SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 2001
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
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SUSSEX BANCORP.
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(Exact name of registrant as specified in its charter)
New Jersey 22-3475473
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(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
399 Route 23, Franklin, New Jersey 07416
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code) (973) 827-2914
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No[ ]
As of August 6, 2001 there were 1,649,209 shares of common stock, no par value,
outstanding.
SUSSEX BANCORP
FORM 10-QSB
INDEX
Part I - Financial Information Page(s)
Item I. Financial Statements and Notes to Consolidated 1
Financial Statements
Item 2. Management's Discussion and Analysis of 7
Financial condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
------
Cash and Due from Banks $ 6,475 $ 4,835
Federal Funds Sold 14,545 8,030
Interest Bearing Deposits 0 55
--------- ---------
Total Cash and Cash Equivalents 21,020 12,920
Time Deposits in Other Banks 7,100 100
Securities available for sale, at estimated fair value 42,795 33,186
Securities held to maturity, estimated fair value of $5,800
in 2001 and $6,393 in 2000 5,733 6,431
--------- ---------
Total Securities 48,528 39,617
Loans Held for Sale 136 297
Loans (Net of Unearned Income) 100,566 101,166
Less: Allowance for Possible Loan Losses 1,030 973
--------- ---------
Net Loans 99,536 100,193
Other Real Estate Owned 185 0
Premises and Equipment, Net 4,778 4,516
Federal Home Loan Bank Stock 693 693
Intangible Assets 493 535
Accrued Interest Receivable 1,045 981
Other Assets 1,772 1,777
--------- ---------
Total Assets $ 185,286 $ 161,629
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 25,086 $ 24,458
Savings 70,861 63,705
Time 49,269 42,714
Time of $100 and over 17,245 9,984
--------- ---------
Total Deposits 162,461 140,861
Federal Home Loan Bank Advances 10,000 10,000
Other Liabilities 809 658
--------- ---------
Total Liabilities 173,270 151,519
Stockholders' Equity:
Common Stock, No Par Value Authorized 5,000,000 Shares,
Issued 1,662,896 in 2001 and 1,511,567 in 2000 7,640 6,385
Retained Earnings 4,362 4,027
Treasury Stock, 13,687 Shares in 2001 and 13,216 in 2000 (126) (122)
Accumulated other comprehensive income (loss), net of income tax 140 (180)
--------- ---------
Total Stockholders' Equity 12,016 10,110
Total Liabilities and Stockholders' Equity $ 185,286 $ 161,629
========= =========
See Notes to Consolidated Financial Statements
1
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Interest and Fees on Loans $ 2,037 $ 1,829 $ 4,111 $ 3,560
Interest on Time Deposits 46 20 59 53
Interest on Securities:
Taxable 595 544 1170 1115
Exempt from Federal Income Tax 66 75 133 162
Interest on Federal Funds Sold 220 54 436 111
---------- ---------- ---------- ----------
Total Interest Income 2,964 2,522 5,909 5,001
INTEREST EXPENSE
Interest on Deposits: 1,356 1,091 2,716 2,147
Interest Expense on Federal Funds Purchased 0 49 0 116
Interest Expense on FHLB Advances 125 0 249 0
---------- ---------- ---------- ----------
Total Interest Expense 1,481 1,140 2,965 2,263
Net Interest Income 1,483 1,382 2,944 2,738
Provision for Possible Loan Losses 63 63 126 111
---------- ---------- ---------- ----------
Net Interest Income After Provision for Loan Losses 1,420 1,319 2,818 2,627
NON-INTEREST INCOME
Service charges on Deposit Accounts 139 114 261 224
Other Income 206 95 333 175
---------- ---------- ---------- ----------
Total Non-Interest Income 345 209 594 399
NON-INTEREST EXPENSE
Salaries and Employee Benefits 755 673 1494 1345
Occupancy Expense, Net 112 113 247 221
Furniture and Equipment Expense 129 138 254 270
Data Processing Expense 29 20 56 42
Stationary and Supplies 28 23 54 50
Advertising and Promotion 57 40 100 84
Audit and Exams 32 26 63 51
Amortization of Intangibles 21 21 42 42
Other Expenses 255 234 463 423
---------- ---------- ---------- ----------
Total Non-Interest Expense 1,418 1,288 2,773 2,528
Income Before Provision for Income Taxes 347 240 639 498
Provision for Income Taxes 107 56 189 114
---------- ---------- ---------- ----------
Net Income $ 240 $ 184 $ 450 $ 384
========== ========== ========== ==========
Net Income Per Common Share-Basic $ 0.15 $ 0.13 $ 0.28 $ 0.26
========== ========== ========== ==========
Net Income Per Common Share-Diluted $ 0.14 $ 0.12 $ 0.27 $ 0.26
========== ========== ========== ==========
Weighted Average Shares Outstanding-Basic 1,645,443 1,494,298 1,631,521 1,494,037
Weighted Average Shares Outstanding-Diluted 1,663,374 1,504,241 1,649,512 1,504,286
See Notes to Consolidated Financial Statements
2
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net Income $ 240 $ 184 $ 450 $ 384
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities 54 (30) 320 (98)
----------------------------------------
Comprehensive income (loss) $ 294 $ 154 $ 770 $ 286
========================================
See Notes to Consolidated Financial Statements
3
SUSSEX BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Unrealized
Gain (Loss) on Total
Common Retained Treasury Securities Stockholders
Stock Earnings Stock Available for Sale Equity
----- -------- ----- ------------------ ------
Balance December 31, 2000 $ 6,385 $ 4,027 ($ 122) ($ 180) $10,110
Net Income for the Period 450 450
Cash Dividend (115) (115)
Sale of Common Stock 1160 1160
Stock Options Exercised 24 24
Shares Issued Through Dividend Reinvestment Plan 71 71
Treasury Stock Purchased (4) (4)
Change in Unrealized Gain on Securities, Available for Sale 320 320
-------------------------------------------------------------------
Balance June 30, 2001 $ 7,640 $ 4,362 ($ 126) $ 140 $12,016
===================================================================
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2001 2000
---- ----
Cash Flows from Operating Activities:
Net Income $ 450 $ 384
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 217 237
Amortization of Intangible Assets 42 42
Premium Amortization of Securities, net 92 62
Provision for Possible Loan Losses 126 111
Loss on Sale of Securities, Available for Sale 0 8
Amortization of Loan Origination and Commitment Fees, net (24) (21)
Decrease in Loans Held for Sale 161 323
Increase in Deferred Federal Income Tax 0 (91)
(Increase) Decrease in Accrued Interest Receivable (64) 46
Increase in Cash Value of Life Insurance Policy (27) (1,010)
Increase in Other Assets (186) (139)
Increase (Decrease) in Accrued Interest and Other Liabilities 151 (47)
-------- --------
Net Cash (Used In) Provided by Operating Activities $ 938 ($ 95)
-------- --------
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns 6,786 3,885
Proceeds from Sales/Calls Prior to Maturity 6,271 1,993
Purchases (22,205) (1,631)
Securities Held to Maturity:
Proceeds from Maturities 1,215 2,113
Purchases (532) (650)
(Purchases) Maturities of Time Deposits on Other Banks (7,000) 1,089
Net (Increase) Decrease in Loans Outstanding 555 (9,412)
Increase in Other Real Estate Owned (185) 0
Capital Expenditures (479) (717)
-------- --------
Net Cash (Used In) Investing Activities ($15,574) ($ 3,330)
-------- --------
Cash Flows from Financing Activities:
Net Increase in Total Deposits 21,600 185
Net Increase in Federal Funds Purchased 0 2,010
Exercise of Stock Options 24 0
Purchase of Treasury Stock (4) (50)
Sale of Common Stock 1,160 0
Payment of Dividends Net of Reinvestment (44) (37)
-------- --------
Net Cash Provided by Financing Activities $ 22,736 $ 2,108
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents $ 8,100 ($ 1,317)
Cash and Cash Equivalents, Beginning of Period 12,920 9,753
-------- --------
Cash and Cash Equivalents, End of Period $ 21,020 $ 8,436
======== ========
See Notes to Consolidated Financial Statements
5
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, 2001. The Bank operates eight banking offices all located in
Sussex County. The Company is subject to the supervision and regulation of the
Board of Governors of the Federal Reserve System (the "FRB"). The Bank's
deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") up to applicable limits. The operations of the
Company and the Bank are subject to the supervision and regulation of the FRB,
FDIC and the New Jersey Department of Banking and Insurance (the "Department").
The consolidated financial statements included herein have been prepared
without audit in accordance with the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results for interim
periods. All adjustments made were of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto that are included in the
Company's Annual Report on Form 10-KSB for the fiscal period ended December 31,
2000.
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, 2001 December 31, 2000
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Available For Sale
US Treasury securities $ 2,014 $ 2,049 $ 4,043 $ 4,033
US Government Mortgage Backed 36,062 36,245 25,116 24,880
Corporate Bonds 3,631 3,691 3,477 3,469
Equity Securities 850 810 850 804
------- ------- ------- -------
Total $42,557 $42,795 $33,486 $33,186
======= ======= ======= =======
Held to maturity
Obligations of State and
Political subdivisions $ 5,733 $ 5,800 $ 6,431 $ 6,393
------- ------- ------- -------
Total $ 5,733 $ 5,800 $ 6,431 $ 6,393
======= ======= ======= =======
------- ------- ------- -------
Total Securities $48,290 $48,595 $39,917 $39,579
======= ======= ======= =======
4. Net Income Per Common Share
Basic net income per share of common stock is calculated by dividing
net income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share is
calculated by dividing net income by the weighted average number of
shares of common stock outstanding during the period plus the potential
dilutive effect of outstanding stock options. On June 21, 2000 the
Company declared a 5% stock dividend. Share and per share information
for 2000 has therefore been restated.
6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three and Six Months ended June 30, 2001 and June 30, 2000.
OVERVIEW
The Company realized net income of $240 thousand for the second quarter of 2001,
an increase of $56 thousand over the $184 thousand reported for the same period
in 2000. Basic earnings per share increased from $0.13 in the second quarter of
2000 to $0.15 for the second quarter of 2001. Diluted earnings per share
increased from $0.12 in the second quarter of 2000 to $0.14 per share in the
quarter ended June 30, 2001.
For the six months ended June 30, 2001, net income was $450 thousand, an
increase of $66 thousand from the $384 thousand reported for the same period in
2000. Basic and diluted earnings per share were $.26 for the six months ended
June 30, 2000 compared to basic earnings per share of $0.28 and diluted earnings
per share of $0.27 for the six months ended June 30, 2001.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $442 thousand, or 17.5%, to
$3.0 million for the quarter ended June 30, 2001 from $2.5 million for the same
period in 2000. This increase was primarily attributable to an increase in
average interest earning assets of $34.3 million, or 24.5%, from $139.9 million
for the second quarter of 2000 to $174.2 million in the second quarter of 2001.
An increase in interest and fees on loans of $208 thousand and an increase of
$166 thousand in interest earned on federal funds sold were the largest
components of this change. The yield on average interest-earning assets on a
fully taxable equivalent basis decreased 44 basis points from 7.31% for the
second quarter of 2000 to 6.87% for the second quarter of 2001, reflecting both
market changes in interest rates and larger average balances in lower yielding
federal funds sold and time deposits in other banks.
For the six months ended June 30, 2001, interest income increased $908 thousand,
or 18.2%, to $5.9 million from the $5.0 million reported for the same period in
2000. This growth in interest income is the result of a $28.3 million, or 20.2%
increase in the average balance of interest-earning assets over the comparable
period last year. The average balance in the loan portfolio increased $13.3
million and other interest bearing assets increased $14.8 million during the
first six months of 2001 over the same period in 2000. As the result of changing
market rates and growth in earning assets, the average yield on interest earning
assets on a fully taxable equivalent basis decreased 13 basis points from 7.24%
from the first half of 2000 to 7.11% for the same period of 2001.
Interest Expense. The Company's interest expense for the second quarter of 2001
increased $341 thousand, or 29.9% to $1.5 million from $1.2 million as the
average balance of interest bearing liabilities increased $32.2 million, or
27.7% from the same period last year. The largest component of the increase was
in time deposits, which increased $20.7 million, or 45.4% in the second quarter
of 2001 compared to the same period in 2000. The Company had promoted higher
yielding time deposits during the first three months of 2001 to meet anticipated
loan demand. The Company's average borrowed funds increased $7.0 million from
second quarter 2000 compared to the second quarter of 2001. The Company entered
into three ten year callable Federal Home Loan Bank advances totaling $10
million in December 2000 compared to overnight borrowed funds of $3.0 million in
the second quarter of 2000. The FHLB advances were an investment strategy used
to payoff overnight borrowings and to have liquidity available to purchase
investments. Money market, savings and NOW deposits combined showed an aggregate
increase of $4.4 million, or 6.5%, in average balances during the second quarter
of 2001 from the second quarter of 2000. The Company's average cost of funds
increased 6 basis points to 4.01% for the second quarter of 2001 from 3.95% for
the second quarter in 2000. This net increase in the average cost of funds was
the combination of the Company decreasing its rates of interest paid on NOW,
savings and money market accounts offset by a higher cost of funds on time
deposits from the Company's first quarter promotion.
For the six months ended June 30, 2001 interest expense increased $702 thousand,
or 31.0%, to $3.0 million from $2.3 million for the same period last year. This
increase was largely due to an increase in interest expense on time deposits of
$603 thousand, or 53.0%, from $1.1 million for the first half of 2000 to $1.7
million during the same period in 2001. In the first six months of 2001, the
average balance in time deposit accounts increased $18.3 million, or 40.4%, over
the average balance for the six months ended June 30, 2000. The Company's
borrowed funds increased $6.3 million from $3.7 million during the first six
months of 2000 to $10 million in the first six months of 2001. As the Company
moved from overnight funding to long term funding, the average rate paid on
these borrowed funds decreased 117 basis points. The average rate paid on the
additional $18.3 million in time deposits increased 47 basis points from 5.04%
for the six months ending June 30, 2000 to 5.51% for the six months ending June
30, 2001. The average rate paid on total interest bearing liabilities increased
27 basis points from 3.90% in the first six months of 2000 to 4.17% during the
same period in 2001. The average balance of non-interest bearing demand deposits
increased by $1.8 million to $24.8 million for the first six months of 2001 from
$23.0 million for the same period in 2000.
The following table presents, on a tax equivalent basis, a summary of the
Company's interest-earning assets and their average yields, and interest-bearing
liabilities and their average costs and shareholders' equity for the six months
ended June 30, 2001 and 2000. The average balance of loans includes non-accrual
loans, and associated yields include loan fees, which are considered adjustment
to yields.
7
Comparative Average
Balance Sheets
Six Months Ended June 30,
2001 2000
Average Average
Interest Rates Interest 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) $ 102,519 $ 4,111 8.09% $ 89,179 $ 3,560 8.03%
Tax Exempt Securities 6,596 170 5.20% 8,109 208 5.16%
Taxable Investment Securities 38,155 1,134 5.99% 36,502 1,092 6.02%
Other (1) 21,278 530 5.02% 6,464 187 5.82%
------------------------- -----------------------
Total Earning Assets $ 168,548 $ 5,945 7.11% $ 140,254 $ 5,047 7.24%
Non-Interest Earning Assets $ 13,119 $ 10,056
Allowance for Possible Loan Losses ($ 1,010) ($ 883)
--------- ---------
Total Assets $ 180,657 $ 149,427
========= =========
Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
NOW Deposits $ 15,113 $ 104 1.39% $ 14,244 $ 88 1.24%
Savings Deposits 47,178 754 3.22% 46,595 793 3.42%
Money Market Deposits 7,542 118 3.16% 6,808 129 3.81%
Time Deposits 63,683 1,740 5.51% 45,353 1,137 5.04%
Borrowed Funds 10,000 249 4.96% 3,741 116 6.13%
------------------------- -----------------------
Total Interest Bearing Liabilities $ 143,516 $ 2,965 4.17% $ 116,741 $ 2,263 3.90%
Non-Interest Bearing Liabilities:
Demand Deposits $ 24,832 $ 22,987
Other Liabilities 819 622
--------- ---------
Total Non-Interest Bearing Liabilities $ 25,651 $ 23,609
Shareholders' Equity $ 11,490 $ 9,077
Total Liabilities and Shareholders' Equity $ 180,657 $ 149,427
========= =========
Net Interest Differential $ 2,980 $ 2,784
Net Interest Margin 2.95% 3.34%
Net Yield on Interest-Earning Assets 3.57% 3.99%
(1) Includes FHLB stock, federal funds sold, interest-bearing deposits, and time
deposits
8
Net-Interest Income. The net interest income for the second quarter of 2001
increased $101 thousand, or 7.3%, compared to the second quarter of 2000. The
net interest margin, on a fully taxable equivalent basis, decreased 50 basis
points and the net yield on interest earning assets decreased 58 basis points
from the same period last year. This decrease was due to an increase in the cost
of funds on interest bearing liabilities from the time deposit promotion and a
decrease in the average yield earned on interest bearing assets. The funds
brought in from the time deposit promotion were not immediately needed to fund
loan demand, and are presently invested in lower yielding federal funds.
Although new loan demand remains strong, loan payoffs have exceeded
expectations in the current declining interest rate environment.
Net interest income for the six months ended June 30, 2001 increased $702
thousand, or 31.0%, over the same period last year. The net interest spread
decreased, on a fully taxable equivalent basis, 39 basis points and the net
yield on interest-bearing assets declined by 42 basis points between the first
six month periods of 2000 and 2001. This comparison displays an increase the
average balance in lower yielding federal funds brought in through an increase
in the average balance in time deposits. Due to the declining market rates of
interest during the first six months of 2001, the Company's anticipated increase
in loan average balances has slowed down as new loan originations have not kept
the pace with loan payoffs.
Provision for Loan Losses. For the three months ended June 30, 2001 and 2000,
the provision for possible loan losses was $63 thousand. The provision for
possible loan losses was $126 thousand for the six months ended June 30, 2001 as
compared to $111 thousand for the same period last year. The provision for loan
losses over the three and six month periods reflects management's judgment
concerning the risks inherent in the Company's existing loan portfolio and the
size of the allowance necessary to absorb the risks, as well as in the average
balance of the portfolio over both periods. Management reviews the adequacy of
its allowance on an ongoing basis and will provide for additional provision in
future periods, as management may deem necessary.
Non-Interest Income. For the second quarter of 2001, total non-interest income
increased $136 thousand, or 65.1%, from the same period in 2000. Service charges
on deposit accounts increased $25 thousand in the second quarter of 2001
compared to the three months ended June 30, 2000. Other income increased $111
thousand, or 116.8%, in the second quarter of 2001 from the same period in 2000.
This increase was mostly the result of an increase of $32 thousand in fees
generated by the non-deposit investment products offered by our third party
provider, IBFS, and an increase of $42 thousand in commission income from Sussex
Bancorp Mortgage Company, our mortgage banking subsidiary in the second quarter
of 2001 over the second quarter of 2000.
For the six months ended June 30, 2001, non-interest income increased $195
thousand, or 48.9%, from the same period in 2000. Service charges on deposit
accounts increased $37 thousand for the six month period ending June 30, 2001
over the same period in 2000. This increase was largely due to increased fees
charged on deposit accounts which became effective on April 1, 2001. Other
income increased $158 thousand, or 90.3%, from June 30, 2000 to June 30, 2001.
The components of this increase were a $50 thousand increase in commission
income from Sussex Bancorp Mortgage Company, a $49 thousand increase in the fees
generated from non-deposit investment products offered through IBFS and other
increases of $55 thousand cumulatively collected from various other services. In
the first six months of 2001, a $4 thousand gain on the sale of fixed assets was
recorded compared to an $8 thousand loss in available for sale securities during
the first six months of 2000.
Non-Interest Expense. For the quarter ended June 30, 2001, non-interest expense
increased $130 thousand from the same period last year. Salaries and employee
benefits increased $82 thousand, or 12.2%, as salaries increased $66 thousand
and employee benefits increased $16 thousand, with a $10 thousand increase in
medical claim expenses. Other larger notable increases from second quarter 2000
to second quarter 2001 were data processing expenses of $9 thousand, advertising
and promotions of $17 thousand and audits and exams of $6 thousand.
For the six months ended June 30, 2001, non-interest expense increased $245
thousand, or 9.7%, from the same period last year. Salaries and employee
benefits increased $149 thousand, or 11.1%, occupancy expense increased $26
thousand, or 11.8%, while furniture and fixture expense decreased $16 thousand,
or 5.9%. Data processing expenses have increased $14 thousand, advertising and
promotions increased $16 thousand and audits and exams increased $12 thousand
during the first six month of 2001 as compared to the first six months of 2000.
These increases in operating expenses reflect normal expenditures relative to
the growth of the Company.
Income Taxes. Income tax expense increased $51 thousand to $107 thousand for
the three months ended June 30, 2001 as compared to $56 thousand for the same
period in 2000. Income taxes also increased for the six months ended June 30,
2001 to $189 thousand as compared to $114 thousand for the six months ended June
30, 2000. The increase in income taxes resulted from a higher level of income
before income taxes in combination with a reduced level of tax-exempt income.
9
FINANCIAL CONDITION
June 30, 2001 as compared to December 31, 2000
Total assets increased to $185.3 million at June 30, 2001, a $23.7 million
increase from total assets of $161.6 million at December 31, 2000. Increases in
total assets included increases of $8.1 million in cash and cash equivalents,
$8.9 million in total securities and $7.0 million in time deposits in other
banks, while total loans, net of unearned income, decreased $600 thousand. This
net increase in assets was funded by an increase in total deposits of $21.6
million from $140.9 million at year-end 2000 to $162.5 million on June 30,
2001 and an increase in total stockholder's equity of $1.9 million from $10.1
million at December 31, 2000 to $12.1 million at June 30, 2000, reflecting both
the Company's retained earnings for the first six months of 2001 and the
investment of $1.1 million in the Company's common stock by Lakeland Bancorp in
January 2001.
Total loans at June 30, 2001 decreased $600 thousand to $100.6 million from
year-end 2000. The decrease reflects loan payoffs in excess of new originations
during a period of declining market rates. The Company operates in a highly
competitive market, and must frequently compete with larger institutions. These
competitors often devote greater resources to marketing and customer acquisition
than can the Company. In addition, the Company is emphasizing the origination of
commercial, industrial, and construction loans to increase the yield in its loan
portfolio and reduce its dependence on loans secured by 1-4 family properties.
These factors are evident in the loan portfolio balances at June 30, 2001
compared to December 31, 2000. Residential real estate loans decreased $3.2
million, other loans decreased $477 thousand and consumer loans decreased $84
thousand, while commercial and industrial loans, increased $2.2 million,
construction loans increased $490 thousand and non-residential real estate loans
increased $443 thousand.
The following schedule presents the components of loans, net of unearned income,
for each period presented:
June 30 December 31
2001 2000
----------------------------------------------
Amount Percent Amount Percent
(Dollars in Thousands)
Commercial and industrial $ 7,159 7.12% $ 4,968 4.91%
Real Estate-Non Residential 27,972 27.81% 27,529 27.21%
Residential Properties (1-4 Family) 52,066 51.77% 55,229 54.59%
Construction 9,450 9.40% 8,960 8.86%
Consumer 2,696 2.68% 2,780 2.75%
Other Loans 1,223 1.22% 1,700 1.68%
-------- ------ -------- -----
Total Loans, Net of Unearned Income $100,566 100.00% $101,166 100.00%
======== ====== ======== ======
Federal funds sold increased by $6.5 million to $14.5 million at June 30, 2001
from $8 million on December 31, 2000 and time deposits in other banks increased
$7 million from $100 thousand at year-end 2000 to $7.1 million on June 30, 2001.
Due to the promotion of time deposits during the first quarter of 2001, time
deposits at June 30, 2001 increased $13.8 million to $66.5 million from $52.7
million at year end 2000. As deposits increased faster than investment
opportunities, the excess funds were invested in short-term federal funds and
time deposits in other banks. These funds will be used to fund future loan
demand, with excess liquidity used to purchase investment securities.
Total investment securities increased $8.9 million, or 22.5%, from $39.6 million
at year-end 2000 to $48.5 million on June 30, 2001. Securities, available for
sale, at market value, increased $9.6 million, or 29.0%, from $33.2 million on
December 31, 2000 to $42.8 million on June 30, 2001. The Company purchased $22.2
million in new securities in the first six months of 2001 and $13.1 million in
available for sale securities matured, were called and were repaid. There were
$538 thousand in recorded unrealized gains in the available of sale portfolio
during the first six months of 2001. Held to maturity securities decreased to
$5.7 million at June 30, 2001 from $6.4 million at year-end 2000. There were
$532 thousand in held to maturity purchases and $1.2 million in maturing
securities in the held to maturity portfolio during the first six months of
2001.
Total year to date average deposits increased $19.9 million, or 14.4%, to $158.3
million during the first half of 2001 from the twelve-month average of $138.4
million for the year ended December 31, 2000. Average time deposits increased by
$16.0 million, savings deposits increased by $1.3 million, money market deposits
increased by $913 thousand, NOW deposits increased by $852 thousand and demand
deposits increased by $817 thousand. As discussed earlier, the increase in time
deposits was due to an aggressive promotion of higher yielding time deposits and
the Company's decision to compete for the deposits on the basis of rate.
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.
Six Months Ended Twelve Months Ended
June 30, 2001 December 31, 2000
-------------------------------------------------
Average Percent Average Percent
Balance of Total Balance of Total
Deposits:
NOW Deposits .......... $ 15,113 9.54% $ 14,261 10.30%
Savings Deposits ...... 47,178 29.79% 45,853 33.13%
Money Market Deposits.. 7,542 4.76% 6,629 4.79%
Time Deposits ......... 63,683 40.22% 47,656 34.43%
Demand Deposits ....... 24,832 15.68% 24,015 17.35%
------
Total Deposits . $158,348 100.00% $138,414 100.00%
======== ====== ======== ======
10
ASSET QUALITY
At June 30, 2001, non-performing loans decreased $174 thousand to $377 thousand,
as compared to $552 thousand at December 31, 2000. Management continues to
monitor the Company's asset quality.
The following table provides information regarding risk elements in the loan
portfolio:
June 30 December 31
2001 2000
---- ----
Non-accrual loans ............................... $ 377 $ 552
Non-accrual loans to total loans ................ 0.38% 0.55%
Non-performing loans to total assets ............ 0.30% 0.34%
Allowance for possible loan losses as a
percentage of non-performing loans ............ 272.49% 176.27%
Allowance for possible loan losses to total loans 1.02% 0.96%
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 for possible loan losses 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, 2001, the allowance for possible loan losses was $1.0 million, up
5.6% from the $973 thousand at year-end 2000. There were $68 thousand in charge
offs and no recoveries reported in the first half of 2001. The allowance for
possible loan losses as a percentage of total loans was 1.02% at June 30, 2001
compared to 0.96% on December 31, 2000.
LIQUIDITY MANAGEMENT
At June 30, 2001, 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, 2001, liquid investments totaled $21 million, and all mature within
30 days.
It is management's intent to fund future loan demand primarily with deposits. In
addition, the Bank is a member of the Federal Home Loan Bank of New York and as
of June 30, 2001, had the ability to borrow a total of $24.2 million against its
one to four family mortgages as collateral for long term advances. The Bank also
has available an overnight line of credit in the amount of $7.8 million. In
December of 2000 the Company borrowed against its one to four family mortgages
and entered into three long term FHLB advances totaling $10 million. The three
borrowings, which have an average interest rate of 4.96%, mature on December 21,
2010, but are callable beginning in December 2001, 2002 and 2003, respectively.
These borrowings were used to restructure maturing short-term debt of $4 million
and make available funds to purchase higher yielding investments.
CAPITAL RESOURCES
Total stockholders' equity increased $1.9 million to $12.0 million at June 30,
2001 from the $10.1 million at year-end 2000. The increase was due to the sale
of common stock of $1.2 million, net income of $450 thousand, shares issued
through the dividend reinvestment plan of $71 thousand, stock options exercised
of $24 thousand and an increase in the net unrealized gain on securities
available for sale of $320 thousand. Decreases to stockholders' equity were a
cash dividend of $115 thousand and purchases of $4 thousand in treasury stock.
On January 17, 2001 the Company sold 9.9% of its outstanding stock to Lakeland
Bancorp, a New Jersey based bank holding company, at a price of $8.50 per share.
Lakeland purchased 139,906 shares for approximately $1.1 million. As of June 30,
2001 Lakeland Bancorp's stock holdings represented 8.5% of the Company's
outstanding stock.
At June 30, 2001, 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, 2001 for both the Company and the Bank as well as the
minimum regulatory requirements.
Amount Ratio Amount Minimum Ratio
------ ----- ------ -------------
The Company
Leverage Capital $11,356 6.11% $ 7,432 4%
Tier 1 - Risk Based 11,356 10.81% 4,201 4%
Total Risk-Based 12,386 11.79% 8,401 8%
The Bank
Leverage Capital 10,418 5.61% 7,429 4%
Tier 1 Risk-Based 10,418 9.94% 4,194 4%
Total Risk-Based 11,448 10.92% 8,387 8%
11
NEW ACCOUNTING PRONOUNCEMENTS
The adoption of SFAS No. 138 on January 1, 2001, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133" did not have a material impact on the financial condition or
results of operations of the Company.
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, which supersedes APB Opinion No. 16, Business Combinations, and
FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. All business combinations in the scope of this Statement are to be
accounted for using the purchase method of accounting. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001. The
Company will apply this new pronouncement on a prospective basis.
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. This Statement supersedes APB Opinion No. 17, Intangible
Assets. Under the new standard goodwill will no longer be subject to
amortization over its estimated useful life. Rather goodwill will be subject to
at least an annual assessment for impairment by applying a fair value test. An
acquired intangible asset would be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented or exchanged
regardless of the acquirers intent to do so. All of the provisions of this
Statement should be applied in fiscal years beginning after December 15, 2001,
to all goodwill and other intangible assets recognized in an entity's statement
of financial position at the beginning of that fiscal year, regardless of when
those previously recognized assets were initially recognized. The Company does
not expect that the adoption of this new pronouncement will have a material
impact on its financial position or results of operations.
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 25, 2001, 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
-------- --- ------------------
Irvin Ackerson 1,399,325 17,736
William E. Kulsar 1,396,538 20,522
Terry H. Thompson 1,399,325 17,736
Approval of the Sussex Bancorp 2001 Stock Option Plan:
For Against
--- -------
938,322 129,055
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Report on form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
Filing Date Item Number Description
----------- ----------- -----------
April 6, 2001 4 The Registrant announced that it had
replaced Radics & Co., LLC as its
independent auditors with Arthur Andersen,
LLP.
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,m the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUSSEX BANCORP
Date: By: /s/ Candace A. Leatham
-----------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
13