SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
SUN BANCORP, INC.
(Exact name of Registrant as specified in its Charter)
NEW JERSEY 52-1382541
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
226 LANDIS AVENUE, VINELAND, NEW JERSEY 08360
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (609) 691-7700
--------------
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
----------------
(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
---------------------------------------
(Title of Class)
<PAGE>
Item 1. Business
General
Sun Bancorp, Inc. (the "Company"), a New Jersey corporation, is a bank
holding company headquartered in Vineland, New Jersey and was incorporated in
January, 1985. In April 1995, the Company changed its name from Citizens
Investments, Inc. to its present name. The Company has one subsidiary, Sun
National Bank (the "Bank"), a national bank chartered in 1985. At March 31,
1996, the Company had total assets of $377.2 million, total deposits of $351.1
million and total stockholders' equity of $23.8 million. The Bank's deposits are
federally insured by the Bank Insurance Fund ("BIF"), which is administered by
the Federal Deposit Insurance Corporation ("FDIC"). The Company's principal
business is to serve as a holding company for the Bank.
At March 31, 1996, the Bank provided community banking activities
through seventeen branches located in southern New Jersey. The Bank offers
commercial and industrial loans, home equity loans, mortgage loans and
installment loans. The Bank considers its primary market area to be the New
Jersey counties of Atlantic, Burlington, Cape May, Cumberland, Mercer and Ocean.
The Bank's market area contains a diverse base of customers, including
agricultural, manufacturing, transportation and retail consumer businesses.
The Bank has one subsidiary, Med-Vine, Inc., a Delaware corporation that
holds a residential mortgage loan portfolio and an investment securities
portfolio.
In June 1994, The First National Bank of Tuckahoe was merged into the
Bank ("Tuckahoe Merger") and, in July 1994, Southern Ocean State Bank was merged
into the Bank ("Ocean Merger"). The Tuckahoe Merger and Ocean Merger were
purchase transactions that, in the aggregate, required approximately $14 million
in cash. The excess of cost over fair value of assets acquired resulting from
the Tuckahoe Merger and the Ocean Merger amounted to approximately $612,000 and
$920,000, respectively, and are being amortized over fifteen years using the
straight-line method.
On July 14, 1995, the Bank purchased four branches from NatWest Bank.
The Bank acquired approximately $52.3 million of deposit liabilities plus
$479,000 of accrued interest, $1.8 million of real estate and equipment,
$588,000 of loans plus related accrued interest and $610,000 in cash. The Bank
paid a premium of approximately $2.1 million, which is being amortized over
seven years.
On November 24, 1995, the Bank purchased four branches from New Jersey
National Bank. The Bank acquired approximately $70.2 million of deposit
liabilities plus $492,000 of accrued interest, $3.7 million of real estate and
equipment, $48,000 of loans plus related accrued interest and $1.0 million in
cash. The Bank paid a premium of approximately $2.4 million which is being
amortized over seven years.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
Lending Activities
General. The principal lending activity of the Company is the
origination of commercial business and industrial loans, home equity loans,
mortgage loans and to a much lesser extent, installment loans. Home equity,
mortgage and installment loans are originated in the Company's primary market
area. Commercial business loans are originated for the purpose of financing
small- and medium-sized businesses located in the Company's primary market area.
2
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Company's loan portfolio by type of loan on the dates
indicated.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1996 1995 1994 1993 1992 1991
----------------- ---------------- ------------------ ------------------ ----------------- ---------
$ % $ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --- --- --
(Dollars in thousands)
TYPE OF LOAN:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $137,625 68.35 % $118,874 64.73 % $69,249 51.35 % $41,642 49.94 % $34,475 42.00 % $29,304 37.65 %
Home equity 24,409 12.13 25,129 13.68 26,799 19.87 23,510 28.19 22,257 27.12 22,807 29.30
Residential
real estate 28,953 14.38 29,287 15.95 29,633 21.97 19,151 22.97 26,213 31.94 26,434 33.96
Installment 12,319 6.12 12,409 6.76 10,787 8.00 151 0.18 219 0.27 384 0.49
Less:
Allowance for
loan losses 1,960 0.97 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32 1,095 1.41
------- ------ -------- ------ -------- ------ ------ ------ ------- ------ ------- ------
Net loans $201,346 100.00 % $183,634 100.00 % $134,861 100.00 % $83,387 100.00 % $82,080 100.00 % $77,834 100.00%
======= ====== ======= ====== ======= ====== ====== ====== ====== ====== ====== ======
TYPE OF SECURITY:
Residential
real estate:
1-4 family $ 69,596 34.57 % $68,904 37.52 % $72,466 53.73 % $49,777 59.69 % $52,532 64.00 % $53,576 68.83 %
Other 7,935 3.94 6,295 3.43 839 0.62 757 0.91 372 0.45 259 0.33
Commercial
real
estate 100,481 49.90 85,239 46.42 48,845 36.22 28,682 34.40 23,930 29.15 19,796 25.43
Commercial
business
loans 14,496 7.20 13,822 7.53 6,621 4.91 5,031 6.03 6,099 7.43 4,105 5.27
Consumer 10,767 5.34 11,214 6.11 6,511 4.83 151 0.18 219 0.27 384 0.49
Other 31 0.02 225 0.11 1,186 0.88 56 0.07 12 0.01 809 1.04
Less:
Allowance for
loan losses 1,960 0.97 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32 1,095 1.41
------- ----- ------ ----- ------- ------- ------ ------- ------ ------- ------ -------
Net loans $201,346 100.00 % $183,634 100.00 % $134,861 100.00 % $83,387 100.00 % $82,080 100.00 % $77,834 100.00%
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
3
<PAGE>
Loan Maturity. The following table sets forth the maturity of the Company's
loan portfolio at December 31, 1995.
<TABLE>
<CAPTION>
Commercial Home Residential Unassigned
and Industrial Equity Real Estate Installment Reserves Total
-------------- ------ ----------- ----------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans $ 1,721 $ 295 $ 607 $ 35 $ - $ 2,658
Amounts due:
One year and less 29,009 - 673 717 - 30,399
After 1 year through 5 years 55,633 - 2,061 3,924 - 61,618
After 5 years 32,511 24,834 25,946 7,733 - 91,024
------- ------ ------ ------ ------ -------
Total amount due 118,874 25,129 29,287 12,409 - 185,699
Less:
Allowance for loan losses 1,094 319 403 54 195 2,065
-------- ------- ------- -------- ---- --------
Loans receivable, net $117,780 $24,810 $28,884 $12,355 $(195) $183,634
======= ====== ====== ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Loans maturing after December 31, 1996
Commercial Home Residential
and Industrial Equity Real Estate Installment Total
-------------- ------ ----------- ----------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Pre-determined interest rates $ 8,496 $ 469 $20,848 $11,657 $ 41,470
Adjustable interest rates 79,648 24,365 7,159 - 111,172
------ ------ ------ -------- -------
$88,144 $24,834 $28,007 $11,657 $152,642
====== ====== ====== ====== =======
</TABLE>
Commercial and Industrial Loans. The Company originates several types of
commercial and industrial loans. Included as commercial loans are short- and
long-term business loans, lines of credit, non-residential mortgage loans and
real estate construction loans. The primary focus of the Company is on the
origination of commercial loans secured by real estate. The majority of the
Company's customers for these loans are small- to medium-sized businesses
located in the southern part of New Jersey. The Company expects to continue
emphasizing the origination of commercial and industrial loans in the future. At
March 31, 1996, commercial and industrial loans totaled $137.6 million, or 67.7%
of the total loan portfolio.
Loans secured by commercial properties or by tangible goods generally
involve a greater degree of risk than residential mortgage loans and carry
larger loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the mobility of collateral, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans
4
<PAGE>
secured by commercial real estate or by tangible goods is typically dependent
upon the successful operation of the related real estate or commercial project.
If the cash flow from the project is reduced, the borrower's ability to repay
the loan may be impaired.
Home Equity Loans. The Company originates home equity loans, secured by
first or second mortgages owned or being purchased by the loan applicant. Home
equity loans are consumer revolving lines of credit. The interest rate charged
on such loans is usually a floating rate related to the prime lending rate. Home
equity loans may provide for interest only payments for the first two years with
principal payments to begin in the third year. A loan is typically originated as
a twenty year note that allows the borrower to draw upon the approved line of
credit during the same period as the note. The Company generally requires a loan
to value ratio in the range of 70% to 80% of the appraised value, less any
outstanding mortgage. At March 31, 1996, home equity loans totaled $24.4
million, or 12.0% of the total loan portfolio. The home equity loan portfolio
has increased in recent years while the residential mortgage loan portfolio has
decreased as a result of market conditions and the Company's management of
interest rate risk.
Residential Real Estate Loans. The Company originates residential
mortgage loans secured by property located in the Company's primary market area.
The majority of the Company's residential mortgage loans consist of loans
secured by owner-occupied, single-family residences. At March 31, 1996, the
Company had $29.0 million, or 14.2% of the total loan portfolio invested in
residential mortgage loans.
The Company primarily originates loans secured by first mortgages. The
Company's mortgage loan portfolio consists of both fixed-rate and
adjustable-rate loans secured by various types of collateral as discussed below.
Management generally originates residential mortgage loans in conformity with
Federal National Mortgage Association ("FNMA") standards so that the loans will
be eligible for sale in the secondary market. Management expects to continue
offering mortgage loans at market interest rates, with substantially the same
terms and conditions as it currently offers. As part of its monitoring of
interest rate risk, the Company has reduced its residential mortgage loan
portfolio in recent years by selling loans in the secondary market.
The Company originates 15 to 30 year adjustable-rate and fixed-rate
mortgage loans intended primarily for sale in the secondary market. From time to
time the Company originates these loans for retention in its portfolio.
The Company's residential mortgage loans customarily include due-on-sale
clauses, which are provisions giving the Company the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells or otherwise disposes of the real property serving as security for the
loan. Due-on-sale clauses are an important means of adjusting the rates on the
Company's fixed-rate mortgage portfolio. The Company usually exercises its
rights under these clauses.
Installment Loans. As of March 31, 1996, installment loans totaled $12.3
million, or 6.1% of the total loan portfolio. The Company originates
installment, or consumer loans secured by a variety of collateral, such as new
and used automobiles. The Company makes a very limited number of unsecured
installment loans. Through its Ocean Merger, the Company acquired a credit card
portfolio which it intends to eliminate once current customers have paid off
their lines of credit. No new advances or charges are being accepted.
Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as loan officers, customers, borrowers and referrals from
real estate brokers, accountants and attorneys.
5
<PAGE>
Upon receipt of a loan application, a credit report is ordered and
reviewed to verify specific information relating to the loan applicant's credit
worthiness. For mortgage loans, written verifications of employment and deposit
balances are requested by the Company. The Company requires that an appraisal of
the real estate intended to secure the proposed loan is undertaken by a
certified independent appraiser approved by the Company. After all of the
required information is obtained, the Company then makes its credit decision.
Depending on the type, collateral and amount of the credit request, various
levels of approval may be necessary. In general, loans of $100,000 or more must
be presented at an Officers' Loan Committee which has the authority to approve
unsecured loans to $750,000 and secured loans to $1.5 million. The Officers'
Loan Committee is comprised of the Bank's CEO, senior lending officer and
regional lending officers. Credit requests in excess of the Officers' Loan
Committee must also be presented to the Bank's Board of Directors for approval.
Loans under $100,000 are generally approved by various levels of Company
management.
Title insurance policies are required on all first mortgage loans.
Hazard insurance coverage is required on all properties securing loans made by
the Company.
Loan applicants are notified of the credit decision by letter. If the
loan is approved, the loan commitment specifies the terms and conditions of the
proposed loan including the amount, interest rate, amortization term, a brief
description of the required collateral, and the required insurance coverage. The
borrower must provide proof of fire, flood (if applicable) and casualty
insurance on the property serving as collateral, which insurance must be
maintained during the full term of the loan. Generally, title insurance endorsed
to the Bank is required on all first mortgage loans.
Loan Originations. The Company has dramatically increased its
origination of commercial and industrial loans in the past year from $24.3
million during the year ended December 31, 1994 to $96.7 million during the year
ended December 31, 1995. This increase is the result of the Company hiring
additional lending officers, review and support staff. In addition, the Company
has focused on lending to established businesses with strong cash flows in the
Company's market area. Most of the Company's commercial loans have adjustable
rate features that change in response to changes in the prime lending rate. The
Company expects its level of originations of commercial and industrial loans
will increase from the balances shown at March 31, 1996.
Loan Commitments. When a commercial loan is approved, the Company issues
a written commitment to the loan applicant. The commitment indicates the loan
amount, term and interest rate and is valid for approximately 45 days.
Approximately 90% of the Company's commitments are accepted or rejected by the
customer before the expiration of the commitment. At March 31, 1996, the Company
had approximately $28.4 million in commercial loan commitments outstanding.
Loans to One Borrower. Federal regulations limit unsecured loans to one
borrower in an amount equal to 15% of unimpaired capital and unimpaired surplus.
If the loan is secured by readily marketable collateral (generally financial
instruments and bullion, but not real estate), the limit is 25% of unimpaired
capital and unimpaired surplus. At March 31, 1996, the Company's loan to one
borrower limit was approximately $3.1 million. At March 31, 1996, the Company's
largest loan to one borrower was $2.85 million secured by a first lien on
commercial real estate. All loans to the Company's fifteen largest borrowers
were current as of March 31, 1996.
Non-Performing and Problem Assets
Loan Delinquencies. The Company's collection procedures provide that
after a commercial loan is ten days past due, or a residential mortgage loan is
fifteen days past due, a late charge is added. The borrower is contacted by mail
or telephone and payment is requested. If the delinquency continues,
6
<PAGE>
subsequent efforts are made to contact the borrower. If the loan continues to be
delinquent for ninety days or more, the Company usually initiates foreclosure
proceedings unless other repayment arrangements are made. Each delinquent loan
is reviewed on a case by case basis in accordance with the Company's lending
policy.
Loans are regularly reviewed and are placed on a non-accrual status when
they become ninety days delinquent, and, in the opinion of management, the
collection of additional interest is doubtful. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate ability to collect the loan.
Non-Performing Assets. The following table sets forth information
regarding loans that are delinquent ninety days or more. Management of the
Company believes that all loans accruing interest are adequately secured and in
the process of collection. At the dates shown, the Company had no restructured
loans within the definition of SFAS No. 15.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ -------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,056 $1,721 $1,178 $1,074 $428 $ 509
Home equity 404 295 341 204 33 -
Residential real estate 400 607 342 265 199 264
Installment 10 35 40 - - -
------ ------ ------ ------- ----- -----
Total $1,870 $2,658 $1,901 $1,543 $660 $ 773
===== ===== ===== ===== === ======
Accruing loans that are contractually past due 90 days or more:
Commercial and industrial $135 $135 $525 $ - $ - $ 49
Home equity 91 279 30 - - -
Residential real estate 369 64 20 2 183 -
Installment 141 67 7 - - -
--- --- ---- ------- ---- ------
Total $736 $545 $582 $ 2 $183 $ 49
=== === === ======= === =====
Total non-accrual and 90-day past due loans $2,606 $3,203 $2,483 $1,545 $843 $ 822
Real estate owned 802 876 1,033 359 144 256
------ ------ ----- ------ --- -----
Total non-performing assets $3,408 $4,079 $3,516 $1,904 $987 $1,078
===== ===== ===== ===== === =====
Total non-accrual and 90-day past due loans
to net loans 1.29% 1.74% 1.84% 1.85% 1.03% 1.06%
Total non-accrual and 90-day past due loans
to total assets 0.69 0.87 1.14 1.38 0.81 0.73
Total non-performing assets to total assets 0.90 1.10 1.62 1.70 0.95 0.95
</TABLE>
Interest income that would have been recorded on loans on non-accrual
status, under the original terms of such loans, would have totaled $45,698 and
$276,955 for the three months ended March 31, 1996 and the year ended December
31, 1995, respectively.
7
<PAGE>
Classified Assets. Federal regulations provide for a classification
system for problem assets of insured institutions, including assets previously
treated as "scheduled items." Under this classification system, problem assets
of insured institutions are classified as "substandard," "doubtful" or "loss."
An asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection of principal in
full," on the basis of currently existing facts, conditions and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
classified "special mention" are assets included on the Company's internal watch
list.
When an insured institution classifies problem assets as either
"substandard" or "doubtful," it may establish allowances for loan losses in an
amount deemed prudent by management. When an insured institution classifies
problem assets as "loss," it is required either to establish an allowance for
losses equal to 100% of that portion of the assets so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its allowances is subject to review by the Office of
the Comptroller of the Currency ("OCC"), which may order the establishment of
additional loss allowances.
At March 31, 1996, the Company had a total of $2.3 million of the loan
portfolio classified as "substandard." It had no amounts outstanding for loans
classified as "doubtful" or "loss."
Foreclosed Real Estate. Real estate acquired by the Company as a result
of foreclosure or by deed in lieu of foreclosure is classified as Real Estate
Owned until such time as it is sold. When Real Estate Owned is acquired, it is
recorded at the lower of the unpaid principal balance of the related loan or its
fair value less disposal costs. Any write-down of Real Estate Owned is charged
to operations. At March 31, 1996, the Company had approximately $802,000
classified as Real Estate Owned.
Allowance for Losses on Loans and Real Estate Owned. It is the policy of
management to provide for losses on unidentified loans in its portfolio in
addition to classified loans. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in the Bank's loan portfolio. Management also periodically performs
valuations of Real Estate Owned and establishes allowances to reduce book values
of the properties to their net realizable values when necessary.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loan loss provisions
may be deemed necessary. There can be no assurance that the allowance for loan
losses will be adequate to cover losses which may be realized in the future. In
addition, there can be no assurance that additional provisions for losses on
loans and Real Estate Owned will not be required.
8
<PAGE>
Analysis of the Allowance for Losses on Loans. The following table sets
forth information with respect to the Company's allowance for losses on loans at
the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ -------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding $203,306 $185,698 $136,469 $83,990 $82,651 $78,367
======= ======= ======= ====== ====== ======
Average loans outstanding $191,292 $155,139 $108,265 $82,078 $76,164 $54,434
======= ======= ======= ====== ====== ======
Allowance for losses on loans,
beginning of period $2,065 $1,607 $1,067 $1,084 $1,095 $ 410
Charge-offs:
Commercial and industrial 301 286 312 - 132 -
Mortgage 9 73 1 25 - -
Installment 25 67 37 - - 13
------ ------ ------ ------- ------- ------
Total charge-offs 335 426 350 25 132 13
------ ------ ------ ------ ------ ------
Recoveries:
Commercial and industrial 1 33 22 3 - -
Mortgage 2 28 - - 20 -
Installment 2 15 13 3 5 5
------- ------ ------ ------- ------ ------
Total recoveries 5 76 35 6 25 5
------- ------ ------ ------- ------ ------
Net charge-offs 330 350 315 19 107 8
Provision for loan losses 225 808 383 2 96 300
Allowance on acquired loans - - 472 - - 393
------- ------- ------ ------- ------- -----
Allowance for losses on loans,
end of period $1,960 $2,065 $1,607 $1,067 $1,084 $1,095
===== ===== ===== ===== ===== =====
Allowance for losses on loans
as a percent of total loans
outstanding 0.96% 1.11% 1.18% 1.27% 1.31% 1.40%
Net loans charged off as a
percent of average loans
outstanding 0.17 0.23 0.29 0.02 0.14 0.01
</TABLE>
9
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Company's allowance for loan losses by loan category and
the percent of loans in each category to total loans receivable at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses that may occur
within the loan category since the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------- ------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
Percent of Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
Commercial and
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
industrial $1,047 67.69% $1,094 64.01% $ 847 50.60% $ 561 50.72% $ 487 49.28% $ 415 37.13%
Residential
real estate 126 14.24 403 15.96 231 21.94 91 23.85 267 23.59 137 34.81
Home equity 409 12.01 319 13.34 155 19.58 122 17.53 111 26.95 118 27.58
Installment 53 6.06 54 6.68 47 7.88 1 7.90 2 0.18 4 0.49
Unallocated 325 195 327 292 217 421
------ -------- ------ -------- ----- -------- ----- -------- ----- -------- -----
Total allowance $1,960 100.00% $2,065 100.00% $1,607 100.00% $1,067 100.00% $1,084 100.00% $1,095 100.00%
===== ====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
10
<PAGE>
Investment Securities Activities
General. The investment policy of the Company is established by senior
management and approved by the Board of Directors. It is based on asset and
liability management goals and is designed to provide a portfolio of high
quality investments that optimize interest income and provides acceptable limits
of safety and liquidity. Prior to the fourth quarter of 1995, the investment
securities were purchased with the intent to hold them to maturity. During the
fourth quarter of 1995, in accordance with the implementation of the SFAS No.
115 Guide, the Company reclassified its entire portfolio of investment
securities as available for sale. As a result, the investment securities are
carried at their approximate market value.
The Company's investment goal is to invest available funds in
instruments that meet specific requirements of the Company's asset and liability
management goals. The investment activities of the Company consist primarily of
investments in federal funds, securities issued or guaranteed by the United
States Government or its agencies, states and political subdivisions and
corporate bonds.
Composition of Investment Securities Portfolio. The Company invests in
securities that are rated as investment grade. The investment portfolio
predominantly consists of securities issued or guaranteed by the United States
Government, its agencies, states and political subdivisions, and to a lesser
extent, corporate bonds. At March 31, 1996, the Company held an investment
portfolio with an amortized cost of approximately $131.5 million and an
estimated fair market value of $129.8 million, or 34.4% of total assets. See
Note 4 of Notes to Consolidated Financial Statements.
11
<PAGE>
Investment Portfolio. The following table sets forth the carrying value of
the Company's investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------- -----------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(In thousands)
Investment securities held to maturity:
<S> <C> <C> <C> <C>
U.S. Treasury securities $ - $ - $20,034 $3,115
Government agency and
mortgage-backed securities - - 19,335 194
State and political subdivision securities - - 13,550 2,842
Other securities - - 7,406 137
------- ---------- ------ ------
Total investment securities
held to maturity - - 60,325 6,288
------- ---------- ------ -----
Investment securities available for sale:
U.S. Treasury securities 69,476 41,904 - -
Government agency and
mortgage-backed securities 18,302 41,998 - -
State and political subdivision securities 29,141 (1) 16,742 - -
Other securities 12,837 46,365 313 264
------- ------- ------- ------
Total investment securities
available for sale 129,756 147,009 313 264
------- ------- ------- ------
Total investment securities $129,756 $147,009 $60,638 $6,552
======= ======= ====== =====
</TABLE>
(1) At March 31, 1996, the Company owned $2,955,000 City of Vineland Bond
Anticipation Notes maturing August 15, 1996.
12
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment portfolio as of March 31, 1996:
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Secuirities
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Obligations $5,254 6.28% $64,222 5.44% $ - -% $ - -% $69,476 5.51% $69,476
Government Agency
and mortgage-
backed securities 1,844 6.31 13,443 6.33 2,963 6.63 52 8.50 18,302 6.39 18,302
Municipal Obligations 6,256 4.09 1,634 4.81 9,000 4.70 12,251 4.78 29,141 4.61 29,141
Other Securities 5,405 5.15 5,534 5.90 119 7.13 1,779 6.13 12,837 5.63 12,837
------ ---- ------ ---- ------- ---- ------ ---- ------- ---- -------
Total $18,759 5.23% $84,833 5.60% $12,082 5.21% $14,082 4.97% $129,756 5.44% $129,756
====== ==== ====== ==== ====== ==== ====== ==== ======= ==== =======
</TABLE>
13
<PAGE>
Sources of Funds
General. Deposits are the major source of the Company's funds for lending
and other investment purposes. In addition to deposits, the Company derives
funds from the amortization, prepayment or sale of loans, maturities of
investment securities and operations. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions.
Deposits. Consumer and commercial deposits are attracted principally from
within the Company's primary market area through the offering of a broad
selection of deposit instruments including checking, regular savings, money
market deposits, term certificate accounts and individual retirement accounts.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Company regularly evaluates the internal cost of funds, surveys
rates offered by competing institutions, reviews the Company's cash flow
requirements for lending and liquidity and executes rate changes when deemed
appropriate. The Company does not obtain funds through brokers, nor does it
solicit funds outside the State of New Jersey.
Deposit Portfolio. Average deposits were represented by various types of
demand and time deposits listed below.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, For the Years Ended December 31,
--------------------- -------------------------------------------------
1996 Avg. Yield 1995 Avg. Yield 1994 Avg. Yield 1993 Avg. Yield
---- ---------- ---- ---------- ---- ---------- ---- ----------
(Dollars in thousands)
Non-interest bearing
<S> <C> <C> <C> <C> <C> <C> <C> <C>
demand deposits $60,967 -% $45,562 -% $26,949 -% $14,779 -%
Interest bearing demand
deposits 64,098 1.78 48,609 2.19 29,186 2.43 21,095 2.65
Savings deposits 65,579 2.00 57,470 2.28 44,968 3.10 23,104 3.18
Time deposits 142,264 5.46 96,256 5.48 45,611 3.95 39,717 4.20
-------- ---- ------- ---- ------- ---- ------ ----
Total $332,908 3.07% $247,897 3.09% $146,714 2.66% $98,695 3.00%
======= ==== ======= ==== ======= ==== ====== ====
</TABLE>
The following table indicates the amount of certificates of deposit of
$100,000 or more by time remaining at March 31, 1996.
(In thousands)
Remaining maturity:
Three months or less $6,498
Over three through six months 6,278
Over six through twelve months 6,279
Over twelve months 2,005
------
$21,060
======
14
<PAGE>
Borrowings. Deposits are the primary source of funds for the Company's
lending and investment activities as well as for general business purposes.
Should the need arise, the Company may access up to $5 million from a line of
credit from the Federal Reserve Bank of Philadelphia to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. It may also borrow
from the Federal Home Loan Bank of New York as well as three correspondent
banks. At March 31, 1996, there were no amounts borrowed under any line of
credit.
Market Area
The Company's primary market area consists of the New Jersey counties of
Atlantic, Burlington, Cape May, Cumberland, Mercer and Ocean. The primary
lending concentration is in the Company's market area, mainly Cumberland County
with a population of approximately of 138,000. Historically, the economy in the
Company's market area has been dependent on agriculture, transportation,
manufacturing and tourism. The deposit and loan activity of the Company is
significantly affected by economic conditions in its market area.
Competition
The Company encounters strong competition in both the attraction of
deposits and in the origination of loans. Competition for deposits and loans
primarily comes from commercial banks and thrift institutions located in its
market area. The Company competes with other institutions through its emphasis
on superior customer service, comprehensive product lines, competitive rates and
customer loyalty.
The Company is smaller in asset size compared to most of the competitors
in its market area. A recent trend has been that some competitors have been
purchased by larger financial institutions not locally headquartered. Management
believes that the Company can strengthen its position as a community bank with
an emphasis on serving all of the financial needs of the individuals and
businesses located within its primary market area.
Subsidiary Activity
The Company's sole subsidiary is the Bank. A national bank is authorized
to invest in the capital stock, securities or obligations of bank service
corporations and operating subsidiaries subject to certain conditions and
limitations. A bank service corporation is any corporation, wholly-owned by an
FDIC- insured bank, that provides services to depository institutions and
others. These services include activities such as check sorting and customer
account statement preparation and distribution. Service corporations are also
authorized to engage in non-banking activities that the Federal Reserve has
approved by regulation to be permissible for bank holding companies as so
closely related to banking as to be a proper incident thereto. The aggregate
investment in any one bank service corporation is limited to ten percent of the
bank's paid-in and unimpaired capital and surplus, and is limited to five
percent of its total assets for all service corporations. An operating
subsidiary is a corporation whose voting stock is at least eighty percent owned
by the national bank. An operating subsidiary may perform any activity that is
part of or incidental to the business of banking, other than accepting deposits.
There is no prescribed statutory or regulatory investment limitation on
investments in an operating subsidiary. The Bank has one operating subsidiary,
Med-Vine, Inc., a Delaware corporation that holds a residential mortgage loan
portfolio and an investment securities portfolio.
15
<PAGE>
Personnel
At March 31, 1996, the Company had 157 full-time and 45 part-time
employees, all of whom were on the payroll of the Bank. None of the Company's
employees are represented by a collective bargaining group. The Company believes
that its relationship with its employees is good.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
General. The Company is a bank holding company subject to supervision
and regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") pursuant to the Bank Holding Company Act ("BHCA"), and files
with the Federal Reserve Board an annual report and such additional reports as
the Federal Reserve Board may require. As a bank holding company, the Company's
activities and those of its banking and non-banking subsidiaries are limited to
the business of banking and activities closely related or incidental to banking.
The Company may not directly or indirectly acquire the ownership or control of
more than five percent of any class of voting shares or substantially all of the
assets of any company, including a bank, without the prior approval of the
Federal Reserve Board. The Company is also subject to certain anti-fraud
provisions of federal securities law and a limited number of other regulations
of the Securities and Exchange Commission (the "SEC").
The Company's wholly-owned subsidiary bank is subject to supervision and
examination by various regulatory authorities. The OCC is the primary regulatory
supervisor of the Bank. The deposits of the Bank are insured by, and therefore
the Bank is subject to the regulations of, the FDIC. The Bank is also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operation of the Bank.
Holding Company Liability. Federal Reserve Board policy requires bank
holding companies to serve as a source of financial strength to their subsidiary
banks by standing ready to use available resources to provide adequate capital
funds to subsidiary banks during periods of financial stress or adversity. A
bank holding company also could be liable under federal banking law for the
capital deficiencies of an undercapitalized bank subsidiary. In the event of a
bank holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Federal law (12 U.S.C.ss.55) permits the OCC to order the pro-rata
assessment of stockholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any such
pro-rata assessment of stockholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed stockholder failing to pay the assessment. Similarly, the
laws of certain states provide for such assessment and sale with respect to
banks chartered by such states. The Company, as the sole stockholder of its
subsidiary bank, is subject to such provisions.
16
<PAGE>
Transactions with Affiliates. The Bank is subject to restrictions under
federal law which limit certain transactions by the Bank with the Company and
the Bank's non-banking subsidiary including loans, other extensions of credit,
investments or asset purchases. Such transactions by any subsidiary bank with
any one affiliate are limited in amount to ten percent of such subsidiary bank's
capital and surplus and with all affiliates to twenty percent of such subsidiary
bank's capital and surplus. Furthermore, such loans and extensions of credit, as
well as certain other transactions, are required to be secured in accordance
with specific statutory requirements. The purchase of low quality assets from
affiliates is generally prohibited. Federal law also provides that certain
transactions with affiliates including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same, or at least as favorable to the institution as those
prevailing at the time for comparable transactions involving other non-qualified
companies or, in the absence of comparable transactions, on terms and
circumstances, including credit standards, that in good faith would be offered
to, or would apply to, non affiliated companies.
Capital Requirements. Certain regulations require the maintenance of
minimum risk-based capital ratios. These ratios are calculated with reference to
risk-weighted assets, which include on- and off-balance sheet exposures. The
Federal Reserve Board and the OCC have established similar guidelines for the
Company and its national bank subsidiary. The Federal Reserve Board and the OCC
have also adopted minimum leverage ratios for bank holding companies and
national banks. At March 31, 1996, capital requirements for "well capitalized"
institutions imposed a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6.0% and a leverage ratio of 5%. "Adequately
capitalized" institutions must possess a total risk-based capital ratio of 8%, a
Tier 1 risk-based capital ratio of 4% and a leverage ratio of 4%.
The following table sets forth the Bank's regulatory capital position at
March 31, 1996, as compared to the minimum capital requirements imposed on the
Bank by the OCC at that date:
Percentage
Amount Of Assets (1)
------ -------------
(Dollars in thousands)
Common Shareholder's Equity $24,724 6.55%
Tier 1 Capital:
Actual 18,739 8.28
Required 18,101 8.00
------ ----
Excess $ 638 0.28%
======= ====
Tier 1 and Tier 2 Capital:
Actual $20,699 9.15%
Required 9,051 4.00
------- ----
Excess $11,648 5.15%
====== ====
Leverage:
Actual $24,724 5.24%
Required 18,873 4.00
------ ----
Excess $ 5,851 1.24%
====== ====
- ------------------------------
(1) Generally accepted accounting principles ("GAAP") or risk- weighted assets
as appropriate.
17
<PAGE>
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") established a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, the banking regulators are required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Under the final rules implementing the
prompt corrective action provisions, an institution shall be deemed to be (i)
"well capitalized" if it has a total risk-based capital ratio of 10.0% or more,
has a Tier 1 risk-based capital ratio (core or leverage capital to risk-weighted
assets) of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital
ratio of 4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well capitalized",
(iii) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital
ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0%
and (v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%. In addition, under certain
circumstances, a federal banking agency may reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized). At March 31, 1996, the Company was classified by its
regulators as "adequately capitalized." There are no conditions or events since
March 31, 1996 that management believes have changed the Company's category.
Brokered Deposits. FDIC regulations adopted under FDICIA prohibit a bank
from accepting brokered deposits (which term is defined to include any deposit
obtained, directly or indirectly, from any person engaged in the business of
placing deposits with, or selling interests in deposits of, an insured
depository institution) unless (i) it is well capitalized, or (ii) it is
adequately capitalized and receives a waiver from the FDIC. For purposes of this
regulation, a bank is defined to be well capitalized if it maintains a leverage
ratio of at least five percent, a risk-adjusted Tier 1 capital ratio of at least
six percent and a risk-adjusted total capital ratio of at least ten percent and
is not otherwise in a "troubled condition" as specified by its appropriate
federal regulatory agency. A bank that is adequately capitalized and that
accepts brokered deposits under a waiver from the FDIC may not pay an interest
rate on any deposit in excess of seventy-five basis points over certain
prevailing market rates. There are no such restrictions on a bank that is well
capitalized. The Company has no current plan to use brokered deposits, and
therefore does not believe that the brokered deposits regulation will have a
material effect on its funding or liquidity.
Regulatory Restrictions on Dividends. It is the policy of the Federal
Reserve Board that bank holding companies should pay cash dividends on common
stock only out of income available over the past year and only if prospective
earnings retention is consistent with the organization's expected future needs.
The policy further provides that bank holding companies should not maintain a
level of cash dividends that undermines the bank holding company's ability to
serve as a source of strength to its subsidiary banks. Principal sources of
revenue available to the Company are dividends received from the Bank and
interest earned on funds held by the Company. Federal law imposes limitations on
the payment of dividends by the Bank to the Company. Two different calculations
are performed to measure the amount of dividends that may be paid: a recent
earnings test and an undivided profits test. Under the recent earnings test, a
dividend may not be paid if the total of all dividends declared by a national
bank in any calendar year is in excess of the current year's net profits
combined with the retained net profits of the two preceding years unless the
bank obtains the approval of the OCC. Under the undivided profits test,
dividends may not be paid in excess of a bank's undivided profits then on hand,
after deducting bad debts in excess of the reserve for loan losses. Under the
recent earnings test, which is the more restrictive of the two tests, at March
31, 1996, the Bank could pay up to $5.3 million in dividends to the Company.
18
<PAGE>
In addition, the Federal regulatory agencies are authorized to prohibit
a banking organization from engaging in an unsafe or unsound banking practice.
Depending upon the circumstances, the agencies could take the position that
paying a dividend would constitute an unsafe or unsound banking practice.
FDIC Insurance Assessments. The deposits of the Bank are insured by BIF
of the FDIC and are subject to FDIC deposit insurance assessments.
The FDIC has adopted a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk involved in its activities. An institution's risk category is
based partly upon whether the institution is well capitalized, adequately
capitalized, or less than adequately capitalized. Each insured depository
institution is assigned to one of the following "supervisory subgroups": "A,"
"B" or "C." Group "A" institutions are financial sound institutions with only a
few minor weaknesses. Group "B" institutions are institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration.
Group "C" institutions are institutions for which there is substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Based on its
capital and supervisory subgroups, each BIF member institution is assigned an
annual FDIC assessment rate varying between zero and 0.31 percent of deposits.
It remains possible that assessments will be raised to higher levels in the
future. The FDIC is also authorized to impose special additional assessments.
Conservatorship and Receivership Powers of Federal Banking Agencies.
FDICIA significantly expanded the authority of the federal banking regulators to
place depository institutions into conservatorship or receivership to include,
among other things, appointment of the FDIC as conservator or receiver of an
undercapitalized institution under certain circumstances. In the event a bank is
placed into conservatorship or receivership, the FDIC is required, subject to
certain exceptions, to choose the method for resolving the institution that is
least costly to the BIF, such as liquidation. In any event, if the Bank were
placed into conservatorship or receivership, because of the cross-guarantee
provisions of the Federal Deposit Insurance Act, the Company, as the sole
shareholder of the Bank, would likely lose its investment in the Bank.
The FDIC may provide federal assistance to a "troubled institution"
without placing the institution into conservatorship or receivership. In such
case, pre-existing debt holders and stockholders may be required to make
substantial concessions and, insofar as practical, the FDIC will succeed to
their interests in proportion to the amount of federal assistance provided.
Legislation, including proposals to overhaul the banking regulatory
system and to limit the investments that a depository institution may make with
insured funds is introduced in Congress from time to time. The Company cannot
determine the ultimate effect that subsequently adopted regulations, or any
other potential legislation, if enacted, would have upon its financial condition
or results of operations.
Restrictions on the Acquisition of the Company. Federal and state
statutes require prior approval by or notice to the appropriate banking
regulatory authority before any person would be permitted to acquire control of
the Company or a specific percentage of its common stock. Under the BHCA, any
company (other than an existing bank holding company) is required to obtain
prior approval from the Federal Reserve Board before it may obtain control of
the Company. Control generally is defined to mean (i) directly or indirectly
owning, controlling or having the power to vote twenty-five percent or more of
any class of voting securities of the Company, (ii) controlling the election of
a majority of the Company's directors, or (iii) directly or indirectly
exercising a controlling influence over the Company's management or policies.
Prior Federal Reserve Board approval is required before an existing bank holding
company can acquire more than five percent of the Company's common stock. Under
the Federal Reserve Change in Bank Control Act ("CIBCA"), a prior written notice
must be submitted to the Federal Reserve Board if any individual or other
person, or group acting in concert, seeks to acquire ten percent or more of the
shares of the Company's outstanding common stock.
19
<PAGE>
Under the CIBCA, a proposed acquisition may be consummated unless the Federal
Reserve Board disapproves of the acquisition within sixty days after a complete
notice is filed or the Federal Reserve Board extends such sixty day period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking accounts) and
non-personal time deposits. As of March 31, 1996, the Bank met its reserve
requirements.
The Company is subject to examination, regulation and periodic reporting
under the BHCA, as administered by the Federal Reserve Board. The Federal
Reserve Board has adopted capital adequacy guidelines for bank holding companies
(on a consolidated basis) substantially similar to those of the OCC for the
Bank. The Federal Reserve Board has also adopted similar risk-based capital
requirements with the same ratio requirements as those required by the OCC for
the Bank. The Company is in compliance with these requirements.
The Company is required to obtain prior approval of the Federal Reserve
Board to acquire all, or substantially all, of the assets of any bank or bank
holding company. Prior Federal Reserve Board approval is required for the
Company to acquire direct or indirect ownership or control of any voting
securities of any bank or bank holding company if, after giving effect to such
acquisition, it would, directly or indirectly, own or control more than five
percent of any voting shares of such bank or bank holding company. The BHCA also
prohibits the acquisition by the Company of more than five percent of the voting
shares, or substantially all the assets, of a bank located outside the State of
New Jersey unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. New Jersey banking law permits the
interstate acquisition of banking institutions by bank holding companies on a
regional and reciprocal basis. This provision also applies to savings banks or
holding companies for savings banks. In addition to the approval of the Federal
Reserve Board, before any bank acquisition can be completed, prior approval
thereof may also be required to be obtained from other agencies having
supervisory jurisdiction over the bank to be acquired.
In addition, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of any company engaged in,
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the Federal Reserve Board to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities the Federal Reserve Board has determined by
regulation to be so closely related to banking are: (i) making or servicing
loans; (ii) performing certain data processing services; (iii) providing
discount brokerage service; (iv) acting as fiduciary, investment or financial
advisor; (v) leasing personal or real property under certain circumstances; (vi)
making investments in corporations or projects designed primarily to promote
community welfare; and (vii) acquiring a savings and loan association.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extension of credit to
the bank holding company or any of its subsidiaries, on investments in the stock
or other securities of such holding company or its subsidiaries, and on the
acceptance of such stocks or securities as collateral for loans. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the holding company or any of its subsidiaries) in
connection with any extension of credit or lease or sale of property or
furnishing of services.
The Company and the Bank, are affected by the monetary and fiscal
policies of various agencies of the United States Government, including the
Federal Reserve System. In view of changing conditions in the national economy
and in the money markets, it is impossible for the management of the Company to
accurately predict future changes in monetary policy or the effect of such
changes on the business or financial condition of the Company.
20
<PAGE>
Item 2. Financial Information
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for the preceding five fiscal years ended December 31, 1995 and for
the quarters ended March 31, 1996 and 1995. The consolidated income statement
data of the Company for the three month periods ended March 31, 1996 and 1995,
and the consolidated balance sheet data of the Company as of March 31, 1996 are
derived from the Company's unaudited financial statements. The consolidated
income statement data of the Company for each of the three years ended December
31, 1995 and the consolidated balance sheet data of the Company as of December
31, 1995 and December 31, 1994 are derived from the Company's audited
consolidated financial statements which are included elsewhere in this
Registration Statement. The consolidated income statement data of the Company
for each of the two years ended December 31, 1992 and the consolidated balance
sheet data of the Company as of December 31, 1993, 1992 and 1991 are derived
from the Company's audited consolidated financial statements, which are not
included herein. This summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
included in this Registration Statement.
21
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
At or For The Three Months
Ended March 31, At or For the Year Ended December 31,
-------------------------- --------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(Dollars in thousands, except per share amounts)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $377,279 $238,238 $369,895 $217,351 $112,015 $104,162 $112,950
Cash and cash equivalents 23,085 24,619 17,242 10,171 17,582 12,755 21,841
Investments 129,756 63,077 147,009 60,638 6,552 4,915 3,977
Loans receivable 201,346 139,115 183,634 134,861 83,387 82,080 77,834
Deposits 351,075 215,152 335,248 196,019 99,099 91,837 101,563
Securities sold under agreements
to repurchase 462 - - - - - -
Borrowings 29 - 8,000 - - - 151
Stockholders' equity 23,780 22,046 24,671 20,571 12,306 11,178 10,331
Summary of Operations:
Net interest income $3,857 $2,887 $13,163 $8,256 $5,319 $4,991 $2,895
Provision for loan losses 225 230 808 383 2 96 300
-------- -------- --------- -------- --------------- ---------
Net interest income after
provision for loan losses 3,632 2,657 12,355 7,873 5,317 4,895 2,595
Other income 502 500 1,651 732 480 770 426
Other expense 3,129 2,294 10,047 5,991 4,198 4,354 2,971
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item and cumulative
effect of an accounting change 1,005 863 3,959 2,614 1,599 1,311 50
Income tax expense 336 232 1,140 775 634 498 72
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary
item and cumulative effect of an
accounting change 669 631 2,819 1,839 965 813 (22)
Extraordinary item - - - - - - 72
Cumulative effect of an accounting
change - - - - 163 - -
-------- --------- --------- -------- -------- ---------- ----------
Net income $ 669 $ 631 $ 2,819 $ 1,839 $ 1,128 $ 813 $ 50
======== ========= ======== ======== ======== ======== =========
Per Share Data:
Earnings per common and
common equivalent share:
Income (loss) before
extraordinary item and
cumulative effect of an
accounting change $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 0.92 $ 0.77 $(0.01)
Extraordinary item - - - - - - 0.06
Cumulative effect of an
accounting change - - - - 0.14 - -
----- ----- ------ ------ ------ ------ ------
Net income $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 1.06 $ 0.77 $ 0.05
===== ===== ===== ===== ===== ===== =====
Period-end per share book value $14.40 $13.37 $14.94 $13.22 $12.09 $11.53 $10.23
===== ===== ===== ===== ===== ===== =====
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
At or For The
Three Months
Ended March 31, At or For the Year Ended December 31,
--------------- ---------------------------------------------------------
Selected Ratios 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
Return on average assets
(net income divided by
<S> <C> <C> <C> <C> <C> <C>
average total assets)(1) 0.74 % 1.03 % 1.09 % 1.04 % 0.74 % 0.06 %
Return on average equity
(net income divided by
average equity)(1) 10.92 12.42 11.74 9.61 7.56 0.49
Equity to assets at period 6.30 6.67 9.46 10.99 10.73 9.15
Net interest rate spread 4.23 4.61 4.79 4.64 3.95 2.99
Net yield on average
interest-earning assets 4.82 5.30 5.39 5.29 4.96 4.16
Non-performing loans to
total loans 0.92 1.43 1.39 1.84 0.80 1.00
Non-performing assets to
total loans and other real
estate owned 1.31 1.89 2.13 2.25 0.97 1.33
Net charge-offs to average
total loans 0.17 0.22 0.29 0.02 0.14 0.01
</TABLE>
___________________
(1) Annualized
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The primary activity of the Company is the oversight of the Bank.
Through the Bank, the Company engages in community banking activities by
accepting deposit accounts from the general public and investing such funds in a
variety of loans. These community banking activities primarily include providing
home equity loans, mortgage loans, a variety of commercial business loans and,
to a much lesser extent, installment loans. The Company also maintains an
investment securities portfolio. The Company's lending and investing activities
are funded by retail deposits. The largest component of the Company's net income
is net interest income. Consequently, the Company's earnings are primarily
dependent on its net interest income, which is determined by (i) the difference
between rates of interest earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread"), and (ii) the relative
amounts of interest-earning assets and interest bearing liabilities. The
Company's net income is also affected by its provision for loan losses, as well
as the amount of non-interest income and non-interest expenses, such as salaries
and employee benefits, professional fees and services, deposit insurance
premiums, occupancy and equipment costs and income taxes.
Asset and Liability Management
The Company's exposure to interest rate risk results from the difference
in maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a shorter
maturity than its liabilities, the Company's earnings will tend to be negatively
affected during periods of declining interest rates. Conversely, this mismatch
should benefit the Company during periods of rising interest rates. Management
monitors the relationship between the interest rate sensitivity of the Company's
assets and liabilities.
23
<PAGE>
In this regard, the Company emphasizes the origination of short-term commercial
loans and revolving home equity loans and de-emphasizes the origination of
long-term mortgage loans.
Gap Analysis
Banks have become increasingly concerned with the extent to which they
are able to match maturities of interest-earning assets and interest-bearing
liabilities. Such matching is facilitated by examining the extent to which such
assets and liabilities are "interest rate sensitive" and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is
considered to be interest rate sensitive if it will mature or reprice within a
specific time period. The interest rate sensitivity gap is defined as the excess
of interest-earning assets maturing or repricing within a specific time period
over interest-bearing liabilities maturing or repricing within that time period.
The Company monitors its gap, primarily its six-month and one-year maturities
and works to maintain its gap within a range that does not exceed a negative 15%
of total assets. The Company attempts to maintain its ratio of rate sensitive
assets to rate sensitive liabilities between 75% to 125%.
At March 31, 1996, total interest-bearing assets maturing or repricing
within one year exceeded total interest-earning liabilities maturing or
repricing during the same time period by $29.9 million, representing a positive
cumulative one-year gap ratio of 8.75%. As a result, the yield on
interest-earning assets of the Company should adjust to changes in interest
rates at a faster rate than the cost of the Company's interest-bearing
liabilities. Consequently, the Company's one-year gap mismatch could have a
negative effect on the Company's net interest margin during periods of declining
market interest rates.
24
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from daily balances.
<TABLE>
<CAPTION>
Three Month Period Ended March 31, Year Ended December 31,
1996(1) 1995 1994
--------------------------------- -----------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in Thousa
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(2)...... $191,292 $4,563 9.54% $155,139 $15,101 9.73% $108,265 $9,591 8.86%
Investment securities.... 132,710 1,861 5.61 85,445 5,286 6.19 33,931 2,151 6.34
Federal funds sold....... 2,308 30 5.20 7,756 463 5.97 10,988 452 4.11
------- ------ ---- ------ ------- ---- ------ ------ -----
Total interest-
earning assets........ 326,310 6,454 7.91 248,340 20,850 8.40 153,184 12,194 7.96
Non-interest-earning
assets.................. 36,216 24,409 15,076
------- ------ -------
Total assets............ $362,526 $272,749 $168,260
======= ======= =======
Interest-bearing
liabilities:
Interest-bearing
deposit accounts....... $271,941 2,556 3.76 $202,276 7,640 3.78 $122,843 3,845 3.13
Borrowed money........... 2,874 41 5.71 775 47 6.06 1,202 93 7.74
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-
bearing liabilities... 274,815 2,597 3.78 203,051 7,687 3.79 124,045 3,938 3.17
Non-interest bearing
liabilities............. 63,218 47,004 28,551
------- ------- -------
Total liabilities........ 338,033 250,055 152,596
------- ------- -------
Stockholders' equity 24,493 22,694 15,664
------- ------- -------
Total liabilities and
stockholders' equity.... $362,526 $272,749 $168,260
======= ======= =======
Net interest income....... $3,857 $13,163 $8,256
===== ====== =====
Interest rate spread(3)... 4.13% 4.61% 4.79%
==== ==== ====
Net yield on interest-
earning assets(4)....... 4.73% 5.30% 5.39%
==== ==== ====
Ratio of average
interest- earning
assets to average
interest-bearing
liabilities............. 118.74% 122.30% 123.49%
====== ====== ======
</TABLE>
____________________
(1) Ratios for three month period is stated on an annualized basis. Such ratios
and results are not necessarily indicative of results that may be expected
for the full year.
(2) Average balances include non-accrual loans.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
25
<PAGE>
Average Balance Sheet (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1993 1992 1991
-------------------------------- ------------------------------- --------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(2)...... $ 82,078 $7,439 9.06% $ 76,164 $7,615 10.00% $54,434 $5,338 9.81%
Investment securities.... 5,774 340 5.89 4,470 314 7.02 3,639 276 7.58
Federal funds sold....... 12,753 385 3.02 19,967 700 3.51 11,576 641 5.54
------ ------ ---- ------- ------ ---- ------ ----- ----
Total interest-
earning assets........ 100,605 8,164 8.11 100,601 8,629 8.58 69,649 6,255 8.98
Non-interest-
earning assets.......... 8,272 8,981 8,255
------- ------- -------
Total assets............ $108,877 $109,582 $77,904
======= ======= ======
Interest-bearing
liabilities:
Interest-bearing
deposit accounts....... $81,900 2,837 3.46 $ 78,479 3,618 4.61 $55,948 3,343 5.98
Borrowed money........... - - - 71 20 28.17 163 17 10.43
-------- ------- ------- -------- ------ ----- ------- ------ -----
Total interest-
bearing liabilities... 81,900 2,837 3.46 78,550 3,638 4.63 56,111 3,360 5.99
Non-interest bearing
liabilities............. 15,235 20,277 11,505
------- ------- ------
Total liabilities........ 97,123 98,343 67,615
------- ------- ------
Stockholders' equity 11,742 10,755 10,288
------- ------- ------
Total liabilities and
stockholders' equity... $108,877 $109,582 $77,904
======= ======= ======
Net interest income....... $5,327 $4,991 $2,895
===== ===== =====
Interest rate spread(3)... 4.65% 3.95% 2.99%
==== ==== ====
Net yield on interest-
earning assets(4)....... 5.29% 4.96% 4.16%
==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities............. 122.84% 128.07% 124.13%
====== ====== ======
</TABLE>
______________
(1) Ratios for three month period is stated on an annualized basis. Such ratios
and results are not necessarily indicative of results that may be expected
for the full year.
(2) Average balances include non-accrual loans.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
26
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rate
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
Rate/Volume Analysis
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------ ----------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $4,156 $ 945 $ 409 $5,510 $2,368 $(164) $(52) $2,152
Investment securities 3,264 (51) (45) 3,135 1,658 26 127 1,811
Federal funds sold (133) 204 (60) 11 (53) 140 (19) 67
----- ----- ---- ----- ----- ---- --- -----
Total interest-earning assets 7,287 1,098 271 8,656 3,973 2 55 4,030
----- ----- ---- ----- ----- ---- --- -----
Interest expense:
Deposit accounts 2,483 796 515 3,795 1,414 (270) (135) 1,008
Borrowings (33) (20) 7 (46) - - 93 93
----- ----- ---- ----- ----- ----- --- -----
Total interest-bearing
liabilities 2,450 776 522 3,749 1,414 (270) (42) 1,101
----- ----- ---- ----- ----- ----- --- -----
Net change in interest income $4,837 $ 322 $(252) $4,907 $2,560 $ 272 $ 97 $2,929
===== ===== ==== ===== ===== ==== === =====
</TABLE>
Comparison of Operating Results for the Three Months Ended March 31, 1996 and
1995.
General. Net income for the three months ended March 31, 1996 increased
$38,000, or 6%, from $631,000 for the quarter ended March 31, 1995 to $669,000
during the same period in 1996. The increase was primarily due to internal
growth as well as acquisitions occurring during 1995.
Net Interest Income. Interest Income for the three months ended March
31, 1996 increased $2.1 million from the same period in 1995. Interest and fees
on loans increased $1.4 million due to higher loan volume. Interest income on
investments increased $900,000 due to increased volume in the portfolio.
Interest on Federal Funds Sold declined $134,000 as a result of excess funds
being used to fund loan growth and the purchase of investment securities.
Interest Expense. Interest Expense for the three months ended March 31,
1996 increased $1.1 million from the same period in 1995. The increase was a
result of deposit growth resulting primarily from the Company's branch
acquisitions.
Provision for Loan Losses. Provision for loan losses decreased $5,000 to
$225,000 for the first quarter of 1996 compared to $230,000 for the same period
in 1995. The provision for 1995 had been increased to allow for offsetting
charge-offs.
27
<PAGE>
Other Income. As a result of transactions resulting in similar size
gains, other income remained relatively constant for the first three months of
1996 compared to that of the same period in 1995. During 1995, the Company
recorded a gain on sale of loans amounting to approximately $208,000. In 1996,
the Company recorded a gain from the sale of investment securities amounting to
approximately $160,000 and increased service charge income of approximately
$103,000.
Other Expenses For the first three months of 1996, other expenses
increased $915,000 over the same period in 1995. The increases were primarily as
a result of the branch acquisitions that occurred during 1995.
Income Taxes Income tax expense increased $104,000, from $232,000 for
the first three months of 1995 to $336,000 for the first three months of 1996.
The increase was a result of higher pre-tax income.
Comparison of Operating Results for the Years Ended December 31, 1995, 1994 and
1993
General. Net income for the year ended December 31, 1995, increased
$979,000, or 53%, to $2.8 million from $1.8 million for the year ended December
31, 1994 and $1.1 million for the year ended December 31, 1993. The increases
were primarily due to acquisitions which occurred during 1995 and 1994.
Net Interest Income. Net interest income increased $4.9 million, or 59%,
from $8.3 million during the year ended December 31, 1994 to $13.2 million
during the year ended December 31,1995. The increase was a result of a 62%
increase in interest-earning assets, offset by a 65% increase in
interest-bearing liabilities and a nine basis point narrowing of the net yield.
Income on interest-earning assets increased $8.7 million as a result of
significant growth in the Company's investment and loan portfolios as well as
higher average yields. Total interest on deposit accounts increased by $3.8
million to $7.7 million in 1995. The increase in interest expense was a result
of a $79 million average growth in deposits augmented by a 65 basis point
increase in the average cost of deposits.
Provision for Loan Losses. The Company recorded a provision of $808,000
in 1995 compared with $383,000 in 1994 and $2,000 in 1993. The provision in 1995
and 1994 was primarily due to an analysis of the existing portfolio and
estimates of the stability of economic conditions within the market areas the
Company services. The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance includes reviewing situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions. There can be no assurance
that further additions will not be made to the allowance for loan losses and
that such losses will not exceed the amount provided by the allowance.
Other Income. Other income is derived primarily from service charges on
deposit accounts. In 1995 it was considerably higher as a result of gains on
sales of fixed assets, loans and investment securities. Other income increased
$919,000, or 125%, from $732,000 for the year ended December 31, 1994 to $1.7
million for the year ended December 31, 1994. During 1994, other income
increased $260,000 from 1993, an increase of 55%. The increase was largely as a
result of an increase in service charges on deposit accounts.
28
<PAGE>
Other Expenses. Other expenses increased by $4.0 million from $6.0
million for the year ended December 31, 1994 to $10.0 million for the year ended
December 31, 1995. The increase was as a result of increased expenses due to the
acquisitions during 1994 and 1995. Salaries and employee benefits increased $2.1
million to $4.7 million during 1995. Data processing fees increased $316,000 and
miscellaneous expenses increased $893,000. The increase for the year ended
December 31, 1994 over 1993 amounted to $1.8 million. Salaries and employee
benefits increased by $766,000, occupancy expense increased by $365,000 and
miscellaneous expense increased by $461,000.
Income Tax Expense. Income taxes increased $365,000 or 47%, from
$775,000 for the year ended December 31, 1994 to $1.1 million for the year ended
December 31, 1995. The primary reason for this increase was an increase in
pre-tax income. Income taxes in 1994 increased $141,000 from the year ended
December 31, 1993 for the same reasons.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities and funds provided from
operations. While scheduled loan repayments are a relatively predictable source
of funds, deposit flows and loan prepayments are greatly influenced by market
interest rates, economic conditions and competition.
If a need for additional funds arises, the Company has significant other
sources of liquidity, such as investment securities, cash and amounts due from
other banks. Secondary sources of liquidity include borrowing from the Federal
Reserve Bank discount window, a line of credit with the Federal Home Loan Bank,
selling securities under agreements to repurchase and various federal funds
purchased lines of credit at correspondent banks.
The Company's liquidity, represented in part by cash and cash
equivalents, is a product of its operating, investing and financing activities.
Proceeds from repayment of loans, maturities of investment securities and net
income are the primary sources of liquidity for the Company.
Liquidity management is a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as the sale of federal funds to other financial institutions.
Impact of Inflation and Changing Prices
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which requires the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Nearly all the assets and liabilities of the Company are monetary.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
Impact of New Accounting Standards
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The statement, which is effective for
fiscal years beginning after December 31, 1995, establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to
29
<PAGE>
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. It requires that such assets be
periodically reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
Measurement of an impairment should be based on the fair value of the asset and
that such assets ordinarily be reported at the lower of carrying amount or fair
value less cost to sell. Management of the Company has determined that the
adoption of this statement had no effect on its results of operations or
financial position.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights. The Statement, which is effective for fiscal years beginning
after December 31, 1995, requires an institution which services mortgage loans
for others in return for servicing fees to recognize these servicing rights as
assets, regardless if such assets are acquired or originated. Additionally, such
institutions are required to assess the fair value of these assets at each
reporting date to determine any potential impairment. Management of the Company
has determined that this pronouncement has no effect on its results of
operations or financial position.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-based Compensation. This Statement, which is effective for fiscal years
beginning after December 31, 1995, defines a fair value- based method of
accounting for stock-based employee compensation plans, and encourages all
entities to adopt this method of accounting for all employee stock compensation
plans. Under the fair value-based method, compensation expense would be measured
at the grant date based on the value of the award, and would be recognized over
the vesting period. However, SFAS No. 123 also permits entities to continue to
measure compensation expense for their stock-based plans as prescribed in APB
Opinion No. 25, Accounting for Stock Issued to Employees. Under the provisions
of APB Opinion No. 25, compensation expense is measured as the excess, if any,
of the market price of the stock underlying the award on the grant date over the
exercise price. Under the Company's Plans, awards do not result in compensation
expense on the date of grant as the exercise price equals the estimated market
price.
Item 3. Properties
At March 31, 1996, the Company operated from its main office and
seventeen branch offices located in New Jersey. The total net book value of the
Company's investment in premises and equipment at March 31, 1996, was
approximately $11.4 million. The main offices of the Company and of the Bank are
leased as are two of the Bank's branch offices.
30
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 1996, the shares of
common stock beneficially owned by each person who was a beneficial owner of
more than five percent of the outstanding shares of common stock and by
directors and executive officers.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Common
Beneficial Owner Beneficial Ownership (1) Stock Beneficially Owned
- ---------------- ------------------------ ------------------------
Directors and Executive Officers
<S> <C> <C>
Bernard A. Brown 668,263 33.79 %
Adolph F. Calovi 109,767 5.55
Sidney R. Brown 41,428 2.09
Peter Galetto, Jr. 16,318 0.83
Philip W. Koebig, III 70,918 3.59
Anne E. Koons 36,584 1.85
All Directors and Officers as a group 1,006,797 50.91
</TABLE>
(1) Unless otherwise indicated, includes shares held directly by the
individual as well as by such individual's spouse, shares held in trust
and in other forms of indirect ownership over which shares the
individual effectively exercises sole voting and investment power and
shares which the named individual has a right to acquire within sixty
days of March 31, 1996, pursuant to the exercise of stock options.
Item 5. Directors and Executive Officers
The Board of Directors of the Company is currently composed of six
members, each of whom serves for a term of one year. Executive officers are
elected annually by the Board of Directors and serve at the Board's discretion.
31
<PAGE>
The following table sets forth information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Current
Director Term
Director/Executive Officer Age (1) Position Since Expires
- -------------------------- ------- -------- ----- -------
<S> <C> <C> <C> <C>
Bernard A. Brown (2) 71 Chairman of the Board 1985 1997
Sidney R. Brown (2) 38 Director, Treasurer 1990 1997
Adolph F. Calovi 73 Director, President and
Chief Executive Officer 1985 1997
Peter Galetto, Jr 42 Director, Secretary 1990 1997
Philip W. Koebig, III 53 Director,
Executive Vice President 1995 1997
Anne E. Koons (2) 43 Director 1990 1997
</TABLE>
______________________
(1) At March 31, 1996
(2) Bernard A. Brown is the father of Sidney R. Brown and Anne E. Koons. Sidney
R. Brown is the brother of Anne E. Koons.
Biographical Information
The principal occupation of each director and executive officer of the
Company is set forth below. All directors and executive officers have held their
present positions for five years unless otherwise stated.
All of the directors reside in the State of New Jersey.
Bernard A. Brown has been the Chairman of the Board of Directors of the
Company since its inception in January, 1985. Mr. Brown is also the Chairman of
the Board of Directors of the Bank. For many years, Mr. Brown has been the
Chairman of the Board of Directors and President of NFI Industries, Inc., a
trucking conglomerate headquartered in Vineland, New Jersey.
Sidney R. Brown has been the Treasurer and a director of the Company since
April, 1990. Mr. Brown is an officer and director of NFI Industries, Inc., and
one of the general partners of The Four B's, a partnership which has extensive
real estate holdings in the Eastern United States. Its primary objective is
investing in and consequent development of commercial real estate, leasing
and/or sale. Mr. Brown is currently an officer and director of several other
corporations and partnerships in the transportation, equipment leasing,
insurance, warehousing and real estate industries.
Adolph F. Calovi has been the President, Chief Executive Officer and a
director of the Company since its inception in January, 1985. Mr. Calovi is a
director of Sun National Bank and from 1985 to 1994 was its President and Chief
Executive Officer.
Peter Galetto, Jr. has been the Secretary and a director of the Company
since April 1990. Mr. Galetto is the President/Sales for Stanker & Galetto,
Inc., located in Vineland, New Jersey. He is also the President of the
Cumberland Technology Enterprise Center. For the past five years, Mr. Galetto
has been the Secretary/Treasurer of Trimark Building Contractors. He is also an
officer and director of several other corporations and organizations.
32
<PAGE>
Philip W. Koebig, III has been the Executive Vice President of the
Company since 1994. He has been a director of the Company since 1995. Mr. Koebig
is also a director, President and Chief Executive Officer of Sun National Bank
since January, 1995. From 1990 to 1994, Mr. Koebig had been President and Chief
Executive Officer of Covenant Bank for Savings, Haddonfield, New Jersey. He also
serves on the Board of Directors of numerous charitable organizations and
corporations.
Anne E. Koons has been a director of the Company since April, 1990. For
the past five years, Ms. Koons has been a real estate agent with Fox & Lazo, and
a travel agent for Leisure Time Travel. Ms. Koons is also a Commissioner of the
Camden County Improvement Authority and a member of the Cooper Medical Center's
Foundation Board.
Item 6. Executive Compensation
The Company has no full time employees, relying upon employees of the
Bank for the limited services required by the Company. All compensation paid to
officers and employees is paid by the Bank.
Summary Compensation Table. The following table sets forth compensation
awarded to the Chief Executive Officer and Executive Vice President of the
Company who, for the year ended December 31, 1995, received total salary and
bonus payments from the Bank in excess of $100,000. Except as set forth below,
no executive officer of the Company had a salary and bonus during the year ended
December 31, 1995 that exceeded $100,000 for services rendered in all capacities
to the Company.
<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------- Compensation
------------
Awards
------
Securities
Name and Underlying All Other
Principal Position Year Salary Options(#) Compensation
------------------ ---- ------ ---------- ------------
<S> <C> <C> <C> <C>
Adolph F. Calovi 1995 $131,000 -- $ --
President and Chief 1994 130,500 -- 2,743
Executive Officer 1993 124,800 -- 376
Philip W. Koebig, III 1995 150,000 50,000 10,383
Executive Vice President 1994 25,965 -- 240
1993 -- -- --
</TABLE>
Stock Option Plan. The Company has adopted the 1985 Stock Option Plan
and the 1995 Stock Option Plan (the "Option Plans"). Officers, directors and
employees are eligible to receive, at no cost to them, options under the Option
Plans. Options granted under the Option Plans may be either incentive stock
options (options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of the Internal
Revenue Code and that do not normally result in tax deductions to the Company)
or options that do not so qualify. The option price may not be less than 100% of
the fair market value of the shares on the date of the grant. Option shares may
be paid in cash, shares of the common stock, or a combination of both.
33
<PAGE>
Options granted under the 1985 Stock Option Plan are exercisable at the
fair market value of the common stock at the time of the grant and until the
year 2001. Options granted under the 1995 Stock Option Plan are exercisable at
the fair market value of the common stock at the time of the grant and for ten
years thereafter. During 1995, there were 88,472 options granted to executive
officers under the 1995 Stock Option Plan. Also during 1995, there were 74,741
shares exercised under the 1985 Stock Option Plan, 70,013 of which were
exercised by an executive officer.
The following table sets forth additional information concerning options
granted under the Option Plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
INDIVIDUAL GRANTS Value at Assumed
- ---------------------------------------------------------------------------- Annual Rates of Stock
Price Appreciation for
Percent of Total Option Term
Number of Options Granted Exercise -----------
Options to Employees Price Expiration
Name Granted In Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------- -------------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Bernard A. Brown 75,000 60.00% $13.00 4/18/05 $487,500 $975,000
Philip W. Koebig, III 13,472 10.78 13.00 4/18/05 87,568 175,136
Philip W. Koebig, III 36,528 29.22 13.00 3/21/05 237,432 474,864
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
-----------------------------------------------
Value of
Number of Unexercized
Unexercized In-the-money
Shares Acquired Value Options at Options at
Name On Exercise (#) Realized Fiscal Year-End Fiscal Year-End
- ---- --------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Adolph F. Calovi 70,013 $ 340,473 101,346 $769,730
</TABLE>
Directors' Compensation. Each member of the Board of Directors, except
for the Chairman and employees, received a fee of $300 for each meeting attended
for the year ended December 31, 1995.
For the year ended December 31, 1995, director fees totaled $8,100.
Employment Agreements. The Company does not have employment agreements for
any of its officers or employees.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Company during the year ended December 31, 1995
consisted of Anne E. Koons, Sidney R. Brown and Philip W. Koebig, III. All are
members of the Board of Directors of the Company. Mr. Koebig is also a Director
and Officer of the Bank and did not participate in matters involving his
personal compensation.
34
<PAGE>
Item 7. Certain Relationships and Related Transactions
Bernard A. Brown, the Chairman of the Board of Directors of the Company
and of the Bank, is, with his wife, the owner of Vineland Construction Company.
The Company and the Bank lease office space in Vineland, New Jersey from
Vineland Construction Company. The Company believes that the transactions with
Vineland Construction Company are on terms substantially the same, or at least
as favorable to the Bank, as those that would be provided by a non-affiliate.
The Company paid $351,723 to Vineland Construction during the year ended
December 31, 1995.
The Bank has a policy of offering various types of loans to officers,
directors and employees of the Bank and of the Company. These loans have been
made in the ordinary course of business and on substantially the same terms and
conditions (including interest rates and collateral requirements) as, and
following credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions by the Bank with its other
unaffiliated customers and do not involve more than the normal risk of
collectibility, nor present other unfavorable features.
Item 8. Legal Proceedings
Periodically, the Company is involved in various claims and lawsuits,
such as claims to enforce liens, condemnation proceedings on properties in which
the Company holds security interests, claims involving the making and servicing
of real property loans and other issues incident to the Company's business. None
of such claims and lawsuits are expected to result in a material adverse effect
on the business, financial condition or results of operations of the Company.
Item 9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.
At March 31, 1996, there were 281 holders of Common Stock. The Company's
Common Stock is not listed or quoted on any exchange or quotation service and
there is no established public trading market for the Common Stock. To the
knowledge of the Company, trading to date has been irregular and extremely
limited. As of March 31, 1996, there 337,983 shares underlying outstanding
options.
The Company has filed an application with the Nasdaq National Market to
have its Common Stock listed. In order to be approved for listing on the Nasdaq
National Market certain criteria must be satisfied including a requirement that
at least two firms establish and make a market in the Common Stock. The Company
will seek to encourage at least two market makers for the Common Stock, NASD
rules provide that the Common Stock would not be "authorized" for Nasdaq
reporting and Nasdaq would not provide any quotations. Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements.
The development of a public market having the desirable characteristics
of depth, liquidity and orderliness depends upon the presence in the marketplace
of a sufficient number of willing buyers and sellers at any given time, over
which neither the Company nor any market maker has any control. Accordingly,
there can be no assurance that an active and liquid trading market for the
Common Stock will develop, or if a market develops, that it will continue.
35
<PAGE>
The Board of Directors may consider paying dividends in the future and
will periodically review its policy regarding dividends. Declaration of
dividends, if any, by the Board of Directors will depend upon a number of
factors, including investment opportunities available to the Company or the
Bank, capital requirements, regulatory limitations, the Company's and the Bank's
results of operations and financial condition, tax considerations and general
economic conditions. No assurances can be given, however, that any dividends
will be declared, what amount the dividends will be, or whether such dividends,
once commenced, will continue to be paid. The Company may pay stock dividends in
lieu of, or in addition to, cash dividends.
Item 10. Recent Sales of Unregistered Securities
Set forth below is certain information concerning all sales of
securities by the Company during the past three years that were not registered
under the Securities Act of 1933.
On September 30, 1994, the Company issued 538,462 shares of common stock
to private and institutional investors for consideration of $13.00 per share and
an aggregate consideration of $7 million less $245,000 of commissions paid to
M.A. Schapiro & Co., Inc., the principal underwriter.
On March 24, 1995 the Company issued 20,000 shares of common stock to
Philip W. Koebig, III, for consideration of $13.00 per share and an aggregate
consideration of $260,000.
The above-described issuances of common stock were exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
as each such issuance did not involve a public offering.
Item 11. Description of Registrant's Securities to be Registered
The Company is authorized to issue ten million shares of Common Stock,
$1.00 par value per share, and one million shares of serial preferred stock,
$1.00 par value per share. There were 1,651,175 shares of Common Stock
outstanding on March 31, 1996. The capital stock of the Company represents
non-withdrawable capital and is not insured by the FDIC.
Common Stock
Voting Rights. Each share of Common Stock has the same relative rights
and is identical in all respects with every other share of Common Stock. The
holders of Common Stock possess exclusive voting rights in the Company, except
to the extent that shares of serial preferred stock issued in the future may
have voting rights, if any. Each holder of Common Stock is entitled to only one
vote for each share held of record on all matters submitted to a vote of holders
of Common Stock and is not permitted to cumulate votes in the election of the
Company's directors.
Other Characteristics. Holders of Common Stock will not have preemptive
rights with respect to any additional shares of Common Stock which may be
issued. Therefore, the Board of Directors may sell shares of capital stock of
the Company without first offering such shares to existing stockholders of the
Company. The Common Stock is not subject to call for redemption, and the
outstanding shares of Common Stock are fully paid and non-assessable.
36
<PAGE>
Serial Preferred Stock
The Board of Directors of the Company is authorized to issue serial
preferred stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the Common Stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The Board of Directors, without
stockholder approval, can issue serial preferred stock with voting and
acquisition rights which could adversely affect the voting power of the holders
of Common Stock.
Item 12. Indemnification of Directors and Officers
Section 14A:3-5 of the New Jersey Business Corporation Law ("BCL")
provides that an officer, director, employee or agent may be indemnified by the
Company from and against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with threatened, pending
or contemplated "proceedings" (including civil, criminal, administrative,
arbitrative action or investigative proceedings) in which such person is
involved by reason of such person's position with the Company, provided that a
determination has been made (by a majority vote of a quorum consisting of
directors who were not parties to such proceeding, or if such a quorum is not
obtainable, by independent legal counsel in a written opinion, or by the
stockholders) that such person acted in good faith and in a manner that such
person reasonably believes to be in, or not opposed to, the best interests of
the Company. Such person may not be indemnified if the person has been adjudged
liable for negligence or misconduct in the performance of such person's duty to
the Company unless the court otherwise determines.
Provisions regarding indemnification of directors, officers, employees
or agents of the Company are contained in Article Eighth of the Company's
Certificate of Incorporation.
Under a directors' and officers' liability insurance policy, directors
and officers of the Company are insured against certain liabilities, including
certain liabilities under the Securities Act of 1933.
37
<PAGE>
Item 13. Financial Statements and Supplementary Data
Independent Auditors' Report
----------------------------
To the Shareholders and Board of Directors of
Sun Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Sun Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sun Bancorp, Inc. and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards. No. 109.
/s/Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 2, 1996
38
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
---- ---- ----
(Unaudited)
ASSETS
<S> <C> <C> <C>
Cash and due from banks....................................... $ 14,805,480 $ 17,242,366 $ 7,684,697
Federal funds sold............................................ 8,280,000 - 2,486,000
------------ ----------- -----------
Cash and cash equivalents................................... 23,085,480 17,242,366 10,170,697
Investment securities held to maturity
(approximate market value $58,985,196)...................... - - 60,324,735
Investment securities available for sale (amortized cost -
$131,489,744; 1996, $146,379,244; 1995, and
$313,250; 1994)............................................ 129,756,416 147,008,896 313,250
Loans receivable (net of allowance for loan losses -
$1,960,172; 1996, $2,064,640; 1995 and $1,607,375; 1994).... 201,346,025 183,633,631 134,861,257
Bank properties and equipment................................. 11,357,782 11,419,175 5,692,769
Real estate owned, net........................................ 802,378 876,302 1,032,880
Accrued interest receivable................................... 3,040,834 2,564,921 1,781,542
Excess of cost over fair value of assets acquired............. 5,985,244 6,191,919 2,084,336
Deferred taxes................................................ 935,664 205,169 391,851
Other assets.................................................. 892,217 752,257 697,390
----------- ------------- -----------
TOTAL......................................................... $377,202,040 $369,894,636 $217,350,707
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits...................................................... $351,074,577 $335,247,796 $196,018,820
Advances from the Federal Home Loan Bank...................... - 8,000,000 -
Securities sold under agreements to repurchase................ 462,305 - -
Other liabilities............................................. 1,885,372 1,976,044 760,701
----------- ------------ -----------
Total liabilities........................................... 353,422,254 345,223,840 196,779,521
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY
Preferred stock, none issued.................................. - - -
Common stock, $1 par value, 10,000,000 shares authorized,
issued and outstanding: 1,651,175 in 1996 and 1995;
1,556,434 in 1994........................................... 1,651,175 1,651,175 1,556,434
Surplus....................................................... 17,197,275 17,197,275 16,426,648
Retained earnings............................................. 6,075,334 5,406,774 2,588,104
Unrealized (loss) gain on securities available for sale,
net of income taxes......................................... (1,143,998) 415,572 -
---------- ------------ -----------
Total shareholders' equity.................................. 23,779,786 24,670,796 20,571,186
------------ ------------ -----------
TOTAL......................................................... $377,202,040 $369,894,636 $217,350,707
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
39
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
-------------------- ------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
INTEREST INCOME:
<S> <C> <C> <C> <C> <C>
Interest and fees on loans....................... $4,562,619 $3,257,182 $15,100,885 $ 9,590,994 $7,438,446
Interest on investment securities................ 1,860,781 960,390 5,285,877 2,151,351 340,039
Interest on federal funds sold................... 30,313 164,361 463,001 452,117 385,214
---------- --------- ----------- ----------- ----------
Total interest income.......................... 6,453,713 4,381,933 20,849,763 12,194,462 8,163,699
--------- --------- ---------- ---------- ---------
INTEREST EXPENSE:
Interest on deposits ............................ 2,555,989 1,494,173 7,639,933 3,844,753 2,836,575
Interest on borrowed funds....................... 40,978 1,211 47,158 93,796 -
---------- ---------- ----------- ----------- -------------
Total interest expense......................... 2,596,967 1,495,384 7,687,091 3,938,549 2,836,575
--------- --------- ---------- ---------- ----------
Net interest income............................ 3,856,746 2,886,549 13,162,672 8,255,913 5,327,124
PROVISION FOR LOAN LOSSES.......................... 225,000 230,000 807,660 382,671 2,373
---------- --------- ----------- ----------- -----------
Net interest income after provision for
loan losses.................................. 3,631,746 2,656,549 12,355,012 7,873,242 5,324,751
--------- --------- ---------- ---------- ---------
OTHER INCOME:
Service charges on deposit accounts.............. 240,767 142,013 659,811 419,363 215,008
Other service charges............................ 18,004 13,565 28,068 17,224 8,129
Gain on sale of fixed assets..................... 11,529 - 46,487 21,164 -
Gain on sale of loans............................ - 207,984 207,984 - 147,197
Gain on sale of investment securities............ 159,804 - 377,126 - -
Other............................................ 72,210 136,492 331,513 274,533 101,680
---------- --------- ----------- ---------- ----------
Total other income............................. 502,314 500,054 1,650,989 732,284 472,014
---------- --------- ----------- --------- ----------
OTHER EXPENSES:
Salaries and employee benefits................... 1,496,645 1,078,713 4,689,269 2,626,679 1,861,096
Occupancy expense................................ 395,005 293,558 1,269,514 1,090,833 725,423
Equipment expense................................ 170,456 89,336 459,460 249,951 205,100
Provision for losses on real estate owned........ - 27,660 78,000 120,000 195,558
Professional fees and services................... 74,897 71,359 249,760 164,770 305,070
Data processing expense.......................... 251,136 114,267 634,753 318,552 202,241
Amortization of excess cost over fair value
of assets acquired............................. 206,675 47,607 342,562 134,435 97,514
Postage and supplies............................. 131,479 67,423 335,055 173,823 97,665
Insurance........................................ 32,714 153,510 382,554 397,961 254,828
Other............................................ 370,493 350,086 1,606,404 713,733 253,024
---------- --------- ---------- ----------- ----------
Total other expenses .......................... 3,129,500 2,293,519 10,047,331 5,990,737 4,197,519
--------- --------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING METHOD................... 1,004,560 863,084 3,958,670 2,614,789 1,599,246
INCOME TAXES....................................... 336,000 232,000 1,140,000 775,134 633,838
---------- --------- ---------- ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD................................ 668,560 631,084 2,818,670 1,839,655 965,408
CUMULATIVE EFFECT OF ADOPTING SFAS NO. 109......... - - - - 162,880
---------- --------- ---------- ---------- ---------
NET INCOME..................................... $ 668,560 $ 631,084 $ 2,818,670 $ 1,839,655 $1,128,288
========== ========= ========== ========== =========
Earnings per common and common equivalent share
Income before change in accounting method........ $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 0.92
Cumulative effect of adopting SFAS No. 109....... - - - - 0.14
--------- --------- ---------- ----------- ---------
Net income..................................... $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 1.06
========= ========= ========= ========= =========
Earnings per common share - assuming full dilution
Income before change in accounting method........ $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 0.92
Cumulative effect of adopting SFAS No. 109....... - - - - 0.14
----------- ------------ ----------- ----------- -----------
Net income..................................... $ 0.38 $ 0.38 $ 1.60 $ 1.49 $ 1.06
=========== =========== =========== =========== ===========
Weighted average shares ........................... 1,651,175 1,614,409 1,638,376 1,143,336 1,017,522
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
40
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993............ $ 969,203 $10,008,781 $ 199,989 $ - $11,177,973
Stock dividend.................... 48,319 531,509 (579,828) - -
Net income........................ - - 1,128,288 - 1,128,288
---------- ----------- --------- --------- ----------
BALANCE, DECEMBER 31, 1993.......... 1,017,522 10,540,290 748,449 - 12,306,261
Exercise of stock options......... 450 2,943 - - 3,393
Sale of common stock.............. 538,462 5,883,415 - - 6,421,877
Net income........................ - - 1,839,655 - 1,839,655
---------- ----------- --------- --------- ----------
BALANCE, DECEMBER 31, 1994.......... 1,556,434 16,426,648 2,588,104 - 20,571,186
Exercise of stock options......... 74,741 530,627 - - 605,368
Sale of common stock.............. 20,000 240,000 - - 260,000
Unrealized gain on securities
available for sale,
net of income taxes............. - - - 415,572 415,572
Net income....................... - - 2,818,670 - 2,818,670
---------- ----------- --------- --------- ----------
BALANCE, DECEMBER 31, 1995.......... 1,651,175 17,197,275 5,406,774 415,572 24,670,796
Change in unrealized loss on securities available
for sale, net of income taxes (unaudited) - - - (1,559,570) (1,559,570)
Net income (unaudited)............ - - 668,560 - 668,560
--------- ----------- --------- ------------- -----------
BALANCE, MARCH 31, 1996 (unaudited). $1,651,175 $17,197,275 $6,075,334 $(1,143,998) $23,779,786
========= ========== ========= ========== ==========
</TABLE>
See notes to consolidated financial statements
41
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income...................................... $ 668,560 $ 631,084 $ 2,818,670 $ 1,839,655 $ 1,128,288
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for loan losses..................... 225,000 230,000 807,660 382,671 2,373
Provision for loss on real estate owned....... - 27,660 78,000 120,000 195,558
Depreciation and amortization................. 114,405 67,816 325,913 215,381 195,494
Amortization of excess cost over
fair value of asset acquired................ 206,675 47,607 342,562 134,435 90,830
Gain on sale of loans......................... - (207,984) (207,984) - (147,197)
Gain on sale of investment securities
available for sale.......................... (159,804) - (246,129) - -
Gain on sale of mortgage-backed securities
available for sale.......................... - - (130,997) - -
Gain on sale of bank properties and equipment. (11,529) - (46,487) (21,164) -
Deferred income taxes......................... 72,915 (4,527) (27,398) (193,836) (198,015)
Change in assets and liabilities
which provided (used) cash:
Accrued interest and other assets........... (615,873) 43,355 (838,246) 196,972 143,812
Accounts payable and accrued expenses....... (90,672) 279,156 1,215,343 (1,145,147) (536,353)
---------- ---------- ------------ ---------- ----------
Net cash provided by operating activities. 409,677 1,114,167 4,090,907 1,528,967 874,790
---------- ---------- ------------ ---------- ----------
INVESTING ACTIVITIES:
Purchases of investment securities
held to maturity.............................. - (14,511,958) (30,094,922) (6,056,403) (2,588,789)
Purchases of investment securities available for
sale.......................................... (99,464,583) - (27,823,745) - -
Purchases of mortgage-backed securities
held to maturity.............................. - - (45,544,706) (778,160) -
Purchases of mortgage-backed securities
available for sale - - (4,074,088) - -
Increase in investment securities resulting from
branch acquisitions........................... - - (97,600,000) - -
Proceeds from maturities of investment
securities held to maturity................... - 11,959,831 65,280,038 8,141,545 951,978
Proceeds from maturities of investment
securities available for sale................. 41,671,494 - 10,344,666 - -
Proceeds from maturities of mortgage-backed
securities held to maturity................... - 113,512 19,908,185 176,542 -
Proceeds from sale of investment securities
available for sale............................ 21,992,393 - 16,880,505 - -
Proceeds from sale of mortgage-backed securities
avaible for sale.............................. 50,850,000 - 7,359,934 - -
Proceeds from sale of loans..................... - 1,870,608 1,870,608 - 5,349,679
Net increase in loans........................... (18,062,272) (6,191,765) (50,605,944) (2,845,797) (6,560,204)
Increase in loans resulting from branch
acquisitions.................................. - - (636,714) - -
Purchase of bank properties and equipment....... (53,012) (68,997) (825,912) (481,895) (51,259)
Increase in bank properties resulting from
branch acquisitions........................... - - (5,430,744) - -
Proceeds from sale of bank properties and
equipment..................................... 11,529 - 250,824 21,164 -
Excess of cost of fair value of branch assets
acquired...................................... - - (4,450,145) - -
Decrease (increase) in real estate owned, net... 198,802 186,480 78,578 (244,249) (410,112)
Purchase price of acquisitions, net of cash
received...................................... - - - (5,410,572) -
---------- ---------- ------------ ---------- ----------
Net cash used in investing activities......... (2,855,649) (6,642,289) (145,113,582) (7,477,825) (3,308,707)
---------- ---------- ------------ ---------- ----------
</TABLE>
42
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
FINANCING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in deposits........... 15,826,781 19,132,895 16,685,101 (6,638,004) 7,261,462
Increase in deposits resulting from branch
acquisitions - - 122,543,875 - -
Net borrowings.................................. 462,305 - 8,000,000 4,500,000 -
Principal payments on borrowed funds............ (8,000,000) - - (5,750,000) -
Proceeds from exercise of stock options......... - 583,741 605,368 3,393 -
Proceeds from issuance of common stock ......... - 260,000 260,000 6,421,877 -
----------- ---------- ---------- ----------- -----------
Net cash provided by (used in)
financing activities........................ 8,289,086 19,976,636 148,094,344 (1,462,734) 7,261,462
--------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,843,114 14,448,514 7,071,669 (7,411,592) 4,827,545
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 17,242,366 10,170,697 10,170,697 17,582,289 12,754,744
---------- ---------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $23,085,480 $24,619,211 $ 17,242,366 $10,170,697 $17,582,289
========== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................... $2,135,888 $1,159,765 $6,100,954 $3,827,301 $2,850,000
========= ========= ========= ========= =========
Income taxes paid............................... $470,739 $338,925 $994,516 $1,115,000 $1,054,339
======= ======= ======= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS:
Transfer of loans to real estate owned.......... $124,878 $44,939 $196,181 $449,478 $298,631
======= ====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements
43
<PAGE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. NATURE OF OPERATIONS
Sun Bancorp, Inc. (formerly Citizens Investments, Inc.)(the "Company")
is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Sun
National Bank (the "Bank"), and the Bank's wholly owned subsidiary,
Med-Vine, Inc. All significant inter-company balances and transactions
have been eliminated.
The Company and the Bank have their administrative offices in Vineland,
New Jersey. The Bank has seventeen financial service centers located
throughout central and southern New Jersey. The Company's principal
business is to serve as a holding company for the Bank. The Bank is in
the business of attracting customer deposits and using these funds to
originate loans, primarily commercial real estate and non-real estate
loans. Med-Vine, Inc. is a Delaware holding company which holds the
majority of the Bank's investment portfolio and a small portion of
mortgage loans. The principal business of Med-Vine, Inc. is investing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and
expenses during the reporting period. The significant estimates include:
Allowance for loan losses, Real estate owned and Excess of cost over
fair value of net assets acquired. Actual results could differ from
those estimates.
Interim Financial Statements - In the opinion of management, the
financial information, which is unaudited, reflects all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial information as of and for the three months
ended March 31, 1996 and 1995. The unaudited financial information is
not indicative of the results from operations for the full year.
Investment Securities - The Bank adopted the requirements of SFAS No.
115 and accounts for debt, equity and mortgage-backed securities as
follows:
Held to Maturity - Debt securities, including mortgage-backed
securities, that management has the positive intent and ability
to hold until maturity are classified as held to maturity and
carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts. Premiums are
amortized and discounts are accreted using the interest method
over the estimated remaining term of the underlying security.
Available for Sale - Debt and equity securities, including
mortgage-backed securities, that will be held for indefinite
periods of time, including securities that may be sold in
response to changes to market interest or prepayment rates, needs
for liquidity, and changes in the availability of and the yield
of alternative investments, are classified as available for sale.
These assets are carried at fair value. Fair value is determined
using published quotes as of the close of business. Unrealized
gains and losses are excluded from earnings and are reported net
of tax as a separate component of shareholders' equity until
realized.
44
<PAGE>
Trading - Debt securities, including mortgage-backed securities,
may be categorized as trading. As such, they would be carried at
market value. Gains and losses, both realized and unrealized
would be included in the Company's statement of income.
Loans Purchased - The discounts and premiums resulting from the purchase
of loans are amortized to income using the interest method over the
remaining period to contractual maturity, adjusted for anticipated
prepayments.
Interest Income on Loans - Interest on commercial, real estate and
installment loans is credited to operations based upon the principal
amount outstanding. Interest accruals are generally discontinued when a
loan becomes 90 days past due or when principal or interest is
considered doubtful of collection. When interest accruals are
discontinued, interest credited to income in the current year is
reversed, and interest accrued in the prior year is charged to the
allowance for loan losses.
Allowance for Loan Losses - The allowance for loan losses is determined
by management based upon past experience, an evaluation of potential
loss in the loan portfolio, current economic conditions and other
pertinent factors. The allowance for loan losses is maintained at a
level that management considers adequate to provide for potential losses
based upon an evaluation of known and inherent risk in the loan
portfolio.
Allowances for loan losses are based on estimated net realizable
value unless it is probable that loans will be foreclosed, in which case
allowances for loan losses are based on fair value. Management's
periodic evaluation is based upon evaluation of the portfolio, past loss
experience, current economic conditions and other relevant factors.
While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in
making the evaluations.
In May, 1993, the FASB issued SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, and in October, 1994, the FASB
issued SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, which address the accounting and
reporting by creditors for impairment of certain loans. The Bank adopted
the requirements of both SFAS Nos. 114 and 118, effective January 1,
1995. SFAS 114 requires that certain impaired loans be measured based
either on the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's observable market price,
or the fair value of the collateral if the loan is collateral dependent.
There was no effect on financial statements as previously reported and
on current earnings of initially applying the new standards.
Bank Properties and Equipment - Bank properties and equipment are stated
at cost, less allowances for depreciation. The provision for
depreciation is computed by the straight-line method based on the
estimated useful lives of the assets.
In March, 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. The statement, which is
effective for fiscal years beginning after December 31, 1995,
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. It requires that such assets
be periodically reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Measurement of an impairment should be based on the fair
value of the asset and that such assets ordinarily be reported at the
lower of carrying amount or fair value less cost to sell. Management of
the Company has determined that the adoption of this statement had no
effect on its results of operations or financial position.
45
<PAGE>
Deferred Loan Fees - Loan fees net of certain direct loan origination
costs are deferred and the balance is recognized into income as a yield
adjustment over the life of the loan using the interest method.
Real Estate Owned - Real estate owned is comprised of property acquired
through foreclosure and is carried at the lower of the related loan
balance or fair value of the acquired property based on an annual
appraisal less estimated cost to dispose. Losses arising from
foreclosure transactions are charged against the allowance for loan
losses. Losses subsequent to foreclosure are charged against operations.
Excess of Cost Over Fair Value of Net Assets Acquired - The excess of
cost over fair value of assets acquired is net of accumulated
amortization of $1,417,840, $1,211,165 and $868,603 at March 31, 1996,
December 31, 1995 and 1994, respectively, and is amortized by the
straight-line method over 15 years for bank acquisitions and over 7
years for branch acquisitions.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash
and cash equivalents include amounts due from banks and overnight
federal funds sold.
Income Taxes - The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. Also,
under SFAS No. 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Earnings Per Share - Earnings per common and common equivalent share is
computed using the weighted average common shares and common share
equivalents outstanding during the period
Stock dividend - On February 26, 1993, the Company's Board of Directors
declared a special 5% stock dividend which was paid on May 15, 1993 to
stockholders of record on April 30, 1993.
Recently Adopted Accounting Standards - In May 1995, the FASB issued
SFAS No. 122,
Accounting for Mortgage Servicing Rights. The statement which is
effective for fiscal years beginning after December 15, 1995, requires
an institution which services mortgage loans for others in return for
servicing fees to recognize these servicing rights as assets, if such
assets are acquired or originated. Additionally, such institutions are
required to assess the fair value of these assets at each reporting date
to determine any potential impairment. Management of the Bank has
determined that the adoption of this statement has no effect on its
results of operations or financial position.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. This Statement, which is effective for fiscal
years beginning after December 31, 1995, defines a fair value- based
method of accounting for stock-based employee compensation plans, and
encourages all entities to adopt this method of accounting for all
employee stock compensation plans. Under the fair value-based method,
compensation expense would be measured at the grant date based on the
value of the award, and would be recognized over the vesting period.
However, SFAS No. 123 also permits entities to continue to measure
compensation expense for their stock-based plans as prescribed in APB
Opinion No.25, Accounting for Stock Issued to Employees. Under the
provisions of APB Opinion No. 25, compensation expense is measured as
the excess, if any, of the market price of the stock underlying the
award on the grant date over the exercise price. Under the Company's
Plans, awards do not result in compensation expense on the date of grant
as the exercise price equals the market price.
Reclassifications - Certain reclassifications have been made in the 1994
and 1993 consolidated financial statements to conform to those
classifications used in 1995.
46
<PAGE>
3. ACQUISITIONS
On July 14, 1995, the Bank purchased four branches from NatWest Bank.
The Bank acquired approximately $52,317,000 of deposit liabilities
plus $479,000 of accrued interest, $1,755,000 of real estate and
equipment, $588,000 of loans plus related accrued interest and
$610,000 in cash. The Bank paid a premium of approximately $2,082,000,
which is being amortized over seven years.
On November 24, 1995, the Bank purchased four branches from New Jersey
National Bank. The Bank acquired approximately $70,227,000 of deposit
liabilities plus $492,000 of accrued interest, $3,675,000 of real
estate and equipment, $48,000 of loans plus related accrued interest
and $1,009,000 in cash. The Bank paid a premium of approximately
$2,368,000, which is being amortized over seven years.
On June 29, 1994, the Company acquired 100% of the outstanding shares
of The First National Bank of Tuckahoe ("Tuckahoe") for approximately
$7,070,000. The purchase method of accounting was used to record the
acquisition. Under the purchase method of accounting, all assets and
liabilities acquired were adjusted to fair value as of the acquisition
date, and the resultant premiums and discounts are amortized to income
over the expected economic lives of the related assets and
liabilities. Excess cost over fair value of assets acquired resulting
from this acquisition amounted to approximately $612,000 and is being
amortized over 15 years using the straight-line method.
A summary statement of the cash used to purchase Tuckahoe is set forth
below:
Fair value of assets purchase $50,782,529
Liabilities assumed 43,073,874
-----------
Cash paid 7,708,655
Cash acquired 7,270,791
-----------
Net cash used for purchase $437,864
==========
On July 29, 1994, the Bank acquired 100% of the outstanding capital
stock of Southern Ocean State Bank ("Ocean") from BMJ Financial Corp.,
the parent bank holding company of Ocean for approximately $6,560,000.
The purchase method of accounting was used to record the acquisition.
Excess cost over fair value of assets acquired resulting from the
valuations amounted to approximately $920,000 and is being amortized
over 15 years using the straight-line method.
A summary statement of the cash used to purchase Ocean is set forth
below:
Fair value of assets purchased $68,357,063
Liabilities assumed 61,511,320
----------
Cash paid 6,845,743
Cash acquired 1,873,035
----------
Net cash used for purchase $4,972,708
==========
The results of operations of the acquired entities have been included in
the consolidated results of operations from the dates of acquisitions.
47
<PAGE>
4. INVESTMENT SECURITIES
During 1995, in accordance with the implementation of the SFAS No. 115
Guide, the Company reclassified as available for sale, its entire
portfolio of held to maturity investment securities (including
mortgage-backed securities). The carrying amounts of investment
securities and the approximate market values at March 31, 1996, December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
Available for Sale:
Debt securities:
<S> <C> <C> <C> <C>
U.S. Treasury obligations $70,516,883 $75,382 $(1,116,730) $69,475,535
U.S. Agency obligations 18,427,775 17,339 (207,167) 18,237,947
State and municipal obligations 29,503,196 34,815 (396,820) 29,141,191
Other bonds 11,198,432 12,695 (152,842) 11,058,285
Mortgage-backed securities 64,608 (1,873,559) 64,608
---------------------------------------------------------------------
Total debt securities 129,710,894 140,231 (1,873,559) 127,977,566
---------------------------------------------------------------------
Equity securities:
Federal Reserve Bank stock 584,800 584,800
Federal Home Loan Bank stock 1,110,800 1,110,800
Atlantic Central Bank for Bankers 83,250 83,250
stock
---------------------------------------------------------------------
Total equity securities 1,778,850 1,778,850
---------------------------------------------------------------------
Total $131,489,744 $140,231 $(1,873,559) $116,854,673
=====================================================================
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
Available for Sale:
Debt securities:
<S> <C> <C> <C> <C>
U.S. Treasury obligations $41,674,219 $245,730 $(15,461) $41,904,488
State and municipal obligations 16,666,509 103,281 (28,199) 16,741,591
Other bonds 44,901,919 70,123 (9,342) 44,962,700
Mortgage-backed securities 41,734,347 289,003 (25,483) 41,997,667
---------------------------------------------------------------------
Total debt securities 144,976,994 708,137 (78,485) 145,606,646
---------------------------------------------------------------------
Equity securities:
Federal Reserve Bank stock 533,800 533,800
Federal Home Loan Bank stock 818,200 818,200
Atlantic Central Bank for
Bankers stock 50,250 50,250
---------------------------------------------------------------------
Total equity securities 1,402,250 1,402,250
---------------------------------------------------------------------
Total $146,379,244 $708,137 $(78,485) $147,008,896
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
Available for Sale:
Equity securities:
<S> <C> <C> <C> <C>
Federal Reserve Bank stock $313,250 $313,250
---------------------------------------------------------------------
Total equity securities 313,250 313,250
---------------------------------------------------------------------
Held to Maturity:
Debt securities:
U.S. Treasury obligations 20,033,886 $17,479 $(387,191) 19,664,174
State and municipal obligations 13,550,137 337 (287,683) 13,262,791
Other bonds 7,406,062 375 (177,875) 7,228,562
Mortgage-backed securities 19,334,650 28,743 (533,724) 18,829,669
---------------------------------------------------------------------
Total debt securities 60,324,735 46,934 (1,386,473) 58,985,196
---------------------------------------------------------------------
Total $60,637,985 $46,934 $(1,386,473) $59,298,446
=====================================================================
</TABLE>
49
<PAGE>
For the first three months of 1996, the Bank sold $21,832,589 of
securities available for sale resulting in a gross gain of $159,804.
During 1995, the Bank sold $24,240,439 of securities available for sale
resulting in a gross gain of $377,126. There were no such sales during
1994 and 1993.
The Bank was required to maintain an average reserve balance with the
Federal Reserve Bank of $2,882,000 and $2,263,000 at March 31, 1996 and
December 31, 1995, respectively.
The maturity schedule of the investment in debt securities available for
sale at March 31, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $18,738,417 $18,759,140 $64,635,959 $64,654,560
Due after one year through five years 86,135,228 84,832,971 28,922,885 29,218,662
Due after five years through ten years 12,242,638 12,069,683 4,304,621 4,326,614
Due after ten years 12,530,003 12,251,164 5,379,182 5,408,943
-------------------------------------------------------------
129,646,286 127,912,958 103,242,647 103,608,779
Mortgage-backed securities 64,608 64,608 41,734,347 41,997,867
-------------------------------------------------------------
$129,710,894 $127,977,566 $144,976,994 $145,606,646
=============================================================
</TABLE>
At March 31, 1996 and December 31, 1995, $4,000,000 of U.S. Treasury
notes are pledged to secure public deposits.
5. LOANS
The components of loans as of March 31, 1996, December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Commercial and industrial $137,624,819 $118,874,150 $69,248,601
Real estate-residential mortgages 53,362,058 54,414,800 56,432,607
Installment 12,319,320 12,409,321 10,787,424
---------------------------------------------------------
Total gross loans 203,306,197 185,698,271 136,468,632
Allowance for loan losses (1,960,172) (2,064,640) (1,607,375)
---------------------------------------------------------
Net loans $201,346,025 $183,633,631 $134,861,257
=========================================================
Non-accrual loans $1,869,668 $2,658,118 $1,900,910
=========================================================
</TABLE>
50
<PAGE>
There were no irrevocable commitments to lend additional funds on
non-accrual loans at March 31, 1996. The reduction in interest income
resulting from non-accrual loans was $45,698 and $7,124 for the three
month periods ended March 31, 1996 and 1995, respectively. There was no
interest income recognized on these loans during the three month periods
ended March 31, 1996 and 1995.
Certain officers, directors and their associates (related parties) have
loans and conduct other transactions with the Company. Such transactions
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for other non-related party
transactions. The aggregate dollar amount of these loans to related
parties as of March 31, 1996, December 31, 1995 and 1994, along with an
analysis of the activity for the first three months of 1996 and the
years ended December 31, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
For the Three
Month Period For the Years Ended
Ended March 31, December 31,
------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of period $8,833,227 $6,344,023 $2,748,785
Additions 141,730 4,272,121 4,088,806
Repayments (965,377) (1,782,917) (493,568)
------------------------------------------------------
Balance, end of period $8,009,580 $8,833,227 $6,344,023
======================================================
</TABLE>
Under approved lending decisions, the Company has commitments to lend
additional funds totaling approximately $43,839,000, $67,928,316 and
$21,677,560 at March 31, 1996, December 31, 1995 and 1994, respectively.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit-worthiness on a
case-by-case basis. The type and amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower.
Most of the Bank's business activity is with customers located within
its local market area. Generally, loans granted are secured by
commercial real estate, residential real estate and other assets. The
ultimate repayment of loans is dependent to a certain degree on the
local economy and real estate market.
51
<PAGE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
For the Three
Month Period For the Years Ended
Ended March 31, December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period $2,064,640 $1,607,375 $1,067,402 $1,083,916
Charge-offs (334,061) (426,289) (349,439) (25,178)
Recoveries 4,593 75,894 34,829 6,291
----------------------------------------------------------------------------
Net charge-offs (329,468) (350,395) (314,610) (18,887)
Allowance on acquired loans 471,912
Provision for loan losses 225,000 807,660 382,671 2,373
----------------------------------------------------------------------------
Balance, end of period $1,960,172 $2,064,640 $1,607,375 $1,067,402
============================================================================
</TABLE>
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of potential losses in the current
loan portfolio, including the evaluation of impaired loans under SFAS
Nos. 114 and 118. A loan is considered to be impaired when, based upon
current information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of
the loan. An insignificant delay or insignificant shortfall in amount of
payments does not necessarily result in the loan being identified as
impaired. For this purpose, delays less than 90 days are considered to
be insignificant.
Impairment losses are included in the provision for loan losses. SFAS
Nos. 114 and 118 do not apply to large groups of smaller balance,
homogeneous loans that are collectively evaluated for impairment, except
for those loans restructured under a troubled debt restructuring. Loans
collectively evaluated for impairment include consumer loans and
residential real estate loans, and are not included in the data that
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------------------------------
Impaired loans with related reserve for loan losses
($164,636; 1996, $455,786; 1995) calculated under
<S> <C> <C>
SFAS No. 114 $1,056,711 $1,517,191
Impaired loans with no related reserve for loan
losses calculated under SFAS No. 114 812,956 1,140,925
--------------------------------------
Total impaired loans $1,869,667 $2,658,116
======================================
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
======================================
For the Three
Months Ended Year Ended
March 31, December 31,
1996 1995
--------------------------------------
<S> <C> <C>
Average impaired loans $2,081,470 $2,356,348
Interest income recognized in impaired loans $0 $24,989
Cash basis interest income recognized on impaired loans $0 $0
</TABLE>
Interest payments on impaired loans are typically applied to principal
unless the ability to collect the principal amount is fully assured, in
which case interest is recognized on the cash basis.
Commercial loans and commercial real estate loans are placed on
non-accrual at the time the loan is 90 days delinquent unless the credit
is well secured and in the process of collection. Generally, commercial
loans are charged off no later than 120 days delinquent unless the loan
is well secured and in the process of collection, or other extenuating
circumstances support collection. Residential real estate loans are
typically placed on non-accrual at the time the loan is 90 days
delinquent. Other consumer loans are typically charged off at 90 days
delinquent. In all cases, loans must be placed on non-accrual or charged
off at an earlier date if collection of principal or interest is
considered doubtful.
7. BANK PROPERTIES AND EQUIPMENT
Bank properties and equipment consist of the following major
classifications:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Land $2,873,500 $2,873,500 $1,403,000
Buildings 6,861,123 6,861,123 3,422,005
Leasehold improvements and equipment 3,146,063 3,090,188 1,996,771
----------------------------------------------------------
12,880,686 12,824,811 6,821,776
Accumulated depreciation and amortization (1,522,904) (1,405,636) (1,129,007)
----------------------------------------------------------
Total $11,357,782 $11,419,175 $5,692,769
==========================================================
</TABLE>
53
<PAGE>
8. REAL ESTATE OWNED, NET
Real estate owned, net, consisted of the following:
<TABLE>
<CAPTION>
March 31 December 31,
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Commercial buildings $606,501 $492,501 $430,559
Residential buildings 249,877 471,801 712,481
------------------------------------------------------------
856,378 964,302 1,143,040
Allowance (54,000) (88,000) (110,160)
------------------------------------------------------------
Total $802,378 $876,302 $1,032,880
============================================================
</TABLE>
During the first three months of 1996, $27,660 was charged against
operations to adjust real estate owned for declines in value. During
1995, 1994 and 1993, $78,000, $120,000 and $195,558, respectively, was
charged against operations to adjust real estate owned for declines in
value.
9. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Demand deposits $127,524,799 $128,802,293 $75,004,480
Savings deposits 63,456,376 66,970,293 62,555,520
Time certificates under $100,000 139,033,817 122,415,317 52,601,673
Time certificates $100,000 or more 21,059,585 17,059,893 5,857,147
--------------------------------------------------------
Total $351,074,577 $335,247,796 $196,018,820
========================================================
</TABLE>
Of the total Demand deposits, approximately $66,778,000, $62,700,000 and
$38,800,000 are non-interest bearing at March 31, 1996, December 31,
1995 and 1994.
54
<PAGE>
A summary of certificates by year of maturity is as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
March 31, December 31,
-------------------------------------------
<C> <C> <C>
1997 $115,604,798 $88,857,521
1998 35,927,933 41,775,948
1999 4,622,104 4,281,580
Thereafter 3,938,576 4,580,161
-------------------------------------------
Total $160,093,402 $139,475,210
===========================================
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
For the Three
Month Periods For the Years Ended
Ended March 31, December 31,
--------------------------------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Savings deposits $668,560 $631,084 $2,818,670 $1,839,655 $1,128,288
Time certificates 1,651,175 1,614,409 1,638,376 1,143,336 1,017,522
Interest-bearing checking 326,455 183,847 326,896 258,837 249,743
--------------------------------------------------------------------
Total $2,555,989 $1,494,173 $7,639,933 $3,844,753 $2,836,575
====================================================================
</TABLE>
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances are collateralized under a blanket
collateral lien agreement. There were no Federal Home Loan Bank advances
outstanding at March 31, 1996. The amount outstanding at December 31,
1995, of $8,000,000 was borrowed under an overnight line of credit at an
interest rate of 5.875%. Interest expense on advances was $13,925 and
$6,733 for the three month period ended March 31, 1996 and the year
ended December 31, 1995, respectively. There were no such borrowings
during 1994 or 1993.
11. STOCK OPTION PLAN
On April 18, 1995, the Company adopted a Stock Option Plan (the "1995
Plan"). Options granted under the 1995 Plan may be either qualified
incentive stock options or non-qualified options as determined by the
Executive Compensation Committee.
Options granted under the 1995 Plan are at the estimated fair value at the
date of grant and are exercisable at the time of the grant and for 10 years
thereafter. There were 100,000 shares of stock reserved for issuance under
the 1995 Plan.
On May 31, 1985, the Company adopted a Stock Option Plan (the "1985 Plan").
During 1995, options were no longer eligible to be granted under the 1985
Plan. Options granted under the 1985 Plan were either qualified incentive
stock options or non-qualified options as determined by the Executive
Compensation Committee.
Options granted under the 1985 Plan were at the estimated fair value at the
date of grant and are exercisable at the time of the grant and until the
year 2001. There are 237,983 shares of stock reserved for issuance under
the 1985 Plan.
55
<PAGE>
Options granted and outstanding under the 1995 and 1985 Plans are as
follows:
<TABLE>
<CAPTION>
INCENTIVE NONQUALIFIED
<S> <C> <C>
March 31, 1996 at prices ranging from $7.54 to $16.19 176,848 149,607
December 31, 1995, at prices ranging from $7.54 to $16.19 177,289 149,607
December 31, 1994, at prices ranging from $7.54 to $16.19 87,220 191,978
December 31, 1993 at prices ranging from $7.54 to $16.19 89,670 191,978
</TABLE>
Activity in the stock option plans was as follows:
<TABLE>
<CAPTION>
For the Three
Month Period For the Years Ended
Ended March 31, December 31,
-----------------------------------------------------------------
1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period 326,896 279,198 281,648 265,648
Options granted 125,000 16,000
Options exercised (74,741) (450)
Options expired (441) 2,561 (2,000)
-----------------------------------------------------------------
Balance, end of period 326,455 326,896 279,198 281,648
=================================================================
</TABLE>
Under the 1995 Plan, the nonqualified options expire ten years and ten days
after the date of grant, unless terminated earlier under the option terms.
The incentive options expire ten years after the date of grant, unless
terminated earlier under the option terms. Under the 1985 Plan, all options
expire in the year 2001.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, from time to time, may be a defendant in legal proceedings
related to the conduct of its business. Management, after consultation with
legal counsel, believes that the liabilities, if any, arising from such
litigation and claims will not be material to the consolidated financial
statements.
In the normal course of business, the Bank has various commitments and
contingent liabilities, such as customers' letters of credit (including
standby letters of credit of $6,588,000, $6,196,871 and $3,756,039 at March
31, 1996, December 31, 1995 and 1994, respectively), which are not
reflected in the accompanying financial statements. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. In the judgment of management, the
financial position of the Company will not be affected materially by the
final outcome of any contingent liabilities and commitments.
Office space and branch facilities are leased from a company affiliated
with the chairman under separate agreements with the Company. The leases,
which expire in the year 2012, provide for a combined annual rental of
$286,641 with annual increases based on increases in the Consumer Price
Index.
56
<PAGE>
In February 1985, the Bank entered into an agreement with a partnership
comprised of directors and shareholders of the Bank to lease an office
building for an initial term of 10 years with three renewal options of five
years each, requiring annual rentals of $96,000 in addition to real estate
taxes during the extension periods. The Bank has exercised its first
five-year renewal option. The Bank subleases a portion of the office
building.
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at March 31, 1996:
1997 $ 381,608
1998 446,297
1999 415,041
2000 415,041
2001 327,041
Thereafter 3,533,664
----------
Total $55,186,912
==========
Rental expense included in occupancy and equipment expenses for all
operating leases was $127,887, $126,371, $510,285, $390,157 and $343,566
for the three month periods ended March 31, 1996 and 1995 and for the years
ended December 31, 1995,1994 and 1993, respectively.
13. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
For the Three
Month Periods For the Years Ended
Ended March 31, December 31,
---------------------------------------------------------------------------------------
1996 1995 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current $263,085 $236,527 $1,167,398 $968,970 $831,853
Deferred 72,915 (4,527) (27,398) (193,836) (198,015)
---------------------------------------------------------------------------------------
Total $336,000 $232,000 $1,140,000 $775,134 $633,838
=======================================================================================
</TABLE>
Items that gave rise to significant portions of the deferred tax accounts
are as follows:
57
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
---------------------------------------------------
Deferred tax asset:
<S> <C> <C> <C>
Investments marked to market $589,330
Allowance for loan losses 374,827 $427,997 $311,418
Deferred loan fees 83,020 89,012 83,589
Other real estate, net 77,764 89,324 132,786
Goodwill amortization 49,179 20,358
Other 35,465 62,229 230,593
---------------------------------------------------
Total deferred tax asset 1,209,585 688,920 758,386
---------------------------------------------------
Deferred tax liability:
Property (273,921) (269,671) (366,535)
Investments marked to market (214,080)
---------------------------------------------------
Total deferred tax liability (273,921) (483,751) 366,535
---------------------------------------------------
Net deferred tax asset $935,664 $205,169 $391,851
===================================================
</TABLE>
The provision for federal income taxes differs from that completed at the
statutory rate as follows:
<TABLE>
<CAPTION>
For the Three
Month Periods For the Years Ended
Ended March 31, December 31,
---------------------------------------------------------------------------
1996 1995 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax computed at the statutory rate $341,550 $293,449 $1,345,948 $889,028 $543,744
Increase in charge resulting from:
State tax, net of federal benefits 33,785 47,804
Goodwill amortization 14,290 14,290 57,160 43,464 34,366
Tax exempt interest, net (33,895) (28,941) (157,940) (72,009) (13,306)
Other, net 14,055 (46,798) (105,168) (119,134) 21,230
---------------------------------------------------------------------------
Total $336,000 $232,000 $1,140,000 $775,134 $633,838
===========================================================================
</TABLE>
58
<PAGE>
14. EARNINGS PER SHARE
Earnings per common share and common equivalent share is computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the year. Stock
options granted and outstanding have been considered to be the equivalent
of common stock from the time of issuance in 1985. The number of common
shares was increased by the number of shares issuable on the exercise of
options when the market price of the common stock exceeds the exercise
price of the options. This increase in the number of common shares was
reduced by the number of common shares that are assumed to have been
purchased with the proceeds from the exercise of the options (treasury
stock method); those purchases were assumed to have been made at the
estimated market price of the common stock, but not to exceed twenty
percent of the outstanding shares. Amounts in excess of this limitation are
assumed to have been exercised and the aggregate proceeds therefrom to have
been applied first to reduce short-term or long term borrowings. Any
remaining funds were invested in U.S. Government securities or commercial
paper, with appropriate recognition of any income tax effect. The market
price of common shares is based either on an independent valuation of the
Company's shares or on the price received on shares sold on or near the
reporting dates.
Earnings per share were calculated as follows:
<TABLE>
<CAPTION>
For the Three
Month Periods For the Years Ended
Ended March 31, December 31,
--------------------------------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Assumptions:
<S> <C> <C> <C> <C> <C>
Net income for the period $668,560 $631,084 $2,818,670 $1,839,655 $1,128,288
Average common shares outstanding 1,651,175 1,614,409 1,638,376 1,143,336 1,017,522
Dilutive options outstanding to
purchase equivalent shares 326,455 183,847 326,896 258,837 249,743
Average exercise price per share $10.61 $8.64 $10.62 $8.49 $8.41
Estimated market value per common share
to be used $17.00 $13.00 $17.00 $13.00 $10.00
Computations:
Application of assumed proceeds:
Towards repurchase of outstanding
common shares at applicable market value $3,464,993 $1,588,990 $3,471,962 $2,196,232 $2,035,040
Reduction of debt - - - - -
Purchase of U.S. Government securities - - - - 64,545
--------------------------------------------------------------------
$3,464,993 $1,588,990 $3,471,962 $2,196,232 $2,099,585
--------------------------------------------------------------------
Adjustment of net income:
Actual net income $668,560 $631,084 $2,818,670 $1,839,655 $1,128,288
Interest increase, net of tax effect - - - - 1,538
--------------------------------------------------------------------
Adjusted net income $668,560 $631,084 $2,818,670 $1,839,655 $1,129,826
====================================================================
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
====================================================================
Adjustment of shares outstanding:
<S> <C> <C> <C> <C> <C>
Actual average shares outstanding 1,651,175 1,614,409 1,638,376 1,143,336 1,017,522
Net additional shares issuable 122,632 61,617 122,663 89,896 46,239
--------------------------------------------------------------------
Adjusted shares outstanding 1,773,807 1,676,026 1,761,039 1,233,232 1,063,761
====================================================================
Earnings per share:
Before adjustment $0.40 $0.39 $1.72 $1.61 $1.11
====================================================================
After adjustment $0.38 $0.38 $1.60 $1.49 $1.06
====================================================================
</TABLE>
15. REGULATORY MATTERS
The ability of the Bank to pay dividends to the Company is controlled by
certain regulatory restrictions. Permission from the Comptroller of the
Currency is required if the total of dividends declared in a calendar year
exceeds the total of the Bank's net profits, as defined by the Comptroller,
for that year, combined with its retained net profits of the two preceding
years.
The Bank is also required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by banking regulators. At March 31, 1996
and December 31, 1995, the Bank is required to have minimum Leverage
ratios, Tier 1 and Total Risk-Based Capital ratios of 4.00%, 4.00% and
8.00%, respectively. The Bank's actual ratios at March 31, 1996 were 5.24%,
8.28% and 9.15%, respectively. At December 31, 1995, the Bank's actual
ratios were 5.68%, 8.32% and 9.25%, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
60
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995 December 31, 1994
---------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Amount Amount Amount Amount Amount
---------------------------------------------------------------------------------------
Assets:
Cash and cash
<S> <C> <C> <C> <C> <C> <C>
equivalents $23,085,480 $23,085,480 $17,242,366 $17,242,366 $10,170,697 $10,170,697
Investment securities 129,756,416 129,756,416 147,008,896 147,008,896 60,637,985 59,298,446
Loans receivable 201,346,025 202,537,769 183,633,631 187,037,088 134,861,257 138,414,095
Liabilities:
Demand deposits 127,524,799 127,524,799 128,802,293 128,802,293 75,004,480 75,004,480
Savings deposits 63,456,376 63,456,376 66,970,293 66,970,293 62,555,520 62,555,520
Certificates of deposit 160,093,402 160,855,200 139,475,210 140,877,573 58,458,820 58,277,701
Federal Home Loan Bank
Advances 8,000,000 8,000,000
</TABLE>
Cash and cash equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment securities - For investment securities, fair values are based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services.
Loans receivable - The fair value was estimated by discounting approximate
cash flows of the portfolio to achieve a current market yield.
Demand deposits, savings deposits, certificates of deposit and advances
from the Federal Home Loan Bank The fair value of demand deposits, savings
deposits and advances from the Federal Home Loan Bank is the amount payable
on demand at the reporting date. The fair value of certificates of deposit
is estimated using rates currently offered for deposits and advances of
similar remaining maturities.
Commitments to extend credit and letters of credit - The majority of the
Bank's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the Bank
or the borrower, they only have value to the Bank and the borrower. The
carrying amount is a reasonable estimate of fair value.
No adjustment was made to the entry-value interest rates for changes in
credit performing commercial loans and real estate loans for which there
are no known credit concerns. Management segregates loans in appropriate
risk categories. Management believes that the risk factor embedded in the
entry-value interest rates along with the general reserves applicable to
the performing commercial and real estate loan portfolios for which there
are no known credit concerns result in a fair valuation of such loans on an
entry-value basis.
The fair value estimates presented herein are based on pertinent
information available to management as of March 31, 1996, December 31, 1995
and 1994. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have
not been comprehensively revalued
61
<PAGE>
for purposes of these consolidated financial statements since March 31,
1996, December 31, 1995 and 1994, and therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
17. INTEREST RATE RISK
The Company's exposure to interest rate risk results from the difference in
maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a
shorter maturity than its liabilities, the Company's earnings will tend to
be negatively affected during periods of declining interest rates.
Conversely, this mismatch should benefit the Company during periods of
rising interest rates. Management monitors the relationship between the
interest rate sensitivity of the Company's assets and liabilities.
18. SUBSEQUENT EVENT
On June 6, 1996, Adolph F. Calovi, President and C.E.O. of the Company
exercised his option to purchase 101,346 shares of Common Stock at an
average purchase price of $9.40 per share. The shares were subsequently
sold to Bernard A. Brown, Chairman and Philip W. Koebig, III, Executive
Vice President.
62
<PAGE>
19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
-------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash $159,375 $159,205 $990,569
Investment in subsidiary 23,580,460 24,463,659 19,514,659
Office property and equipment 7,665 9,756 18,117
Accrued interest and other assets 32,286 38,176 47,841
-------------------------------------------------------
Total $23,779,786 $24,670,796 $20,571,186
=======================================================
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Common stock $1,651,175 $1,651,175 $1,556,434
Surplus 17,197,275 17,197,275 16,426,648
Retained earnings 6,075,334 5,406,774 2,588,104
Unrealized (loss) gain on securities
available for sale, net of taxes (1,143,998) 415,572
-------------------------------------------------------
TOTAL $23,779,786 $24,670,796 $20,571,186
=======================================================
</TABLE>
63
<PAGE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three
Month Periods For the Years Ended
Ended March 31, December 31,
------------------------------------------------------------------
1996 1995 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $250 $4,528 $12,278 $(27,045) $ 114,874
Other income 7,200 10,825
Expenses 8,061 3,031 27,025 8,090 17,585
------------------------------------------------------------------
(Loss) income before equity in
undistributed income of subsidiaries
and income tax expense (7,811) 1,497 (14,747) (27,935) 108,114
Equity in undistributed income of
subsidiaries 676,371 629,587 2,833,417 1,877,590 1,021,469
Income tax expense 10,000 1,295
------------------------------------------------------------------
Net income $668,560 $631,084 $2,818,670 $1,839,655 $1,128,288
==================================================================
</TABLE>
64
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three
Month Period For the Years Ended
Ended March 31, December 31,
----------------- ---------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Operating activities:
<S> <C> <C> <C> <C> <C>
Net income $668,560 $631,084 $2,818,670 $1,839,655 $1,128,288
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 2,090 2,090 8,361 4,487 10,798
Undistributed income of subsidiaries (676,371) (629,587) (2,833,418) (1,877,591) (1,021,469)
Changes in assets and liabilities which
provided (used) cash:
Accrued interest and other assets 5,891 (8,009) 9,665 (9,712) (4,957)
Accounts payable and accrued expenses -- -- -- -- (8,892)
---------- ---------- ---------- ---------- -----------
Net cash provided by (used in)
operating activities 170 (4,422) 3,278 (43,161) 103,768
------- ---------- ---------- ----------- -----------
Investing activities:
Proceeds from maturities of investment securities 2,000,000
Purchase price of acquisitions, net of cash
received (7,801,950)
Purchase of properties and equipment (20,904)
Dividends from subsidiary 1,400,000
Advances to subsidiary (1,700,000) (1,200,000) --
------------ ------------ ----------
Net cash used in investing activities -- -- (1,700,000) (5,622,854) --
---------- ---------- ------------ ------------ ----------
Financing activities:
Net borrowings under line of credit agreement 4,500,000
Repayments of short-term borrowings (4,500,000)
Exercise of stock options 583,741 605,358
Proceeds from issuance of common stock 260,000 260,000 6,425,281
--------- --------- -----------
Net cash provided by financing activities -- 843,741 865,358 6,425,281 --
---------- --------- --------- ----------- ----------
Increase (decrease) in cash 170 839,319 (831,364) 759,266 103,768
Cash, beginning of period 159,205 990,569 990,569 231,303 127,535
--------- --------- --------- --------- ---------
Cash, end of period $159,375 $1,829,888 $159,205 $990,569 $231,303
======== ========== ======== ======== ========
</TABLE>
65
<PAGE>
Item 14. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Item 15. Financial Statements and Exhibits
(a) Financial Statements
SUN BANCORP, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report.........................................................38
Consolidated Statements of Financial Condition as of March 31, 1996 and 1995, and
December 31, 1995 and 1994.........................................................39
Consolidated Statements of Income for the three months ended March 31, 1996
and 1995, and the Years Ended December 31, 1995, 1994 and 1993.....................40
Consolidated Statements of Shareholders' Equity for the three months ended March
31, 1996 and 1995, and the Years Ended December 31, 1995, 1994 and
1993...............................................................................41
Consolidated Statements of Cash Flows for the three months ended March 31, 1996
and 1995, and the Years Ended December 31, 1995, 1994 and 1993.....................42
Notes to Consolidated Financial Statements...........................................44
</TABLE>
(b) Exhibits
3.1 Articles of Incorporation of Sun Bancorp, Inc.
3.2 Bylaws of Sun Bancorp, Inc.
4 Specimen of Stock Certificate
10 The 1995 Stock Option Plan
21 Subsidiaries of Sun Bancorp, Inc.
27 Financial Data Schedules
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUN BANCORP, INC.
June 28, 1996 By: /s/Philip W. Koebig III
Philip W. Koebig III
Executive Vice President
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CITIZENS INVESTMENTS, INC.
This is to certify that there is hereby organized a corporation under and
by virtue of N.J.S. 14A: 1-1 ET SEQ., the "New Jersey Business Corporation Act."
FIRST: The name of the corporation is Citizens Investments, Inc.
SECOND: The address of the corporation's current registered office is 71
West Park Avenue, Vineland, New Jersey 08360, and the name of the corporation's
current registered agent at such address is Bernard A. Brown.
THIRD: The purpose or purposes for which the corporation is organized are:
To engage in and do any lawful act concerning any or all
lawful business for which corporations may be incorporated
under the New Jersey Business Corporation Act.
FOURTH: The term for which the corporation is to exist is perpetual.
FIFTH: The aggregate number of shares which the corporation shall have
authority to issue shall be 11,000,000 shares, of which 10,000,000 shares shall
be common stock with a par value of $1.00 per share and of which 1,000,000
shares shall be preferred stock with a par value of $1.00 per share.
The shares of preferred stock may be divided into and issued from time to
time in one or more series as may be designated by the Board of Directors of the
corporation, each such series to be distinctly titled and to consist of the
number of shares designated by the Board of Directors. All shares of any one
series of preferred stock so designated by the Board of Directors shall be alike
in every particular, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereon (if any) shall
accrue or be cumulative (or both). The designations, preferences,
qualifications, limitations, restrictions and special or relative rights (if
any) of any series of preferred stock may differ from those of any and all other
series at any time outstanding. The Board of Directors of the corporation is
hereby expressly vested with authority upon issuance of preferred stock
authorized hereby which is convertible into any class or series of shares of the
corporation to increase the authorized shares of any class or series to such
number as will not be more than sufficient, when added to the previously
authorized but unissued shares of such class or series, to satisfy the
conversion privileges of the convertibles shares issued. The Board of Directors
of the corporation is hereby expressly vested with authority to fix by
resolution the designations, preferences, qualifications, limitations,
restrictions and special or relative rights (if any) of the preferred stock and
each series thereof which may be designated by the Board of Directors,
including, but without limiting the generality of the foregoing, the following:
<PAGE>
(a) The voting rights and powers (if any) of the preferred stock and each
series thereof;
(b) The rates and times at which, and the terms and conditions
on which, dividends (if any) on preferred stock, and each series thereof, will
be paid, and any dividend preferences or rights of cumulation;
(c) The rights (if any) of holders of preferred stock, and each
such series thereof, to convert the same into, or exchange the same for, shares
of other classes (or series of classes) of capital stock of the corporation and
the terms and conditions for such conversion or exchange, including provisions
for adjustment of conversion or exchange prices or rates in such events as the
Board of Directors shall determine;
(d) The redemption rights (if any) of the corporation and of
the holders of preferred stock and each series thereof, and the times at which,
and the terms and conditions on which preferred stock and each series thereof
may be redeemed; and
(e) The rights and preferences (if any) of the holders of
preferred stock, and each series thereof, upon the voluntary or involuntary
dissolution, liquidation or winding up of the corporation.
SIXTH: The number of directors constituting the first Board of Directors is
three and the names and addresses of the directors are:
NAME BUSINESS ADDRESS
Bernard A. Brown 57 West Park Avenue
Vineland, New Jersey 08360
Adolph F. Calovi 235 East Elmer Road
Vineland, New Jersey 08360
Miles Lerman 1138 Chestnut Avenue
Vineland, New Jersey 08360
SEVENTH: The name and address of the incorporator is Jeffrey Blumenfeld,
Blank, Rome, Comisky & McCauley, 1200 Four Penn Center Plaza, Philadelphia,
Pennsylvania 19103.
In witness whereof, the incorporator, being over eighteen years of age, has
signed this Certificate this 18th day of January, 1985.
/S/ JEFFREY BLUMENFELD
Jeffrey Blumenfeld
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CITIZENS INVESTMENTS, INC.
This is to certify that the Certificate of Incorporation of Citizens
Investments, Inc. is hereby amended prior to the organization meeting and by the
consent of the sole incorporator, pursuant to N.J.S. 14A:9-2 and 14A:9-4(1), as
follows:
Article Sixth is amended to read in its entirety as follows:
"SIXTH: The number of directors constituting the first Board of Directors
is two and the names and addresses of the directors are:
NAME BUSINESS ADDRESS
---- ----------------
Bernard A. Brown 57 West Park Avenue
Vineland, New Jersey 08360
Adolph F. Calovi 235 East Elmer Road
Vineland, New Jersey 08360"
IN WITNESS WHEREOF, the incorporator, being over 18 years of age, has
signed this Certificate of Amendment this 15th day of March, 1985.
/S/ JEFFREY BLUMENFELD
Jeffrey Blumenfeld
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
CITIZENS INVESTMENTS, INC.
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3)
of the New Jersey Statutes, as amended, relating to the amendment of the
certificate of incorporation, Citizens Investments, Inc. executes the following
Certificate of Amendment to its Certificate of Incorporation:
1. The name of the corporation is CITIZENS INVESTMENTS, INC.
2. The following amendment to the Certificate of Incorporation was approved
by the directors and thereafter duly adopted by the shareholders of the
corporation on April 26, 1988:
RESOLVED, that the Certificate of Incorporation is hereby amended
by adding an Article EIGHTH thereto to read as follows:
"EIGHTH: A director or officer of the corporation shall
not, to the fullest extent permitted by law, be personally liable
to the corporation or to the shareholders of the corporation for
damages for breach of any duty owed to the corporation or to the
shareholders of the corporation, except that this Article EIGHTH
shall not relieve a director or officer of the corporation from
personal liability to the corporation and to the shareholders of
the corporation for damages for any breach of duty based upon an
act or omission:
(a) in breach of such director's or officer's duty of
loyalty to the corporation or to the shareholders of
the corporation, or
(b) not in good faith or involving a knowing violation of
law, or
(c) resulting in the receipt by such director or officer
of an improper personal benefit.
Any repeal or modification of the foregoing Article EIGHTH by the
shareholders of the corporation shall not adversely affect any
right or protection of a director or officer of the corporation
hereunder or otherwise with respect to any act or omission
occurring before such repeal or modification is effective."
<PAGE>
3. 960,513 shares of Citizens Investments, Inc.'s Common Stock, were
entitled to vote on this amendment. The number of shares of Common Stock that
voted for and against this amendment and the number of shares that abstained are
as follows:
838,880 FOR
-------
480 AGAINST
-------
121,153 ABSTAIN
-------
IN WITNESS WHEREOF, Citizens Investments, Inc. has caused this
Certificate of Amendment to its Certificate of Incorporation to be signed by its
President this 1st day of May, 1988.
CITIZENS INVESTMENTS, INC.
By:/S/ ADOLPH F. CALOVI
Adolph F. Calovi, President
<PAGE>
RESOLUTION
BE IT RESOLVED, that the transaction herein referred to, being herewith
approved, the President and Secretary of this corporation be and they are hereby
directed, authorized and empowered to execute, acknowledge and deliver such
documents, instruments and papers and perform such acts as may be legally,
properly and reasonably required or necessary for the purpose of
amending Article First of the Company's Certificate of Incorporation to change
the corporate name of the Company to Sun Bancorp, Inc.
I, Carol A. Pringle, Assistant Secretary of SUN BANCORP, INC., a
corporation of the State of New Jersey, CERTIFY that the foregoing is a true
copy of a Resolution as it appears in the records of the corporation and as was
duly and legally adopted by a quorum of the Board of Directors of the
corporation on April 18, 1995, pursuant to and in accordance with the
Certificate of Incorporation and By-Laws thereof; that it has not been modified,
amended or rescinded, and is in full force and effect as of the date hereof.
Dated: April 19, 1995
/S/ CAROL A. PRINGLE
Carol A. Pringle, Secretary
[SEAL]
EXHIBIT 3.2
BYLAWS
<PAGE>
BYLAWS
OF
CITIZENS INVESTMENTS, INC.
These Bylaws are supplemental to the New Jersey Business
Corporation Act and other applicable provisions of law, as the
same shall from time to time be in effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS.
SECTION 101. Place of Meetings. All meetings of the shareholders
shall be held at such place or places, within or without the State of New
Jersey, as shall be determined by the Board of Directors from time to time.
SECTION 102. Annual Meetings. The annual meeting of the
shareholders for the election of directors and the transactions of such other
business as may properly come before the meeting shall be held at such time as
the Board of Directors shall fix. Any business which is a proper subject for
shareholder action may be transacted at the annual meeting, irrespective of
whether the notice of said meeting contains any reference thereto, except as
otherwise provided by applicable law.
SECTION 103. Special Meetings. Special meetings of the
shareholders may be called at any time by the Board of Directors, the Chief
Executive Officer, the Chairman of the Board, the President or by the holders of
not less than fifty percent (50%) of the outstanding shares of the Common Stock
of the Corporation.
SECTION 104. Conduct of Shareholders' Meetings. The President
shall preside at all shareholders' meetings. In the absence of the President,
the Chairman of the Board shall preside or, in his absence, any vice president
or, in his absence, any officer designated by the Board of Directors. The
officer presiding over the shareholders' meeting may establish such rules and
regulations for the conduct of the meeting as he may deem to be reasonably
necessary or desirable for the orderly and expeditious conduct of the meeting.
Unless the officer presiding over the shareholders' meeting otherwise requires,
shareholders need not vote by ballot on any questions.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
SECTION 201. Management by Board of Directors. The business and
affairs of the Corporation shall be managed by its Board of Directors. The Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute, regulation, the Articles of
Incorporation or these Bylaws directed or required to be exercised or done by
the shareholders.
SECTION 202. Nomination for Directors. Nominations for directors to be
elected at an annual meeting of shareholders must be submitted to the Secretary
of the Corporation in writing not later than the close of business of the fifth
business day immediately preceding the
<PAGE>
date of the meeting. All late nominations shall be rejected. Notwithstanding the
foregoing, at any time prior to the election of directors at a meeting of
shareholders the Board of Directors may designate a substitute nominee to
replace any bona fide nominee who was nominated as set forth above and, who, for
any reason, becomes unavailable for election as a director.
SECTION 203. Directors Must Be Shareholders. Every director must be a
shareholder of the Corporation and shall own in his own right the number of
shares (if any) required by law in order to qualify as such director. Any
director shall forthwith cease to be a director when he no longer holds such
shares, which fact shall be reported to the Board of Directors by the Secretary,
whereupon the Board of Directors shall declare the seat of such director
vacated.
SECTION 204. Number of Directors. The Board of Directors shall consist of
not fewer than two (2) nor more than twenty-five (25) directors. The number of
directors to be elected, subject to the foregoing limits, shall be determined
from time to time by the Board of Directors.
SECTION 205. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the remaining members of the Board even though less than a quorum. Each
director so elected shall be a director until his successor is elected by the
shareholders, who may make such election at the next annual meeting of the
shareholders or any at special meeting duly called for that purpose and held
prior thereto.
SECTION 206. Compensation of Directors. No director shall be entitled to
any salary as such; but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a director and a reasonable fee to be paid
each director for his services in attending meetings of the Board.
SECTION 207. Regular Meetings. Regular meetings of the Board of Directors
shall be held on such day, at such hour, and at such place, consistent with
applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting shareholders at which the directors are elected. Notice need
not be given of regular meetings of the Board of Directors which are held at the
time and place designated by the Board of Directors. If a regular meeting is not
to be held at the time and place designated by the Board of Directors, notice of
such meeting, which need not specify the business to be transacted thereat and
which may be either oral or in writing, shall be given by the Secretary to each
member of the Board at least twenty-four hours before the time of the meeting.
SECTION 208. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or the
President and shall be called whenever two or more members of the Board so
request in writing. A special meeting of the Board of Directors shall be deemed
to be any meeting other than the regular meeting of the Board of Directors.
Notice of the time and place of every special meetings, which need not
<PAGE>
specify the business to be transacted thereat and which may be either verbal or
in writing, shall be given by the Secretary to each member of the Board at least
twenty-four hours before the time of such meeting.
SECTION 209. Reports and Records. The reports of officers and committees
and the records of the proceedings of all committees shall be filed with the
Secretary of the Corporation and presented to the Board of Directors, if
practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
ARTICLE III. COMMITTEES
SECTION 301. Committees. The following two committees of the Board of
Directors shall be established by the Board of Directors in addition to any
other committee the Board of Directors may in its discretion establish:
Executive Committee
Audit Committee
The establishment of an Audit Committee may be deferred until there are a
sufficient number of directors of the Corporation who are not officers of the
Corporation to comprise such a committee.
SECTION 302. Executive Committee. The Executive Committee shall consist of
any three or more directors. A majority of the members of the Executive
Committee shall constitute a quorum, and actions of a majority of those present
at a meeting at which a quorum is present shall be actions of the Committee.
Meetings of the Committee may be called at any time by the Chairman or Secretary
of the Committee, and shall be called whenever two or more members of the
Committee so request in writing. The Executive Committee shall have and exercise
the authority of the Board of Directors in the management of the business of the
Corporation between the dates of regular meetings of the Board.
SECTION 303. Audit Committee. The Audit Committee shall consist of at least
three directors, a majority of whom shall not be officers of the Corporation.
Meetings of the Committee may be called at any time by the Chairman or Secretary
of the Committee, and shall be called whenever two or more members of the
Committee so request in writing. A majority of the members of the Committee
shall constitute a quorum, and actions of a majority of those present at a
meeting at which a quorum is present shall be actions of the Committee. The
Committee shall supervise the audit of the books of the Corporation.
SECTION 304. Appointment of Committee Members. The Chief Executive Officer
shall appoint or shall establish a method of appointing, subject to the approval
of the Board of Directors, the members of the Executive and Audit Committees and
of any other committees established by the Board of Directors, and the Chairman
of each such committee,
<PAGE>
to serve until the next annual meeting of shareholders.
SECTION 305. Organization and Proceedings. Each committee of the Board of
Directors shall effect its own organization by the appointment of a Secretary
and such other officers, except the Chairman, as it may deem necessary. The
Secretary of the Executive committee shall be the Secretary of the Corporation,
but the Secretary of the Audit Committee and of any other committee need not be
the Secretary of the Corporation. A record of the proceedings of all committees
shall be kept by the Secretary of such committee and filed and presented as
provided in Section 209 of these Bylaws.
ARTICLE IV. OFFICERS.
SECTION 401. Officers. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Chairman of the Board, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers and assistant
officers as the Board of Directors may from time to time deem advisable. Except
for the Chief Executive Officer, President, Secretary and Treasurer, the Board
may refrain from filling any of the said offices at any time and from time to
time. The same individual may hold any two or more offices. Any officer may be
removed at any time, with or without cause, and regardless of the term for which
such officer was elected, but without prejudice to any contract right of such
officer.
SECTION 402. Chief Executive Officer. The Chief Executive Officer shall
have general supervision of all of the departments and business of the
Corporation; he shall prescribe the duties of the other officers and employees
and see to the proper performance thereof. The Chief Executive Officer shall be
responsible for having all orders and resolution of the Board of Directors
carried into effect. The Chief Executive Officer shall execute on behalf of the
Corporation and may affix or cause to be affixed a seal to all authorized
documents and instruments requiring such execution, except to the extent that
signing and execution thereof shall have been delegated to some other officers
or agent of the Corporation by the Board of Directors or by the Chief Executive
Officer. The Chief Executive Officer shall be a member of the Board of
Directors. In the absence or disability of the Chairman of the Board or his
refusal to act, the Chief Executive Officer shall preside at meetings of the
Board. In general, the Chief Executive Officer shall perform all the duties and
exercise all the powers and authorities incident to his office or as prescribed
by the Board of Directors.
SECTION 403. President. The President shall perform all duties as are
incident to his office or prescribed by the Board of Directors or the Chief
Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or his refusal to act, the President shall perform the duties
and have the powers and authorities of the Chief Executive Officer. The
President shall execute on behalf of the Corporation and may affix or cause to
be affixed a seal to all authorized documents and instruments requiring such
execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or the President. The President shall be a member of the Board of
Directors. In the absence or disability of the Chairman of the Board and the
Chief Executive Officer or their refusal to act, the President shall preside at
meetings of the Board.
<PAGE>
SECTION 404. Chairman of the Board. The Chairman of the Board shall be a
member of the Board of Directors and shall preside at the meetings of the Board
and perform such other duties as may be prescribed by the Board of Directors.
SECTION 405. Vice Presidents. The Vice Presidents shall perform such
duties, do such acts and be subject to such supervision as may be prescribed by
the Board of Directors, the Chief Executive Officer or the President. In the
event of the absence or disability of the Chief Executive Officer or President
or their refusal to act, the Vice Presidents, in the order of their rank, and
within the same rank in the order of their seniority, shall perform the duties
and have the powers and authorities of the Chief Executive Officer and
President, except to the extent inconsistent with applicable law.
SECTION 406. Secretary. The Secretary shall act under the supervision of
the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. Unless a designation to the
contrary is made at a meeting, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for the purpose, and shall
perform like duties for the standing committees when required by these Bylaws or
otherwise. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors. The Secretary shall
keep a seal of the Corporation, and, when authorized by the Board of Directors,
the Chief Executive Officer or the President, cause it to be affixed to any
documents and instruments requiring it. The Secretary shall perform such other
duties as may be prescribed by the Board of Directors, Chief Executive Officer,
President or such other supervising officer as the Chief Executive Officer or
President may designate.
SECTION 407. Treasurer. The Treasurer shall act under the supervision of
the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. The Treasurer shall have custody
of the Corporation's funds and such other duties as may be prescribed by the
Board of Directors, Chief Executive Officer, President or such other supervising
officer as the Chief Executive Officer or President may designate.
SECTION 408. Assistant Officers. Unless otherwise provided by the Board of
Directors, each assistant Officer shall perform such duties as shall be
prescribed by the Board of Directors, the Chief Executive Officer, the President
or the officer to whom he is an assistant. In the event of the absence or
disability of an officer or his refusal to act, his assistant officers shall, in
the order or their rank, and within the same rank in order of their seniority,
have the powers and authorities of such officer.
SECTION 409. Compensation. Unless otherwise provided by the Board of
Directors, the salaries and compensation of all officers and assistant officers
shall be fixed by or in the manner designated by the Board of Directors.
SECTION 410. General Powers. The officers are authorized to do and perform
such corporate acts as are necessary in the carrying on of the business of the
Corporation, subject always to the directions of the Board of Directors.
<PAGE>
ARTICLE V. INDEMNIFICATION.
SECTION 501. Mandatory Indemnification. The Corporation shall indemnify to
the full extent permitted by Section 14A:3-5 of the New Jersey Business
Corporation Act every person who is or was a director or officer of: (a) the
Corporation; (b) any other enterprise, if serving as such at the request of the
Corporation; or (c) the legal representative of any officer or director
described in clause (a) or (b) hereof.
SECTION 502. Discretionary Indemnification. In all situation in which
indemnification is not mandatory under Section 501 hereof; the Corporation may
to the full extent permitted by Section 14A:3-5 of the New Jersey Business
Corporation Act, as amended from time to time, indemnify all persons whom it is
empowered to indemnify pursuant thereto provided, however, that the
Corporation's exercise of indemnification powers under this Section 502 is
limited by and conditioned upon the Board of Directors' determination that to
provide such indemnification would be in the best interests of the Corporation.
The Board of Directors' determination whether to provide indemnification shall
be conclusive in the absence of clear and convincing evidence of bad faith.
ARTICLE VI. SHARES OF CAPITAL STOCK.
SECTION 601. Authority to Sign Share Certificates. Every share certificate
of the Corporation shall be signed by the Chief Executive Officer or the
President and by the Secretary or one of the Assistant Secretaries. If the
certificate is signed by a transfer agent or registrar, the signature of any
officer of the Corporation on the certificate may be facsimile, engraved or
printed.
SECTION 602. Lost or Destroyed Certificates. Any person claiming a share
certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such person shall have: (a) requested such
replacement certificate before the Corporation has notice that the shares have
been acquired by a bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the Board of
Directors, or the Chief Executive Officer or the President or the Secretary; and
(c) satisfied any other reasonable requirements (including providing an
affidavit and a surety bond) fixed by the board of Directors, or the Chief
Executive Officer, or the President or the Secretary.
ARTICLE VII. GENERAL.
SECTION 701. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of January in each year and end of the thirty-first day of
December in each year.
SECTION 702. Emergency Bylaws. In the event of any emergency resulting from
a nuclear attack or similar disaster, and during the continuance of such
emergency, the following Bylaw provisions shall be in effect, notwithstanding
any other provisions of these Bylaws:
(a) A meeting of the Board of Directors or of any committee
thereof may be called by an officer or director upon one hour's notice to all
persons entitled to notice whom,
<PAGE>
in the sole judgment of the notifier, it is feasible to notify;
(b) The director or directors in attendance at the meeting of
the Board of Directors or of any committee thereof shall constitute a quorum;
and
(c) These Bylaws may be amended or repealed, in whole or in part,
by a majority vote of the directors attending any meeting of the Board of
Directors, provided such amendment or repeal shall only be effective for the
duration of such emergency.
SECTION 703. Severability. If any provision of these Bylaws is illegal or
unenforceable as such, such illegality or uneforecability shall not affect any
other provision of these Bylaws and such other provisions shall continue in full
force and effect.
ARTICLE VIII. AMENDMENT OR REPEAL
SECTION 801. Amendment or Repeal by the Board of Directors. These Bylaws
may be amended or repealed, in whole or in part, by a majority vote of members
of the Board of Directors at any regular or special meeting of the Board duly
convened. Notice need not be given of the purpose of the meeting of the Board of
Directors at which the amendment or repeal is to be considered.
SECTION 802. Amendment or Repeal by Shareholders. These Bylaws may be
amended or repealed, in whole or in part, by a vote of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast thereon at any annual or special meeting of the shareholders duly convened
after notice to the shareholders of that purpose.
SECTION 803. Recording Amendments and Repeals. The text of all amendments
and repeals to these Bylaws shall be attached to the Bylaws with a notation of
the date of each such amendment or repeal and notation of whether such amendment
or repeal was adopted by the Board of Directors or the shareholders.
ARTICLE IX. APPROVAL OF AMENDED BYLAWS AND RECORD OF
AMENDMENTS AND REPEALS.
SECTION 901. Approval and Effective Date. These Bylaws have been approved
as the Bylaws of the Corporation this 21st day of January, 1985, and shall be
effective as of said date.
SECTION 902. Amendments or Repeals.
Date Amended
Section Involved Or Repealed Approved By
EXHIBIT 4
SPECIMEN OF STOCK CERTIFICATE
<PAGE>
================================================================================
CERTIFICATE NO. SUN BANCORP, INC. SHARES
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEW JERSEY CUSIP 86663B 10 2
1,000,000 SHARES 10,000,000 SHARES
PREFERRED STOCK COMMON STOCK
Par Value $1.00 per Share Par Value $1.00 Per Share
THIS CERTIFIES THAT________________________________________is the owner of
__________________________________________________________shares of the COMMON
STOCK of SUN BANCORP, INC., fully paid and non-assessable, transferable only on
the books of the Corporation in person or by Attorney upon surrender of this
Certificate properly endorsed.
The Corporation will furnish to any shareholder, upon request and without
charge, a full statement of the designations, relative rights, preferences and
limitations of the shares of each class and series authorized to be issued.
IN WITNESS WHEREOF the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___________________________________________________________________
day of______________________________________A.D. 19______.
- ----------------------------------------- -----------------------------------
SECRETARY PRESIDENT
================================================================================
<PAGE>
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under applicable state securities laws,
and accordingly may not be transferred without an effective registration
statement under the Securities Act of 1933, as amended, and under applicable
state securities laws or an opinion of counsel satisfactory to the Corporation,
that the transfer does not violate applicable securities laws or require
registration, under any such laws, of the Corporation or any class of its
securities or the transaction."
The following abbreviations, when used in the Inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - .Custodian.....under
TENENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Uniform Gifts to Minors Act........
survivorship and not as tenants (State)
in common
Additonal abbreviations may also be used though not in the above list
For Value Received - hereby sell assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
=============================
=============================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint ______________________________________________Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated_______________, 19_____
In presence of
- ---------------------------------- -----------------------------
Notice: The signature of this assignment must correspond with the name
as written upon the face of the certificate in every particular without
alteration or enlargement or any change whatever.
EXHIBIT 10
THE 1995 STOCK OPTION PLAN
<PAGE>
CITIZENS INVESTMENTS, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF PLAN:
The purpose of the 1995 Stock Option Plan (the "Plan") contained herein
is to provide additional incentive to employees of Citizens Investments, Inc.
("CITIZENS") and each present or future CITIZENS subsidiary corporation by
encouraging them to invest in shares of CITIZENS Common Stock, and thereby to
acquire a proprietary interest in the business of CITIZENS and each present or
future CITIZENS subsidiary corporation and an increased personal interest in
their continued success and progress, to the mutual benefit of employees and
stockholders.
2. AGGREGATE NUMBER OF SHARES:
One Hundred Thousand (100,000) shares of CITIZENS Common Stock (par
value $1 per share) shall be the aggregate number of shares which may be issued
under this Plan. Notwithstanding the foregoing, in the event of any change in
the outstanding shares of CITIZENS Common Stock by reason of a stock dividend,
stock split, combination of shares, recapitalization, merger, consolidation,
transfer of assets, reorganization, conversion, or other event that the
Executive Compensation Committee, hereinafter defined, deems in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under this Plan shall be approximately adjusted in a manner
determined in the sole discretion of the Executive Compensation Committee.
Reacquired shares of CITIZENS Common Stock as well as unissued shares may be
used for the purpose of this Plan. Shares of CITIZENS Common Stock subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. CLASS OF EMPLOYEES ELIGIBLE TO RECEIVE OPTIONS:
All officers and key employees of CITIZENS and of any present and future
CITIZENS subsidiary corporation are eligible to receive an option or options
under this Plan. The officers and key employees who shall, in fact, receive an
option or options shall be selected by the Executive Compensation Committee
hereinafter referred to, in its sole discretion, except as otherwise specified
in Section 4 hereof.
4. ADMINISTRATION OF PLAN:
(a) This Plan shall be administered by an Executive Compensation
Committee (the "Committee") appointed by the CITIZENS Board of Directors. The
Committee shall consist of a minimum of three and a maximum of seven members of
the CITIZENS Board of Directors. The Committee shall, in addition to its other
authority and subject to the provisions of this Plan, have authority in its sole
discretion to determine who are the officers and key employees of
<PAGE>
CITIZENS and each present and future CITIZENS subsidiary corporation eligible to
receive options under this Plan, which officers and key employees shall in fact
be granted an option or options, whether the option shall be an incentive stock
option or a non-qualified stock option, the time or times at which the options
shall be granted, the rate of option exercisability, and, subject to Section 5
hereof, the price at which each of the options is exercisable and the duration
of the option.
(b) The Committee shall adopt such rules for the conduct of its business
and administration of this Plan as it considers desirable. A majority of the
members of the Committee shall constitute a quorum for all purposes. The vote or
written consent of a majority of the members of the Committee on a particular
matter shall constitute the act of the Committee on such matter. The Committee
shall have the exclusive right to construe the Plan and the options issued
pursuant to it, correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan and the options issued pursuant
to it, and such action shall be final, binding and conclusive upon all parties
concerned. No member of the Committee or the Board of Directors shall be liable
for any act or omission (whether or not negligent) taken or omitted in good
faith, or for the exercise of an authority or discretion granted in connection
with this Plan to the Committee or the Board of Directors, or for the acts or
omissions of any other members of the Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors if it so desires.
5. INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS:
(a) Options issued pursuant to this Plan may be either incentive stock
options granted pursuant to Section 5(b) hereof or nonqualified stock options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"incentive stock option" is an option which satisfies all of the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder, and a nonqualified stock option is an option which
does not satisfy all of those requirements. The Committee may grant both an
incentive stock option and a nonqualified stock option to the same person, or
more than one of each type of option to the same person. The option price for
both incentive stock options and nonqualified stock options issued under this
Plan shall equal at least the fair market value of the CITIZENS Common Stock as
of the date of the grant of the option, such fair market value being determined
by the Committee in accordance with its interpretation of the requirements of
Section 422 of the Code and the regulations thereunder.
(b) Incentive stock options issued pursuant to this Plan shall be issued
substantially in the form set forth in Appendix I hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially all of the terms and conditions set forth therein. Incentive stock
options shall expire ten years after the date they are granted, unless
terminated earlier under the option terms. Notwithstanding other provisions
hereof, the
2
<PAGE>
aggregate fair market value (determined as of the time an incentive stock option
is granted) of the stock for which any employee may be granted incentive stock
options in any calendar year (under all incentive stock option plans, as defined
in Section 422 of the Code, of CITIZENS or any present or future parent or
subsidiary of CITIZENS) shall not exceed $100,000. At the time of granting an
incentive stock option hereunder, the Committee may, in its discretion, modify
or amend any of the option terms contained in Appendix I for any particular
optionee, provided that the option as modified or amended continues to be an
incentive stock option. Each of the options granted pursuant to this Section
5(b) is intended, if possible, to be an "incentive stock option" as that term is
defined in Section 422 of the Code and the regulations thereunder. In the event
this Plan or any option granted pursuant to this Section 5(b) is any way
inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an incentive stock option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Nonqualified stock options issued pursuant to this Plan shall be
issued substantially in the form set forth in Appendix II hereof, which form is
hereby incorporated by reference and made a part hereof, and shall contain
substantially all of the terms and conditions set forth therein. Nonqualified
stock options shall expire ten years and ten days after the date they are
granted, unless terminated earlier under the option terms. At the time of
granting a nonqualified stock option hereunder, the Committee may, in its
discretion, modify or amend any of the option terms contained in Appendix II for
any particular optionee, provided that the option as modified or amended does
not expire more than ten years and ten days from the date of its grant and the
option price is not less than the fair market value of the CITIZENS Common Stock
as of the date of such grant.
(d) Neither CITIZENS nor any present or future CITIZENS affiliated or
subsidiary corporation, nor their officers, directors, stockholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event an option granted pursuant to Section 5(b) hereof does not
qualify as an "incentive stock option" as that term is used in Section 422 of
the Code and the regulations thereunder, or in the event any optionee does not
obtain the tax benefits of such an incentive stock option, or in the event any
option granted pursuant to Section 5(c) hereof is an "incentive stock option."
6. MODIFICATION, AMENDMENT, SUSPENSION AND TERMINATION:
Options shall not be granted pursuant to this Plan after the expiration
of ten years from and after the date of the adoption of the Plan by the CITIZENS
Board of Directors. The Board of Directors reserves the right at any time, and
from time to time, to modify or amend this Plan in any way, or to suspend or
terminate it, effective as of such date, which date may be either before or
after the taking of such action, as may be specified by the Board of Directors;
PROVIDED, HOWEVER, that such action shall not affect options granted under the
Plan prior to the actual date on which such action occurred. If a modification
or amendment of this Plan is required by the Code or the regulations thereunder
to be approved by the stockholders of
3
<PAGE>
CITIZENS in order to permit the granting of "incentive stock options" (as that
term is defined in Section 422 of the Code and regulations thereunder) pursuant
to the modified or amended Plan, such modification or amendment shall also be
approved by the stockholders of CITIZENS in such manner as is prescribed by the
Code and the regulations thereunder. If the Board of Directors voluntarily
submits a proposed modification, amendment, suspension or termination for
stockholder approval, such submission shall not require any future
modifications, amendments (whether or not relating to the same provision or
subject matter), suspensions or terminations to be similarly submitted for
shareholder approval.
7. EFFECTIVENESS OF PLAN:
This Plan shall become effective on the date of its adoption by the
CITIZENS Board of Directors subject, however, to approval by the stockholders of
CITIZENS in such manner as is prescribed by the Code and the regulations
thereunder. Options may be granted under this Plan prior to obtaining such
approval, provided such options shall not be exercisable until such approval is
obtained.
8. GENERAL CONDITIONS:
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
CITIZENS or any present or future CITIZENS affiliated and subsidiary
corporation, or interfere in any way with the rights of CITIZENS and any
CITIZENS affiliated or subsidiary corporation to terminate his employment in any
way.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall be deemed
completed as of the date when the Committee authorizes the grant of the option
to the employee, regardless of when the option is actually delivered to the
employee or acknowledged or agreed to by him.
(c) The term "subsidiary corporation" as used throughout this Plan, and
the options granted pursuant to this Plan, shall (except as otherwise provided
in the option form) have the meaning that is ascribed to that term by
subsections 424(f) and (g) of the Code, and CITIZENS shall be deemed to be the
grantor corporation for purposes of applying such meaning.
(d) References in this Plan to the Code shall be deemed to also refer to
the corresponding provisions of any amendments thereto and to any future United
States revenue law.
(e) The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
4
<PAGE>
APPENDIX I
1995 STOCK OPTION PLAN
INCENTIVE STOCK OPTION
TO:____________________________________________________________________________
NAME
____________________________________________________________________________
ADDRESS
DATE:_____________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________________ shares of Common Stock (par value $1 per share) of
Citizens Investments, Inc. ("CITIZENS") at a price of $_________ per share,
pursuant to the CITIZENS 1995 Stock Option Plan (the "Plan") adopted by the
CITIZENS Board of Directors effective ___________________ ____, 1995. Your
option price is intended to equal at least the fair market value of the CITIZENS
Common Stock as of the date hereof.
Your option may first be exercised on and after one year from the date
of its grant, but not before that time. On and after one year and prior to two
years from the date of its grant, your option may be exercised for up to 50% of
the total number of shares then subject to the option. On and after two years
and prior to ten years from the date of its grant, your option may be exercised
for up to 100% of the total number of shares then subject to the option minus
the number of shares previously purchased by exercise of the option (as adjusted
for stock dividends, stock splits, combinations of shares, recapitalizations and
other event that the Committee deems in its sole discretion to be similar
circumstances). No fractional shares shall be issued or delivered. This option
shall terminate and is not exercisable after the expiration of ten years from
the date of its grant or five years if you are deemed to own (pursuant to the
provisions of Section 422 of the Code) more than 10% of the outstanding stock of
CITIZENS as of the date hereof.
You may exercise your option by giving written notice to the Secretary
of CITIZENS on forms supplied by CITIZENS at CITIZENS' then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (i) cash, which may be evidenced by a check; (ii) certificates
representing shares of Common Stock of CITIZENS; or (iii) any combination of
cash and shares of CITIZENS' Common Stock. CITIZENS Common Stock utilized in
full or partial payment of the option exercise price shall be valued, by the
Committee (as such term is defined in the Plan), at its fair market value on the
date of such exercise. Any assignment of stock shall be in a form and substance
satisfactory to the Secretary of CITIZENS, including guarantees of signature(s)
where he deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by CITIZENS or a
CITIZENS subsidiary corporation
<PAGE>
is terminated other than by reason of permanent and total disability as defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"), or death (but in no event later than ten years from the date this
option is granted), whether such termination be voluntary or not. After the date
your employment is terminated, as aforesaid, you may exercise this option only
for the number of shares which you had a right to purchase and did not purchase
on the date your employment terminated. If you are employed by a CITIZENS
subsidiary corporation, your employment shall be deemed to have terminated on
the date your employer ceases to be a CITIZENS subsidiary corporation, unless
you are on that date transferred to CITIZENS or another CITIZENS subsidiary
corporation. Your employment shall not be deemed to have terminated if you are
transferred from CITIZENS to a CITIZENS subsidiary corporation, or vice versa,
or from one CITIZENS subsidiary corporation to another CITIZENS subsidiary
corporation.
If you die while employed by CITIZENS or a CITIZENS subsidiary
corporation, your executor or administrator may, at any time within one year
after the date of your death (but in no event later than ten years from the date
this option is granted), exercise the option as to any shares which you had a
right to purchase and did not purchase during your lifetime. If your employment
by CITIZENS or a CITIZENS subsidiary corporation is terminated by reason of your
becoming permanently and totally disabled (within the meaning of Section
22(e)(3) of the Code), you or your legal guardian or custodian may at anytime
within one year after the date of such termination (but in no event later than
ten years from the date this option is granted), exercise the option as to any
shares which you had a right to purchase and did not purchase prior to such
termination. Your executor, administrator, guardian or custodian must present
evidence of his or her authority satisfactory to CITIZENS prior to being allowed
to exercise this option.
In the event of any change in the outstanding shares of CITIZENS Common
Stock by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or other event that the Committee deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price for such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Committee.
This option is not transferable, except in the event of disability or
death as provided above. During your lifetime, this option is exercisable only
by you. Until the option price has been paid in full pursuant to due exercise of
this option and the purchased shares are delivered to you, you do not have any
rights as a stockholder of CITIZENS. CITIZENS reserves the right not to deliver
to you the shares purchased by virtue of the exercise of this option during any
period of time in which CITIZENS deems, in its sole discretion, that such
delivery may not be consummated without violating a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
2
<PAGE>
(1) Until the Plan pursuant to which this option is granted is approved
by the stockholders of CITIZENS in the manner prescribed by the Code and the
regulations thereunder;
(2) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as CITIZENS may deem necessary or desirable; or
(3) During any period of time in which CITIZENS deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause CITIZENS to be legally obligated to issue
or sell more shares than CITIZENS is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended
(the "1933 Act") and under applicable state securities laws, and shall continue
to be applicable for so long as such registration has not occurred:
A. The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock of CITIZENS to be issued hereunder for his own
respective account for investment purposes only, and not with a view to, or in
connection with, any resale or other distribution of any of such shares. The
optionee further agrees that he will not at any time make any offer, sale,
transfer, pledge or other disposition of such Common Stock to be issued
hereunder without an effective registration statement under the 1933 Act and
under any applicable state securities laws or an opinion of counsel for CITIZENS
to the effect that the proposed transaction will be exempt from such
registration. The optionee agrees that, as a condition precedent to CITIZENS'
obligation to permit the exercise of this option, the optionee shall execute
such instruments, representations, acknowledgements and agreements as CITIZENS
may, in its sole discretion, deem advisable to avoid any violation of federal,
state, local or securities exchange rule, regulation or law.
B. The certificates for Common Stock to be issued to the optionee hereunder
shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (as amended) or under
applicable state securities laws. The shares have been acquired
for investment and may not be offered, sold, transferred, pledged
or otherwise disposed of without an effective registration
statement under the Securities Act of 1933 (as amended) and under
any applicable state securities laws or an opinion of counsel for
Citizens Investments, Inc. that the proposed transaction will be
exempt from such registration."
3
<PAGE>
The foregoing legend shall be removed upon registration of the legended shares
under the 1933 Act and under any applicable state laws or upon receipt of any
opinion of counsel for CITIZENS that said registration is no longer required.
The sole purpose of the agreements, warranties representations and
legend set forth in the two preceding paragraphs is to prevent violations of the
1933 Act and any applicable state securities laws.
It is the intention of CITIZENS and you that this option shall (if
possible) be an "incentive stock option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "incentive stock option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between CITIZENS and you with respect to the subject matter hereof
and no amendment, modification or waiver of this option, in whole or in part,
shall be binding upon CITIZENS unless in writing and signed by the President and
Chief Executive Officer of CITIZENS. This option and the performance of the
parties hereunder shall be construed in accordance with and governed by the laws
of the State of New Jersey.
4
<PAGE>
Please sign the copy of this option and return it to CITIZENS'
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
CITIZENS INVESTMENTS, INC.
By:_________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and, having read it hereby signify my understanding of, and my agreement with,
its terms and conditions.
_____________________________________________ (SEAL)_______________________
(SIGNATURE) (DATE)
5
<PAGE>
APPENDIX II
1995 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION
TO:____________________________________________________________________________
NAME
____________________________________________________________________________
ADDRESS
DATE:___________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________________ shares of Common Stock (par value $1 per share) of
Citizens Investments, Inc. ("CITIZENS") at a price of ____________ per share
pursuant to the CITIZENS 1995 Stock Option Plan (the "Plan") adopted by the
CITIZENS Board of Directors effective __________________ _____, 1995. Your
option price is intended to equal at least the fair market value of the CITIZENS
Common Stock as of the date hereof.
Your option may first be exercised on and after one year from the date
of its grant, but not before that time. On and after one year and prior to two
years from the date of its grant, your option may be exercised for up to 50% of
the total number of shares then subject to the option. On and after two years
and prior to ten years and ten days from the date of its grant, your option may
be exercised for up to 100% of the total number of shares then subject to the
option minus the number of shares previously purchased by exercise of the option
(as adjusted for stock dividends, stock splits, combinations of shares,
recapitalizations and other event that the Committee deems in its sole
discretion to be similar circumstances). No fractional shares shall be issued or
delivered. This option shall terminate and is not exercisable after the
expiration of ten years and ten days from the date of its grant.
You may exercise your option by giving written notice to the Secretary
of CITIZENS on forms supplied by CITIZENS at CITIZENS' then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (i) cash, which may be evidenced by a check; (ii) certificates
representing shares of Common Stock of CITIZENS; or (iii) any combination of
cash and shares of CITIZENS' Common Stock. CITIZENS Common Stock utilized in
full or partial payment of the option exercise price shall be valued, by the
Committee (as such term is defined in the Plan), at its fair market value on the
date of exercise. Any assignment of stock shall be in a form and substance
satisfactory to the Secretary of CITIZENS, including guarantees of signature(s)
where he deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by CITIZENS or a
CITIZENS subsidiary corporation
1
<PAGE>
is terminated other than by reason of permanent and total disability as defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"), or death (but in no event later than ten years and ten days from the
date this option is granted), whether such termination be voluntary or not.
After the date your employment is terminated, as aforesaid, you may exercise
this option only for the number of shares which you had a right to purchase and
did not purchase on the date your employment terminated. If you are employed by
a CITIZENS subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a CITIZENS subsidiary
corporation, unless you are on that date transferred to CITIZENS or another
CITIZENS subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from CITIZENS to a CITIZENS subsidiary
corporation, or vice versa, or from one CITIZENS subsidiary corporation to
another CITIZENS subsidiary corporation.
If you die while employed by CITIZENS or a CITIZENS subsidiary
corporation, your executor or administrator may, at any time within one year
after the date of your death (but in no event later than ten years and ten days
from the date this option is granted), exercise the option as to any shares
which you had a right to purchase and did not purchase during your lifetime. If
your employment by CITIZENS or a CITIZENS subsidiary corporation is terminated
by reason of your becoming permanently and totally disabled (within the meaning
of Section 22(e)(3) of the Code), you or your legal guardian or custodian may at
anytime within one year after the date of such termination (but in no event
later than ten years and ten days from the date this option is granted),
exercise the option as to any shares which you had a right to purchase and did
not purchase prior to such termination. Your executor, administrator, guardian
or custodian must present evidence of his authority satisfactory to CITIZENS
prior to being allowed to exercise this option.
In the event of any change in the outstanding shares of CITIZENS Common
Stock by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or other event that the Committee deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price for such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Committee.
This option is not transferable, except in the event of disability or
death as provided above. During your lifetime, this option is exercisable only
by you. Until the option price has been paid in full pursuant to due exercise of
this option and the purchased shares are delivered to you, you do not have any
rights as a stockholder of CITIZENS. CITIZENS reserves the right not to deliver
to you the shares purchased by virtue of the exercise of this option during any
period of time in which CITIZENS deems, in its sole discretion, that such
delivery may not be consummated without violating a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
2
<PAGE>
(1) Until the Plan pursuant to which this option is granted is approved
by the stockholders of CITIZENS in the manner prescribed by the Code and the
regulation thereunder;
(2) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as CITIZENS may deem necessary or desirable; or
(3) During any period of time in which CITIZENS deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause CITIZENS to be legally obligated to issue
or sell more shares than CITIZENS is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended
(the "1933 Act") and under applicable state securities laws, and shall continue
to be applicable for so long as such registration has not occurred:
A. The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock of CITIZENS to be issued hereunder for his own
respective account for investment purposes only, and not with a view to, or in
connection with, any resale or other distribution of any of such shares. The
optionee further agrees that he will not at any time make any offer, sale,
transfer, pledge or other disposition of such Common Stock to be issued
hereunder without an effective registration statement under the 1933 Act and
under any applicable state securities laws or an opinion of counsel for CITIZENS
to the effect that the proposed transaction will be exempt from such
registration. The optionee agrees that, as a condition precedent to CITIZENS'
obligation to permit the exercise of this option, the optionee shall execute
such instruments, representations, acknowledgements and agreements as CITIZENS
may, in its sole discretion, deem advisable to avoid any violation of federal,
state, local or securities exchange rule, regulation or law.
B. The certificates for CITIZENS Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (as amended) or under
applicable state securities laws. The shares have been acquired
for investment and may not be offered, sold, transferred, pledged
or otherwise disposed of without an effective registration
statement under the Securities Act of 1933 (as amended) and under
any applicable state securities laws or an opinion of counsel for
Citizens Investments, Inc. that the proposed transaction will be
exempt from such registration."
3
<PAGE>
The foregoing legend shall be removed upon registration of the legended shares
under the 1933 Act and under any applicable state laws or upon receipt of any
opinion of counsel for CITIZENS that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two preceding paragraphs is to prevent violations of the
1933 Act and any applicable state securities laws.
It is the intention of CITIZENS and you that this option shall not be an
"incentive stock option" as that term is used in Section 422 of the Code and the
regulations thereunder.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between CITIZENS and you with respect to the subject matter hereof
and no amendment, modification or waiver of this option, in whole or in part,
shall be binding upon CITIZENS unless in writing and signed by the President and
Chief Executive Officer of CITIZENS. This option and the performances of the
parties hereunder shall be construed in accordance with and governed by the laws
of the State of New Jersey.
4
<PAGE>
Please sign the copy of this option and return it to CITIZENS'
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
CITIZENS INVESTMENTS, INC.
By:_________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and, having read it hereby signify my understanding of, and my agreement with,
its terms and conditions.
_______________________________________ (SEAL)_____________________________
(SIGNATURE) (DATE)
5
EXHIBIT 21
SUBSIDIARIES OF SUN BANCORP, INC.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
PARENT
Sun Bancorp, Inc.
Percentage State of
Subsidiaries Owned Incorporation
- ------------ ---------- ---------------
Sun National Bank (a) 100% United States
Med-Vine, Inc. (a)(b) 100% Delaware
__________________________
(a) The operations of this subsidiary are included in the consolidated
financial statements contained in Item 13 to the Form 10 Registration
Statement.
(b) Med-Vine, Inc. is a wholly owned subsidiary of Sun National Bank.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CAPTION>
<S> <C> <C>
<PERIOD-TYPE> 3-mos year
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 14,805 17,242
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 8,280 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 129,756 147,009
<INVESTMENTS-CARRYING> 129,756 147,009
<INVESTMENTS-MARKET> 129,756 147,009
<LOANS> 203,306 185,698
<ALLOWANCE> 1,960 2,065
<TOTAL-ASSETS> 377,202 369,895
<DEPOSITS> 351,075 335,248
<SHORT-TERM> 462 8,000
<LIABILITIES-OTHER> 1,885 1,976
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 1,651 1,651
<OTHER-SE> 22,129 23,020
<TOTAL-LIABILITIES-AND-EQUITY> 377,202 369,895
<INTEREST-LOAN> 4,563 15,101
<INTEREST-INVEST> 1,861 5,286
<INTEREST-OTHER> 30 463
<INTEREST-TOTAL> 6,454 20,850
<INTEREST-DEPOSIT> 2,556 7,640
<INTEREST-EXPENSE> 2,597 7,687
<INTEREST-INCOME-NET> 3,857 13,163
<LOAN-LOSSES> 225 808
<SECURITIES-GAINS> 160 377
<EXPENSE-OTHER> 3,130 10,047
<INCOME-PRETAX> 1,005 3,959
<INCOME-PRE-EXTRAORDINARY> 1,005 3,959
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 669 2,819
<EPS-PRIMARY> 0.36 1.53
<EPS-DILUTED> 0.36 1.53
<YIELD-ACTUAL> 4.73 5.30
<LOANS-NON> 1,870 2,658
<LOANS-PAST> 736 545
<LOANS-TROUBLED> 0 0
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<ALLOWANCE-OPEN> 2,065 1,607
<CHARGE-OFFS> 335 426
<RECOVERIES> 5 76
<ALLOWANCE-CLOSE> 1,960 2,065
<ALLOWANCE-DOMESTIC> 1,635 1,870
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<ALLOWANCE-UNALLOCATED> 325 195
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