ----------- Total Non-Interest Expense ......... 1,062 971 3,126 2,836 Income Before Provision for Income Taxes .... 257 266 776 701 Provision for Income Taxes .................. 79 93 257 244 ----------- ----------- ----------- ----------- Net Income ......................... $ 178 $ 173 $ 519 $ 457 =========== =========== =========== =========== Net Income Per Common Share ............. $ 0.13 $ 0.12 $ 0.37 $ 0.33 =========== =========== =========== =========== Weighted Average Shares Outstanding ......... 1,416,827 1,390,134 1,416,827 1,390,134
See Notes to Consolidated Financial Statements
SUSSEX BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited) Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- Net Income .............................................. $ 519 $ 457 Other comprehensive income, Net of tax Unrealized loss on available-for-sale Securities ..... 89 (14) ----- ----- Comprehensive income .................................... $ 608 $ 443 ===== =====
SUSSEX BANCORP CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands, Except Share Data) (Unaudited) Unrealized Gain (Loss) on Total Common Retained Treasury Securities Stockholders Stock Earnings Stock Available Equity -------- -------- ----- ----- ----------- Balance December 31, 1997 $ 5,412 $ 3,162 $ (2) $ 14 $ 8,586 -------- -------- ----- ----- ----------- Net Income for the Period 519 519 Cash Dividend ($.33 per share) (282) (282) Shares issued through dividend reinvestment plan 136 136 Stock Option Exercised 37 37 Change in unrealized gain on securities available for sale 75 75 -------- -------- ----- ----- ----------- Balance Sept 30, 1998 $ 5,585 $ 3,399 $ (2) $ 89 $ 9,071
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ---------------------- 1998 1997 -------- -------- Cash Flows from Operating Activities: Net Income ..................................... $ 519 $ 457 Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and Amortization of Premises and Equipment .................................. 261 213 Amortization of Intangible Assets .................. 63 62 Premium amortization (discount accretion) of securities, net ............................. 69 43 Provision for Possible Loan Loses .................. 63 195 Gain/Los on Sale of Other Real Estate .............. 0 24 Accretion of Loan origination and commitment fees, net ........................... (79) 16 Deferred Federal income tax benefit (increase) ..................................... 267 71 Decrease (Increase) in Accrued Interest Receivable ..................................... (148) (195) Decrease (Increase) in Other Assets ................ (290) 305 Decrease (Increase) in Accrued Interest and Other Liabilities .......................... 195 (193) Net Cash Provided by Operating Activities ... $ 920 $ 998 Cash Flow from Investing Activities: Securities Available for Sale: Proceeds from Maturities and Pay downs ...... 4,000 674 Proceeds from Sales/Calls Prior to Maturity . 9,300 -- Purchases ................................... (18,347) (2,658) Securities Held to maturity: Proceeds from Maturities .................... 489 682 Purchases ................................... (3,317) (1,125) Net Increase in Loans Outstanding .............. (1,039) (3,493) Capital Expenditures ........................... (366) (270) Net Increase in Other Real Estate .............. (36) 410 -------- -------- Net Cash Provided by (used in) Investing Activities ...................... $ (9,316) $ (5,780)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) Nine Months Ended September 30, ---------------------- 1998 1997 -------- -------- Cash Flows from Financing Activities: Net (Decrease) Increase Total Deposits ...... 15,610 7,874 Payment of dividends ........................... (285) (186) -------- -------- Net Cash (used in) Provided by Financing Activities ................... $ 15,325 $ 7,688 Net increase (Decrease) in Cash and Cash Equivalents ........................ 6,929 2,906 Cash and Cash Equivalents, Beginning of Period ..................... 13,668 8,964 Cash and Cash Equivalents, End of Period .......................... $ 20,597 $ 11,870 ======== ========
See Notes to Consolidated Financial Statements SUSSEX BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation Sussex Bancorp ("the Company"), a one-bank holding company registered with the Federal Reserve under the Bank Holding Company Act of 1956, as amended, was incorporated in January, 1996 to serve as a holding company for the Sussex County State Bank ("the Bank"). The Company acquired the Bank and became its holding company on November 20, 1996. The Bank is the only active subsidiary at September 30, 1998. The Bank operates seven banking offices all located in Sussex County, New Jersey. The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The operations of the Company and the Bank are subject to the supervision and regulation of the FRB, FDIC and the New Jersey Department of Banking and Insurance (the "Department"). The consolidated financial statements included herein have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for interim periods. All adjustments made were of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-KSB for the fiscal period ended December 31, 1997. 2. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for a one day period. 3. Securities The amortized cost and approximate market value of securities are summarized as follows (in thousands):
September 30, 1998 December 31, 1997 ----------------------- ----------------------- Amortized Market Amortized Market Cash Value Cash Value ------- ------- ------- ------- Securities Available For Sale - U. S. Treasury Securities .. $ 8,605 $ 8,739 $ 8,049 $ 8,049 U. S. Government Mortgage Backed Securities . 22,830 22,844 18,529 18,551 ------- ------- ------- ------- Total Securities Available for Sale .. $31,435 $31,583 $26,578 $26,600 Securities Held to Maturity - Obligations of State and Political Subdivisions ..... 4,836 4,843 2,082 2,089 Other Debt Securities 693 693 624 624 ------- ------- ------- ------- Total Securities Held to Maturity ...... $ 5,529 $ 5,536 $ 2,706 $ 2,713 ------- ------- ------- ------- Total Securities ............... $36,964 $37,119 $29,284 $29,313 ======= ======= ======= =======
4. Recently Issued Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("Statement 130") effective March 31, 1998. Statement 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Under Statement 130, comprehensive income is divided into net income and other comprehensive income. Other comprehensive income includes items previously recorded directly in equity, such as unrealized gains or losses on securities available-for-sale. Statement 130 became effective for interim and annual periods beginning after December 15, 1997. Comparative financial statements provided for earlier periods are reclassified to reflect application of the provisions of the statement. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three and Nine Months Ended September 30, 1998 and September 30, 1997. OVERVIEW The Company realized net income of $178 thousand for the third quarter of 1998, a increase of $5 thousand from the $173 thousand reported for the same period of 1997. Basic earnings per share were $.13 and $.12 for the three month periods ended September 30, 1998 and 1997, respectively. Diluted earnings per share were $.12 and $.11 for the 1998 and 1997 periods, respectively. For the nine months ended September 30, 1998, net-income was $519 thousand, an increase of $62 thousand, or 13.6% from the $457 thousand reported for the same period of 1997. Basic earnings per share were $.37 and $.33, for the 1998 and 1997 periods, respectively, and diluted earnings per share were $.36 and $.32, respectively. RESULTS OF OPERATIONS Interest Income. Total interest income increased $206 thousand, or 10.9%, to $2.1 million for the quarter ended September 30, 1998 from $1.9 million for the same period of 1997. This was attributable to an increase in interest and dividends on securities of $108 thousand and an increase in interest income on Federal Funds sold of $116 thousand, offset by a decrease in interest income on loans. The increase in interest income on securities and Federal funds sold reflect increases in the average balance of investment securities and Federal funds sold. The decrease in interest income on loans reflects reinvestment of loan prepayments in a lower interest rate environment. The yield on average interest-earning assets on a fully taxable equivalent basis decreased 21 basis points from 7.24% for the third quarter of 1997 to 7.02% for the third quarter of 1998. The decline in average yield reflects reinvestment of mortgage principal repayment and prepayments and amortization and cash flows from called and maturing investment securities at lower current market rates of interest. The increase in interest earning assets reflects the Company's continued efforts to increase market share in its Sussex County, New Jersey trade area, as the Company continued to experience deposit growth. For the nine months ended September 30, 1998, interest income increased $641 thousand, or 11.7%, from the $5.5 million reported for the same period of 1997. This growth in interest income is the result of a $24.9 million, or 25.8% increase in the average balance of interest-earning assets over the comparable period of last year, partially offset by a decrease in the average yield on total interest-earning assets to 7.25% during the nine months ended September 30, 1998, compared to 7.48% during the same period in 1997. The majority of the Company's asset growth over the first nine months of 1998 occurred in investment securities and Federal funds sold as the Company's deposits increased more rapidly than loan demand. The decline in average yield reflects reinvestment of securities at lower rates of interest. The reduced interest rates for the nine month periods reflect the same factors as were present in the three month period. Interest Expense. The Company's interest expense for the third quarter of 1998 increased $212 thousand, or 27.3% to $989 thousand from $777 thousand for the same period last year. For the nine months ended September 30, 1998 interest expense increased $490 thousand, or 21.7%, to $2.8 million from $2.3 million for the same period last year. The average balance of interest bearing deposits increased $19.4 million, or 24%, from the same period of 1997, with growth in time deposits the largest component of this increase. Interest on time deposits increased $219 thousand for the nine months ended September 30, 1998 over the comparable period of 1997. The Company's average cost of funds increased to 3.36% for the nine months ended September 30, 1998 from 3.15% during the same period last year, reflecting a change in the composition of the Company's deposit portfolio as average time deposits for the nine months ended September 30, 1998 increased by $11.3 million compared to the nine months ended September 30, 1997. This growth is primarily the result of an increase in the Company's public funds on deposit, representing time deposits over $100,000. The Company believes it will be able to generate additional customer relationships through these public deposits. The average cost of the interest-bearing deposits increased to 3.35% during the current period, from the 3.14% during the same period last year. Table 1 following presents a summary of the Company's interest-earning assets and their average yields, and interest-bearing liabilities and their average costs and shareholders' equity for the nine months ended September 30, 1998 and 1997. The average balance of loans includes non-accrual loans, and associated yields include loan fees which are considered adjustment to yields.
Comparative Average Balance Sheets Nine months ended September 30, ----------------------------------------------------------------------------------- 1998 1997 --------------------------------------- ------------------------------------- Average Average Interest Rates Rates Average Income/ Earned/ Average Income Earned/ Balance Expense Paid Balance Expense Paid --------- --------- ---- --------- --------- ---- (Dollars in Thousands) Assets Interest Earning assets: Taxable loans (net of unearned income) ....................... $ 69,186 $ 4,157 8.13% $ 66,847 $ 4,114 8.11% Tax exempt securities ......... 4,837 71 5.65% 841 27 6.01% Taxable investment securities . 32,374 1,264 6.14% 22,748 1,070 6.80% Interest bearing deposits ..... 100 5 5.96% 0 0 0.00% Federal Funds sold ............ 14,826 601 5.72% 6,020 246 5.45% Total earning assets .......... 121,323 6098 7.25% 96,456 5,457 7.48% Non-interest earning assets ... 8,558 8,144 Allowance for possible loan losses ................. (706) (606) Total Assets ............ $ 129,175 $ 103,954
Comparative Average Balance Sheets Nine months ended September 30, ------------------------------------------------------------------------------- 1998 1997 --------------------------------------- ------------------------------------- Average Average Interest Rates Rates Average Income/ Earned/ Average Income Earned/ Balance Expense Paid Balance Expense Paid ------- ------- ---- ------- ------- ---- (Dollars in Thousands) Liabilities and Shareholders' Equity Interest bearing liabilities: NOW deposits ................................ $ 13,609 $ 193 1.90% $ 12,346 176 1.86% Savings deposits ............................ 32,976 596 2.64% 27,574 518 2.49% Money market deposits ....................... 4,120 84 2.50% 3,541 59 2.21% Time Deposits ............................... 49,493 1,879 5.19% 37,315 1,509 5.40% Fed Funds Purchased ......................... 0 0 0.00% 0 0 0.00% Subordinated debt ........................... 0 0 0.00% 0 0 0.00% Total interest bearing liabilities ........................ 100,198 2,752 3.75% 80,776 2,262 3.71% Non-interest bearing liabilities: Demand Deposits ......................... $ 19,193 $ 14,515 Other liabilities ........................... 912 781 Total non-interest bearing liabilities ........................ 20,105 15,296 Shareholders' equity ........................ 8,872 7,882 Total liabilities and shareholders' equity ............................. $129,175 $103,954 New interest differential ................... $ 3,346 $ 3,195 Net yield on interest-earning assets ............................. 4.05% 4.37%
Net-Interest Income. The net effect of the changes in interest income and interest expense for the third quarter of 1998 was a decrease of $6 thousand as compared to the second quarter of 1997. The net interest spread on a fully tax equivalent basis declined 64 basis points from the same period last year. Net interest income for the nine months ended September 30, 1998, increased by $151 thousand, or 4.7%, over the same period last year. The net interest spread decreased 52 basis points. Provision for Loan Losses. For the nine months ended September 30, 1998, the provision for possible loan losses was $21 thousand compared to the $45 thousand for the same period of last year. The provision for possible loan losses was $63 thousand for the nine months ended September 30, 1998, as compared to $195 thousand for the same period of last year. The decrease in the provision for loan losses reflects management's judgment concerning the risks inherent in the Company's existing loan portfolio and the size of the allowance necessary to absorb those risks. In setting the provision, management considers the amount and type of lending being undertaken by the Company and economic conditions in the Company's trade area, among other factors. Management reviews the adequacy of its allowance on an ongoing basis and will provide for additional provisions in future periods as may be necessary. Non-Interest Income. For the third quarter of 1998, total non-interest income increased by $64 thousand, or 38.3%, over the same period of last year. For the nine months ended September 30, 1998, non-interest income increased $82 thousand from the same period in 1997, due primarily to fees generated by the sale of non-deposit products such as annuities and mutual funds. Non-Interest Expense. For the quarter ended September 30, 1998, non-interest expense increased $91 thousand from the same period of 1997. Salaries and employee benefits increased $47 thousand, or 9.7%, with salaries increaseing $65 thousand and employee benefits decreasing $18 thousand, reflecting the addition of staff and normal salary increases. Furniture and equipment expense decreased $20 thousand, or 21.5%, as a result of an increase to depreciation expense. Other expenses increased by $41 thousand, or 14.6%, as a result of increases in the Company's upgrade of its in-house computer system, increases in legal and professional fees and increases in filing fees attributable to listing on the American Stock Exchange. For the nine months ended September 30, 1998, non-interest expense increased $290 thousand, or 10.2%, from the same period last year. Salaries and employee benefits increased $175 thousand, or 12.4%;with salaries and wages increasing $166 thousand and employee benefits increasing $9 thousand. Furniture and equipment expense increased $28 thousand, or 9.7%, which reflects an increase in depreciation expense of $47 thousand as a result of upgrades to the Company's in-house computer system, offset by a decrease in maintenance and repairs of $19 thousand. Other expenses increased $60 thousand, including an increase in legal and professional fees of $20 thousand, or 29.3% , and an increase in ATM fees of $14 thousand, or 50.3% as a result of communication costs increasing. Income Taxes. Income taxe expense increased $13 thousand to $257 thousand for the nine months ended September 30, 1998 as compared to $244 thousand for the same period in 1997. The increase in income taxes resulted from higher levels of taxable income in 1998. FINANCIAL CONDITION September 30, 1998 compared to December 31, 1997 Total assets increased to $129.7 million, an increase of $15.4 million, or 13.5%, from total assets of $114.3 million at December 31, 1997. Increases in total assets included increases of $6.9 million in Federal Funds sold, $7.8 million in total securities, $1.0 million in total loans, $105 thousand in premises and equipment, $36 thousand in other real estate owned and $449 thousand in other assets. This was offset by a decrease of $897 thousand in cash and due from banks and intangible assets. Total loans at September 30, 1998 increased $1.0 million to $69.1 million from year-end 1997. Within the portfolio, commercial and industrial loans increased $483 thousand to $3.0 million, and residential and commercial real estate loans declined $588 thousand from year-end 1997, reflecting prepayments. The following schedule presents the components of loans, net of unearned income, by type, for each periods presented.
September 30 December 31 1998 1997 ---------------------- ---------------------- Amount Percent Amount Percent ------- ------ ------- ------ (Dollars in Thousands) Commercial and industrial ...... $ 2,982 4.32% $ 2,499 3.67% Real Estate non residential properties ................ 11,580 16.77% 10,665 15.67% Residential properties .... 49,726 72.02% 51,257 75.30% Construction .................. 1,618 2.34% 877 1.30% Lease financing ................ 150 .22% 0 0 Consumer ...................... 2,990 4.33% 2,765 4.06% ------- ------ ------- ------ Total Loans ................... $69,046 100.00% $68,063 100.00% ======= ====== ======= ======
At September 30, 1998, federal funds sold increased by $6.9 million over December 31, 1997. The increase is attributable both to short term investment of public deposits received by the Bank and cash from prepayments and repayments in the investment portfolio exceeding new loan demand. Total average deposits increased $19.6 million, or 20.01%. Time deposits over $100,000 increased by $8.3 million, savings deposits increased by $4.0 million, NOW deposits increased by $1.1 million and demand deposits increased by $3.3 million. The increase in time deposits over $100,000 reflects the Bank's increase in public deposits as the Bank has sought to develop additional loan and deposit relationships through public entities. The increase in savings deposits is the result of a offering of a Senior Select account to increase market share among senior citizens in the Company's market area. Management continues to monitor the shift in deposits through its Asset/Liability Committee. The following schedule presents the components of deposits, for each periods presented.
September 30, 1998 December 31, 1997 -------------------------- --------------------------- Amount % Amount % Balance Deposits: NOW deposits ........ $ 13,706 11.65% $ 12,593 12.85% Savings deposits .... 32,079 27.26% 28,109 28.67% Money Market Deposits 4,458 3.79% 3,580 3.65% Time deposits ....... 48,227 40.99% 37,874 38.63% Demand deposits ..... 19,193 16.31% 15,886 16.20% Total Deposits .... $117,663 100.00% $ 98,042 100.00% ======== ====== ========= ======
ASSET QUALITY At September 30, 1998, non-performing loans decreased $164 thousand, as compared to December 31, 1997. The following table provides information on risk elements in the loan portfolio.
September 30 December 31 1998 1997 ----------- ----------- Non-accrual loans ...................... $ 566 $ 730 Non-accrual loans to total loans ......................... .82% 1.07% Non-performing assets to total assets ..................... .44% 0.64% Allowance for possible loan losses as a percentage of non-performing loans ................. 79.83% 93.80%
ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level deemed adequate by management to provide for potential loan loses. The level of the allowance is based on management's evaluation of potential losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions, among other factors. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers' credit worthiness, and the impact of examination by regulatory agencies all could cause changes to the Company's allowance for possible loan loses. At September 30, 1998, the allowance for possible loan losses was $709, an increase of 3.5% from the $685 thousand at year-end 1997. There were charge-offs of $39 thousand for the third quarter of 1998. LIQUIDITY MANAGEMENT At September 30, 1998, the amount of liquid assets remain at a level management deemed adequate to ensure that contractual liabilities, depositors' withdrawal requirements, and other operational and customer credit needs could be satisfied. At September 30, 1998, liquid investments totaled $19.8 million, and all mature within 30 days. CAPITAL RESOURCES Total stockholders' equity increased $487 thousand to $9.1 million at September 30, 1998 from $8.6 million at year-end 1997. The increase was due primarily to net income of $519 thousand for the nine months ended September 30, 1998. This increase was offset by a cash dividend of $282 thousand. At September 30, 1998, both the Company and the Bank exceeded each of the regulatory capital requirements applicable to it. The table below presents the capital ratios at September 30, 1998 for both the Company and the Bank as well as the minimum regulatory requirements.
Amount Ratio Amount Minimum Ration ------ ----- ------ -------------- The Company Leverage Capital .. $8,263 6.50% $3,245 3-5% Tier 1 - Risk Based 8,263 13.61% 2,066 4% Total Risk-Based .. 8,972 14.77% 4,326 8% The Bank Leverage Capital .. 7,847 6.21% 3,311 3-5% Tier 1 Risk-Based . 7,847 12.44% 2,126 4% Total Risk-Based .. 8,556 13.56% 4,240 8%
YEAR 2000 COMPLIANCE The Company's data processing capabilities are critical to its business and its ability to service customers. The Year 2000 problem is caused by many computer programs that were written to identify only the last two digits of a year (a common programming practice in the past to save computer memory). The expectation is that programs may read the year 2000 as 00 or 1900, and to compute interest, payments and other data incorrectly. The Company has put together a team of senior management to evaluate both its data processing systems (software and computers) and other systems, (i.e., vault timers, alarms, heating an cooling systems) that are essential to its operations. The Company has examined all of its non-data processing systems and has either received Year 2000 compliant certifications from third-party vendors or determined that the systems should not be affected by the Year 2000 problem. The Company does not expect any material costs to address non-data processing systems and has not expended any material costs to date. The Company's present data processing systems have more potential for Year 2000 risk than its non-data processing systems. The Company has evaluated its data processing systems Year 2000 risk in three areas: (1) its own computers, (2) computers and systems used by borrowers, and (3) vendors who provide the Company with software systems. Our Computers: The Company expects to have made capital expenditures of $200,000 by year end 1998 to upgrade our computer hardware and software systems, primarily through the upgrade of its computer and primary application software. These upgrades were anticipated in 1994 and planned and budgeted for in 1998, and they were planned to permit the Company continued growth and expansion of products and services. The Company has contracted to have its primary applications software tested for Year 2000 compliance, with testing scheduled for late November. By year-end 1998 these systems should be Year 2000 compliant. The Company does not expect to have any material costs to address this risk area unless it has to implement its contingency plan. Computers of Others Used by Borrowers: The Company evaluated most of its borrowers and does not believe that the Year 2000 problem should, on an aggregate basis, impact their ability to repay their loans to the Bank. The Company believes that the majority of its individual borrower are not dependent on home computers for income and none of its commercial borrowers are so large that a Year 2000 problem would render them unable to continue their businesses and subsequently be unable to repay their obligations. The Company does not anticipate any material costs to address this risk area. Vendors Who Provide The Company Software Systems: As stated previously, the Company's primary application software system has been upgraded and modified to be Year 2000 compliant. The Company is in the process of having the critical systems tested to confirm Year 2000 Compliance, which will be completed by year-end 1998. Other peripheral software systems, which are not considered critical systems, have been reviewed and tested for Year 2000 Compliance or will be by year-end 1998. Contingency Plan: If the Company's data processing hardware or primary application software were to be found non-compliant for Year 2000 and were not capable of remediation within a reasonable time-frame, the Company will contract with an outside service bureau to become its backup. If the Company were to migrate to the service bureau, because of Year 2000 compliance problems with its present systems, the Company would incur material costs which will be known and included within future budget projections. The Company is also preparing contingency plans to operate manually, if necessary, in anticipation of possible power and or communication problems beyond the Company's control pending the availability of capable data processing services. Part II Other Information Item 1 Legal Proceedings The Company and the Bank are periodically involved in various legal proceedings as a normal incident to their businesses. In the opinion of management, no material loss is expected from any such pending lawsuit. Item 2 Changes in Securities Not applicable Item 3 Defaults Upon Served Securities Not applicable Item 4 Submission of Matters to a Vote of Security Holders Not applicable Item 5 Other Information Not applicable Item 6 Exhibits and Report on form 8-K (a) Exhibits Number Description 27 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SUSSEX BANCORP Date: November , 1998 By: /s/Candace A. Leatham --------------------- CANDACE A. LEATHAM Senior Vice President and Chief Financial Officer EX-27 2
9 9-MOS 9-MOS DEC-31-1997 DEC-31-1997 SEP-30-1998 DEC-31-1997 4,859 5,693 100 100 14,800 7,875 0 0 31,583 26,600 5,529 2,706 0 0 69,050 67,351 709 685 129,672 114,257 119,686 104,882 0 0 0 0 0 0 0 0 0 0 5,586 5,412 33,487 3,174 129,672 114,257 4,157 5,517 1,542 1,866 0 0 6,098 7,383 2,752 3,063 2,752 3,063 3,346 4,320 63 210 0 0 3,126 3,753 776 1,101 776 1,101 0 0 0 0 519 708 0.37 1.03 0.36 1.02 0 0 566 730 0 0 99 344 0 0 685 542 0 68 0 1 709 685 709 685 0 0 0 0
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