Sussex Bancorp Reports a 67% Increase in Net Incom

ROCKAWAY, N.J., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Sussex Bancorp (the “Company”) (Nasdaq: SBBX ), the holding company for Sussex Bank (the “Bank”), today announced a 66.8% increase in net income to $1.5 million, or $0.33 per basic and $0.32 per diluted common share, for the quarter ended December 31, 2016, as compared to $913 thousand, or $0.20 per basic and diluted share, for the same period last year. The improvement for the fourth quarter of 2016 as compared to the same period last year was mostly driven by a 24.4% increase in net interest income as a result of strong growth in average loans and deposits, which increased $159.0 million, or 30.5%, and $94.0 million, or 22.4%, respectively.  The aforementioned increase in net interest income was partly offset by higher non-interest expenses of $528 thousand, provision for loan losses of $107 thousand due to loan growth and an increase in income tax expense. 

For the year ended December 31, 2016, the Company reported a 49.3% increase in net income to $5.5 million, or $1.20 per basic and $1.19 per diluted share, as compared to $3.7 million or $0.81 per basic and diluted share for the same period last year. The improvement for 2016 was driven by a $4.3 million, or 21.5%, increase in net interest income as a result of strong growth in average loans and interest-bearing deposits, which increased $136.4 million, or 27.9%, and $77.0 million, or 19.0%, respectively, and Tri State Insurance Agency’s (“Tri-State”) increase in contribution to net income before income taxes of $529 thousand, or 79.0%, as compared to the same period in 2015

“Viewed from a number of measures, I am excited to report that we had outstanding financial performance for the fourth quarter.  We are reaching key milestones on our journey to build a better bank,” stated Anthony Labozzetta, President and Chief Executive Officer of Sussex Bank.  “In 2016, each of our major business units grew in excess of 25%, which when paired with improved efficiency led to substantial improvement in net income for the fourth quarter and fiscal 2016,” added Mr. Labozzetta. Mr. Labozzetta also stated, “How we attain our results is vital to us.  So it is rewarding to see our Teams’ focus on the customer and deepening relationships result in such strong organic growth.”

Declaration of Quarterly Dividend The Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share, which is payable on February 23, 2017 to common shareholders of record as of the close of business on February 9, 2017.

Financial Performance Net Income. For the quarter ended December 31, 2016, the Company reported net income of $1.5 million, or $0.33 per basic and $0.32 per diluted share, as compared to net income of $913 thousand, or $0.20 per basic and diluted share, for the same period last year.  The increase in net income for the quarter ended December 31, 2016 was driven by a $1.3 million, or 24.4%, increase in net interest income resulting from strong loan and deposit growth.  The aforementioned was partly offset by an increase in non-interest expenses of $528 thousand mostly due to costs attributed to support the Company’s growth, higher provision for loan losses of $107 thousand due to loan growth and an increase in income taxes due to earnings growth and a higher effective tax rate. 

Income before income taxes increased $966 thousand, or 70.9%, to $2.3 million for the quarter ended December 31, 2016 as compared to $1.4 million for the same period last year.  The Company’s income before income taxes, excluding Tri-State, increased $937 thousand, or 72.4%, to $2.2 million for the three months ended December 31, 2016 as compared to $1.3 million for the same period last year.  Tri-State’s contribution to the Company’s income before income taxes for the quarter ended December 31, 2016 increased $26 thousand, or 37.7%, to $95 thousand as compared to the same period last year. 

For the year ended December 31, 2016, the Company reported a 49.3% increase in net income to $5.5 million, or $1.20 per basic and $1.19 per diluted share as compared to net income of $3.7 million, or $0.81 per basic and diluted share, for the same period last year.  The increase in net income for the year ended December 31, 2016 was largely due to increases in net interest income of $4.3 million, or 21.5%, and non-interest income of $1.4 million, or 21.3%, which were partially offset by an increase in non-interest expenses of $2.0 million, or 9.9%, and a $655 thousand increase in provision for loan losses. The increase in non-interest expense was largely due to increases in salaries and employee benefits, mostly due to an increase in personnel to support our growth and higher incentive and commission costs related to the Bank’s and Tri-State’s performance, and data processing costs largely resulting from the outsourcing of core processing systems.

Income before income taxes increased $3.0 million, or 56.4%, to $8.4 million for the year ended December 31, 2016 as compared to $5.3 million for the same period last year. Tri-State’s contribution to the Company’s income before income taxes for the year ended December 31, 2016 increased $529 thousand, or 79.0%, to $1.2 million as compared to $670 thousand for the same period last year.  The growth was driven by Tri-State’s commissions and fees due in particular to an increase in direct bill commissions of $498 thousand, or 18.8%, and contingency fee income of $418 thousand, or 124.1%.  The aforementioned was partly offset by an increase in non-interest expense of $591 thousand, or 19.4%.  The Company’s income before income taxes, excluding Tri-State, increased $2.5 million, or 53.1%, to $7.1 million for the year ended December 31, 2016 as compared to the same period last year.

Net Interest Income .  Net interest income on a fully tax equivalent basis increased $1.3 million, or 23.8%, to $6.7 million for the fourth quarter of 2016, as compared to $5.4 million for the same period in 2015.  The increase in net interest income was largely due to a $161.7 million, or 25.5%, increase in average interest earning assets, principally loans receivable, which increased $159.0 million, or 30.5%.  The improvement in net interest income was partly offset by a decline in the net interest margin of 4 basis points to 3.35% for the fourth quarter of 2016, as compared to the same period in 2015.  The decline in the net interest margin was mostly attributed to a 6 basis point decrease in the average rate earned on loans, mostly due to loan growth and loan repricing in a low rate environment.  Also included in the net interest margin decrease was a 4 basis point increase in the average rate on interest bearing deposits, which was primarily due to increased competition in the Bank’s existing markets and entering of new markets.

Net interest income on a fully tax equivalent basis increased $4.3 million, or 20.9%, to $24.8 million for the year ended December 31, 2016 as compared to $20.5 million for the same period in 2015.  The increase in net interest income was largely due to a $141.3 million, or 23.7%, increase in average interest earning assets, principally loans, which increased $136.4 million, or 27.9%.  The Company’s net interest margin was 3.37% and 3.45% for the year ended December 31, 2016 and 2015, respectively. The decline in net interest margin was due to loan growth and loan repricing in a low rate environment along with an increase in the average rate on interest bearing deposits, which was primarily due to increased competition in the Bank’s existing markets and entering of new markets.

Provision for Loan Losses. Provision for loan losses increased $107 thousand to $237 thousand for the fourth quarter of 2016, as compared to the same period in 2015.

Provision for loan losses increased $655 thousand, or 103.0%, to $1.3 million for the year ended December 31, 2016, as compared to $636 thousand for the same period in 2015.  The increases for both periods were mostly attributable to the Company’s loan growth.

Non-interest Income. Non-interest income increased $309 thousand, or 22.1%, to $1.7 million for the fourth quarter of 2016, as compared to the same period last year.  The increase was primarily due to higher insurance commissions and fees, which increased $106 thousand, and a reduction in the loss on disposal of fixed assets of $138 thousand, or 100.0%.

The Company reported an increase in non-interest income of $1.4 million, or 21.3%, to $7.8 million for the year ended December 31, 2016 as compared to the same period last year.  The increase in non-interest income was largely due to increases in insurance commissions and fees and gains on sale of securities of $1.1 million and $173 thousand, respectively.  The growth in Tri-State’s commissions and fees was largely due to an increase in direct bill commissions of $498 thousand, or 18.8%, and contingency fee income of $418 thousand, or 124.1%.

Non-interest Expense. The Company’s non-interest expenses increased $528 thousand, or 10.2%, to $5.7 million for the fourth quarter of 2016, as compared to the same period last year. The increase for the fourth quarter of 2016, as compared to the same period in 2015, was largely due to increases in salaries and employee benefits of $388 thousand, expenses and writes-downs related to foreclosed real estate of $82 thousand, data processing of $80 thousand, and FDIC assessment of $51 thousand.  The aforementioned increases were partly offset by declines in director fees and other expenses of $54 thousand and $50 thousand, respectively. 

The Company’s non-interest expenses increased $2.0 million, or 9.9%, to $22.6 million for the year ended December 31, 2016 as compared to the same period last year.  The increase for the year ended December 31, 2016, as compared to the same period in 2015, was largely due to increases in salaries and employee benefits of $1.6 million, data processing of $455 thousand and professional fees of $134 thousand.  The aforementioned increases were partly offset by declines in other expenses and director fees of $177 thousand and $94 thousand, respectively.

The increase in salaries and employee benefits for the fourth quarter and twelve months ended December 31, 2016 as compared to the same periods in 2015 was largely due to an increase in personnel to support our growth, including the opening of our Oradell, New Jersey branch in the first quarter of 2016, and higher incentive and commission costs related to the Bank’s and Tri-State’s performance.  The aforementioned increases were partly offset by the elimination of our in-house data operations center during the fourth quarter of 2015 and the closing of our Port Jervis, New York branch during the second quarter of 2016.  The increase in data processing was largely due to the costs associated with the outsourcing of core processing systems and higher costs related to the Company’s growth and introduction of new products and services during 2016.  The decrease in director fees was a result of the Company placing a majority of the directors’ deferred compensation plan into a rabbi trust.  The rabbi trust deferred compensation arrangement minimizes the variability of the director fees expense previously associated with mark to market adjustments of the Company’s stock price.

Financial Condition At December 31, 2016, the Company’s total assets were $847.1 million, an increase of $162.6 million, or 23.8%, as compared to total assets of $684.5 million at December 31, 2015.  The increase in total assets was largely driven by growth in loans receivable of $151.8 million, or 27.9%. 

Total loans receivable, net of unearned income, increased $151.8 million, or 27.9%, to $695.3 million at December 31, 2016, as compared to $543.4 million at December 31, 2015.  During the twelve months ended December 31, 2016, the Company had $190.1 million in commercial loan production, which was partly offset by $14.1 million in commercial loan payoffs.

The Company’s total deposits increased $143.1 million, or 27.6%, to $660.9 million at December 31, 2016, from $517.9 million at December 31, 2015.  The growth in deposits was due to increases in both interest bearing deposits of $97.8 million, or 22.7%, and non-interest bearing deposits of $45.2 million, or 51.9%, at December 31, 2016, as compared to December 31, 2015. Included in the aforementioned deposit total is $60.0 million in deposit balances with a cost of 0.59% attributed to our newest branch in Oradell, New Jersey, which opened in the beginning of March, 2016.  Also, included is $71.6 million in deposit balances with a cost of 0.39% attributed to our branch in Astoria, New York, which opened in Mid-March of 2015.

During the quarter ended December 31, 2016, the Company completed a private placement of $15 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to an institutional investor. The subordinated notes have a maturity date of December 22, 2026 and bear interest at the rate of 5.75% per annum, payable quarterly, for the first five years of the term, and then at a variable rate that will reset quarterly to a level equal to the then current 3-month LIBOR plus 350 basis points over the remainder of the term.

At December 31, 2016, the Company’s total stockholders’ equity was $60.1 million, an increase of $6.1 million when compared to December 31, 2015.  The increase was largely due to net income for the twelve months ended December 31, 2016.  At December 31, 2016, the leverage, Tier I risk-based capital, total risk-based capital and common equity Tier I capital ratios for the Bank were 10.41%, 12.87%, 13.86% and 12.87%, respectively, all in excess of the ratios required to be deemed “well-capitalized.” During the quarter ended December 31, 2016, the Company contributed proceeds from the Notes to the Bank’s Tier 1 capital.

Asset and Credit Quality The ratio of NPAs, which include non-accrual loans, loans 90 days past due and still accruing, troubled debt restructured loans currently performing in accordance with renegotiated terms and foreclosed real estate, to total assets improved to 1.10% at December 31, 2016 from 1.49% at December 31, 2015.  NPAs decreased $872 thousand, or 8.5%, to $9.3 million at December 31, 2016, as compared to $10.2 million at December 31, 2015.  Non-accrual loans increased $521 thousand, or 9.8%, to $5.8 million at December 31, 2016, as compared to $5.3 million at December 31, 2015. Loans past due 30 to 89 days totaled $1.8 million at December, 31 2016, representing decreases of $5.7 million, or 75.7%, as compared to $7.6 million at September 30, 2016 and $983 thousand, or 34.8%, as compared to $3.4 million at December 31, 2015. The top five non-accrual loan relationships total $3.4 million, which equates to 59.1% of total non-accrual loans and 36.9% of total NPAs at December 31, 2016.  The remaining non-accrual loans at December 31, 2016 have an average loan balance of $108 thousand. 

The Company continues to actively market its foreclosed real estate properties, which decreased $987 thousand to $2.4 million at December 31, 2016, as compared to $3.4 million at December 31, 2015.  At December 31, 2016, the Company’s foreclosed real estate properties had an average carrying value of approximately $338 thousand per property.

The allowance for loan losses increased by $1.1 million, or 19.8%, to $6.7 million, or 0.96% of total loans, at December 31, 2016, compared to $5.6 million, or 1.03% of total loans, at December 31, 2015. The Company recorded $1.3 million in provision for loan losses for the year ended December 31, 2016.  Additionally, the Company recorded net charge-offs of $185 thousand for the year ended December 31, 2016, as compared to $687 thousand in net charge-offs for the year ended December 31, 2015. For the quarter ended December 31, 2016, the Company recorded $128 thousand in net recoveries, as compared to net charge offs of $115 thousand for the quarter ended September 30, 2016. The allowance for loan losses as a percentage of non-accrual loans increased to 114.8% at December 31, 2016 from 105.2% at December 31, 2015.

About Sussex Bancorp Sussex Bancorp is the holding company for Sussex Bank, which operates through its regional offices and corporate centers in Wantage and Rockaway, New Jersey, its eleven branch offices located in Andover, Augusta, Franklin, Hackettstown, Newton, Montague, Sparta, Vernon, Oradell and Wantage, New Jersey, and Astoria, New York, and a loan production office in Oradell, New Jersey, and for the Tri-State Insurance Agency, Inc., a full service insurance agency with locations in Augusta and Oradell, New Jersey.  For additional information, please visit the Company’s website at www.sussexbank.com . 

Forward-Looking Statements This press release contains statements that are forward looking and are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Such statements may be identified by the use of words such as "expect," "estimate," “assume,” "believe," "anticipate," "will," "forecast," "plan," "project" or similar words.  Such statements are based on the Company’s current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, changes to interest rates, the ability to control costs and expenses, general economic conditions, the success of the Company’s efforts to diversify its revenue base by developing additional sources of non-interest income while continuing to manage its existing fee-based business, risks associated with the quality of the Company’s assets and the ability of its borrowers to comply with repayment terms.  Further information about these and other relevant risks and uncertainties may be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in subsequent filings with the Securities and Exchange Commission. 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.

Contacts: Anthony Labozzetta, President/CEO Steven Fusco, SEVP/CFO 844-256-7328