-----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, D24yimPaqYUsc5sg/7+BlJwqMJWBkFtL27U3IXIQxwvQKy+qQ7pLRjjzVUR7hnhK ZpaP4nYGpLXGRODLPvclUw== 0000914317-99-000486.txt : 19990817 0000914317-99-000486.hdr.sgml : 19990817 ACCESSION NUMBER: 0000914317-99-000486 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99690539 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 June 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to _____________________ Commission file number 0-29030 SUSSEX BANCORP -------------- (Exact name of registrant as specified in its charter) NEW JERSEY 22-3475473 ---------- ---------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 Route 23, Franklin, New Jersey 07416 ---------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (973) 827-2914 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of August 11, 1999 there were 1,414,899 shares of common stock, no par value, outstanding. SUSSEX BANCORP FORM 10-QSB INDEX Part I - Financial Information Page(s) Item 1. Financial Statements and Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial condition and Results of Operations Part II - Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 2
SUSSEX BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited) Six Months Ended ---------------- 1999 1998 ----- ----- Net Income ........................................... $ 346 $ 341 Other comprehensive income, Net of tax Unrealized loss on available-for-sale Securities ................................ (357) (26) ----- ----- Comprehensive income ................................. $ (11) $ 315 ----- -----
4 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP CONSOLIDATED BALANCE SHEETS (in Thousands, Except Share Data) (Unaudited) ASSETS June 30, 1999 December 31, 1998 - ------ ------------- ----------------- Cash and Due from Banks .......................... $ 4,160 $ 4,060 Interest bearing deposits in other banks ......... 3,072 150 Federal Funds Sold ............................... 6,725 26,450 Securities: Available for Sale, at Market Value .............. 40,952 26,645 Held to maturity ................................. 11,044 5,939 -------- -------- Total Securities ........................... 51,996 32,584 Loans held for sale .............................. -0- 354 Loans (Net of Unearned Income) ................... 73,325 70,011 Less: Allowance for Possible Loan Losses ............................ 733 665 -------- -------- Net Loans ...................... 72,592 69,700 Premises and Equipment, Net ...................... 2,908 2,956 Other Real Estate ................................ 44 36 Intangible Assets, Primarily Core Deposit Premiums .......................... 661 703 Other Assets .......................... 1,811 828 -------- -------- Total Assets ............................ $143,969 $137,467 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Demand ........................................ 20,997 19,793 Savings ................................. 62,301 54,357 Time .................................... 51,079 53,564 -------- -------- Total Deposits .......................... 134,377 127,714 Other Liabilities ................................ 548 509 -------- -------- Total Liabilities ....................... 134,925 128,223
5
Stockholders' Equity: Common Stock, No Par Value Authorized 5,000,000 Shares, Issued and outstanding 1,420,246 in 1999 and 1,422,260 in 1998, respectively ......... 5,673 5,635 Retained Earnings .......................... 3,808 3,547 Treasury Stock ............................. (80) (2) Net Unrealized Gain on Securities Available for Sale, net of income taxes ..................... (357) 64 --------- --------- Total Stockholders' Equity ................. 9,044 9,244 Total Liabilities and Stockholders' Equity .................... $ 143,969 $ 137,467 ========= =========
See Notes to Consolidated Financial Statements 6
SUSSEX BANCORP CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 ----------------- ------------------ 1999 1998 1999 1998 ------ ------ ------ ------ INTEREST INCOME Interest and Fees on Loans ........... $1,455 $1,382 $2,861 $2,766 Interest on Time Deposits ............ 29 2 31 3 Interest on Securities: Taxable .......................... 526 400 965 803 Exempt from Federal Income Tax ....... 89 21 174 40 Interest on Federal Funds Sold ....... 165 244 364 388 ------ ------ ------ ------ Total Interest Income ....... 2,264 2,049 $4,395 $4,000 INTEREST EXPENSE Interest on Deposits: Interest on Savings Deposits ..... 417 278 795 544 Interest on Time Deposits ........ 665 654 1,334 1,219 ------ ------ ------ ------ Total Interest Expense ............... 1,082 932 2,129 1,763 Net Interest Income .............. 1,182 1,117 2,266 2,237 Provision for Possible Loan Losses .................... 48 21 81 42 ------ ------ ------ ------ Net Interest Income After Provision for Possible Loan Losses ............. 1,134 1,096 2,186 2,195 NON-INTEREST INCOME Trust Income ..................... -0- 4 1 4 Service charges on Deposit Accounts ........... 116 122 228 246 Other Income ..................... 94 79 277 138 ------ ------ ------ ------ Total Non-interest Income ... 210 205 506 388 NON-INTEREST EXPENSE Salaries and Employee Benefits ... 637 539 1,210 1,050 Occupancy Expense, Net ........... 83 88 177 180 Furniture and Equipment Expense .. 117 110 237 205 Data Processing Expense .......... 22 19 42 37 Amortization of Intangibles ...... 21 20 42 41 Other Expenses ................... 306 289 586 551 ------ ------ ------ ------ Total Non-Interest Expense ..... 1,186 1,065 2,293 2,064
7
Income Before Provision for Income Taxes ........ 158 236 398 519 Provision for Income Taxes ... 4 77 52 178 ---------- ---------- ---------- ---------- Net Income .......... $ 154 $ 159 $ 346 $ 341 ========== ========== ========== ========== Net Income Per Common Share $ 0.11 $ 0.11 $ .24 $ .24 ========== ========== ========== ========== Weighted Average Shares Outstanding ............. 1,423,468 1,394,326 1,423,490 1,403,638
See Notes to Consolidated Financial Statements 8
SUSSEX BANCORP CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands, Except Share Data) (Unaudited) Unrealized Gain (Loss) Total Common Retained Treasury Securities Stockholders Stock Earnings Stock Available for Sale Equity ----- -------- ----- ------------------ ------ Balance December 31, 1998 ..... $ 5,635 $ 3,547 $ (2) $ 64 $ 9,244 Net Income for the Period ..... 346 346 Cash Dividends ................ (85) (85) Shares issued through dividend reinvestment plan . 27 27 Stock Option Exercised ........ 11 11 Treasury Stock purchased ...... (78) (78) Change in unrealized gain on securities available for sale (421) (421) ------- ------- ------- ------- ------- Balance June 30, 1999 ......... $ 5,673 $ 3,808 $ (80) $ (357) $ 9,044
See Notes to Consolidated Financial Statements 9
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 1999 1998 -------- -------- Cash Flows from Operating Activities: Net Income ..................................... $ 346 $ 341 Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and Amortization of Premises and Equipment .................................. 196 167 Amortization of Intangible Assets .................. 42 42 Premium amortization (discount accretion) of securities, net ............................. 80 (40) Provision for Possible Loan Loses .................. 68 42 (Gain) on Sale of Securities, Available for Sale ... (3) -- Accretion of Loan origination and commitment fees, net ........................... 39 (69) Decrease (Increase) Loans Held for Sale ............ 354 -- Deferred Federal income tax benefit (increase) ..................................... (26) 200 Decrease (Increase) in Accrued Interest Receivable ..................................... (495) (149) Decrease (Increase) in Other Assets ................ (182) (310) Decrease (Increase) in Accrued Interest and Other Liabilities .......................... 39 (32) -------- -------- Net Cash Provided by Operating Activities ... $ 458 $ 192 Cash Flow from Investing Activities: Securities Available for Sale: Proceeds from Maturities and Paydowns ....... 3,128 2,667 Proceeds from Sales/Calls Prior to Maturity . 507 5,650 Purchases ................................... (18,706) (10,216) Securities Held to maturity: Proceeds from Maturities .................... 204 489 Purchases ................................... (5,323) (536) Net Increase in Loans Outstanding .............. (3,353) (306) Capital Expenditures ........................... (148) (249) Net Increase in Other Real Estate .............. (8) -- -------- -------- Net Cash Provided by (used in) Investing Activities ...................... $(23,699) $ (2,501)
10
Cash Flows from Financing Activities: Net (Decrease) Increase Total Deposits ...... 6,663 9,377 Exercise of stock options ................... 11 -- Payment of Dividends net of reinvestment .... (58) (183) Purchase of Treasury Stock .................. (78) -- -------- -------- Net Cash (used in) Provided by Financing Activities ................... $ 6,538 $ 9,194 Net increase (Decrease) in Cash and Cash Equivalents ........................ (16,703) 6,885 Cash and Cash Equivalents, Beginning of Period ..................... 30,660 13,668 Cash and Cash Equivalents, End of Period .......................... $ 13,957 $ 20,553 ======== ========
See Notes to Consolidated Financial Statements 11 SUSSEX BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation Sussex Bancorp ("the Company"), a one-bank holding company was incorporated in January, 1996 to serve as the holding company for the Sussex County State Bank ("the Bank"). The Bank is the only active subsidiary of the Company at June 30, 1999. The Bank operates seven banking offices all located in Sussex County. The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The operations of the Company and the Bank are subject to the supervision and regulation of the FRB, FDIC and the New Jersey Department of Banking and Insurance (the "Department"). The consolidated financial statements included herein have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for interim periods. All adjustments made were of a normal, recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-KSB for the fiscal period ended December 31, 1998. 2. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for a one day period. 3. Securities The amortized cost and approximate market value of securities are summarized as follows (in thousands):
June 30, 1999 December 31, 1998 ------------- ----------------- Amortized Market Amortized Market Cost Value Cost Value Securities Available For Sale - U. S. Treasury Securities .. $ 5,578 $ 5,488 $ 5,589 $ 5,710 U. S. Government Backed Securities ....... 27,628 27,223 19,407 19,411 Equity Securities .............. 1,848 1,800 1,543 1,524 Debt Securities ................ 6,493 6,441 -- -- ------- ------- ------- ------- Total .............. $41,547 $40,952 $26,539 $26,645
12
Securities Held to Maturity - Obligations of State and Political Subdivisions ..... $11,044 $10,910 $ 5,939 $ 5,949 ------- ------- ------- ------- Total ............... $11,044 $10,910 $ 5,939 $ 5,949 Total Securities ............... $52,591 $51,862 $32,478 $32,594 ======= ======= ======= =======
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. 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three and Six Months Ended June 30, 1999 and June 30, 1998. OVERVIEW The Company realized net income of $154 thousand for the second quarter of 1999, relatively unchanged from the $159 thousand reported for the same period in 1998. Basic and diluted earnings per share for each of the quarters ended June 30, 1999 and 1998 were $.11. For the six months ended June 30, 1999, net-income was $346 thousand, relatively unchanged from the $341 thousand reported for the same period in 1998. Basic and diluted earnings per share were $ .24 for each of the six month periods. RESULTS OF OPERATIONS Interest Income. Total interest income increased $215 thousand, or 10.5%, to $2.3 million for the quarter ended June 30, 1999 from $2.1 million for the same period in 1998. This increase was attributable to an increase in interest and fees on loans of $73 thousand, an increase in interest on time deposits of $27 thousand, and an increase in interest and dividends on securities of $194 thousand. The increase in interest income is primarily attributable to the $19.0 million increase in average interest earning assets, primarily in the investment securities portfolio. The yield on average interest-earning assets on a fully taxable equivalent basis decreased 34 basis points from 7.23% for the second quarter of 1998 to 6.89% for the second quarter of 1999 reflecting reinvestment of federal funds sold in investment securities at lower current market rates of interest. For the six months ended June 30, 1999, interest income increased $395 thousand, or 9.9%, to $4.4 million from the $4.0 million reported for the same period in 1998. This growth in interest income is the result of a $19.0 million, or 16.9% increase in the average balance of interest-earning assets over the comparable period last year, partially offset by a decrease in the average yield on total interest-earning assets to 6.87% during the six months ended June 30, 1999, compared to 7.18% during the same period in 1998. The decline in average yield reflects the same factors as were present in the three month period. Interest Expense. The Company's interest expense for the second quarter of 1999 increased $150 thousand, or 16.1% to $1.1 million from $932 thousand for the same period last year. The average balance of interest bearing deposits increased $19.9 million, or 21.4%, from the same period last year. The largest component of the increase was in interest on savings deposits, which increased $14.2 million, or 51.8%, in the second quarter of 1999 compared to the same period in 1998. This increase was primarily due to the promotion of a special account for senior citizens. The Company's average cost of funds decreased to 3.83% for the second quarter of 1999 from 4.00% for the second quarter in 1998. This decline in the average cost of funds was the result of lowering interest rates paid on time deposits and NOW accounts. 14 For the six months ended June 30, 1999 interest expense increased $366 thousand, or 20.7%, to 2.1 million from $1.8 million for the same period last year. In the first six months of 1999 the average balance in savings accounts increased $11.5 million, or 21.4%, over the average balance for the six months ended June 30, 1998. Time deposits increased $7.0 million, or 15.6%, over the same period of last year. The average cost of interest-bearing deposits decreased to 3.85% during the current period from the 3.89% for the same period last year. While the average rate paid on savings accounts increased 57 basis points from the first six month of 1998 to the first six months of in 1999, the total interest rate paid on interest bearing liabilities fell 4 basis points due to the lower interest rate environment on time deposits. 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 six months ended June 30, 1999 and 1998. The average balance of loans includes non-accrual loans, and associated yields include loan fees which are considered adjustment to yields. 15
Comparative Average Balance Sheets Six Months Ended June 30, ------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------ -------------------------------------- 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) .......................... $ 70,894 $ 2,861 8.07% $ 68,582 $ 2,766 8.07% Tax exempt securities ............ 9,412 174 6.07% 1,980 40 6.63% Taxable investment securities .... 34,457 965 5.60% 27,606 803 5.82% Interest bearing deposits ........ 1,214 31 5.11% 93 3 6.45% Federal Funds sold ............... 15,200 364 4.79% 13,934 388 5.57% Total earning assets ............. 131,177 4,395 6.87% 112,195 4,000 7.18% Non-interest earning assets ...... 8,656 8,209 Allowance for possible loan losses .................... (704) (704) Total Assets .............. $ 140,129 $ 119,700 Liabilities and Shareholders' Equity Interest bearing liabilities: NOW deposits ...................... $ 14,522 $ 101 1.39% $ 13,237 126 1.90% Savings deposits .................. 39,431 629 3.19% 27,979 366 2.62% Money market deposits ............. 4,574 65 2.84% 4,407 52 2.36% Time deposits ......................... 51,951 1,334 5.14% 44,945 1,218 5.42% Total interest bearing liabilities ............. 110,478 2,129 3.85% 90,568 1,762 3.89% Non-interest bearing liabilities: Demand Deposits ................... $ 19,730 $ 18,849 Other liabilities ................. 785 838 Total non-interest bearing liabilities ....................... 20,515 19,687 Shareholders' equity .............. 9,136 9,445 Total liabilities and shareholders' equity ......................... $ 140,129 $ 119,700 New interest differential ........ $ 2,266 $ 2,238 Net yield on interest-earning assets ......................... 3.02% 3.29%
16 Net-Interest Income. The net effect of the changes in interest income and interest expense for the second quarter of 1999 was an increase of $65 thousand, or 5.8%, in net interest income as compared to the second quarter of 1998. The net interest spread, on a fully taxable equivalent basis, declined 17 basis points from the same period last year. Net interest income for the six months ended June 30, 1999 increased by $29 thousand, or 1.3%, over the same period last year. The net interest spread decreased 27 basis points. Provision for Loan Losses. For the three months ended June 30, 1999, the provision for possible loan losses was $48 thousand compared to the $21 thousand for the same period last year. The provision for possible loan losses was $81 thousand for the six months ended June 30, 1999, as compared to $42 thousand for the same period last year. The increase in the provision for loan losses over both the thee and six month periods reflects management's judgement concerning the risks inherent in the Company's existing loan portfolio and the size of the allowance necessary to absorb the risks. Management reviews the adequacy of its allowance on an ongoing basis and will provide for additional provision in future periods as management may deem necessary. Non-Interest Income. For the second quarter of 1999, total non-interest income increased $5 thousand, or 2.4%, from the same period in 1998. Service charges on deposit accounts decreased $6 thousand in the second quarter of 1999 compared to the three months ended June 30, 1998. Other income increased $15 thousand, or 19.0%, in the second quarter of 1999 over the same period last year. The additional income was the result of increased revenue from non-deposit products and commission income from Sussex Bancorp Mortgage Company, our mortgage banking subsidiary. For the six months ended June 30, 1999, non-interest income increased $118 thousand, or 30.4%, from the same period in 1998, due primarily to fees generated by the non-deposit products offered by our third party provider IBFS and commission income. Non-Interest Expense. For the quarter ended June 30, 1999, non-interest expense increased $121 thousand from the same period last year. Salaries and employee benefits increased $98 thousand, or 18.2%, as salaries increased $96 thousand and employee benefits increased $2 thousand, reflecting the addition of staff and normal salary increases. Furniture and equipment expense increased $7 thousand, or 6.4%, as a result of an increase in depreciation expense. Other expenses increased by $17 thousand, or 5.9%, as a result of increased advertising and marketing expenses to promote a savings account for senior citizens and the Bank's new mortgage banking subsidiary. For the six months ended June 30, 1999, non-interest expense increased $229 thousand, or 11.1%, from the same period last year. Salaries and employee benefits increased $160 thousand, or 15.2%. Furniture and equipment expense increased $32 thousand, or 15.6%, which reflects an increase in depreciation expense of $28 thousand as a result of upgrades to the Company's in-house computer system. Other expenses increased $34 thousand. This includes an increase in advertising and marketing expenses of $22 thousand, or 57.5%. Income Taxes. Income taxes expense decreased $126 thousand to $54 thousand for the six months ended June 30, 1999 as compared to $178 thousand for the same period in 1998. The decrease in income taxes resulted from higher levels of tax-exempt income in 1999. 17 FINANCIAL CONDITION June 30, 1999 as compared to December 31, 1998 Total assets increased to $144.0 million, a $6.5 million, or 4.7%, increase from total assets of $137.5 million at December 31, 1998. Increases in total assets included increases of $19.4 million in total securities, $3.3 million in total loans and $2.9 million in interest bearing deposits in other banks. These increases were offset by a decrease of $19.7 million in federal funds sold. Total loans at June 30, 1999 increased $3.3 million to $73.3 million from year-end 1998. Commercial and industrial loans increased $365 thousand, commercial real estate loans increased $2.3 million and construction loans increased $1.7 million from year-end 1998. These increases were offset by a decrease of $377 thousand in residential and commercial real estate loans from year-end 1998. The following schedule presents the components of loans, net of unearned income, by type, for each period presented:
June 30 December 31 1999 1998 ----------------------- ---------------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in Thousands) Commercial and industrial ......... $ 4,107 5.60% $ 3,742 5.34% Real Estate non residential properties.................... 13,880 18.93% 11,162 16.59% Residential properties ....... 48,821 66.58% 49,198 70.27% Construction ..................... 4,069 5.55% 2,352 3.36% Lease financing ................... 219 0.30% 142 .20% Consumer ......................... 2,229 3.04% 2,965 4.24% ------- ------ ------- ------ Total Loans ...................... $73,325 100.00% $70,011 100.00% ======= ====== ======= ======
Federal funds sold decreased by $19.7 million over December 31, 1998. The decrease is attributable both to the withdrawal of short term public funds on deposit and the investment of excess cash in new investment securities. Total average deposits increased $15.2 million, or 13.2%. Time deposits increased by $4.6 million, savings deposits increased by $8.8 million, NOW deposits increased by $1.1 million and demand deposits by $818 thousand. Management continues to monitor the shift in deposits through its Asset/Liability Committee. The following schedule presents the components of deposits, for each period presented.
June 30, 1999 December 31, 1998 ---------------------- ---------------------- Average Average Balance % Balance % -------- ------ -------- ------ NOW deposits ......................... $ 14,522 11.15% $ 13,496 11.73% Savings deposits ..................... 39,431 30.28% 30,646 26.64% Money market deposits ................ 4,574 3.51% 4,590 3.99% Time deposits ........................ 51,951 39.90% 47,398 41.20% Demand deposits ...................... 19,730 15.15% 18,912 16.44% -------- ------ -------- ------ Total interest-bearing liabilities . $130,208 100.00% $115,042 100.00% ======== ====== ======== ======
18 ASSET QUALITY At June 30, 1999, non-performing loans decreased $90 thousand, as compared to December 31, 1998. The decrease in non-performing loans was in real estate loans. Management continues to work diligently to reduce the Company's non-performing loans. The following table provides information regarding risk elements in the loan portfolio:
June 30 December 31 1998 1998 --------- ----------- Non-accrual loans ..................... $ 305 $ 398 Non-accrual loans to total loans ...... 0.42% 0.57% Non-performing assets to total assets . 0.24% 0.32% Allowance for possible loan losses as a percentage of non-performing loans 237.99% 167.09%
ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level considered adequate to provide for potential loan losses. The level of the allowance is based on management's evaluation of potential losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. The allowance is increased by provisions charged to expense and reduced by charge-offs, net of recoveries. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers' credit worthiness, and the impact of examinations by regulatory agencies all could cause changes to the Company's allowance for possible loan losses. At June 30, 1999, the allowance for possible loan losses was $733 thousand, up 10.2% from the $665 thousand at year-end 1998. The Company recognized $13 thousand in net charge-offs for the first half of 1999. LIQUIDITY MANAGEMENT At June 30, 1999, the amount of liquid assets remained at a level management deemed adequate to ensure that contractual liabilities, depositors' withdrawal requirements, and other operational and customer credit needs could be satisfied. At June 30, 1999, liquid investments totaled $6 million, and all mature within 30 days. CAPITAL RESOURCES Total stockholders' equity decreased $200 thousand to $9.0 million at June 30, 1999 from the $9.2 million at year end 1998. The decrease was due to the increase in the net unrealized loss on securities available for sale of $421 thousand, the purchase of $78 thousand in treasury stock and cash dividends of $85 thousand. This decrease was offset by net income of $346 thousand. 19 At June 30, 1999, each of the Company and the Bank exceeded each of the regulatory capital requirements applicable to it. The table below presents the capital ratios at June 30, 1999 for both the Company and the Bank as well as the minimum regulatory requirements.
Amount Ratio Amount Minimum Ratio ------ ----- ------ ------- The Company Leverage Capital .......... $8,711 6.09% $4,290 3-5% Tier 1 - Risk Based ....... 8,711 11.46% 3,039 4% Total Risk-Based .......... 9,444 12.43% 6,079 8% The Bank 8,332 5.83% 4,287 3-5% Leverage Capital Tier 1 Risk-Based ......... 8,332 10.94% 3,048 4% Total Risk-Based .......... 9,065 11.90% 6,095 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 on 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 and cooling systems) that are essential to its operations. The Company has examined all of its non-data processing systems and has either received Year 2000 compliant certification from third-party vendors or determined that the systems should not be affected by the Year 2000 problem. The Company does 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 in three areas: (1) its own computers, (2) computers and systems used by borrowers, and (3) vendors who provide the Company with software systems. Our Computers: The Company expended approximately $200,000 in 1998 to upgrade its computer hardware and software systems, primarily our application software. We have budgeted $10,000 for Year 2000 expenditures for 1999, which include a software upgrade for one of our ATM's and various equipment and supplies necessary for our Year 2000 Business Resumption Plan. The Company contracted to have its primary mission-critical application software tested in the fall of 1998. The tests were completed and then evaluated in December 1998 and January 1999. The Company is satisfied with this results. Computers of Others Used by Borrowers: The Company evaluated most of its borrowers and does not believe that the Year 2000 problem should, on an aggregate basis, impact their ability to repay their loans to the Bank. The Company believes that he majority of its individual borrower are not dependent on home computers for income and none of its commercial borrowers are so 20 large that a Year 2000 problem would render them unable to continue their businesses and subsequently be unable to repay their obligations. The Company does not anticipate any material costs to address this risk area. Vendors Who Provide The Company With Software Systems: As stated previously, the Company's primary mission-critical application software system has been upgraded and modified to be Year 2000 compliant. The majority of our critical systems have been deemed Year 2000 compliant, and tests have been completed to confirm these systems are compliant as well as the vendors we communicate with. Other peripheral software systems, which are not considered critical systems, have been reviewed and tested for Year 2000 compliance. Contingency Plan: The Company's remediation Contingency Plan was put in place in 1998 to provide alternatives in the event our primary hardware and software systems were not deemed to be Year 2000 compliant by early 1999. Since our primary systems have been upgraded and tested the remediation plan is no longer necessary. The Company completed its Year 2000 Business Resumption Plan in May of 1999 and testing of this plan will be completed prior to year end 1999. Business Resumption Contingency Plans are to address the actions that will be taken if critical business functions can't be handled in the normal manner due to system or third-party failures, i.e., power outages, phone communication problems, ATM network failures. These plans are additional to our normal disaster recovery plans. 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 --------------------------------------------------- On April 28, 1999, the Registrant held its annual meeting of shareholders to elect members of the Company's Board of Directors whose terms expired. Nominees for election to the Board of Directors received the following votes: Nominees: For Withhold Authority Broker Non-Vote --------- ----------------- --------------- Richard W. Scott 1,167,735 4,585 0 Joseph Zitone 1,169,680 2,640 0 21 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 Filing Date Item Number ----------- ----------------------------------- April 13, 1999 5-- Reporting first quarter results. 22 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 thereunto duly authorized. SUSSEX BANCORP Date: August 12, 1999 By:/s/ Candace A. Leatham ----------------------- CANDACE A. LEATHAM Senior Vice President and Chief Financial Officer 23 EX-27 2
9 6-MOS 6-MOS DEC-31-1999 DEC-31-1998 JUN-30-1999 JUN-30-1998 4,160 4,060 3,072 150 6,725 28,450 0 0 40,952 26,645 11,044 5,939 0 0 73,325 70,011 433 665 143,969 137,467 134,377 127,714 0 0 548 509 0 0 0 0 0 0 5,673 5,635 3,371 3,609 143,969 137,467 2,861 5,601 1,534 2,694 0 0 4,395 8,295 2,129 3,818 2,129 3,818 2,266 4,477 81 19 3 65 2,293 4,287 398 1,040 398 1,040 0 0 0 0 3484 7100 0.24 0.50 0.25 0.50 0 0 305 389 0 0 0 0 0 0 665 685 15 40 2 1 733 665 733 665 0 0 0 0
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