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, 2002
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 November 8, 2002 there were 1,684,096 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 3
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 11
Financial condition and Results of Operations
Item 3. Controls and Procedures 16
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
Certifications 17
ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share Data)
(Unaudited)
ASSETS September 30, 2002 December 31, 2001
------ ------------------ -----------------
Cash and Due from Banks $ 9,680 $ 6,150
Federal Funds Sold 21,795 34,885
--------- ---------
Total Cash and Cash Equivalents 31,475 41,035
Time Deposits in Other Banks 6,100 3,100
Securities Available for Sale, at Fair Value 68,412 42,712
Loans (Net of Unearned Income) 110,008 106,148
Less: Allowance for Loan Losses 1,353 1,143
--------- ---------
Net Loans 108,655 105,005
Other Real Estate Owned 197 187
Premises and Equipment, Net 4,703 4,925
Federal Home Loan Bank Stock, at cost 750 685
Intangible Assets, Net 644 743
Goodwill 1,757 1,712
Accrued Interest Receivable 1,160 964
Other Assets 2,447 2,275
--------- ---------
Total Assets $ 226,300 $ 203,343
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Noninterest-Bearing Demand $ 28,644 $ 26,252
Savings, Club and Interest-Bearing Demand 106,822 89,317
Time of Less than $100 42,525 48,776
Time of $100 and Over 12,553 14,209
--------- ---------
Total Deposits 190,544 178,554
Long-Term Debt 15,000 10,000
Other Liabilities 2,551 2,552
--------- ---------
Total Liabilities 208,095 191,106
Mandatory Redeemable Capital Debentures 5,000 0
Stockholders' Equity:
Common Stock, No Par Value, Authorized 5,000,000 Shares,
Issued 1,687,701 in 2002 and 1,672,765 in 2001
Outstanding 1,659,439 in 2002 and 1,659,057 in 2001 7,856 7,732
Retained Earnings 5,060 4,509
Treasury Stock, 28,262 Shares in 2002 13,708 Shares in 2001 (283) (127)
Accumulated Other Comprehensive Income, Net of Income Tax 572 123
--------- ---------
Total Stockholders' Equity 13,205 12,237
Total Liabilities and Stockholders' Equity $ 226,300 $ 203,343
========= =========
See Notes to Consolidated Financial Statements
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Interest and Fees on Loans $1,956 $1,986 $5,773 $6,097
Interest on Securities:
Taxable 609 $ 574 1556 1744
Exempt from Federal Income Tax 130 65 346 198
Interest on Federal Funds Sold 87 219 324 655
Interest on Time Deposits 31 61 81 120
------ ------ ------ ------
Total Interest Income 2,813 2,905 8,080 8,814
INTEREST EXPENSE
Interest on Deposits 671 1,335 2,210 4,051
Interest in Borrowings 148 127 397 376
Interest on Capital Debentures 65 0 65 0
------ ------ ------ ------
Total Interest Expense 884 1,462 2,672 4,427
Net Interest Income 1,929 1,443 5,408 4,387
Provision for Loan Losses 75 63 225 189
------ ------ ------ ------
Net Interest Income After Provision for Loan Losses 1,854 1,380 5,183 4,198
NON-INTEREST INCOME
Service Charges on Deposit Accounts 195 142 510 403
Gain on Sale of Loans Held for Sale 0 3 24 9
Gain on Sale of Securities, Available for Sale 0 8 0 8
Investment Brokerage Fees 56 78 204 164
Insurance Commissions and Fees 414 1 1,276 1
Other Income 129 102 377 343
------ ------ ------ ------
Total Non-Interest Income 794 334 2,391 928
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,245 766 3474 2260
Occupancy, Net 151 124 447 371
Furniture and Equipment 199 171 629 481
Stationary and Supplies 50 21 129 75
Advertising and Promotion 121 51 363 151
Audit and Exams 35 32 101 95
Amortization of Intangibles 33 21 98 63
Other Expenses 414 286 1,134 749
------ ------ ------ ------
Total Non-Interest Expense 2,248 1,472 6,375 4,245
Income Before Provision for Income Taxes 400 242 1,199 881
Provision for Income Taxes 113 68 350 257
------ ------ ------ ------
Net Income $ 287 $ 174 $ 849 $ 624
====== ====== ====== ======
Net Income Per Common Share-Basic $ 0.17 $ 0.11 $ 0.51 $ 0.38
====== ====== ====== ======
Net Income Per Common Share-Diluted $ 0.17 $ 0.10 $ 0.49 $ 0.38
====== ====== ====== ======
See Notes to Consolidated Financial Statements
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
Net Income $ 287 $ 174 $ 849 $ 624
Other comprehensive income, net of tax
Unrealized gain on available for sale securities 225 180 449 500
------ ------ ------ ------
Comprehensive income $ 512 $ 354 $1,298 $1,124
====== ====== ====== ======
See Notes to Consolidated Financial Statements
SUSSEX BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
(Unaudited)
Accumulated
Number of Other Total
Shares Common Retained Treasury Comprehensive Stockholders
Outstanding Stock Earnings Stock Income Equity
----------- ----- -------- ----- ------ ------
Balance December 31, 2000 1,498,351 6,385 4,027 (122) (180) 10,110
Net Income for the Period 624 624
Cash Dividends (230) (230)
Sale of Common Stock 139,906 1,162 1,162
Stock Options Exercised 5,263 43 43
Shares Issued Through Dividend
Reinvestment Plan 12,976 113 113
Treasury Shares Purchased (492) (5) (5)
Change in Unrealized Gain on Securities,
Available for Sale 500 500
--------- ----- ----- ---- --- ------
Balance September 30, 2001 1,656,004 7,703 4,421 (127) 320 12,317
========= ===== ===== ==== === ======
Accumulated
Number of Other Total
Shares Common Retained Treasury Comprehensive Stockholders
Outstanding Stock Earnings Stock Income Equity
----------- ----- -------- ----- ------ ------
Balance December 31, 2001 1,659,057 $7,732 $4,509 ($127) $123 $12,237
Net Income for the Period 849 849
Cash Dividends (298) (298)
Stock Options Exercised 5,623 38 38
Shares Issued Through Dividend
Reinvestment Plan 9,313 86 86
Treasury Shares Purchased (14,554) (156) (156)
Change in Unrealized Gain on Securities,
Available for Sale 449 449
--------- ----- ----- ---- --- ------
Balance September 30, 2002 1,659,439 $7,856 $5,060 ($283) $572 $13,205
========= ====== ====== ===== ==== =======
See Notes to Consolidated Financial Statements
SUSSEX BANCORP
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
Cash Flows from Operating Activities:
Net Income $ 849 $ 624
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net Loan Origination and Commitment Fees (9) (17)
Depreciation and Amortization of Premises and Equipment 428 350
Amortization of Intangible Assets 98 63
Net Amortization of Securities 357 200
Provision for Loan Losses 225 189
Gain on Sale of Securities, Available for Sale 0 (8)
Gain on Sale of Loans Held for Sale (24) (9)
Origination of Loans Held for Sale (1,196) (1,526)
Proceeds of Sales of Loans Held for Sale 1,220 1,832
Increase in Accrued Interest Receivable (196) (104)
Increase in Cash Value of Life Insurance Policy (42) (41)
Increase in Other Assets and Goodwill (476) (314)
(Decrease) Increase in Other Liabilities (1) 215
-------- --------
Net Cash Provided by Operating Activities 1,233 1,454
-------- --------
Cash Flow from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities and Paydowns 14,854 9,767
Proceeds from Sales/Calls Prior to Maturity 6,535 14,232
Purchases (46,695) (34,861)
Securities Held to Maturity:
Proceeds from Maturities 0 1,365
Purchases 0 (532)
Net Purchases of Time Deposits in Other Banks (3,000) (6,000)
Net Increase in Loans Outstanding (3,866) (1,395)
(Purchase) Redemption of FHLB Stock (65) 8
Purchase of Premises and Equipment (206) (701)
Net Increase in Other Real Estate (10) (185)
-------- --------
Net Cash Used In Investing Activities (32,453) (18,302)
-------- --------
Cash Flows from Financing Activities:
Net Increase in Total Deposits 11,990 33,899
Purchase FHLB Advances 5,000 0
Purchase Capital Debentures 5,000 0
Purchase of Treasury Stock (156) (5)
Sale of Common Stock 0 1,162
Exercise of Stock Options 38 43
Payment of Dividends Net of Reinvestment (212) (117)
-------- --------
Net Cash Provided by Financing Activities 21,660 34,982
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ($ 9,560) $ 18,134
Cash and Cash Equivalents, Beginning of Period 41,035 12,920
-------- --------
Cash and Cash Equivalents, End of Period $ 31,475 $ 31,054
======== ========
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, was
incorporated in January, 1996 to serve as the holding company for Sussex Bank
("the Bank"). The Bank is the only active subsidiary of the Company at September
30, 2002. The Bank operates eight banking offices all located in Sussex County
and is the parent of Tri-State Insurance Agency, Inc., (Tri-State) a full
service insurance agency 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") and the operations of Tri-State are
subject to the supervision and regulation by 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. Operating
results for the nine months ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002. 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, 2001.
2. Securities
The amortized cost and approximate market value of securities are
summarized as follows (in thousands):
September 30, 2002 December 31, 2001
---------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Available for Sale:
US Treasury Securities and Obligations of
US Government Corporations and Agencies $45,965 $46,445 $29,292 $29,571
Corporate Bonds 7,666 7,860 4,605 4,661
Obligations of State and Political Subdivisions 12,929 13,212 7,714 7,626
Equity Securities 899 895 899 854
------- ------- ------- -------
Total Available for Sale Securities $67,459 $68,412 $42,510 $42,712
======= ======= ======= =======
3. 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 dilutive effect of potential common shares.
On October 1, 2001, the Company, through its Sussex Bank subsidiary,
acquired Tri-State. The purchase price paid by the Company for Tri-State was
comprised of an upfront cash payment at closing, and deferred payments on the
first, second and third anniversaries of the closing. These deferred payments
will be satisfied through a mix of cash and common stock of the Company, with
the number of shares issued based, in part, upon the then-current market price
of the Company's common stock. The deferred payments are subject to downward
adjustment based upon the net income of Tri-State as a subsidiary of Sussex
Bank. The estimated number of shares to be issued to the former principals of
Tri-State on the first three anniversaries of the acquisition will be deemed
outstanding for purposes of calculating the Company's diluted earnings per
share, although they will not be deemed outstanding until issued for purposes of
calculating the Company's basic earnings per share. The estimated number of
shares to be issued for purposes of the Company's diluted earnings per share
will be calculated based upon Tri-State's earnings to date at the time of
calculation and the Company's then current stock price. The actual number of
shares issued by the Company to the former principals of Tri-State may vary
significantly from these estimates, and will not be known until such time as the
shares are actually issued.
The following table sets forth the computations of basic and diluted earnings
per share (dollars in thousands, except per share data):
Nine Months Ended, September 30, 2002 Nine Months Ended, September 30, 2001
------------------------------------- -------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic earnings per share:
Net income applicable to common
stockholders $ 849 1,658 $ 0.51 $ 624 1,638 $ 0.38
======== ======
Effect of dilutive securities:
Stock options -- 16 -- 18
Deferred common stock payments for
purchase of insurance agency 8 58 -- --
----- ----- ----- ------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 857 1,732 $ 0.49 $ 624 1,656 $ 0.38
===== ===== ======== ===== ===== ======
Three Months Ended, September 30, 2002 Three Months Ended, September 30, 2001
-------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic earnings per share:
Net income applicable to common
stockholders $ 287 1,661 $ 0.17 $ 174 1,652 $ 0.11
======== ======
Effect of dilutive securities:
Stock options -- 17 -- 20
Deferred common stock payments for
purchase of insurance agency 5 58 -- --
----- ----- ----- ------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 292 1,736 $ 0.17 $ 174 1,672 $ 0.10
===== ===== ====== ===== ===== ======
4. Comprehensive Income
The components of other comprehensive income and related tax effects for
the nine months ended September 30, 2002 and 2001 are as follows:
Nine Months Ended
September 30
2002 2001
---- ----
Unrealized holding gains on available for sale
securities $751 $842
Less: reclassification adjustments for gains included in net income -- 8
---- ----
Net unrealized gains 751 834
Tax effect 302 334
---- ----
Other comprehensive income, net of tax $449 $500
==== ====
5. Mandatory Redeemable Capital Debentures
On July 11, 2002 Sussex Capital Trust I, a Delaware statutory business
trust and a wholly-owned subsidiary of the Company, issued $5 million of
variable rate capital trust pass-through securities to investors. Sussex Capital
Trust I purchased $5.1 million of variable rate junior subordinated deferrable
interest debentures from Sussex Bancorp. The debentures are the sole asset of
the Trust. The terms of the junior subordinated debentures are the same as the
terms of the capital securities. Sussex Bancorp has also fully and
unconditionally guaranteed the obligations of the Trust under the capital
securities. The capital securities are redeemable by Sussex Bancorp on or after
October 7, 2007, at par or earlier if the deduction of related interest for
federal income taxes is prohibited, classification as Tier I capital is no
longer allowed, or certain other contingencies arise. The capital securities
must be redeemed upon final maturity of the subordinated debentures on October
7, 2032. Proceeds totaling approximately $4.8 million were contributed to paid
in capital at Sussex Bank. Financing costs related to the Company's issuance of
mandatory redeemable capital debentures will be amortized over a five-year
period and is included in other assets.
6. New Accounting Standards
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 adoption of
this new pronouncement did not have a material impact on the Company's financial
position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations," which addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
This Statement will become effective for the Company on January 3, 2003 and is
not expected to have a significant impact on the Company's financial condition
or results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Accounting for the Impairment of or Disposal of Long-Lived Assets."
This Statement supercedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions for the Disposal of a Segment of a Business." This Statement also
amends ARB No. 51, " Consolidated Financial Statements." The provisions of this
Statement were effective for the Company on January 1, 2002, and did not have a
significant impact on financial condition or results of operations.
In April 2002, the Financial Accounting Standards Board issued Statement
No. 145, "Rescission of Statements No. 4, 44 and 64, Amendment of Statement No.
13". This statement requires that debt extinguishment no longer be classified as
an extraordinary item since debt extinguishment has become a risk management
strategy for many companies. It also eliminates the inconsistent accounting
treatment for sale-leaseback transactions and certain lease modifications that
have economic effects similar to sale-leaseback transactions. This statement
became effective May 15, 2002 and did not have a significant impact on the
Corporation's financial condition or results of operations.
In June 2002, the Financial Accounting Standards Board issued Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities", which
nullifies EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit and Activity (including certain
costs incurred in a restructuring)." This statement delays recognition of these
costs until liabilities are incurred and requires fair value measurement. It
does not impact the recognition of liabilities incurred in connection with a
business combination or the disposal of long-lived assets. The provisions of
this statement are effective for exit or disposal activities initiated after
December 31, 2002 and are not expected to have a significant impact on the
Corporation's financial condition or results of operations.
In October 2002, the Financial Accounting Standards Board issued Statement
No. 147, "Acquisitions of Certain Financial Institutions." This statement
provides guidance on accounting for the acquisition of a financial institution,
including the acquisition of part of a financial institution. The statement
defines criteria for determining whether the acquired financial institution
meets the conditions for a "business combination". If the acquisition meets the
conditions of a "business combination", the specialized accounting guidance
under Statement No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions" will not apply after September 30, 2002 and the amount of
the unidentifiable intangible asset will be reclassified to goodwill upon
adoption of Statement No. 147. The transition provisions were effective on
October 1, 2002 and did not have a significant impact on the Corporation's
financial condition or results of operations.
7. Segment Information
The Company's insurance operations are managed separately from the
traditional banking and related financial services that the Company also offers.
The insurance operation provides commercial, individual, and group benefit plans
and personal coverage. Insurance operations commenced on October 1, 2001 when
the Company acquired Tri-State. Accordingly, there is no segment information for
2001.
Banking
and
Financial Insurance
Services Services Total
-------- -------- -----
(Amounts in thousands)
Three months ended September 30, 2002
Revenues from external sources $2,309 $ 414 $2,723
Income before income taxes $ 364 $ 36 $ 400
Nine months ended September 30, 2002
Revenues from external sources $6,523 $1,276 $7,799
Income before income taxes $1,055 $ 144 $1,199
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Nine Months ended September 30, 2002 and September 30, 2001
CRITICAL ACCOUNTING POLICIES
Disclosure of the Company's significant accounting policies is included in
Note 2 to the consolidated financial statements of the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2001. Some of these policies are
particularly sensitive, requiring significant judgments, estimates and
assumptions to be made by management, most particularly in connection with
determining the provision for loan losses and the appropriate level of the
allowance for loan losses. Additional information is contained on pages 13 and
15 of this Form 10-QSB for the provision and allowance for loan losses.
OVERVIEW
The Company realized net income of $287 thousand for the third quarter of
2002, an increase of $113 thousand from the $174 thousand reported for the same
period in 2001. Basic earnings per share increased from $0.11 in the third
quarter of 2001 to $0.17 for the third quarter of 2002. Diluted earnings per
share were $0.10 in the third quarter of 2001 and increased to $0.17 in the
third quarter of 2002.
For the nine months ended September 30, 2002, net income was $849 thousand,
an increase of $225 thousand from the $624 thousand reported for the same period
in 2001. Basic earnings per share were $0.51 for the nine months ended September
30, 2002 compared to basic earnings per share of $0.38 for the nine-month period
ended September 30, 2001. Diluted earnings per share of $0.49 for the nine
months ended September 30, 2002 an increase from $0.38 from the first nine
months of 2001.
The results reflect a substantial decrease in interest expense due to
declining market rates of interest, partially offset by a decrease in interest
income, coupled with an increase in non-interest income earned through Tri-State
Insurance Agency, Inc. ("Tri-State"). The Company did not acquire Tri-State
until October 1, 2001, and so Tri-State's results are not included in the nine
months ended September 30, 2001.
RESULTS OF OPERATIONS
Interest Income. Total interest income decreased $92 thousand, or 3.2%, to
$2.8 million for the quarter ended September 30, 2002 from $2.9 million for the
same period in 2001. This decrease was primarily attributable to a 72 basis
point decrease in average rate earned, on a fully taxable equivalent basis, from
6.44% during the third quarter of 2001 to 5.72% in the third quarter of 2002.
Offsetting the rate decrease was an increase of $20.4 million in average third
quarter interest earning balances from $180.3 million in 2001 to $200.7 million
in 2002. The decline in rates had the greatest effect on federal funds sold. The
average rate earned on federal funds sold decreased 170 basis points to 1.67% in
the third quarter of 2002 from 3.37% during the third quarter of 2001. In
response, the average balance of federal funds sold decreased 19.0% to $20.7
million for the third quarter of 2002 compared to $25.5 million in the third
quarter last year as excess liquidity was used to purchase investment securities
and meet an increase in loan demand. The average rate earned in the loan
portfolio decreased 63 basis points to 7.19% for the third quarter of 2002 from
7.82% in the third quarter of 2001 and the average loan balance increased 8.3%
from $100.8 million to $109.1 million from third quarter 2001 to third quarter
2002. Although the average rate earned on taxable investment securities declined
by 80 basis points, the average balance increased by $10.5 million, or 25.8%, to
$51.0 million in the third quarter of 2002 and resulted in a $36 thousand
increase to interest income for the same period. The average rate earned on
tax-exempt securities increased 24 basis points to 5.53% for the third quarter
of 2002 compared to 5.29% in the third quarter of 2001. The average balance of
tax-exempt securities increased $6.8 million, or 107.4%, to $13.1 million during
the third quarter of 2002 and interest income on a tax equivalent basis
increased by $96 thousand in the current quarter compared to the year ago
period. The impact on interest income of market declines in interest rates
exceeded the volume increases in average balances, resulting in the decline in
interest income for the third quarter of 2002 compared to the second quarter if
2001.
For the nine months ended September 30, 2002, interest income, on a fully
taxable equivalent basis, decreased $656 thousand, or 7.4%, to $8.2 million from
the $8.9 million reported for the same period in 2001. While market rates of
interest fell during the first nine months of 2002, average interest earning
assets increased $20.3 million to $192.8 million from $172.5 million during the
same period in 2001. The average balance in the loan portfolio increased $5.2
million, tax exempt securities increased $5.2 million and federal funds sold
increased $4.6 million during the first nine months of 2002 over the same period
in 2001. As a result of both declining market rates and larger average balances
in lower yielding assets, the average yield on interest earning assets on a
fully taxable equivalent basis decreased 117 basis points from 6.87% from the
first nine months of 2001 to 5.70% for the same period of 2002.
Interest Expense. The Company's interest expense for the third quarter of
2002 decreased $578 thousand, or 39.5% to $884 thousand from $1.5 million in the
third quarter of 2001, as the average balance of interest bearing liabilities
increased $22.1 million, or 14.3% to $176.4 million during the third quarter of
2002 from $154.3 million in the same period of 2001. The increase in the average
balance of interest bearing liabilities was more than offset by the reduction in
rates, as the average cost of funds declined to 1.99% for the third quarter of
2002 from 3.76% in the third quarter of 2001. Interest expense on time deposits,
the largest component of the decrease, declined $478 thousand, or 55.1% to $389
thousand as the average balance in time deposits decreased $11.6 million, or
17.2% in the third quarter of 2002 compared to the same period in 2001. As a
result of a large-scale marketing promotion for low cost deposits, which began
in the fourth quarter of 2001, NOW deposit average balances have grown $17.1
million, or 93.8%, from $18.2 million during the third quarter 2001 to $35.2
million in the third quarter of 2002. The interest expense on NOW deposits
increased $9 thousand from the third quarter of 2001, while the average interest
rate paid decreased 52 basis points from 1.29% to 0.77% during the same periods.
Average savings deposits reflect an increase of $9.8 million, or 18.6%, in
average balances while the average rate paid declined 151 basis points from
2.79% in the third quarter of 2001 to 1.28% in the third quarter of 2002.
Average borrowed funds increased to $13.7 million in the third quarter of 2002
from $10 million in the third quarter if 2001. The Company entered into several
short-term FHLB advances during the third quarter of 2002 as a leveraging
strategy to purchase investments at higher yields than the cost of the advances.
Also in the third quarter of 2002, the Company issued $5 million in mandatory
redeemable capital debentures through Sussex Capital Trust I, a wholly owned
subsidiary of the Company.
For the nine months ended September 30, 2002 interest expense decreased
$1.7 million, or 39.6%, to $2.7 million from $4.4 million for the same period
last year. This decrease was largely due to a decrease in interest expense on
time deposits of $1.2 million, or 47.4%, from $2.6 million for the first nine
months of 2001 to $1.4 million during the first nine months of 2002. In addition
the average balance in time deposit accounts decreased $6.9 million, or 10.7%,
over the same nine-month periods. The Company shifted it's focus from drawing
time deposits on the basis of rate to attracting customers through its new
marketing promotion of lower costing NOW and savings accounts. The average
balance of NOW deposits increased $16.8 million, or 103.4%, from $16.1 million
during the first nine months of 2001 to $ 32.9 million in the first nine months
of 2002. For the first nine months of 2002, the Company's average cost of time
deposits was 3.17%, while the average cost of NOW accounts was 0.81% compared to
5.37% and 1.34 respectively from the first nine months of 2001. During the first
nine months of 2002 savings deposits increased $11.7 million, or 23.9%, from
$49.1 million during the first nine months of 2001 to $ 60.8 million during the
same period of 2002. The increase is primarily attributable to increased cross
marketing of existing customers and the Company's overall increased level of
marketing activity. The Company's average borrowed funds increased to $11.2
million during the first nine months of 2002 compared to $10 million in the
first nine months of 2001, with the purchase of $5.0 million in short-term
advances in July of 2002. With the issuance of the mandatory redeemable capital
debentures on July 11, 2002, the Company incurred additional interest expense of
$65 thousand during 2002, which was not present during 2001. The average rate
paid on total interest bearing liabilities decreased 190 basis points from 4.02%
in the first nine months of 2001 to 2.12% during the same period in 2002. This
decrease in the average cost of funds was mostly due to the decline in market
rates and the Company's strategy of attracting lower cost deposits and repricing
its higher costing time deposit portfolio.
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 nine months
ended September 30, 2002 and 2001. 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,
2002 2001
---- ----
(Dollars in Thousands)
Interest Average Rates Interest Average Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
Assets
Interest Earning Assets:
Taxable Loans (net of unearned income) $ 107,116 $ 5,773 7.21% $ 101,928 $ 6,097 8.00%
Tax Exempt Securities 11,734 479 5.46% 6,495 253 5.21%
Taxable Investment Securities 42,481 1532 4.82% 38,952 1698 5.83%
Federal Funds Sold 25,282 324 1.69% 20,636 655 4.19%
Time Deposits in Other Banks 5,422 81 2.00% 3,710 120 4.32%
Other (1) 744 24 4.31% 772 46 7.97%
--------- --------- --------- ---------
Total Earning Assets $ 192,779 $ 8,213 5.70% $ 172,493 $ 8,869 6.87%
Non-Interest Earning Assets $ 19,158 $ 13,376
Allowance for Loan Losses ($ 1,255) ($ 1,026)
--------- ---------
Total Assets $ 210,682 $ 184,843
========= =========
Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
NOW Deposits $ 32,888 $ 199 0.81% $ 16,144 $ 162 1.34%
Savings Deposits 60,787 608 1.34% 49,048 1125 3.07%
Money Market Deposits 4,065 30 0.99% 7,092 156 2.94%
Time Deposits 57,932 1,373 3.17% 64,879 2,608 5.37%
--------- --------- --------- ---------
Total Interest Bearing Deposits 155,672 2,210 1.90% 137,163 4,051 3.95%
Borrowed Funds 11,245 397 4.66% 10,000 376 4.96%
Capital Debenture 1,502 65 5.71% 0 0 0.00%
--------- --------- --------- ---------
Total Interest Bearing Liabilities $ 168,419 $ 2,672 2.12% $ 147,163 $ 4,427 4.02%
Non-Interest Bearing Liabilities:
Demand Deposits $ 27,255 $ 25,193
Other Liabilities 2,443 807
--------- ---------
Total Non-Interest Bearing Liabilities $ 29,698 $ 26,000
Shareholders' Equity $ 12,565 $ 11,680
--------- ---------
Total Liabilities and Shareholders' Equity $ 210,682 $ 184,843
========= =========
Net Interest Differential $ 5,541 $ 4,442
Net Interest Spread 3.57% 2.85%
Net Yield on Interest-Earning Assets or
Net Interest Margin 3.84% 3.44%
(1) Includes FHLB stock and interest-bearing deposits
Net-Interest Income. The net interest income for the third quarter of 2002
increased $486 thousand over the same period last year. This increase was the
result of liabilities repricing faster and lower then earning assets in a
declining market rate environment and the Company's ability to shift it's
average balances to lower costing interest bearing liabilities, thereby further
reducing its cost of funds. The net interest spread increased, on a fully
taxable equivalent basis, by 105 basis points to 3.73% and the net yield on
interest-bearing assets increased 69 basis points to 3.91% in the third quarter
of 2002 compared to the year ago period.
Net interest income for the nine months ended September 30, 2002 increased
$1.0 million, or 23.3%, over the same period last year. The net interest spread
increased, on a fully taxable equivalent basis, 72 basis points and the net
yield on interest-bearing assets improved by 40 basis points between the first
nine-month periods of 2001 and 2002. This comparison displays the effect of
declining market rates of interest repricing deposit liabilities faster than
earning assets during the first nine-month periods of 2002 compared to the first
nine months of 2001.
Provision for Loan Losses. For the three months ended September 30, 2002
the provision for loan losses was $75 thousand compared to $63 thousand for the
third quarter ended September 30, 2001. The provision for loan losses was $225
thousand for the nine months ended September 30, 2002 as compared to $189
thousand for the same period last year. 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 the risks, as
well as 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 third quarter of 2002, total non-interest
income increased $460 thousand, or 137.7%, from the same period in 2001. On
October 1, 2001 the Company acquired Tri-State and in the third quarter of 2002
the subsidiary contributed $414 thousand in insurance commission and fee income
to non-interest income that was not present in the third quarter of 2001.
Service charges on deposit accounts increased $53 thousand to $195 thousand and
other income increased $27 thousand to $129 thousand for the quarter ended
September 30, 2002. This increase in service charges on deposit accounts is
credited to the growth in the Company's deposits. Investment brokerage fee
income has decreased by $22 thousand, or 28.2%, to $56 thousand for the period
ending September 30, 2002 compared to $78 thousand earned during the third
quarter of 2001 due to lower sales volume.
For the nine months ended September 30, 2002, non-interest income increased
$1.5 million, or 157.7%, from the same period in 2001. Insurance commissions and
fee income for the first nine months of 2002 resulted in an additional $1.3
million in non-interest income. Service charges on deposit accounts increased
$107 thousand for the nine-month period ending September 30, 2002 over the same
period in 2001. This increase was due to growth in deposit account activity
during the first nine months of 2002 over the first nine months of 2001.
Investment brokerage fees increased $40 thousand, or 24.4%, from September 30,
2001 to September 30, 2002. In the first nine months of 2002, a $24 thousand
gain on the sale of loans held for sale was recorded compared to a $9 thousand
gain on the sale of loans held for sale during the first nine months of 2001.
Non-Interest Expense. For the quarter ended September 30, 2002,
non-interest expense increased $776 thousand from the same period last year. The
additional non-interest expense in the third quarter 2002 attributed to
Tri-State totaled $378 thousand. Net of Tri-State's salaries and employee
benefits, the Company's salaries and employee benefits increased $218 thousand,
or 28.5%, from the addition of seven full time equivalent employees and normal
salary increases since the quarter ended September 30, 2001. Other non-interest
expense increases from third quarter 2001 to third quarter 2002, net of
Tri-State's expenses, were advertising and promotion expenses of $66 thousand
due to the deposit promotion which began in the fourth quarter of 2001,
stationary and supply expense of $22 thousand from costs associated with the
Bank subsidiary name change from The Sussex County State Bank to Sussex Bank
during fourth quarter 2001, and other expenses of $63 thousand relative to
normal expenditures attributed to the growth of the Company.
For the nine months ended September 30, 2002, non-interest expense
increased $2.1 million, to $6.4 million, of which $1.1 million is attributable
to Tri-State and which was not present during the first nine months of 2001. Net
of Tri-State, non-interest expenses increased $998 thousand, or 23.5% to $5.2
million for the first nine months of 2002 from $ 4.2 million from the first nine
months of 2001. Salaries and employee benefits increased $460 thousand, or
20.4%, furniture and fixture expense increased $97 thousand, or 20.2%,
stationary and supply expense increased $35 thousand, or 46.7% and advertising
and promotions increased $190 thousand, or 125.8% during the first nine month of
2002 as compared to the first nine months of 2001. The Company's assets have
grown over 11% since the year ended December 31, 2001and these related
non-interest expense increases are the result of management's strategies to
increase loan balances outstanding, attract deposits and improve the performance
and value of the Company.
Income Taxes. Income tax expense increased $45 thousand to $113 thousand
for the three months ended September 30, 2002 as compared to $68 thousand for
the same period in 2001. Income taxes also increased for the nine months ended
September 30, 2002 to $350 thousand as compared to $257 thousand for the nine
months ended September 30, 2001. The increase in income taxes resulted from a
higher level of income before income taxes in 2002 compared to 2001.
FINANCIAL CONDITION
September 30, 2002 as compared to December 31, 2001
Total assets increased to $226.3 million at September 30, 2002, a $23.0
million increase from total assets of $203.3 million at December 31, 2001.
Increases in total assets include net increases of $25.7 million in securities
available for sale and $3.0 million in time deposits in other banks and $3.7 in
net loans, partially offset by a $9.6 million reduction in cash and cash
equivalents. Asset increases were financed through an increase in total deposits
of $12.0 million from $178.6 million at year-end 2001 to $190.6 million on
September 30, 2002, a $5 million increase in long-term debt and the $5 million
issuance of mandatory redeemable capital debentures previously discussed. Total
stockholder's equity increased $1.0 million from $12.2 million at December 31,
2001 to $13.2 million at September 30, 2002.
Total loans at September 30, 2002 increased $3.9 million to $110.0 million
from $106.1 million at year-end 2001. During both the three and nine month
periods ending September 30, 2002, the Company has seen high levels of
prepayments as borrowers continue to seek to refinance loans in the current low
interest rate environment. Although new originations have exceeded payoffs both
through scheduled maturities and prepayments, origination activity has not
produced a proportionate increase in the total loan portfolio. The Company is
emphasizing the origination of commercial, industrial, and non-residential real
estate loans to increase the yield in its loan portfolio and reduce its
dependence on loans secured by 1-4 family properties. The balance in
non-residential real estate loans increased $4.2 million from $34.8 million at
December 31, 2001 to $39.0 million on September 30, 2002 and commercial and
industrial loans increased $2.0 million over the same nine-month period.
Residential 1-4 family real estate loans have decreased $1.7 million from $51.4
million at December 31, 2001 to $49.7 million on September 30, 2002. Other minor
shifts in ending balances occurred between December 31, 2001 and September 30,
2002 according to loan demand.
The following schedule presents the components of loans, net of unearned
income, for each period presented:
September 30, 2002 December 31, 2001
----------------------- --------------------
Amount Percent Amount Percent
----------------------- --------------------
(Dollars In Thousands)
Commercial and Industrial $ 10,040 9.13% $ 8,065 7.60%
Real Estate-Non Residential Properties 38,994 35.45% 34,811 32.79%
Residential Properties (1-4 Family) 49,758 45.23% 51,433 48.45%
Construction 8,289 7.53% 8,515 8.02%
Loans to Individuals 2,304 2.09% 2,245 2.12%
Other Loans 623 0.57% 1,079 1.02%
-------- ------ -------- ------
Total Loans $110,008 100.00% $106,148 100.00%
======== ====== ======== ======
Federal funds sold decreased by $13.1 million to $21.8 million at September
30, 2001 from $34.9 million on December 31, 2001. During 2001 in a declining
rate environment, deposits increased faster than investment opportunities and
the excess funds were invested in short-term federal funds. These funds were
used to purchase investment securities and time deposits in other banks during
the first nine months of 2002.
Securities, available for sale, at market value, increased $25.7 million,
or 60.2%, from $42.7 million at year-end 2001 to $68.4 million on September 30,
2002. The Company purchased $46.7 million in new securities in the first nine
months of 2002 and $21.4 million in available for sale securities matured, were
called and were repaid. There were $751 thousand in recorded unrealized gains in
the available of sale portfolio and $357 thousand in net amortization expenses
during the first nine months of 2002. There were no held to maturity securities
at September 30, 2002 or at year-end 2001.
Total year to date average deposits increased $16.8 million, or 10.1%, to
$182.9 million during the first nine months of 2002 from the twelve-month
average of $166.1 million for the year ended December 31, 2001. NOW deposits
increased by $15.0 million, savings deposits increased by $10.5 million, and
demand deposits increased by $1.8 million. Offsetting these increases were
decreases in money market deposits of $3.0 million and time deposits of $7.6
million. As discussed earlier, the increase in demand, NOW and savings deposits
was due to an ongoing deposit promotion begun in the forth quarter of 2001.
After aggressively pricing time deposits in the first quarter of 2001, many of
those deposits have since repriced at lower market rates of interest or left the
bank and the decrease in the average balance of time deposits during the first
nine months of 2002 reflects the withdrawal of some of the matured, higher
priced time deposits. 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.
Nine Month Average Twelve Month Average
September 30, 2002 December 31, 2001
--------------------------------------------------------
2002 2001
--------------------------------------------------------
Average Percentage Average Percentage
Balance of Total Balance of Total
-------- --------- -------- --------
Deposits:
NOW Deposits $32,888 17.98% $17,885 10.76%
Savings Deposits 60,787 33.23% 50,334 30.30%
Money Market Deposits 4,065 2.22% 7,029 4.23%
Time Deposits 57,932 31.67% 65,486 39.42%
Demand Deposits 27,255 14.90% 25,412 15.29%
-------- ------ -------- ------
Total Deposits $182,931 100.00% $166,146 100.00%
======== ====== ======== ======
ASSET QUALITY
At September 30, 2002, non-accrual loans decreased $692 thousand to $1.8
million, as compared to $2.5 million at December 31, 2001. Management continues
to monitor the Company's asset quality and believes that the non-accrual loans
of the Bank are adequately collateralized and does not anticipate any material
losses.
The following table provides information regarding risk elements in the
loan portfolio:
September 30, 2002 December 31, 2001
------------------------------------
Non-accrual loans $1,802 $2,494
Non-accrual loans to total loans 1.64% 2.35%
Non-performing assets to total assets 0.88% 1.32%
Allowance for loan losses
as a % of non-performing loans 75.08% 45.83%
Allowance for loan losses to
total loans 1.23% 1.08%
ALLOWANCE FOR LOAN LOSSES
The allowance for 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. Provisions charged to expense and reduced by
charge-offs, net of recoveries, increase the allowance for loan losses. 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 loan losses.
At September 30, 2002, the allowance for loan losses was $1.4 million, an
increase of 18.4% from the $1.1 million at year-end 2001. There were $17
thousand in charge offs and $2 thousand in recoveries reported in the first nine
months of 2002. The allowance for loan losses as a percentage of total loans was
1.23% at September 30, 2002 compared to 1.08% on December 31, 2001.
LIQUIDITY MANAGEMENT
At September 30, 2002, the amount of liquid assets remained at a level
management deemed adequate to ensure contractual liabilities, depositors'
withdrawal requirements, and other operational and customer credit needs could
be satisfied.
At September 30, 2002, liquid investments totaled $31.5 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 September 30, 2002, had the ability to borrow a total of $23.0
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 $7.9 million. In December of 2000 the Company borrowed $10 million against
its one to four family mortgages. The borrowings, which have an average interest
rate of 4.95%, mature on December 21, 2010, but are callable beginning in
December 2001, 2002 and 2003, respectively. In July of 2002 the Company borrowed
an additional $5 million in advances as a leverage strategy to gain an interest
margin spread on the purchase of investment securities. These additional
borrowings have maturities from January 2003 through July 2004 with interest
rates ranging from 1.96% to 3.01%.
CAPITAL RESOURCES
Total stockholders' equity increased to $13.2 million at September 30, 2002
from $12.2 million at year-end 2001. Activity in stockholder's equity consisted
of a net increase in retained earnings of $551 thousand derived from $849
thousand in net income earned during the first nine months of 2002, offset by
$298 thousand in payments for cash dividends. Unrealized gain on securities,
available for sale of $449 thousand, $38 thousand in stock options exercised and
$86 thousand for shares issued through the dividend reinvestment plan were
increases to stockholder's equity, offset by treasury stock purchases of $156
thousand.
On July 11, 2002, the Company raised an additional $4.8 million, net of
offering costs, in capital through the issuance of junior subordinated
debentures to a statutory trust subsidiary. The subsidiary in turn issued $5.0
million in variable rate capital trust pass through securities to investors in a
private placement. The securities bear an initial rate of 5.51%, which will be
adjusted quarterly. The interest rate will be reset based on the three month
LIBOR rate plus 365 basis points. For the quarter beginning October 7, 2002 the
new rate of interest on the debentures will be 5.425%. The rate is capped at
12.5% through the first five years, and the securities may be called at par any
time after October 7, 2007.
At September 30, 2002 the Company and the Bank exceeded each of the
regulatory capital requirements applicable to them. The table below presents the
capital ratios at September 30, 2002, for the Company and the Bank, as well as
the minimum regulatory requirements.
Amount Ratio Amount Minimum Ratio
------ ----- ------ -------------
The Company:
Leverage Capital $14,440 6.65% $8,680 4%
Tier 1 - Risk Based 14,440 11.58% 4,990 4%
Total Risk-Based 16,583 13.29% 9,979 8%
The Bank:
Leverage Capital 14,831 6.84% 8,673 4%
Tier 1 Risk-Based 14,831 11.91% 4,981 4%
Total Risk-Based 16,184 13.00% 9,963 8%
ITEM 3 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC
filings.
(b) Changes in internal controls.
Not applicable
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
------ -----------
99 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b). Reports on Form 8-K
Filing Date Item Number Description
----------- ----------- -----------
August 5, 2002 7 Press release announcing completion of
offering of trust preferred securities press
release announcing second quarter 2002
results and cash dividend.
October 30, 2002 7 Press release announcing results for the
third quarter of 2002.
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
By: /s/ Candace A. Leatham
-------------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
Date:
CERTIFICATIONS
--------------
I, Donald L. Kovach, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sussex Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ Donald L. Kovach
-----------------------
DONALD L. KOVACH
President and
Chief Executive Officer
Date:
I, Candace A. Leatham, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sussex Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ Candace A. Leatham
-------------------------
CANDACE A. LEATHAM
Senior Vice President and
Chief Financial Officer
Date: