XNAS:SBBX Sussex Bancorp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 


 

FORM 10-Q

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012

 

¨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 or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
200 Munsonhurst Rd., Franklin, NJ   07416
(Address of principal executive offices)   (Zip Code)

 

(973) 827-2914

(Registrant’s telephone number, including area code)

 

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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation SD-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                 No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
    (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes £                 No S

 

As of August 3, 2012 there were 3,396,873 shares of common stock, no par value, outstanding.

 

 
 

 

SUSSEX BANCORP

FORM 10-Q

 

INDEX

 

FORWARD-LOOKING STATEMENTS   i
     
PART I – FINANCIAL INFORMATION   1
     
Item 1 - Financial Statements   1
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
     
Item 3 - Quantitative and Qualitative Disclosures about Market Risk   31
     
Item 4 - Controls and Procedures   31
     
PART II – OTHER INFORMATION   32
     
Item 1 - Legal Proceedings   32
     
Item 1A - Risk Factors   32
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds   32
     
Item 3 - Defaults Upon Senior Securities   32
     
Item 4 – Mine Safety Disclosures   32
     
Item 5 - Other Information   32
     
Item 6 - Exhibits   32

 

 
 

 

FORWARD-LOOKING STATEMENTS

 

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Report on Form 10-Q contains “forward-looking statements” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operation and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

 

§changes to interest rates, the ability to control costs and expenses;

 

§our ability to integrate new technology into our operations;

 

§general economic conditions;

 

§the success of our efforts to diversify its revenue base by developing additional sources of non-interest income while continuing to manage its existing fee based business;

 

§the impact on us of the changing statutory and regulatory requirements; and

 

§the risks inherent in commencing operations in new markets.

 

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q, and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statements can be guaranteed. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events.

 

i
 

 

PART I – FINANCIAL INFORMATION

 

Item 1 - Financial Statements

 

SUSSEX BANCORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Dollars in thousands)  June 30, 2012   December 31, 2011 
         
ASSETS          
Cash and due from banks  $5,553   $3,903 
Interest-bearing deposits with other banks   6,978    33,597 
Cash and cash equivalents   12,531    37,500 
           
Interest bearing time deposits with other banks   100    100 
Securities available-for-sale, at estimated fair value   115,508    96,361 
Securities held to maturity, at cost (estimated fair value of $5,316 at June 30, 2012 and $4,345 at December 31, 2011)   5,168    4,220 
Federal Home Loan Bank Stock, at cost   1,943    1,837 
           
Loans receivable, net of unearned income   346,884    339,705 
Less:  allowance for loan losses   6,260    7,210 
Net loans receivable   340,624    332,495 
           
Foreclosed real estate   5,566    5,509 
Premises and equipment, net   6,784    6,778 
Accrued interest receivable   1,688    1,735 
Goodwill   2,820    2,820 
Bank-owned life insurance   11,346    11,142 
Other assets   8,112    6,456 
           
Total Assets  $512,190   $506,953 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Liabilities:          
Deposits:          
Non-interest bearing  $48,089   $44,762 
Interest bearing   381,993    380,614 
Total deposits   430,082    425,376 
           
Long term borrowings   26,000    26,000 
Accrued interest payable and other liabilities   2,699    2,788 
Junior subordinated debentures   12,887    12,887 
           
Total Liabilities   471,668    467,051 
           
Stockholders’ Equity:          
Preferred stock, no par value, 1,000,000 shares authorized; none issued   -    - 
Common stock, no par value, 10,000,000 shares authorized; issued shares 3,409,307 in 2012 and 3,373,793 in 2011; outstanding shares 3,398,124 in 2012 and 3,372,949 in 2011   28,037    27,964 
Treasury stock, at cost; 11,183 shares in 2012 and 844 shares in 2011   (59)   (4)
Retained earnings   11,509    11,223 
Accumulated other comprehensive income   1,035    719 
           
Total Stockholders’ Equity   40,522    39,902 
           
Total Liabilities and Stockholders’ Equity  $512,190   $506,953 

 

See Notes to Unaudited Consolidated Financial Statements

 

1
 

 

SUSSEX BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

(Dollars in thousands, except per share data)  Three Months Ended June 30,   Six Months Ended June 30, 
   2012   2011   2012   2011 
INTEREST INCOME                    
Loans receivable, including fees  $4,375   $4,739   $8,825   $9,523 
Securities:                    
Taxable   433    310    753    675 
Tax-exempt   290    291    535    583 
Federal funds sold   -    2    -    3 
Interest bearing deposits   9    10    26    13 
Total Interest Income   5,107    5,352    10,139    10,797 
                     
INTEREST EXPENSE                    
Deposits   632    767    1,351    1,536 
Borrowings   264    264    529    529 
Junior subordinated debentures   61    55    123    109 
Total Interest Expense   957    1,086    2,003    2,174 
                     
Net Interest Income   4,150    4,266    8,136    8,623 
PROVISION FOR LOAN LOSSES   958    1,112    1,818    1,951 
Net Interest Income after Provision for Loan Losses   3,192    3,154    6,318    6,672 
                     
OTHER INCOME                    
Service fees on deposit accounts   275    328    550    644 
ATM and debit card fees   151    138    288    260 
Bank-owned life insurance   101    105    204    209 
Insurance commissions and fees   609    564    1,208    1,179 
Investment brokerage fees   36    39    72    70 
Gain on sale of loans, held for sale   -    -    47    - 
Gain on sale of securities, available for sale   135    269    194    269 
Loss on sale of premises and equipment   (7)   -    (6)   - 
Gain (loss) on sale of foreclosed real estate   1    7    3    (4)
Other   118    51    183    119 
Total Other Income   1,419    1,501    2,743    2,746 
                     
OTHER EXPENSES                    
Salaries and employee benefits   2,124    1,986    4,548    3,993 
Occupancy, net   354    336    716    717 
Furniture, equipment and data processing   334    288    688    588 
Advertising and promotion   88    46    159    89 
Professional fees   145    149    303    276 
Director fees   74    72    180    139 
FDIC assessment   172    126    339    382 
Insurance   58    54    111    110 
Stationary and supplies   39    40    84    83 
Loan collection costs   201    177    335    292 
Write-down on foreclosed real estate   69    -    684    145 
Expenses related to foreclosed real estate   33    79    126    103 
Amortization of intangible assets   1    2    3    5 
Other   373    344    699    637 
Total Other Expenses   4,065    3,699    8,975    7,559 
                     
Income before Income Taxes   546    956    86    1,859 
PROVISION (BENEFIT) FOR INCOME TAXES   65    229    (200)   438 
Net Income  $481   $727   $286   $1,421 
                     
OTHER COMPREHENSIVE INCOME:                    
Net unrealized gains on available for sale securities arising during the period   303    855    720    1,072 
Reclassification adjustment for gain on sales included in net income   (135)   (269)   (194)   (269)
Income tax expense related to other comprehensive income   (67)   (234)   (210)   (321)
Other comprehensive income, net of income taxes   101    352    316    482 
Comprehensive income  $582   $1,079   $602   $1,903 
                     
EARNINGS PER SHARE                    
Basic  $0.15   $0.22   $0.09   $0.44 
Diluted  $0.14   $0.22   $0.09   $0.43 

 

See Notes to Unaudited Consolidated Financial Statements

 

2
 

 

SUSSEX BANCORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Six Months Ended June 30, 2012 and 2011

(Unaudited)

 

               Accumulated         
   Number of           Other       Total 
   Shares   Common   Retained   Comprehensive   Treasury   Stockholders' 
(Dollars in thousand)  Outstanding   Stock   Earnings   Income   Stock   Equity 
                         
Balance December 31, 2010   3,351,566   $27,870   $8,753   $47   $(4)  $36,666 
Net income   -    -    1,421    -    -    1,421 
Other comprehensive income   -    -    -    482    -    482 
Restricted stock granted   22,218    -    -    -    -    - 
Restricted stock forfeited   (399)   -    -    -    -    - 
Compensation expense related to stock option and restricted stock grants   -    46    -    -    -    46 
                               
Balance June 30, 2011   3,373,385   $27,916   $10,174   $529   $(4)  $38,615 
                               
Balance December 31, 2011   3,372,949   $27,964   $11,223   $719   $(4)  $39,902 
Net income   -    -    286    -    -    286 
Other comprehensive income   -    -    -    316    -    316 
Treasury stock purchased   (10,339)   -    -    -    (55)   (55)
Restricted stock granted   36,496    -    -    -    -    - 
Restricted stock forfeited   (982)   -    -    -    -    - 
Compensation expense related to stock option and restricted stock grants   -    73    -    -    -    73 
                               
Balance June 30, 2012   3,398,124   $28,037   $11,509   $1,035   $(59)  $40,522 

 

See Notes to Unaudited Consolidated Financial Statements

 

3
 

 

SUSSEX BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Six Months Ended June 30, 
(Dollars in thousands)  2012   2011 
Cash Flows from Operating Activities          
Net income  $286   $1,421 
Adjustments to reconcile net income  to net cash provided by operating activities:          
Provision for loan losses   1,818    1,951 
Provision for depreciation and amortization   336    307 
Net amortization of securities premiums and discounts   1,212    416 
Net realized gain on sale of securities   (194)   (269)
Net realized gain on sale of loans, held for sale   (47)   - 
Proceeds from the sale of loans held for sale   638    - 
Net realized loss on sale of premises and equipment   6    - 
Net realized (gain) loss on sale of foreclosed real estate   (3)   4 
Provision for foreclosed real estate   684    145 
Deferred income taxes   (418)   - 
Earnings on bank owned life insurance   (204)   (209)
Compensation expense for stock options and stock awards   73    46 
(Increase) decrease in assets:          
Accrued interest receivable   47    135 
Other assets   (1,451)   (3,665)
(Decrease) increase in accrued interest payable and other liabilities   (89)   244 
Net Cash Provided by Operating Activities   2,694    526 
           
Cash Flows from Investing Activities          
Securities available for sale:          
Purchases   (40,131)   (7,297)
Sales   7,125    6,271 
Maturities, calls and principal repayments   13,386    19,172 
Securities held to maturity:          
Purchases   (1,933)   (966)
Maturities, calls and principal repayments   966    - 
Net increase in loans   (11,478)   (4,842)
Maturities of interest bearing time deposits   -    403 
Proceeds from the sale of foreclosed real estate   202    - 
Purchases of bank premises and equipment   (357)   (69)
Proceeds from the sale of premises and equipment   12    - 
Purchases of bank owned life insurance   -    398 
Net increase in FHLB stock   (106)   - 
Net Cash (Used in) Provided by Investing Activities   (32,314)   13,070 
           
Cash Flows from Financing Activities          
Net increase in deposits   4,706    6,947 
Repayments of borrowings   -    (10,000)
Purchase of treasury stock   (55)   - 
Net Cash Provided by (Used in) Financing Activities   4,651    (3,053)
Net (Decrease) Increase in Cash and Cash Equivalents   (24,969)   10,543 
           
Cash and Cash Equivalents - Beginning   37,500    17,749 
           
Cash and Cash Equivalents - Ending  $12,531   $28,292 
Supplementary Cash Flows Information          
Interest paid  $2,040   $2,194 
Income taxes paid  $162   $834 
Supplementary Schedule of Noncash Investing and Financing Activities          
Foreclosed real estate acquired in settlement of loans  $940   $2,700 
Loans transferred to held for sale  $591   $- 

 

See Notes to Unaudited Consolidated Financial Statements

 

4
 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACOUNTING POLICIES

 

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Sussex Bancorp (“we,” “us” or “our”) and our wholly-owned subsidiary Sussex Bank (the “Bank”). The Bank’s wholly-owned subsidiaries are SCB Investment Company, Inc., SCBNY Company, Inc., ClassicLake Enterprises, LLC, Wheatsworth Properties Corp., PPD Holding Company, LLC, and Tri-State Insurance Agency, Inc. (“Tri-State”), a full service insurance agency located in Sussex County, New Jersey. Tri-State’s operations are considered a separate segment for financial disclosure purposes. All inter-company transactions and balances have been eliminated in consolidation. The Bank operates ten banking offices, eight located in Sussex County, New Jersey and two in Orange County, New York. In 2011, we opened a loan production and insurance agency satellite office in Rochelle Park, New Jersey.

 

Sussex Bancorp 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 Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. The operations of Sussex Bancorp and Sussex 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 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 the accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

We have evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2012, for items that should potentially be recognized or disclosed in these unaudited consolidated financial statements. The evaluation was conducted through the date these unaudited consolidated financial statements were issued.

 

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported net income.

 

New Accounting Standards

In December, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, in an effort to improve comparability between U.S. GAAP and International Financial Reporting Standards (“IFRS”) financial statements with regard to the presentation of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts of recognized assets and liabilities, offsetting amounts, and the net balance reflected in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.

 

5
 

 

NOTE 2 – SECURITIES

 

Available for Sale

 

The amortized cost and approximate fair value of securities available for sale as of June 30, 2012, and December 31, 2011 are summarized as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
                 
June 30, 2012                    
State and political subdivisions  $26,820   $1,201   $(52)  $27,969 
Mortgage-backed securities:                    
U.S. government-sponsored enterprises   85,612    842    (260)   86,194 
Equity securities-financial services industry and other   1,351    23    (29)   1,345 
   $113,783   $2,066   $(341)  $115,508 
                     
December 31, 2011                    
State and political subdivisions  $19,706   $883   $(19)  $20,570 
Mortgage-backed securities:                    
U.S. government-sponsored enterprises   71,684    786    (472)   71,998 
Private mortgage-backed securities   2,423    58    (4)   2,477 
Equity securities-financial services industry and other   1,349    1    (34)   1,316 
   $95,162   $1,728   $(529)  $96,361 

 

Securities with a carrying value of approximately $26.5 million and $21.5 million at June 30, 2012, and December 31, 2011, respectively, were pledged to secure public deposits and for other purposes required or permitted by applicable laws and regulations.

 

The amortized cost and fair value of securities available for sale at June 30, 2012, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   Amortized   Fair 
(Dollars in thousands)  Cost   Value 
         
Due in one year or less  $-   $- 
Due after one year through five years   -    - 
Due after five years through ten years   1,076    1,129 
Due after ten years   25,744    26,840 
Total bonds and obligations   26,820    27,969 
Mortgage-backed securities:          
U.S. government-sponsored enterprises   85,612    86,194 
Equity securities-financial services industry and other   1,351    1,345 
Total available for sale securities  $113,783   $115,508 

 

Gross gains on sales of securities available for sale were $214 thousand and $269 thousand for the six months ended June 30, 2012 and 2011, respectively, and gross losses were $20 thousand for the six months ended June 30, 2012. There were no gross losses on the sales of securities in the first six months of 2011.

 

6
 

 

Temporarily Impaired Securities

The following table shows our investments’ gross unrealized losses and fair value with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position at June 30, 2012, and December 31, 2011.

 

   Less Than Twelve Months   Twelve Months or More   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
(Dollars in thousands)  Value   Losses   Value   Losses   Value   Losses 
                         
June 30, 2012                              
State and political subdivisions  $4,965   $(50)  $139   $(2)  $5,104   $(52)
Mortgage-backed securities:                              
U.S. government-sponsored enterprises   26,933    (260)   -    -    26,933    (260)
Equity securities-financial services industry and other   

122

    

(21

)   

206

    

(8

)   

328

    

(29

)
Total temporarily impaired securities  $32,020   $(331)  $345   $(10)  $32,365   $(341)
                               
December 31, 2011                              
State and political subdivisions  $115   $(2)  $124   $(17)  $239   $(19)
Mortgage-backed securities:                              
U.S. government-sponsored enterprises   34,576    (472)   -    -    34,576    (472)
Private mortgage-backed securities   518    (4)   -    -    518    (4)
Equity securities-financial services industry and other   -    -    1,025    (34)   1,025    (34)
Total temporarily impaired securities  $35,209   $(478)  $1,149   $(51)  $36,358   $(529)

 

As of June 30, 2012, we reviewed our available for sale investment portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt and equity securities is evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. For each security whose fair value is less than their amortized cost basis, a review is conducted to determine if an other-than-temporary impairment has occurred.

 

State and Political Subdivisions

At June 30, 2012, the decline in fair value and the unrealized losses for our state and political subdivisions portfolio were caused by changes in interest rates and spreads and were not the result of credit quality. At June 30, 2012, there were 10 securities with a fair value of $5.1 million that had an unrealized loss that amounted to $52 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of June 30, 2012, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at June 30, 2012 were deemed to be other-than-temporarily-impaired.

 

Mortgage-Backed Securities

At June 30, 2012, the decline in fair value and the unrealized losses for our mortgaged-backed securities backed by U.S. government-sponsored enterprises were primarily due to changes in spreads and market conditions and not credit quality. At June 30, 2012, there were 13 securities with a fair value of $26.9 million that had an unrealized loss that amounted to $260 thousand. As of June 30, 2012, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our mortgage-backed securities at June 30, 2012, were deemed to be other-than-temporarily impaired.

 

Equity Securities

Our investments in marketable equity securities consist primarily of a mutual fund, one equity portfolio fund and common stock of entities in the financial services industry. At June 30, 2012, there were three securities with a fair value of $328 thousand that had an unrealized loss of $29 thousand. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated each of the underlying banks for credit impairment based on its financial condition and performance. Based on our evaluation and our ability and intent to hold those investments for a reasonable period of time sufficient for a forecasted recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2012. We continue to closely monitor the performance of the securities we own as well as the impact from any further deterioration in the economy or in the banking industry that may adversely affect these securities. We will continue to evaluate them for other-than-temporary impairment, which could result in a future non-cash charge to earnings.

 

7
 

 

Held to Maturity Securities

 

The amortized cost and approximate fair value of securities held to maturity as of June 30, 2012, and December 31, 2011 are summarized as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
                 
June 30, 2012                    
State and political subdivisions  $5,168   $169   $(21)  $5,316 
                     
December 31, 2011                    
State and political subdivisions  $4,220   $125   $-   $4,345 

 

The amortized cost and carrying value of securities held to maturity at June 30, 2012, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   Amortized   Fair 
(Dollars in thousands)  Cost   Value 
         
Due in one year or less  $1,146   $1,146 
Due after five years through ten years   1,052    1,100 
Due after ten years   2,970    3,070 
Total held to maturity securities  $5,168   $5,316 

 

Temporarily Impaired Securities

The following table shows our held to maturity investments’ gross unrealized losses and fair value with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual held to maturity securities have been in a continuous unrealized loss position, at June 30, 2012. There were no securities with unrealized losses on December 31, 2011.

 

   Less Than Twelve Months   Twelve Months or More   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
(Dollars in thousands)  Value   Losses   Value   Losses   Value   Losses 
                         
June 30, 2012                              
                               
State and political subdivisions  $1,374   $(21)  $-   $-   $1,374   $(21)

 

As of June 30, 2012, we reviewed our held to maturity investment portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt and equity securities is evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. For each security whose fair value is less than their amortized cost basis, a review is conducted to determine if an other-than-temporary impairment has occurred.

 

State and Political Subdivisions

At June 30, 2012, the decline in fair value and the unrealized losses for our state and political subdivisions portfolio were caused by changes in interest rates and spreads and were not the result of credit quality. At June 30, 2012, there were 3 securities with a fair value of $1.4 million that had an unrealized loss that amounted to $21 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of June 30, 2012, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at June 30, 2012, were deemed to be other-than-temporarily impaired.

 

8
 

 

NOTE 3 – LOANS

 

The composition of net loans receivable at June 30, 2012, and December 31, 2011 is as follows:

 

(Dollars in thousands)  June 30, 2012   December 31, 2011 
         
Commercial and industrial loans  $13,106   $13,711 
Construction   7,103    8,520 
Commercial real estate   228,042    216,191 
Residential real estate   97,635    100,175 
Consumer and other   1,328    1,336 
    347,214    339,933 
Unearned net loan origination fees   (330)   (228)
Allowance for loan losses   (6,260)   (7,210)
Net loans receivable  $340,624   $332,495 

 

Mortgage loans serviced for others are not included in the accompanying balance sheets. The total amount of loans serviced for the benefit of others was approximately $827 thousand and $852 thousand at June 30, 2012, and December 31, 2011, respectively.

 

NOTE 4 – ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY OF FINANCING RECEIVABLES

 

The following table presents changes in the allowance for loan losses disaggregated by the class of loans receivable for the three and six months ended June 30, 2012 and 2011:

 

   Commercial       Commercial   Residential   Consumer         
(Dollars in thousands)  and Industrial   Construction   Real Estate   Real Estate   and Other   Unallocated   Total 
Three Months Ended June 30, 2012:                                   
Beginning balance  $305   $582   $5,186   $976   $31   $537   $7,617 
Charge-offs   -    -    (2,230)   (123)   (29)   -    (2,382)
Recoveries   1    -    58    -    8    -    67 
Provision   124    (412)   1,533    202    1    (490)   958 
                                    
Ending balance  $430   $170   $4,547   $1,055   $11   $47   $6,260 
                                    
June 30, 2011:                                   
Beginning balance  $448   $1,347   $3,953   $832   $54   $592   $7,226 
Charge-offs   (13)   (909)   (394)   -    (11)   -    (1,327)
Recoveries   2    516    1    -    6    -    525 
Provision   (9)   15    1,213    113    (4)   (216)   1,112 
                                    
Ending balance  $428   $969   $4,773   $945   $45   $376   $7,536 

 

   Commercial       Commercial   Residential   Consumer         
(Dollars in thousands)  and Industrial   Construction   Real Estate   Real Estate   and Other   Unallocated   Total 
Six Months Ended:                                   
June 30, 2012:                                   

XNAS:SBBX Sussex Bancorp Quarterly Report 10-Q Filling

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