UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- -----------------------
Commission file number 0 - 20957
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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)
226 Landis Avenue, Vineland, New Jersey 08360
---------------------------------------------
(Address of principal executive offices)
(Zip Code)
(609) 691 - 7700
----------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<C> <C> <C>
$ 1.00 Par Value Common Stock 1,852,906 May 10, 1997
- ----------------------------- --------- ---------------
Class Number of shares outstanding Date
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Cash and due from banks $ 18,172,212 $ 17,006,758
Federal funds sold - 4,800,000
------------- -------------
Cash and cash equivalents 18,172,212 21,806,758
Investment securities available for sale (amortized cost -
$97,758,919; 1997 and $97,063,398; 1996) 95,135,252 95,581,384
Loans receivable (net of allowance for loan losses -
$2,966,948; 1997, and $2,595,312; 1996) 319,698,907 295,500,668
Bank properties and equipment 12,264,214 12,222,507
Real estate owned, net 537,650 755,628
Accrued interest receivable 3,686,943 2,850,399
Excess of cost over fair value of assets acquired 5,158,554 5,365,218
Deferred taxes 1,633,697 1,070,535
Other assets 2,763,780 1,641,959
------------- -------------
TOTAL $ 459,051,209 $ 436,795,056
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $371,265,863 $385,986,905
Advances from the Federal Home Loan Bank 16,798,305 10,000,000
Loan payable 6,000,000
Federal funds purchased 10,000,000
Securities sold under agreements to repurchase 6,679,416 5,253,048
Other liabilities 1,937,743 2,140,527
------------- -------------
Total liabilities 406,681,327 409,380,480
------------- -------------
Guaranteed preferred beneficial interest in subordinated debt 25,000,000
SHAREHOLDERS' EQUITY
Preferred stock, none issued - -
Common stock, $1 par value, 10,000,000 shares authorized,
issued and outstanding: 1,851,260 in 1997; and 1,848,929 in 1996; 1,851,260 1,848,929
Surplus 18,151,588 18,124,359
Retained earnings 9,098,654 8,419,417
Net unrealized loss on securities available for sale, net of income taxes (1,731,620) (978,129)
------------- -------------
Total shareholders' equity 27,369,882 27,414,576
------------- -------------
TOTAL $ 459,051,209 $ 436,795,056
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
1
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1997 1996
---- ----
(Unaudited)
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $6,922,049 $4,562,619
Interest on investment securities 1,329,573 1,860,781
Interest on federal funds sold 867 30,313
---------- ----------
Total interest income 8,252,489 6,453,713
---------- ----------
INTEREST EXPENSE:
Interest on deposits 3,192,527 2,555,989
Interest on short-term funds borrowed 433,238 40,978
Interest on guaranteed preferred beneficial interest in subordinated debt 97,225 -
---------- ----------
Total interest expense 3,722,990 2,596,967
---------- ----------
Net interest income 4,529,499 3,856,746
PROVISION FOR LOAN LOSSES 420,000 225,000
---------- ----------
Net interest income after provision for loan losses 4,109,499 3,631,746
---------- ----------
OTHER INCOME:
Service charges on deposit accounts 318,159 240,767
Other service charges 16,878 18,004
Gain on sale of fixed assets 1,200 11,529
Gain on sale of investment securities 5,303 159,804
Other 66,057 72,210
---------- ----------
Total other income 407,597 502,314
---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 1,746,802 1,496,645
Occupancy expense 349,358 395,005
Equipment expense 238,464 170,456
Professional fees and services 56,692 74,897
Data processing expense 386,087 251,136
Amortization of excess of cost over
fair value of assets acquired 206,664 206,675
Postage and supplies 84,621 131,479
Insurance 76,369 32,714
Other 427,802 370,493
---------- ----------
Total other expenses 3,572,859 3,129,500
---------- ----------
INCOME BEFORE INCOME TAXES 944,237 1,004,560
INCOME TAXES 265,000 336,000
---------- ----------
NET INCOME $ 679,237 $ 668,560
========== ==========
Earnings per common and common equivalent share
Net income $ 0.35 $ 0.38
========== ==========
Earnings per common share - assuming full dilution
Net income $ 0.34 $ 0.38
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
2
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
Ended March 31,
---------------
1997 1996
---- ----
(Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 679,237 $ 668,560
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses 420,000 225,000
Depreciation and amortization 136,581 114,405
Amortization of excess cost over fair value of assets acquired 206,664 206,675
Gain on sale of investment securities available for sale (5,303) (159,804)
Gain on sale of bank properties and equipment (1,200) (11,529)
Deferred income taxes (175,000) 72,915
Change in assets and liabilities which (used) cash:
Accrued interest and other assets (1,958,365) (615,873)
Accounts payable and accrued expenses (202,784) (90,672)
------------ ------------
Net cash (used in) provided by operating activities (900,170) 409,677
------------ ------------
INVESTING ACTIVITIES:
Purchases of investment securities available for sale (2,584,787) (99,464,583)
Proceeds from maturities of investment securities available for sale 553 41,671,494
Proceeds from sale of investment securities available for sale 1,894,015 21,992,393
Proceeds from sale of mortgage-backed securities available for sale 50,850,000
Net increase in loans (24,618,239) (18,062,272)
Purchase of bank properties and equipment (178,288) (53,012)
Proceeds from sale of bank properties and equipment 1,200 11,529
Proceeds from guaranteed preferred beneficial interest in subordinated debt 25,000,000
Decrease in real estate owned, net 217,978 198,802
------------ ------------
Net cash used in investing activities (267,568) (2,855,649)
------------ ------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (14,721,042) 15,826,781
Net borrowings under line of credit and repurchase agreements 18,224,674 462,305
Principal payments on borrowed funds (6,000,000) (8,000,000)
Proceeds from exercise of stock options 29,560 -
------------ ------------
Net cash (used in) provided by financing activities (2,466,808) 8,289,086
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,634,546) 5,843,114
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,806,758 17,242,366
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,172,212 $ 23,085,480
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
3
<PAGE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The audited and unaudited consolidated financial statements contained
herein for Sun Bancorp, Inc. (the "Company") include the accounts of
Sun Bancorp, Inc. and its wholly-owned subsidiaries, Sun Capital
Trust (the "Trust"), 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 accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
However, all normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial
statements, have been included. These financial statements should be
read in conjunction with the audited financial statements and the
accompanying notes thereto included in the Company's Annual Report
for the period ended December 31, 1996. The results for the three
months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31,
1997.
(2) Loans
The components of loans as of March 31, 1997 and December 31, 1996
were as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
Commercial and industrial $ 246,158,041 $ 223,116,474
Real estate-residential mortgages 54,396,857 53,846,436
Installment 22,110,957 21,133,070
-------------- --------------
Total gross loans 322,665,855 298,095,980
Allowance for loan losses (2,966,948) (2,595,312)
-------------- --------------
Net Loans $ 319,698,907 $ 295,500,668
============== ==============
Non-accrual loans $ 1,359,836 $ 1,277,208
-------------- --------------
</TABLE>
4
<PAGE>
(3) Allowance For Loan Losses
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
For the three month
period ended For the year ended
March 31, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 2,595,312 $ 2,064,640
Charge-offs ( 54 ,127) (400,387)
Recoveries 5,763 31,059
------------ -----------
Net charge-offs ( 48,364) (369,328)
Provision for loan losses 420,000 900,000
------------ -----------
Balance, end of period $ 2,966,948 $ 2,595,312
============ ===========
</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 a 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, 1997 December 31, 1996
(Unaudited)
Impaired loans with related reserve for loan
losses calculated under SFAS No. 114 -- --
Impaired loans with no related reserve for loan
<S> <C> <C>
losses calculated under SFAS No. 114 $ 455,137 $ 584,114
------------ ----------
Total impaired loans $ 455,137 $ 584,114
============ ==========
</TABLE>
<TABLE>
<CAPTION>
For the three months For the year ended
ended March 31, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
Average impaired loans $ 464,095 $ 596,519
Interest income recognized on impaired loans -- $ 18,284
Cash basis interest income recognized on impaired loans $ 31,615 $ 15,414
</TABLE>
5
<PAGE>
(4) Deposits
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1996
(Unaudited)
<S> <C> <C>
Demand deposits $ 124,748,768 $ 133,624,391
Savings deposits 61,505,074 63,506,894
Time certificates under $100,000 152,784,438 151,615,202
Time certificates $100,000 or more 32,227,583 37,240,418
-------------- --------------
Total $ 371,265,863 $ 385,986,905
============== ==============
</TABLE>
Of the total demand deposits, approximately, $75,100,000 (unaudited)
and $76,500,000 are non-interest bearing at March 31, 1997 and
December 31, 1996.
(5) Guaranteed Preferred Beneficial Interest in Subordinated Debt
On March 17, 1997, Sun Capital Trust (the "Trust"), a statutory
business trust created under Delaware law that is a subsidiary of the
Company, issued $25 million, 9.85% Preferred Securities ("Preferred
Securities") with a stated value and liquidation preference of $25
per share. This Trust's obligations under the Preferred Securities
issued are fully and unconditionally guaranteed by the Company. The
proceeds from the sale of the Preferred Securities of the Trust were
utilized by the Trust to invest in $25 million of 9.85% Junior
Subordinated Debentures (the "Debentures") of the Company. The
Debentures are unsecured and rank subordinate and junior in right of
payment to all indebtedness, liabilities and obligations of the
Company. The Debentures represent the sole assets of the Trust.
Interest on the Preferred Securities is cumulative and payable
quarterly in arrears. The Company has the right to optionally redeem
the Debentures prior to the maturity date of March 31, 2027, on or
after March 31, 2002, at 100% of the stated liquidation amount, plus
accrued and unpaid distributions, if any, to the redemption date.
Under the occurrence of certain events, the Company may redeem in
whole, but not in part, the Debentures prior to March 31, 2002.
Proceeds from any redemption of the Debentures would cause a
mandatory redemption of the Preferred Securities and the common
securities having an aggregate liquidation amount equal to the
principal amount of the Debentures redeemed.
On April 9, 1997, the underwriters for the Preferred Securities
exercised their right to purchase an additional $3,750,000 of the
Preferred Securities on the same terms as the original issuance to
cover over-allotments. The proceeds from the sale of the Preferred
Securities were utilized by the Trust to invest in $3,750,000 of
Debentures of the Company.
On April 10, 1997, on behalf of the Trust, the Company requested
relief from the Office of Chief Counsel of the Division of
Corporation Finance of the Securities and Exchange Commission,
exempting the Trust from the reporting requirements of the Securities
Exchange Act of 1934. The Trust is a wholly-owned subsidiary of the
Company, has no independent operations and issued securities that
contained a full and unconditional guarantee of its parent, the
Company.
6
<PAGE>
(6) Earnings Per Share
Earnings per share were calculated as follows:
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
For the Three Month Periods Ended For the Three Month Periods Ended
March 31, March 31,
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
Assumptions:
<S> <C> <C> <C> <C>
Net income for the period $ 679,235 $ 668,560 $ 679,235 $ 668,560
Average common shares outstanding 1,850,562 1,651,175 1,850,562 1,651,175
Dilutive options outstanding to purchase
equivalent shares 235,640 326,455 235,640 326,455
Average exercise price per share $ 11.00 $ 10.61 $ 11.00 $ 10.61
Estimated market value per common share
to be used $ 21.88 $ 17.00 $ 22.75 $ 17.00
Computations:
Application of assumed proceeds:
Towards repurchase of outstanding
common shares at applicable market value $ 2,592,983 $ 3,464,993 $ 2,592,983 $ 3,464,993
Adjustment of shares outstanding:
Actual average shares outstanding 1,850,562 1,651,175 1,850,562 1,651,175
Net additional shares issuable 117,131 122,632 121,663 122,632
------------ ------------ ------------ ------------
Adjusted shares outstanding 1,967,692 1,773,807 1,972,224 1,773,807
============ ============ ============ ============
Earnings per share: $ 0.35 $ 0.38 $ 0.34 $ 0.38
============ ============ ============ ============
</TABLE>
In February, 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share. This statement, which is effective
for fiscal years ending after December 15, 1997, will require an
institution to change the method by which it calculates its earnings
per share. Earlier application of this statement is not permitted,
however, pro forma earnings per share amounts computed using SFAS No.
128 is permitted.
The following pro forma information reflects the Company's earnings
per share calculation as if this statement was implemented:
For the Three Month Periods Ended
March 31,
1997 1996
---- ----
Earnings per share: $ 0.37 $ 0.40
======= =======
Earnings per share - assuming dilution $ 0.35 $ 0.38
======= =======
7
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total Assets at March 31, 1997 increased by $22.3 million to $459.1
million as compared to $436.8 million at December 31, 1996, representing growth
of about 5.1%. The increase was due to $24.2 million in loan growth, primarily
commercial loans, offset by a $4.8 million decrease in federal funds sold. The
increase in total assets was funded by an increase of $10.0 million in federal
funds purchased, $1.4 million of securities sold under agreements to repurchase,
$6.8 million in advances from the Federal Home Loan Bank and the issuance of $25
million of trust preferred securities. Deposit accounts decreased approximately
$14.7 million or 3.8% from $386.0 million at December 31, 1996 to $371.3 million
at March 31, 1997. The decrease was a result of decreases in demand deposits of
$8.9 million, savings deposits of $2.0 million and time certificates of deposit
of $100,000 or more of $5.0 million. These decreases were offset by an increase
in time certificates under $100,000 of $1.2 million. Of the demand deposit
decrease, $2.0 million was as a result of lower outstanding balances of official
checks (such as Cashier's checks, money orders, certified checks) and $5.1
million was from lower checking account balances of individuals, partnerships
and corporations. The decrease in certificates of deposit over $100,000 was a
result of increased competition for municipal deposit funds which priced those
deposits higher than the Company's alternative sources of funds.
At March 31, 1997, the $6.0 million loan payable at December 31, 1996
was repaid with a portion of the proceeds received from the sale of the Junior
Subordinated Debentures to the Company's subsidiary, Sun Capital Trust.
Total capital decreased $45,000 from December 31, 1996 to March 31,
1997. The decrease resulted from an increase in unrealized losses on securities
available for sale, net of income taxes, of $753,000 partially offset by the
Company's three month earnings of $679,000 and exercises of stock options of
$30,000.
Liquidity and Capital Resources
Liquidity management is a daily and long-term business function. 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, net income and
increases in deposits are the primary sources of liquidity of the Company.
The Company has experienced a significant increase in commercial loan
demand and expects such demand to continue for the remainder of the current
fiscal year. Management has demonstrated the ability to meet this increased need
for funds by attracting higher levels of time deposits, engaging in repurchase
agreements, raising capital and utilizing its lines of credit with other
financial institutions. It also has the ability to liquidate portions of its
investment portfolio.
The increase of commercial loans has the effect of lowering the
Company's risk-based capital ratios. In general, commercial loans are
categorized as having a 100% risk-weighting using the calculations required by
the Company's regulators. Until its recent issuance of Trust Preferred
Securities, the rate at which commercial loans have grown has outpaced the
growth rate of the Company's capital.
Because management intends to maintain risk-based capital levels that
are acceptable to its regulators, it issued $25 million of Trust Preferred
Securities during the quarter. The Federal Reserve Board recognizes Trust
Preferred Securities to comprise up to 25% of the Company's Tier 1 capital. The
Company raised more than the amount allowed as Tier 1 capital. As a result, as
the Company's Tier 1 capital
8
<PAGE>
increases from earnings, additional Tier 1 capital will accrete into the
calculation from the Trust Preferred Securities that do not now so qualify.
Management monitors the Company's capital levels, and when appropriate, will
recommend additional capital raising efforts to the Company's board of
directors.
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
1996.
General. Net income increased by $10,000 for the three months ended
March 31, 1997 to $679,000 from $669,000 for the three months ended March 31,
1996. Net interest income increased $673,000 and the provision for loan losses
increased $195,000 for the three months ended March 31, 1997 compared to the
same period in 1996. Other income decreased by $94,000 to $408,000 for the three
months ended March 31, 1997 as compared to $502,000 for the three months ended
March 31, 1996. Other expenses increased by $443,000 to $3.6 million for the
three months ended March 31, 1997 as compared to $3.1 million for the three
months ended March 31, 1996.
Net Interest Income. The increase in net interest income was due to a
$1.8 million increase in interest income partially offset by a $1.1 million
increase in interest expense.
Interest Income. Interest income for the three months ended March 31,
1997 increased approximately $1.8 million , or 27.9%, from $6.5 million for the
same period in 1996 to $8.3 million in 1997. The increase was primarily the
result of an increase of $2.4 in interest and fees on loans due to the $118.4
million in loan growth from March 31, 1996, primarily from commercial loans.
Interest Expense. Interest expense for the three months ended March
31, 1997 increased approximately $1.1 million, or 43.4%, from $2.6 million for
the same period in 1996 to $3.7 million in 1997. This increase was primarily due
to a $637,000 increase in interest on deposit accounts resulting from a $20.2
million increase in deposits from March 31, 1996; and a $392,000 increase in
interest on short-term funds borrowed resulting from an increase of $33.4
million in borrowed funds from March 31, 1996.
On March 17, 1997 the Company's subsidiary, Sun Capital Trust (the
"Trust") issued $25 million of 9.85% Preferred Securities with a stated value
and liquidation preference of $25 per share. The proceeds from the sale of the
Preferred Securities were utilized by the Trust to invest in $25 million of
9.85% Junior Subordinated Debentures (the "Debentures") of the Company, due in
March 2027. On April 9, 1997, the underwriters for the Preferred Securities
exercised their right to purchase an additional $3,750,000 of the Preferred
Securities on the same terms as the original issuance to cover over-allotments.
The proceeds from the sale of the Preferred Securities were utilized by the
Trust to invest in $3,750,000 of the Debentures of the Company. In view of these
transactions, the Company may incur increased interest expense in future
periods. For the three months ended March 31, 1997, the Company incurred $97,000
of such interest expense.
Provision for Loan Losses. For the three months ended March 31, 1997,
the provision for loan losses amounted to $420,000, an increase of $195,000, or
86.7%, compared to $225,000 for the same period in 1996. The increase was
primarily the result of the increase in the Company's loan portfolio of
approximately $118.4 million at March 31, 1997, primarily from commercial loans.
Management continually reviews the adequacy of the loan loss reserve using
guidelines promulgated by the Bank's primary regulator.
Other Income. Other income decreased $94,000 for the three month
period ended March 31, 1997 compared to the three month period ended March 31,
1996. The decrease was a result of a reduction in gains on sales of investment
securities by $155,000 and a $10,000 reduction in fixed asset sales. This was
partially offset by higher levels of service charges on deposit accounts of
$77,000, caused by a higher fee structure and from a larger deposit base
resulting from the 1995 branch acquisitions as well as internal growth.
9
<PAGE>
Other Expenses. Other expenses increased approximately $443,000, to
$3.6 million for the three months ended March 31, 1997 as compared to $3.1
million for the same period in 1996. The increase was a result of operating a
larger organization. Of the increase, $250,000 was in salaries and employee
benefits, $135,000 in data processing expense, $68,000 in equipment expense and
$44,000 in insurance expense. This was offset by decreases of $47,000 in postage
and supplies, $46,000 in occupancy expense and $18,000 in professional fees and
services. The increase in other expenses reflects the Company's strategy to
support planned expansion. Salaries and benefits increased due to additional
staff positions in lending, loan review, compliance and audit departments. The
increase in data processing expense and equipment expense was the result of
operating a larger institution than in the previous year. The increase in
insurance expense resulted from higher premium payments to the Federal Deposit
Insurance Corporation ("FDIC") in 1997. The higher amount was a result of the
Bank being assessed a premium based on a capital level of "adequately
capitalized." As a result of the Company's increased capital, the FDIC is
expected to be reduced in future periods. The decreased occupancy expense is
related to lower utility usage and grounds maintenance from a milder winter in
1997 and savings resulting from real estate tax appeals.
Income Taxes. Applicable income taxes decreased $71,000 for the three
months ended March 31, 1997 as compared to the same period in 1996. The decrease
resulted from lower pre-tax earnings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
10
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not engaged in any legal proceedings of a material
nature at March 31, 1997. From time to time, the Company is a party
to legal proceedings in the ordinary course of business wherein it
enforces its security interest in loans.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) 4.1 Form of Junior Subordinated Debenture *
4.2 Form of Junior Subordinated Debenture (included
in Exhibit 4.1) *
4.3 Form of Trust Agreement *
4.4 Form of Amended and Restated Trust Agreement *
4.5 Form of Preferred Security (included in Exhibit
4.4) *
4.6 Form of Guarantee *
27 Financial Data Schedule (electronic data filing
only)
* Incorporated by reference to the registrant's
Registration Statement on Form S-1, file no. 333-21903
and 333-21903-01.
(b) The following Form 8-K reports were filed during the quarter
ended March 31, 1997:
February 27, 1997 (Item 5).
Reported that Sun National Bank, a subsidiary of Sun
Bancorp, Inc., entered into a Purchase and Assumption
Agreement to purchase three branches from Oritani Savings
Bank, SLA, Hackensack, New Jersey.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date May 12, 1997 Sun Bancorp, Inc.
------------------- ------------------------------
(Registrant)
/s/ Philip W. Koebig, III
--------------------------
Philip W. Koebig, III
Executive Vice President
Date May 12, 1997 /s/ Robert F. Mack
------------------- --------------------------
Robert F. Mack
Controller
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