SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 0-29030
SUSSEX BANCORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-3475473
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
399 Route 23, Franklin, New Jersey 07416
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code) (973) 827-2914
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of August 6, 2003 there were 1,701,217 shares of common stock, no par value,
outstanding.
SUSSEX BANCORP
FORM 10-QSB
INDEX
Part I - Financial Information Page(s)
Item 1. Financial Statements and Notes to Consolidated 3
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 9
Results of Operations and Financial Condition
Item 3. Controls and Procedures 14
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
Exhibits 15
-2-
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUSSEX BANCORP
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
ASSETS June 30, 2003 December 31, 2002
----------------------------------
Cash and due from banks $ 12,238 $ 9,186
Federal funds sold 9,140 16,910
-------- --------
Cash and cash equivalents 21,378 26,096
Interest bearing time deposits with other banks 3,500 3,600
Securities available for sale 74,709 72,720
Federal Home Loan Bank Stock, at cost 760 750
Loans receivable, net of unearned income 125,702 113,455
Less: allowance for loan losses 1,590 1,386
-------- --------
Net loans receivable 124,112 112,069
Premises and equipment, net 4,469 4,634
Accrued interest receivable 1,208 1,144
Goodwill 1,932 1,932
Other assets 3,331 2,959
-------- --------
Total Assets $235,399 $225,904
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing demand $ 32,317 $ 26,514
Savings and interest bearing demand 115,332 110,729
Time of less than $100,000 43,038 43,470
Time of $100,000 and over 9,740 9,145
-------- --------
Total Deposits 200,427 189,858
Borrowings 13,000 15,000
Accrued interest payable and other liabilities 2,546 2,366
Mandatory redeemable capital debentures 5,000 5,000
-------- --------
Total Liabilities 220,973 212,224
Stockholders' Equity:
Common stock, no par value, authorized 5,000,000 shares;
issued and outstanding 1,699,981 in 2003 and 1,688,130 in 2002 7,978 7,869
Retained earnings 5,685 5,249
Accumulated other comprehensive income 763 562
-------- --------
Total Stockholders' Equity 14,426 13,680
-------- --------
Total Liabilities and Stockholders' Equity $235,399 $225,904
======== ========
See Notes to Consolidated Financial Statements
-3-
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share Data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
INTEREST INCOME
Loans receivable, including fees $2,033 $1,900 $3,972 $3,817
Securities:
Taxable 445 499 968 947
Tax-exempt 169 116 334 216
Federal funds sold 36 112 81 237
Interest bearing deposits 12 33 25 50
------ ------ ------ ------
Total Interest Income 2,695 2,660 5,380 5,267
------ ------ ------ ------
INTEREST EXPENSE
Deposits 535 710 1,095 1,539
Borrowings 146 125 295 249
Mandatory redeemable capital debentures 63 -- 126 --
------ ------ ------ ------
Total Interest Expense 744 835 1,516 1,788
------ ------ ------ ------
Net Interest Income 1,951 1,825 3,864 3,479
Provision for Loan Losses 120 75 245 150
------ ------ ------ ------
Net Interest Income after Provision for Loan Losses 1,831 1,750 3,619 3,329
------ ------ ------ ------
NON-INTEREST INCOME
Service fees on deposit accounts 189 174 372 315
ATM fees 90 65 164 117
Insurance commissions and fees 523 434 1,087 862
Investment brokerage fees 75 76 138 148
Net gain on sale of loans held for sale 24 6 24 24
Net gain on sale of other real estate owned 63 -- 63 --
Other 58 77 169 131
------ ------ ------ ------
Total Non-Interest Income 1,022 832 2,017 1,597
------ ------ ------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,341 1,138 2,627 2,229
Occupancy, net 149 149 324 296
Furniture and equipment 195 214 401 430
Stationary and supplies 50 41 97 79
Audit and exams 27 30 52 66
Advertising and promotion 94 131 175 242
Postage and freight 46 38 90 73
Amortization of intangible assets 39 32 77 65
Other 425 334 880 647
------ ------ ------ ------
Total Non-Interest Expense 2,366 2,107 4,723 4,127
------ ------ ------ ------
Income before Income Taxes 487 475 913 799
Provision for Income Taxes 127 144 240 237
------ ------ ------ ------
Net Income $ 360 $ 331 $ 673 $ 562
====== ====== ====== ======
Earnings per share
------ ------ ------ ------
Basic $ 0.21 $ 0.20 $ 0.40 $ 0.34
====== ====== ====== ======
------ ------ ------ ------
Diluted $ 0.21 $ 0.19 $ 0.39 $ 0.33
====== ====== ====== ======
See Notes to Consolidated Financial Statements
-4-
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2003 and 2002
(Unaudited)
Accumulated
Number of Other Total
Shares Common Retained Comprehensive Treasury Stockholders
Outstanding Stock Earnings Income Stock Equity
----------- ----- -------- ------ ----- ------
(Dollars in thousands, except per share amounts)
Balance December 31, 2001 1,659,057 $7,732 $4,509 $ 123 ($127) $12,237
Comprehensive income:
Net income -- -- 562 -- -- 562
Change in unrealized gains (losses)
on securities available for sale -- -- -- 224 -- 224
-------
Total Comprehensive Income 786
Treasury shares purchased (10,052) -- -- -- (105) (105)
Issuance of common stock and
exercise of stock options 4,090 25 -- -- -- 25
Issuance of common stock through
dividend reinvestment plan 6,455 60 -- -- -- 60
Dividends on common stock
($.12 per share) -- -- (200) -- -- (200)
----------------------------------------------------------------------------------
Balance June 30, 2002 1,659,550 $7,817 $4,871 $ 347 ($232) $12,803
==================================================================================
Balance December 31, 2002 1,688,130 $7,869 $5,249 $ 562 $ 0 $13,680
Comprehensive income:
Net income -- -- 673 -- -- 673
Change in unrealized gains (losses)
on securities available for sale -- -- -- 201 -- 201
-------
Total Comprehensive Income 874
Treasury shares purchased (2,400) -- -- -- (25) (25)
Treasury shares retired -- (25) -- -- 25 --
Issuance of common stock and
exercise of stock options 5,186 40 -- -- -- 40
Shares issued through dividend
reinvestment plan 9,065 94 -- -- -- 94
Dividends on common stock
($.14 per share) -- -- (237) -- -- (237)
----------------------------------------------------------------------------------
Balance March 31, 2003 1,699,981 $7,978 $5,685 $ 763 $ 0 $14,426
==================================================================================
See Notes to Consolidated Financial Statements
-5-
SUSSEX BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2003 2002
-------- --------
(In Thousands)
Cash Flows from Operating Activities
Net income $ 673 $ 562
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 245 150
Provision for depreciation and amortization 264 290
Net amortization of securities premiums and discounts 580 228
Net realized gain on sale of foreclosed real estate (63) --
Proceeds from sale of loans 668 1,220
Net gains on sale of loans (24) (24)
Loans originated for sale (644) (1,196)
Earnings on investment in life insurance (25) (28)
(Increase) decrease in assets:
Accrued interest receivable (64) (226)
Other assets (445) 6
Increase (decrease) in accrued interest payable and other liabilities 180 (4)
-------- --------
Net Cash Provided by Operating Activities 1,345 978
-------- --------
Cash Flows from Investing Activities
Securities available for sale:
Purchases (29,513) (24,628)
Maturities, calls and principal repayments 27,279 11,849
Net (increase) decrease in loans (12,511) (1,469)
Purchases of bank premises and equipment (99) (179)
(Purchase) redemption of FHLB stock (10) 18
Proceeds from sale of foreclosed real estate 250 --
Decrease (increase) in interest bearing time deposits with other banks 100 (3,000)
-------- --------
Net Cash Used in Investing Activities (14,504) (17,409)
-------- --------
Cash Flows from Financing Activities
Net increase in deposits 10,569 7,312
Repayment of borrowings (2,000) --
Proceeds from the issuance of common stock 40 25
Purchase of treasury stock (25) (105)
Dividends paid, net of reinvestments (143) (140)
-------- --------
Net Cash Provided by Financing Activities 8,441 7,092
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (4,718) (9,339)
Cash and Cash Equivalents - Beginning 26,096 41,035
-------- --------
Cash and Cash Equivalents - Ending $ 21,378 $ 31,696
======== ========
Supplementary Cash Flows Information
Interest paid $ 1,549 $ 1,968
======== ========
Income taxes paid $ 434 $ 128
======== ========
Supplementary Schedule of Noncash Investing and Financing Activities
Other real estate acquired in settlement of loans $ 223 $ 0
======== ========
See Notes to Consolidated Financial Statements
-6-
SUSSEX BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The consolidated financial statements include the accounts of Sussex
Bancorp (the "Company") and its wholly-owned subsidiaries, Sussex Bank (the
"Bank") and Sussex Capital Trust I. The Bank's wholly-owned subsidiaries are
Sussex Bancorp Mortgage Company, Inc., SCB Investment Company, Inc., and
Tri-State Insurance Agency, Inc. All inter-company transactions and balances
have been eliminated in consolidation. The Bank operates eight banking offices
all located in Sussex County, New Jersey 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 accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for full year
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal,
recurring nature. Operating results for the six-month period ended June 30,
2003, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2003. 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, 2002.
2. 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 earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance of potential common shares that may be issued by the Company relating
to outstanding stock options and guaranteed and contingently issuable shares
from the acquisition of Tri-State. Potential common shares related to stock
options are determined using the treasury stock method.
The following table sets forth the computations of basic and diluted earnings
per share (dollars in thousands, except per share data):
Three Months Ended June 30, 2003 Three Months Ended June 30, 2002
-------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------- --------------------------------------
Basic earnings per share:
Net income applicable to common
stockholders $ 360 1,699 $ 0.21 $ 331 1,655 $ 0.20
======== ========
Effect of dilutive securities:
Stock options -- 18 -- 18
Deferred common stock payments for
purchase of insurance agency 2 38 1 57
----------------------- ----------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 362 1,755 $ 0.21 $ 332 1,730 $ 0.19
====================================== ====================================
Six Months Ended June 30, 2003 Six Months Ended June 30, 2002
-------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------- --------------------------------------
Basic earnings per share:
Net income applicable to common
stockholders $ 673 1,696 $ 0.40 $ 562 1,657 $ 0.34
======== ========
Effect of dilutive securities:
Stock options -- 16 -- 18
Deferred common stock payments for
purchase of insurance agency 5 38 3 57
----------------------- ----------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 678 1,750 $ 0.39 $ 565 1,732 $ 0.33
====================================== ====================================
-7-
3. Comprehensive Income
The components of other comprehensive income and related tax effects for
the three and six months ended June 30, 2003 and 2002 are as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
(in Thousands) (in Thousands)
Unrealized holding gains on available for sale securities $ 622 $ 569 $ 335 $ 377
Less: reclassification adjustments for gains included in net income -- -- -- --
------- ------- ------- -------
Net unrealized gains 622 569 335 377
Tax effect 249 229 134 153
------- ------- ------- -------
Other comprehensive income, net of tax $ 373 $ 340 $ 201 $ 224
======= ======= ======= =======
4. Segment Information
The Company's insurance agency operations are managed separately from the
traditional banking and related financial services that the Company also offers.
The insurance agency operation provides commercial, individual, and group
benefit plans and personal coverage.
Three Months Ended June 30, 2003 Three Months Ended June 30, 2002
----------------------------------------- -------------------------------------------
Banking and Insurance Banking and Insurance
Financial Services Services Total Financial Services Services Total
------------------ -------- ----- ------------------ -------- -----
(In Thousands) (In Thousands)
Revenues from external sources $3,194 $ 523 $3,717 $3,058 $ 434 $3,492
Income before income taxes 408 79 487 429 46 475
Six Months Ended June 30, 2003 Six Months Ended June 30, 2002
----------------------------------------- -------------------------------------------
Banking and Insurance Banking and Insurance
Financial Services Services Total Financial Services Services Total
------------------ -------- ----- ------------------ -------- -----
(In Thousands) (In Thousands)
Revenues from external sources $6,310 $1,087 $7,397 $6,002 $ 862 $6,864
Income before income taxes 754 159 913 691 108 799
5. Stock Option Plans
The Company accounts for stock option plans under the recognition and
measurement principles of APB Opinion No. 25. "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based compensation for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
------- ------- ------- -------
(In Thousands) (In Thousands)
Net income, as reported $ 360 $ 331 $ 673 $ 562
Total stock-based compensation expense determined under fair
value based method for all awards, net of related tax effects (11) (7) (17) (10)
------- ------- ------- -------
Pro forma net income $ 349 $ 324 $ 656 $ 552
======= ======= ======= =======
Basic earnings per share:
As reported $ 0.21 $ 0.20 $ 0.40 $ 0.34
Pro forma $ 0.21 $ 0.20 $ 0.39 $ 0.33
Diluted earnings per share:
As reported $ 0.21 $ 0.19 $ 0.39 $ 0.33
Pro forma $ 0.20 $ 0.19 $ 0.38 $ 0.32
6. Acquisition
On January 2, 2003, the Company acquired certain assets of the Garrera
Insurance Agency through its subsidiary, Tri-State Insurance Agency, Inc. and
hired the former principal pursuant to an employment agreement. The acquisition
was accounted for using the purchase method of accounting. The entire purchase
price, which was not material to the Company, was allocated to the identifiable
intangible asset representing the fair value of the acquired book of business,
which will be amortized over 3 years. The purchase price was based, in part,
upon the future performance of the acquired book of business, with certain
payments deferred until the 25th month after the closing. The value of these
deferred payments will be added monthly to the value of the purchase price,
increasing the identifiable intangible. The value of this intangible asset is
included in Other Assets on the Company's balance sheet. The performance of the
acquired book of business since January 2, 2003 is included in the accompanying
consolidated financial statement.
-8-
7. New Accounting Standards
In November 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This Interpretation expands the disclosures to be made by a guarantor
in its financial statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value of an
obligation assumed under certain specified guarantees. FIN 45 clarifies the
requirements of FASB Statement No. 5, "Accounting for Contingencies." In
general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, liability or
equity security of the guaranteed party, which would include financial standby
letters of credit. Certain guarantee contracts are excluded from both the
disclosure and recognition requirements of this Interpretation, including, among
others, guarantees related to commercial letters of credit and loan commitments.
The disclosure requirements of FIN 45 require disclosure of the nature of the
guarantee, the maximum potential amount of future payments that the guarantor
could be required to make under the guarantee and the current amount of the
liability, if any, for the guarantor's obligations under the guarantee. The
accounting recognition requirements of FIN 45 are to be applied prospectively to
guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did
not have a significant impact on the Company's financial condition or results of
operations.
Outstanding letters of credit written are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for standby letters of credit is represented
by the contractual amount of those instruments. The Company had $724,000 of
standby letters of credit as of June 30, 2003. The Bank uses the same credit
policies in making conditional obligations as it does for on-balance sheet
instruments.
These standby letters of credit expire within the next twelve months. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending other loan commitments. The Company requires
collateral and personal guarantees supporting these letters of credit as deemed
necessary. Management believes that the proceeds obtained through a liquidation
of such collateral and enforcement of personal guarantees would be sufficient to
cover the maximum potential amount of future payments required under the
corresponding guarantees. The current amount of the liability as of June 30,
2003 for guarantees under standby letters of credit issued after December 31,
2002 is not material.
In January 2003, the Financial Accounting Standards Board issued FAB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". This interpretation provides new guidance for the
consolidation of variable interest entities (VIEs) and requires such entities to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risk among parties involved. The interpretation also adds
disclosure requirements for investors that are involved with unconsolidated
VIEs. The disclosure requirements apply to all financial statements issued after
January 31, 2003. The consolidation requirements apply immediately to VIEs
created after January 31, 2003 and are effective for the first fiscal year or
interim period beginning after June15, 2003 for VIEs acquired before February 1,
2003. The adoption of this interpretation did not have a significant impact on
the Company's financial condition of results of operations.
In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement No. 149, "Amendment of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities". This statement clarifies the definition of
a derivative and incorporates certain decisions made by the board as part of the
Derivatives Implementation Group process. This Statement is effective for
contracts entered into or modified and for hedging relationships designated
after June 30, 2003, and should be applied prospectively. The provisions of the
statement that relate to implementation issues addressed by the Derivatives
Implementation Group that have been effective should continue to be applied in
accordance with their respective dates. Adoption of this standard is not
expected to have a significant impact on the Company's financial condition or
results of operations.
In May 2003, the Financial Accounting Standards Board issued Statement No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement requires that an issuer classify a
financial instrument that is within its scope as a liability. Many of these
instruments were previously classified as equity. This Statement was effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise was effective beginning July 1, 2003. The adoption of this standard
did not have a significant impact on the Company's financial condition or
results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three and Six Months ended June 30, 2003 and June 30, 2002
CRITICAL ACCOUNTING POLICIES
Disclosure of the Company's significant accounting policies is included in
Note 1 to the consolidated financial statements of the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2002. 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 11 and
13 of this Form 10-QSB for the provision and allowance for loan losses.
FORWARD LOOKING STATEMENTS
When used in this discussion, the words "believes", "anticipates",
"contemplated", "expects", or similar expressions are intended to identify
forward looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Those risks and uncertainties include changes in interest rates, the
ability to control costs and expenses, and general economic conditions. The
Company undertakes no obligation to publicly release the results of any
revisions to those forward looking statements that may be made to reflect events
or circumstances after this date or to reflect the occurrence of unanticipated
events.
9
OVERVIEW
The Company realized net income of $360 thousand for the second quarter of
2003, an increase of $29 thousand from the $331 thousand reported for the same
period in 2002. Basic earnings per share increased from $0.20 in the second
quarter of 2002 to $0.21 for the second quarter of 2003. Diluted earnings per
share were $0.19 in the second quarter of 2002 and increased to $0.21 in the
second quarter of 2003.
For the six months ended June 30, 2003, net income was $673 thousand, an
increase of $111 thousand from the $562 thousand reported for the same period in
2002. Basic earnings per share were $0.40 for the six months ended June 30, 2003
compared to $0.34 for the six-month period ended June 30, 2002. Diluted earnings
per share were $0.39 for the six months ended June 30, 2003, an increase from
$0.33 from the first six months of 2002.
The results reflect a substantial decrease in interest expense due to
declining market rates of interest, coupled with increases in interest income
due to growth of $21.8 million in average earning assets from the first six
months of 2002 to the same period this year.
RESULTS OF OPERATIONS
Interest Income. Total interest income increased $35 thousand, or 1.3%, to
$2.7 million for the quarter ended June 30, 2003 from the same period in 2002.
This increase was primarily attributable to an increase of $21.9 million in
average second quarter interest earning assets from $190.9 million in 2002 to
$212.8 million in 2003, while the average yield declined 46 basis points, on a
fully taxable equivalent basis, from 5.67% during the second quarter of 2002 to
5.21% in the second quarter of 2003. Although the average rate earned on
investment securities declined by 133 basis points, the average balance
increased by $21.7 million, or 40.9%, to $74.7 million in the second quarter of
2003 and resulted in a $25 thousand increase to interest income, on a fully
taxable equivalent basis, for the same period. Similarly, while the average rate
earned in the loan portfolio decreased 50 basis points to 6.65% for the second
quarter of 2003 from 7.15% in the second quarter of 2002, the average loan
balance increased 15.5% from $106.1 million to $122.6 million from second
quarter 2002 to second quarter 2003 and the interest income earned on the loan
portfolio increased $140 thousand. The interest earned on other interest bearing
assets declined $97 thousand while the average balance in other interest earning
assets decreased by $16.3 million, or 51.2%, to $15.5 million from $31.8 million
from the second quarter of 2002, primarily reflecting a decline in federal funds
sold. The impact of volume increases in average balances on interest income
exceeded the market declines in interest rates, resulting in an increase in
interest income for the second quarter of 2003 compared to the second quarter if
2002.
For the six months ended June 30, 2003, interest income, on a fully
taxable equivalent basis, increased $170 thousand, or 2.2%, to $5.5 million from
the $5.3 million reported for the same period in 2002. During the first six
months of 2003 average interest earning assets increased $21.8 million to $210.5
million from $188.8 million during the same period in 2002. The average balance
in the loan portfolio increased $12.7 million, taxable securities increased
$19.6 million and tax exempt securities increased $5.1 million, while the
average balance of other interest-earning assets decreased $15.7 million during
the first six months of 2003 over the same period in 2002. While average
interest bearing asset balances increased, the continued effect of lower market
rates of interest resulted in a 42 basis point decrease in the average yield on
interest earning assets on a fully taxable equivalent basis from 5.71% from the
first half of 2002 to 5.29% for the same period of 2003.
Interest Expense. The Company's interest expense for the second quarter of
2003 decreased $91 thousand, or 10.9% to $744 thousand from $835 thousand in the
second quarter of 2002. The average balance of interest bearing liabilities
increased $18.7 million, or 11.2% to $185.0 million during the second quarter of
2003 from $166.3 million in the same period of 2002. 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 1.61% for the second quarter of
2003 from 2.01% in the second quarter of 2002. NOW deposit average balances grew
$13.6 million, or 43.1%, from $31.7 million during the second quarter 2002 to
$45.3 million in the second quarter of 2003. However, the interest expense on
NOW deposits increased only $10 thousand from the second quarter of 2002, as the
average interest rate paid decreased 14 basis points from 0.75% to 0.61% during
the same period. Average savings deposits increased $2.8 million, or 4.5%, while
the average rate paid declined 45 basis points from 1.31% in the second quarter
of 2002 to 0.86% in the second quarter of 2003. The average balance in time
deposits decreased $6.0 million, or 10.1% in the second quarter of 2003 compared
to the same period in 2002 as the interest expense on time deposits declined
$121 thousand, or 37.8% to $320 thousand between the same two periods. The
increase in NOW and savings account average balances and the decline in time
deposit average balances reflects management's continued efforts to reposition
the Company's deposit portfolio away from higher cost deposits through an
ongoing marketing promotion for transaction accounts and other low cost
deposits. Average borrowed funds and capital debenture balances increased to
$18.3 million in the second quarter of 2003 from $10 million in the second
quarter of 2002. In the third quarter of 2002, the Company entered into several
short-term FHLB advances and issued $5 million in mandatory redeemable capital
debentures that were not present during the second quarter of 2002. The capital
debentures bear a floating rate of interest, which averaged 4.98% in the second
quarter of 2003, and the related interest expense was $63 thousand for the
quarter ended June 30, 2003.
For the six months ended June 30, 2003 interest expense decreased $272
thousand, or 15.2%, to $1.5 million from $1.8 million for the same period last
year. This decrease was largely due to a decrease in interest expense on time
deposits of $324 thousand, or 32.9%, from $1.0 million for the first half of
2002 to $660 thousand during the first six months of 2003. The average balance
in time deposit accounts decreased $5.8 million, or 9.9%, over the same
six-month periods, as higher costing time deposits have matured and management
has elected not to compete for these deposits solely on the basis of rate. The
Company has shifted it's focus from attracting time deposits to attracting and
retaining customers through a long term marketing promotion of lower costing NOW
and savings accounts. The average balance of NOW deposits increased $12.4
million, or 39.0%, from $31.7million during the first half of 2002 to $44.1
million in the first half of 2003. Savings deposits increased $4.0 million, or
6.7%, from $59.9 million during the first six months of 2002 to $63.9 million
during the same period of 2003. The Company's borrowed funds increased $3.8
million, or 37.8%, from $10.0 million during the first six months of 2002 to
$13.8 million for the first half of 2003. The issuance of $5 million in capital
debentures during July of 2002, which bore an average rate of 5.01% during the
first six months of 2003, increased the Company's interest expense by $126
thousand during the first six months of 2003. The average rate paid on total
interest bearing liabilities decreased 53 basis points from 2.19% in the first
six months of 2002 to 1.66% during the same period in 2003. This decrease in the
average cost of funds was the combination of the Company decreasing its rates of
interest paid on interest bearing deposits due to the decline in market rates
and the Company's strategy of attracting lower cost deposits.
The following table presents, on a fully taxable 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, 2003 and 2002. The average balance of loans
includes non-accrual loans, and associated yields include loan fees, which are
considered adjustment to yields.
-10-
Six Months Ended June 30,
(dollars in thousands) 2003 2002
----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Earning Assets: Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
----------------------------------------------------------------------------------------------------------------------------------
Securities:
Tax exempt(3) $ 16,191 $ 474 5.90% $ 11,061 $ 298 5.43%
Taxable 58,475 968 3.34% 38,886 947 4.91%
----------------------------------------------------------------------------------------------------------------------------------
Total securities 74,666 1,442 3.89% 49,947 1,245 5.03%
Taxable loans: (net of unearned income)
Mortgage and construction 72,110 2,495 6.98% 61,306 2,301 7.57%
Commercial 16,590 473 5.75% 11,738 344 5.91%
Consumer 30,122 1,003 6.71% 33,069 1,172 7.15%
----------------------------------------------------------------------------------------------------------------------------------
Total loans receivable(4) 118,822 3,971 6.74% 106,113 3,817 7.25%
Other interest-earning assets 17,029 106 1.26% 32,707 287 1.77%
----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 210,517 $ 5,519 5.29% 188,767 $ 5,349 5.71%
Non-interest earning assets 21,191 18,496
Allowance for loan losses (1,472) (1,219)
-------------------------------------------------------------- ---------
Total Assets $ 230,236 $ 206,044
============================================================== =========
Sources of Funds:
Interest bearing deposits:
NOW $ 44,059 $ 136 0.62% $ 31,700 $ 131 0.83%
Money market 4,302 18 0.84% 3,642 18 1.00%
Savings 63,938 281 0.89% 59,908 406 1.37%
Time 53,264 660 2.50% 59,093 984 3.36%
----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 165,563 1,095 1.33% 154,343 1,539 2.01%
Borrowed funds 13,779 295 4.26% 10,000 249 4.95%
Capital debentures 5,000 126 5.01% 0 0 0.00%
----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 184,342 $ 1,516 1.66% 164,343 $ 1,788 2.19%
Non-interest bearing liabilities:
Demand deposits 29,680 26,865
Other liabilities 2,296 2,435
-------------------------------------------------------------- ---------
Total non-interest bearing liabilities 31,976 29,300
Stockholders' equity 13,918 12,401
-------------------------------------------------------------- ---------
Total Liabilities and Stockholders' Equity $ 230,236 $ 206,044
============================================================== =========
------------------------------------- --------------------- ---------------------
Net Interest Income and Margin(5) $ 4,003 3.83% $ 3,561 3.80%
===================================== ===================== =====================
(1) Includes loan fee income
(2) Average rates on securities are calculated on amortized costs
(3) Full taxable equivalent basis, using a 34% effective tax rate and adjusted
for "TEFRA" disallowance
(4) Loans outstanding include non-accrual loans
(5) Represents the difference between interest earned and interest paid,
divided by average total interest-earning assets
Net-Interest Income. On a fully taxable equivalent basis, the net interest
income for the second quarter of 2003 increased $159 thousand over the same
period last year. This increase was the result of the increased volume of
earning assets exceeding the increased volume of interest bearing liabilities.
However, the net interest margin decreased, on a fully taxable equivalent basis,
by 10 basis points to 3.81% in the second quarter of 2003 compared to 3.91% the
year earlier due to the average rate earned on total earning assets declining 46
basis points compared to the average rate paid on total interest bearing
liabilities declining only 40 basis points.
Net interest income for the six months ended June 30, 2003 increased $442
thousand, or 12.4%, over the same period last year. The net interest margin
increased, on a fully taxable equivalent basis, 3 basis points from 3.80% for
the first six months of 2002 to 3.83% for the first half of 2003. Comparing the
first six months of 2002 to the first six months of 2003, the average rate paid
on interest bearing liabilities repriced faster and lower than the average rate
earned on interest earning assets.
Provision for Loan Losses. For the three months ended June 30, 2003 the
provision for loan losses was $120 thousand compared to $75 thousand for the
second quarter ended June 30, 2002. The provision for loan losses was $245
thousand for the six months ended June 30, 2003 as compared to $150 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
provisions, as management may deem necessary. The Company's loan portfolio has
shifted from loans secured by residential properties toward loans secured by
non-residential properties from year-end 2002 to June 30, 2003. As commercial
loans may be deemed more risky than residential lending, the Company allocated
additional provisions to the allowance during the first six months of 2003.
-11-
Non-Interest Income. For the second quarter of 2003, total non-interest
income increased $190 thousand, or 22.8%, from the same period in 2002. In the
second quarter of 2003 insurance commissions and fees increased $89 thousand, or
20.5%, from $434 thousand reported in the second quarter of 2002 to $523
thousand for the quarter ended June 30, 2003. On January 2, 2003, the Company
acquired the book of insurance business of the Garrera Insurance Agency through
Tri-State. The Garrera acquisition accounted for $27 thousand of the second
quarter increase and industry-wide insurance premium increases of 10% to 15%
account for the balance of the increase. Service charges on deposit accounts
increased $15 thousand and ATM fees increased $25 thousand for the quarter ended
June 30, 2003 compared to the same period in 2002. Both of these increases are
attributable to the growth in the Company's deposits. Other factors effecting
non-interest income include an increase of $18 thousand in the sale of loans
held for sale in the second quarter of 2003 compared to the second quarter of
2002 and a net gain on the sale of other real estate owned of $63 thousand
recorded in the second quarter of 2003.
For the six months ended June 30, 2003, non-interest income increased $420
thousand, or 23.3%, from the same period in 2002. Insurance commissions and fees
increased $225 thousand, a 26.1% increase over the first half of 2002. Service
charges on deposit accounts increased $57 thousand, or 18.1%, and ATM fees
increased $47 thousand, or 40.2%, for the six-month period ending June 30, 2003
over the same period in 2002. Mortgage banker fees, which are included in other
income, increased in the first half of 2003 to $44 thousand from $14 thousand
during the first six months of 2002. In the first six months of 2003, a $63
thousand gain on the sale of other real estate owned was recorded, while there
were no similar gains during the first six months of 2002.
Non-Interest Expense. For the quarter ended June 30, 2003, non-interest
expense increased $259 thousand from the same period last year. The Company's
salaries and employee benefits increased $203 thousand, or 17.8%, from the
addition of thirteen full time equivalent employees, a 12% increase in medical
insurance premiums effective April 1, 2003 and $14 thousand for reinstating the
funding of the Company's ESOP plan. Other non-interest expense increases from
second quarter 2002 to second quarter 2003 were education and training expenses
of $15 thousand due to a new Company commitment to a comprehensive employee
training program which began in the fourth quarter of 2002, a $15 thousand
increase in internet banking fees due to the increased activity in the Company's
internet banking product and increased legal and professional fees of $28
thousand incurred in connection with the commencement of the Company's
residential mortgage banking division and the sale of the Company's credit card
portfolio.
For the six months ended June 30, 2003, non-interest expense increased
$596 thousand, to $4.7 million, from the first six months of 2002. Salaries and
employee benefits increased $398 thousand, or 17.9%, related to staff increases
and increased costs associated with standard employee benefits offered by the
Company. Other non-interest expense increases compared to the first six months
of 2002 were professional fees increases of $75 thousand for the review of
possible expansion of our insurance operations and the expensing of origination
costs associated with the issuance of the Company's Trust Preferred securities
and legal expenses increases of $31 thousand incurred in connection with the
commencement of the Company's residential mortgage banking division and the sale
of the Company's credit card portfolio. Advertising and marketing expenses
decreased $67 thousand over the first six months of 2003 compared to the same
period in 2002 as the Company reduced its direct mail promotion efforts,
focusing its advertising of new low cost accounts to selected households.
Income Taxes. Income tax expense decreased $17 thousand to $127 thousand
for the three months ended June 30, 2003 as compared to $144 thousand for the
same period in 2002. This decrease in income taxes resulted from an increased
level of tax-exempt income in the current quarterly period. Income taxes
increased $3 thousand for the six months ended June 30, 2003 to $240 thousand as
compared to $237 thousand for the six months ended June 30, 2002. The small
increase in income taxes resulted from a higher level of income before income
taxes in combination with an increased level of tax-exempt income.
FINANCIAL CONDITION
June 30, 2003 as compared to December 31, 2002
Total assets increased to $235.4 million at June 30, 2003, a $9.5 million
increase from total assets of $225.9 million at December 31, 2002. Increases in
total assets include increases of $12.0 million in net loans and $2.0 million in
securities available for sale, partially offset by a $4.7 million reduction in
cash and cash equivalents. Asset increases were financed through an increase in
total deposits of $10.5 million from $189.9 million at year-end 2002 to $200.4
million on June 30, 2003, offset by a $2 million decrease in borrowings. Total
stockholder's equity increased $746 thousand from $13.7 million at December 31,
2002 to $14.4 million at June 30, 2003.
Total loans at June 30, 2003 increased $12.3 million to $125.7 million
from $113.4 million at year-end 2002. During the six-month period ending June
30, 2003, new originations have exceeded payoffs both through scheduled
maturities and prepayments. The Company continues to see high levels of
prepayments as borrowers seek to refinance loans in the current low interest
rate environment. 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 $12.4
million from $41.0 million at December 31, 2002 to $53.4 million on June 30,
2003 and other loans, which include loans secured by farmland, increased $3.7
million over the same six-month period. Construction and land development loans
have decreased $2.5 million and residential 1-4 family real estate loans have
decreased $1.0 million from December 31, 2002 to June 30, 2003. Other minor
shifts in ending balances occurred between December 31, 2002 and June 30, 2003
according to loan demand.
Federal funds sold decreased by $7.8 million to $9.1 million at June 30,
2003 from $16.9 million on December 31, 2002. During the first six months of
2003, these funds were used fund loan demand and to purchase higher yielding
investment securities.
Securities, available for sale, at market value, increased $2.0 million,
or 2.7%, from $72.7 million at year-end 2002 to $74.7 million at June 30, 2003.
The Company purchased $29.5 million in new securities in the first six months of
2003 and $27.3 million in available for sale securities matured, were called and
were repaid. There was a $335 thousand increase in unrealized gains in the
available for sale portfolio and $580 thousand in net amortization expenses
recorded during the first six months of 2003. There were no held to maturity
securities at June 30, 2003 or at December 31, 2002.
-12-
Total deposits increased $10.5 million, or 5.6%, to $200.4 million during
the first six months of 2003 from $189.9 million at December 31, 2002.
Non-interest bearing deposits increased $5.8 million, or 21.9%, interest-bearing
and savings deposits increased $4.6 million, or 4.2% and time deposits increased
$164 thousand from December 31, 2002 to June 30, 2003. Business non-interest
bearing demand accounts account for $4.8 million of the growth in non-interest
bearing demand accounts. Management continues to monitor the shift in deposits
through its Asset/Liability Committee.
ASSET QUALITY
At June 30, 2003, non-accrual loans decreased $355 thousand to $903
thousand, as compared to $1.3 million at December 31, 2002. There were no loans
ninety days past due and still accruing or renegotiated loans at June 30, 2003.
Management continues to monitor the Company's asset quality and believes that
the non-accrual loans are adequately collateralized and does not anticipate any
material losses.
The following table provides information regarding risk elements in the loan
portfolio:
June 30, 2003 December 31, 2002
----------------------------------
Non-accrual loans $903,000 $ 1,258,000
Non-accrual loans to total loans 0.72% 1.11%
Non-performing assets to total assets 0.48% 0.67%
Allowance for loan losses
as a % of non-performing loans 176.08% 107.11%
Allowance for possible loan losses to total loans 1.26% 1.22%
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 June 30, 2003, the allowance for loan losses was $1.6 million, an
increase of 14.7% from the $1.4 million at year-end 2002. There were $43
thousand in charge offs and $1 thousand in recoveries reported in the first six
months of 2003. The allowance for loan losses as a percentage of total loans was
1.26% at June 30, 2003 compared to 1.22% on December 31, 2002.
INTEREST RATE SENSITIVITY
An interest rate sensitive asset or liability is one that, within a
defined time period, either matures or experiences an interest rate change in
line with general market interest rates. Interest rate sensitivity is the
volatility of a company's earnings from a movement in market interest rates.
Interest rate "gap" analysis is a common, though imperfect, measure of interest
rate risk. We do not employ gap analysis as a rate risk management tool, but
rather we rely upon an earnings at risk analysis to forecast the impact on our
net interest income of instantaneous 100 and 200 basis point increases and
decreases in market rates. In assessing the impact on earnings, the rate shock
analysis assumes that no change occurs in our funding sources or types of assets
in response to the rate change. The interest rate sensitivity of the Company's
assets and liabilities, and the impact on net interest income would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by the assumptions. The following table sets forth the
Company's interest rate risk profile at June 30, 2003 and 2002.
June 30, 2003 June 30, 2002
-------------------------------------------------------------------------------------------------------------------------------
Change in % Change Change in % Change
Net Interest in Net Interest Net Interest in Net Interest
(Dollars in Thousands) Income Income Income Income
-------------------------------------------------------------------------------------------------------------------------------
Down 200 basis points ($154) 3.27% ($337) 7.98%
Down 100 basis points (33) 1.39% (125) 5.94%
Up 100 basis points (213) -9.05% 27 1.26%
Up 200 basis points (517) -10.99% (39) -0.92%
-------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY MANAGEMENT
At June 30, 2003, 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, 2003, liquid investments totaled $21.4 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, 2003, had the ability to borrow up to $16.8 million
against its one to four family mortgages and selected investment securities as
collateral for borrowings. The Bank also has available an overnight line of
credit and a one-month overnight repricing line of credit, each in the amount of
$11.3 million. The Company at June 30, 2003 had borrowings totaling $13 million
secured by the pledge of its one to four family mortgages and selected
securities. Three short-term borrowings have maturities from July 2003 through
July 2004 with interest rates ranging from 2.23% to 3.01%. The remaining $10
million in borrowings consist of three notes that mature on December 21, 2010
with a convertible quarterly option which allows the Federal Home Loan Bank to
change the note to then current market rates. The interest rates on these three
borrowings range from 4.77% to 5.14%.
13
CAPITAL RESOURCES
Total stockholders' equity increased $746 thousand to $14.4 million at
June 30, 2003 from $13.7 million at year-end 2002. Activity in stockholder's
equity consisted of a net increase in retained earnings of $436 thousand derived
from $673 thousand in net income earned during the first six months of 2003,
offset by $237 thousand in payments for cash dividends. Other increases were $40
thousand in stock options exercised, $94 thousand for shares issued through the
dividend reinvestment plan, an unrealized gain on securities available for sale,
net of income tax, of $201 thousand, partially offset by the retirement of $25
thousand in treasury stock.
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 interest rate is based on the three-month LIBOR rate plus
365 basis points and is adjusted quarterly. Beginning July 7, 2003, the new
quarterly rate of interest on the debentures will be 4.76%. 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. These trust preferred securities are included in
the Company's and the Bank's capital ratio calculations.
At June 30, 2003 the Company and the Bank both meet the well-capitalized
regulatory standards applicable to them. The table below presents the capital
ratios at June 30, 2003, for the Company and the Bank, as well as the minimum
regulatory requirements.
Amount Ratio Amount Minimum Ratio
------ ----- ------ -------------
The Company:
Leverage Capital $15,667 6.82% $ 9,185 4%
Tier 1 - Risk Based 15,667 11.08% 5,657 4%
Total Risk-Based 17,703 12.52% 11,314 8%
The Bank:
Leverage Capital 15,757 6.87% 9,178 4%
Tier 1 Risk-Based 15,757 11.16% 5,646 4%
Total Risk-Based 17,347 12.29% 11,292 8%
ITEM 3 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
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, as of the end of the period covered by
this report, 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
On April 23, 2003, 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
--------- --- ------------------
Mark Hontz 1,245,551 116,678
Donald L. Kovach 1,342,433 19,796
Edward Leppert 1,342,488 19,742
Joel Marvil 1,339,120 23,111
-14-
Item 5. Other Information
Not applicable
Item 6. Exhibits and Report on form 8-K
(a). Exhibits
Number Description
------ -----------
10 Employment Agreement between Sussex Bank and Samuel Chazanow
31.1 Certification of Donald L Kovach pursuant to Section 302 of
the Sarbanes -Oxley Act of 2002
31.2 Certification of Candace Leatham pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b). Reports on Form 8-K
Filing Date Item Number Description
----------- ----------- -----------
April 21, 2003 5 & 9 Press release announcing first quarter
2003 results and cash dividend.
April 24, 2003 9 Press release setting forth comments
made by Chairman and Chief Executive
Officer at the Registrant's 2003 Annual
Meeting of Shareholders on April 23,
2003.
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
Executive Vice President and
Chief Financial Officer
Date: