As filed with the Securities and Exchange Commission on October 22, 1997
Registration No. 333-35535
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
SUN BANCORP, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New Jersey 6021 52-1382541
- -------------------------------- -------------------------- -------------------
(State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer
of Incorporation or Organization) Classification Code Number)Identification No.)
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Office)
Mr. Philip W. Koebig, III
Executive Vice President
Sun Bancorp, Inc.
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq. Steven L. Kaplan, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C. ARNOLD & PORTER
1301 K Street, N.W., Suite 700 East 555 Twelfth Street, N.W.
Washington, D.C. 20005 Washington, D.C. 20004
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities Being Registered Registered (1) Maximum Maximum Registration Fee
Offering Price Aggregate (2)
Per Share (1) Offering Price
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<S> <C> <C> <C> <C>
Common Shares 1,035,000 $22.63 $23,422,050 $7,097.58
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</TABLE>
(1) The Amount of shares to be Registered and the Proposed Maximum Offering
Price Per Share have been adjusted to reflect a three for two stock
split of the Registrant's common stock effected in the form of a 50%
common stock dividend paid on September 25, 1997. The proposed maximum
offering price per share is based on the average of the high and low
sales price of the Common Shares as reported by the Nasdaq SmallCap
Market on October 16, 1997.
(2) A registration fee of $6,969.69 was previously paid with the Form S-1
registration statement originally filed on September 12, 1997.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ^ OCTOBER 22, 1997
^ 900,000 Shares
[LOGO]
Sun Bancorp, Inc.
Common Stock
Sun Bancorp, Inc., a New Jersey corporation (the "Company"), is
offering for sale ^ 900,000 shares of its common stock, $1.00 par value per
share (the "Common Shares"), at a price of ^ $ per share (the "Offering"). The
Common Shares are currently quoted on the Nasdaq SmallCap Market under the
symbol "SNBC." Application has been made to have the Common Shares approved for
quotation on the Nasdaq National Market.
Prospective investors should carefully consider the factors set forth
in "Risk Factors" beginning on page ^ 11 hereof.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================================
Underwriting ^
Price to Public Discounts Proceeds to Company
and Commissions (2)
(1)
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<S> <C> <C> <C>
Per Share............................ $ $
- -------------------------------------------------------------------------------------------------------------------------
Total(3)............................. $ $
=========================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. The
Underwriters will not receive any discounts or commissions on Common Shares
purchased by officers, directors or their associates. See "Underwriting."
(2) Before deducting estimated expenses of the Offering of approximately ^ $
payable by the Company.
(3) The Company has granted the Underwriters^ an option to purchase up to ^
135,000 additional Common Shares at the Price to Public less Underwriting
Discounts and Commissions solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Commissions and Proceeds to Company will be ^ $ ,
$ and $ , respectively. The managing underwriter will receive a financial
advisory fee of $100,000. See "Underwriting."
The shares of Common Stock are offered severally by the Underwriters
named herein, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters. The Underwriters reserve the right to reject orders in
whole or in part and to withdraw, cancel or modify the Offering without notice.
It is expected that delivery of certificates representing the shares of Common
Stock will be made to the Underwriters on or about ^, 1997.
Advest, Inc.
The date of this Prospectus is ^ , 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sales of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such State.
<PAGE>
MAP
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES
OFFERED HEREBY, INCLUDING STABILIZATION, THE PURCHASE OF COMMON SHARES TO COVER
SYNDICATE SHORT POSITIONS, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON SHARES
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus is based on the assumption that the Underwriters (as defined
herein) will not exercise their over-allotment option. In August 1997, the Board
of Directors declared a three for two stock split of the Company's common stock,
par value $1.00 per share, effected in the form of a 50% common stock dividend
paid in September 1997. Where appropriate, amounts throughout this Prospectus
have been adjusted to reflect the stock split.
^ The Company
The Company, a New Jersey corporation, is a bank holding company
headquartered in Vineland, New Jersey with two subsidiaries, Sun National Bank
(the "Bank"), a national banking association and Sun Capital Trust, a Delaware
business trust. At June 30, 1997, the Company had total assets of $585.2
million, total deposits of $467.4 million and total shareholders' equity of
$29.1 million. Substantially all of the Bank's deposits are federally insured by
the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The deposits acquired pursuant to the Oritani
branch purchase are federally insured by the Savings Association Insurance Fund
("SAIF") which is also administered by the FDIC. The Company's principal
business is to serve as a holding company for the Bank. As a registered bank
holding company, the Company is subject to the supervision and regulation of the
Board of Governors of the Federal Reserve System (the "Federal Reserve").
The Company was incorporated, and the Bank was chartered, in 1985. In
April 1995, the Company changed its name from Citizens Investments, Inc. to its
present name. It is the Company's strategy to expand its ^ banking market
throughout southern and central New Jersey. Since 1994, the Company has
successfully completed the acquisition of two commercial banks with a total of
$117 million in assets as well as four purchase and assumption transactions in
which the Company acquired fifteen branches with $229 million in deposits. The
Company opened three de novo branches: Cape May in March 1997, Toms River in
June 1997 and Long Beach Island in June 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview." In
addition, the Company entered into an agreement to acquire eleven branches, with
$177 million in deposits, from The Bank of New York, New York, New York (see
"Oritani and Bank of New York Branch Purchases"). Through its acquisition and
expansion program, the Company has significantly increased its asset size as
well as the Bank's retail network. At December 31, 1993, the Company's total
consolidated assets were $112.0 million as compared to $585.2 million at June
30, 1997.
The Bank provides community banking services through 28 branches
located in southern New Jersey. The Bank offers a wide variety of consumer and
commercial lending and deposit services. The loans offered by the Bank include
commercial and industrial loans, commercial real estate loans, home equity
loans, mortgage loans and installment loans. The Bank also offers deposit and
personal banking services including checking, regular savings, money market
deposits, term certificate accounts and individual retirement accounts. Through
a third party arrangement, the Bank also offers mutual funds, securities
brokerage and investment advisory services. The Bank considers its primary
market area to be the New Jersey counties of Atlantic, Burlington, Camden, Cape
May, Cumberland, Mercer, Ocean and Salem. The Bank's market area contains a
diverse base of customers, including agricultural, manufacturing, transportation
and retail consumer businesses.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
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3
<PAGE>
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Financial Summary
<TABLE>
<CAPTION>
At or for the Six
Months Ended
June 30, At or for Year Ended December 31,
------------------ ---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------------ --------- ---------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C>
Net income .............. $ 1,482 $ 3,013 $ 2,819 $ 1,840 $ 1,128 $ 813
Net income per share
(fully diluted) ........ 0.47 0.99 0.97 0.90 0.64 0.46
Total assets ............ 585,219 436,795 369,895 217,351 112,015 104,162
Loans receivable (net) . 363,705 295,501 183,634 134,861 83,387 82,080
Shareholders' equity .... 29,071 27,415 24,671 20,571 12,306 11,178
Return on average
assets ................. 0.62% 0.74% 1.03% 1.09% 1.04% 0.74%
Return on average
equity ................. 10.69% 11.99% 12.42% 11.74% 9.61% 7.56%
Net yield on
interest-earning assets 4.33% 4.57% 5.30% 5.39% 5.29% 4.96%
</TABLE>
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4
<PAGE>
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^ The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Shares Offered................................... ^ 900,000 shares of Common Stock.
Common Shares Outstanding prior to the Offering......... ^ 2,918,125 shares
Common Shares Outstanding after the Offering............ ^ 3,818,125 shares. Assumes no exercise of the
Underwriters' over-allotment option to purchase up to
^ 135,000 Common Shares. See "Underwriting."
Estimated Net Proceeds to the Company.................. ^ $ . Assumes no exercise of the
Underwriters' over-allotment option to purchase up to
^135,000 Common Shares. See "Underwriting."
Dividends on Common Shares.............................. Historically, the Company has not paid cash dividends
on its Common Shares. The Company paid a 5%
stock dividend on October 30, 1996 and a 5% stock
dividend on June 25, 1997. In August 1997, the
Company declared a three for two common stock split
effected by means of a 50% stock dividend paid in
September 1997. Future declarations of dividends by
the Board of Directors will depend upon a number of
factors, including the Company's and the Bank's
financial condition and results of operations,
investment opportunities available to the Company or
the Bank, capital requirements, regulatory limitations,
tax considerations, the amount of net proceeds retained
by the Company and general economic conditions.
See "Price Range of Common Shares; Dividends,"
and "Risk Factors -- Limitations on Payment of
Dividends."
Use of Proceeds......................................... The proceeds received by the Company from the sale
of the Common Shares will be used to contribute
capital to the Bank. The Bank intends to use the
capital for general corporate purposes, primarily to
support The Bank of New York branch purchase. See
"Use of Proceeds" and "Oritani and Bank of New
York Branch Purchases."
Nasdaq National Market Symbol........................... Application has been made to have the Common
Shares approved for quotation on the Nasdaq National
Market under the symbol "SNBC."
Purchases by Directors and Officers of the The Underwriters have reserved 225,000 Common
Company................................................. Shares offered in the Offering (25% of the Shares to
be offered) for sale at the public offering price to
directors, officers and employees of the Company and
the Bank (and their associates). See "Underwriting".
</TABLE>
^ Risk Factors
Prospective investors should carefully consider the matters set forth
under "Risk Factors," beginning on page 11.
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5
<PAGE>
^ Selected Consolidated Financial Data
The following summary information regarding the Company should be
read in conjunction with the consolidated financial statements of the Company
and notes beginning on page F-1. Consolidated historical financial and other
data regarding the Company at or for the six months ended June 30, 1997, have
been prepared by the Company without audit and may not be indicative of results
on an annualized basis or any other period. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation for such periods or dates have been made.
<TABLE>
<CAPTION>
At or For the Six
Months Ended
June 30, (1) At or For the Years Ended December 31,
----------------- -----------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- ----------- ----------- ----------- --------- -------
(Dollars in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C>
Selected Results of Operations
Interest income ........................ $ 18,145 $ 29,270 $ 20,850 $ 12,194 $ 8,164 $ 8,629
Net interest income .................... 9,454 16,736 13,163 8,256 5,327 4,991
Provision for loan losses .............. 825 900 808 383 2 96
Net interest income after
provision for loan losses ........... 8,629 15,836 12,355 7,873 5,325 4,895
Other income ........................... 776 1,746 1,651 732 472 770
Other expenses ......................... 7,332 13,207 10,047 5,991 4,198 4,354
Net income ............................. 1,482 3,013 2,819 1,840 1,128 813
Per Share Data
Net income
Primary ............................. 0.47 1.00 0.97 0.90 0.64 0.46
Fully diluted ....................... 0.47 0.99 0.97 0.90 0.64 0.46
Book value ............................. 9.97 9.68 9.11 10.88 7.31 6.65
Selected Balance Sheet Data
Assets ................................. 585,219 436,795 369,895 217,351 112,015 104,162
Cash and investments ................... 188,418 117,388 164,251 70,809 24,134 17,670
Loans receivable (net) ................. 363,705 295,501 183,634 134,861 83,387 82,080
Deposits ............................... 467,394 385,987 335,248 196,019 99,099 91,837
Borrowings and securities sold under
agreements to repurchase ............. 57,426 21,253 8,000 -- -- --
Shareholders' equity ................... 29,071 27,415 24,671 20,571 12,306 11,178
Performance Ratios
Return on average assets ............... 0.62% 0.74 1.03% 1.09% 1.04% 0.74%
Return on average equity ............... 10.69% 11.99 12.42% 11.74% 9.61% 7.56%
Net yield on interest-earning assets ... 4.33% 4.57 5.30% 5.39% 5.29% 4.96%
Asset Quality Ratios
Non-performing loans to total loans .... 0.72% 0.81 1.72% 1.82% 1.84% 1.02%
Non-performing assets to total loans
and other real estate owned .......... 0.90% 1.06 2.19% 2.56% 2.26% 1.19%
Net charge-offs to average total loans . 0.12% 0.16 0.23% 0.29% 0.02% 0.14%
Total allowance for loan losses to total
non-performing loans ................. 127.32% 107.26 64.47% 64.74% 69.10% 128.53%
Capital Ratios
Equity to assets ....................... 4.97% 6.28 6.67% 9.46% 10.99% 10.73%
Tier 1 risk-based capital ratio ........ 7.52% 7.44 8.67% 14.01% 15.59% 12.80%
Total risk-based capital ratio ......... 12.99% 8.28% 9.64% 15.22% 16.84% 14.05%
Leverage ratio ......................... 5.68% 5.43 5.74% 8.44% 10.74% 9.31%
</TABLE>
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(1) Ratios are annualized where appropriate.
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6
<PAGE>
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Recent Developments
The following is a summary of the Company's financial condition as of
September 30, 1997, and results of operations for the three month and nine month
periods ended September 30, 1997 and 1996. The discussion and analysis as to
share data has been retroactively adjusted to give effect to the three for two
stock split effected in the form of a 50% common stock dividend paid on
September 25, 1997.
<TABLE>
<CAPTION>
Statement of Financial At September 30, At December 31,
Condition Data (Unaudited) 1997 1996
---------------- ---------------
(Dollars in thousands except share data and ratios)
<S> <C> <C>
Cash and cash equivalents ............................ $ 20,434 $ 21,807
Investment securities available for sale.............. 290,808 95,581
Loans, net of allowance for loan losses............... 388,619 295,501
Bank properties and equipment......................... 14,820 12,222
Real estate owned, net................................ 816 756
Excess of cost over fair value of assets acquired..... 11,293 5,365
Other assets.......................................... 11,334 5,563
------- ------
Total assets........................................ $738,124 $436,795
======= =======
Deposits.............................................. $541,316 $385,987
Federal Home Loan Bank Advances....................... 16,500 10,000
Federal funds purchased and securities sold
under agreements to repurchase...................... 117,613 5,253
Other liabilities..................................... 2,858 8,140
Guaranteed preferred beneficial interests in
the Company's debentures............................ 28,750 --
Shareholders' equity.................................. 31,087 27,415
------- -------
Total liabilities and shareholders' equity.......... $738,124 $436,795
======= =======
</TABLE>
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7
<PAGE>
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<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------------- -------------------------------------
Statement of Income Data (Unaudited) 1997 1996 1997 1996
---------------- --------------------- --------------------- -------------
(Dollars in thousands, except per share date)
<S> <C> <C> <C> <C>
Interest income............................... $12,751 $7,917 $30,897 $21,288
Interest expense.............................. 6,817 3,429 15,509 9,027
------ ----- ------ ------
Net interest income......................... 5,934 4,488 15,388 12,261
Provision for loan losses..................... 420 225 1,245 675
------ ------ ------ ------
Net interest income after provision
for loan losses........................... 5,514 4,263 14,143 11,586
------ ------ ------ ------
Other income.................................. 597 453 1,372 1,297
Other expense:
Salaries and employee benefits.............. 2,048 1,930 5,645 4,797
Occupancy expense........................... 463 304 1,171 1,074
Data processing expense..................... 359 286 1,052 801
Amortization of excess of cost over
fair value of assets acquired.............. 425 207 893 620
Other expense............................... 1,132 881 2,997 2,423
------ ----- ------ ------
Total other expense....................... 4,427 3,608 11,758 9,715
------ ------ ------ ------
Income before income taxes.................. 1,684 1,108 3,757 3,168
Income taxes................................ 489 333 1,079 1,001
------ ------ ------ ------
Net income.................................. $ 1,195 $ 775 $ 2,678 $ 2,167
====== ====== ====== ======
Earnings per common and common
equivalent share............................ $0.37 $0.25 $0.84 $0.74
Earnings per common share - assuming
full dilution............................... $0.36 $0.25 $0.81 $0.73
</TABLE>
<TABLE>
<CAPTION>
At or For the Three Months At or For the Nine Months
Ended September 30, Ended September 30,
------------------------- -----------------------------
Selected Ratios (Unaudited)(1): 1997 1996 1997 1996
-------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Return on average assets...................... 0.71% 0.74% 0.66% 0.74%
Return on average equity...................... 16.08% 12.49% 12 .55% 11.89%
Net yield on interest-earning assets.......... 3.50% 4.28% 3.77% 4.20%
Equity to assets.............................. 4.22% 5.90% 4.22% 5.90%
Non-performing assets to total loans
and other real estate owned................. 0.52% 1.04% 0.52% 1.04%
</TABLE>
- -------------------
(1) With the exception of period end ratios, all ratios are based on daily
average balances during the periods and are annualized where
appropriate. Such ratios and results are not necessarily indicative of
results that may be expected for the full year.
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8
<PAGE>
Results of Operations
Net income for the three months ended September 30, 1997 was $1.2
million, or $.36 per share in comparison to $775,000, or $.25 per share for the
three months ended September 30, 1996. This 54% increase in net income was
primarily a result of an increase of $1.4 million, or 32%, in net interest
income, reflecting a significant increase in interest-earning assets and
interest-bearing liabilities. The increase was a result of internal growth
augmented by the acquisitions of four branches from First Union National Bank
and three branches from Oritani Savings Bank.
The provisions for loan losses were $420,000 and $225,000 for the three
months ended September 30, 1997 and 1996, respectively. The increase is a result
of significantly higher loan balances outstanding.
Non-interest income increased to $597,000, or 32%, for the three months
ended September 30, 1997 compared to $453,000 for the same period in 1996. The
growth is attributable to increased service charges on deposit accounts
amounting to $119,000. This increase is a result of a larger deposit customer
base.
Non-interest expense for the three months ended September 30, 1997 was
$4.4 million, an increase of 23% over the $3.6 million for the same period in
1996. The increase of $819,000 was primarily a result of operating a larger
company during 1997. Salaries and employee benefits increased $119,000, or 6%;
occupancy expense increased $159,000, or 52%; equipment expense increased
$123,000, or 53%; data processing increased $74,000 or 26%; amortization of
excess of cost over fair value of assets acquired increased $218,000, or 105%;
postage and supplies increased $34,000, or 35%.
Income tax expense was $489,000 for the three months ended September
30, 1997 compared to $333,000 for the same period in 1996. The increase was a
result of higher pre-tax earnings.
For the nine month period ended September 30, 1997, net income was $2.7
million, or $.81 per share, compared to $2.2 million, or $.73 per share, for the
same period in 1996, an increase of $511,000. The growth in earnings was
principally the result of an increase in net interest income of $3.1 million,
from $12.3 million for the nine months ended September 30, 1996, to $15.4
million for the same period in 1997 partially offset by higher provision for
loan losses and a higher level of non-interest expenses.
As a result of the increase in the loan portfolio, the provision for
loan losses grew by $570,000, from $675,000 for the nine months ended September
30, 1996, to $1.2 million for the same period in 1997, an 84% increase.
Non-interest income increased $75,000 to $1.4 million for the nine
months ended September 30, 1997. The increase in 1997 reflects an increase of
$217,000 in service charges on deposit accounts, partially offset by a decrease
of $113,000 of gains on sale of investment securities.
Non-interest expense rose $2.0 million, to $11.8 million, for the
nine-months ended September 30, 1997, compared to the same period in 1996. The
increase, resulting from operating a larger organization, was evidenced by a
growth of $800,000 in salaries and employee benefits; $306,000 in equipment
expense; $251,000 in data processing expense; $273,000 of amortization of excess
of cost over fair value of assets acquired; and $178,000 of other expenses.
9
<PAGE>
Due to a higher level of taxable earnings, income tax expense increased
$78,000, from $1.0 million for the nine months ended September 30, 1996, to $1.1
million for the same period in 1997.
Financial Condition
Total assets at September 30, 1997 were $738.1 million, an increase of
$301.3 million, from the December 31, 1996 total of $436.8 million.
Investment securities available for sale increased $195.2 million, from
$95.6 million at December 31, 1996 to $290.8 million at September 30, 1997. The
growth was primarily a result of the investment of excess funds created from the
First Union and Oritani branch purchases, as well as an increase of $96.5
million of U.S. Government Agency securities acquired with funds borrowed from
the FHLB.
Net loans at September 30, 1997 amounted to $388.6 million, an increase
of $93.1 million from $295.5 million at December 31, 1996. The increase was
primarily from internal growth in commercial and industrial loans. The ratio of
non-performing assets to total loans and real estate owned for the three months
ended September 30, 1997 was 0.52% compared to 1.06% for the year ended December
31, 1996. The ratio of allowance for loan losses to total non-performing loans
was 192.47% at September 30, 1997 compared to 107.26% at December 31, 1996. The
ratio of allowance for loan losses to total loans was 0.96% at September 30,
1997 compared to 0.87% at December 31, 1996.
Excess of cost over fair value of assets acquired increased $5.9
million, from $5.4 million at December 31, 1996 to $11.3 million at September
30, 1997. The increase was a result of the premium paid for the acquisition of
branches from First Union and Oritani.
Total liabilities at September 30, 1997 amounted to $678.3 million
compared to $409.4 million at December 31, 1996, an increase of $268.9 million.
Total deposits grew to $541.3 million at September 30, 1997, a $155.3
million increase over December 31, 1996 deposits of $386.0 million. The increase
was primarily the result of deposits acquired from First Union and Oritani, as
well as approximately $40 million from internal growth.
Advances from the Federal Home Loan Bank amounted to $16.5 million at
September 30, 1997 compared to $10.0 million at December 31, 1996. The increase
aided the funding of the Company's loan growth. Federal funds purchased and
securities sold under agreements to repurchase grew $112.4 million, from $5.3
million at December 31, 1996, to $117.6 million at September 30, 1997.
Repurchase agreements from the Federal Home Loan Bank to fund securities
purchases caused $96.5 million of the increase.
Total shareholders' equity grew by $3.7 million, from $27.4 million at
December 31, 1996, to $31.1 million at September 30, 1997. The increase was a
result of net earnings of $2.7 million for the nine months ended September 30,
1997 augmented by an improvement in the net unrealized loss on securities
available for sale, net of income taxes of $567,000.
At September 30, 1997, the capital ratios of the Company and the Bank
were as follows:
Company Capital Ratios:
Tier 1 risk-based capital ratio 6.56%
Total risk-based capital ratio 11.37%
Leverage ratio 4.53%
Bank Capital Ratios:
Tier 1 risk-based capital ratio 9.85%
Total risk-based capital ratio 10.68%
Leverage ratio 6.79%
10
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors which address those risks material to this offering and the Company,
should be considered carefully in evaluating an investment in the Common Shares
offered by this Prospectus. Certain statements in this Prospectus are
forward-looking and are identified by the use of forward-looking words or
phrases such as "intended," "will be positioned," "expects," is or are
"expected," "anticipates," and "anticipated." These forward-looking statements
are based on the Company's current expectations. To the extent any of the
information contained in this Prospectus constitutes a "forward-looking
statement" as defined in Section 27A(i)(1) of the Securities Act, the risk
factors set forth below are cautionary statements identifying important factors
that could cause actual results to differ materially from those in the
forward-looking statement.
^ Restrictions on the Company as a Bank Holding Company
The Company is a legal entity separate and distinct from the Bank,
although the principal source of the Company's cash revenues is dividends from
the Bank.
The right of the Company to participate in the assets of any subsidiary
upon the latter's liquidation, reorganization or otherwise (and thus the ability
of the holders of Common Stock to benefit indirectly from any such distribution)
will be subject to the claims of the subsidiaries' creditors, which will take
priority except to the extent that the Company may itself be a creditor with a
recognized claim.
The Bank is also subject to restrictions under federal law which limit
the transfer of funds by the Bank to the Company, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such transfers
by the Bank to the Company are limited in amount to 10% of the Bank's capital
and surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts.
Recent Rapid Growth of Bank
During the last three years, the Bank has experienced rapid and
significant growth. The total assets of the Bank have increased from $112.0
million at December 31, 1993, to $585.2 million at June 30, 1997. Although the
Bank believes that it has adequately managed its growth in the past, there can
be no assurance that the Bank will continue to experience such rapid growth, or
any growth, in the future and, to the extent that it does experience continued
growth, that the Bank will be able to adequately and profitably manage such
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The continued growth has led the Company to undertake the present
offering of Common Shares. The capital to be raised from the sale of the Common
Shares offered hereby, is necessary to provide sufficient capital to support the
growth of assets. No assurance can be given that this rapid growth will
continue, but, if it does, there is no assurance that the earnings of the
Company and the Bank can adequately provide the necessary capital for the Bank
and the Company to maintain required regulatory capital levels commensurate with
continued rapid growth. After giving effect to the sale of the Common Shares and
the Oritani and Bank of New York branch purchases, the Bank will be "well
capitalized" and the Company will be adequately capitalized for federal bank
regulatory purposes. The level of future earnings of the Company also will
depend on the ability of the Company and the Bank to profitably deploy and
manage the increased assets. The rapid growth of the Bank in asset size and the
rapid increase in its volume of total loans during the past three years have
increased the possible risks inherent in an investment in the Company. In
addition, the Bank of New York branch purchase will result in the
11
<PAGE>
acquisition of a significant amount of deposits. The deposits to be assumed
pursuant to the Bank of New York branch purchase are predominantly core deposits
with lower costs. If the Company is unable to maintain a low cost of funds on
such deposits or if the Company is unable to retain a substantial portion of the
deposits to be assumed, the branch purchase may have an adverse impact on the
Company's results of operations and financial condition.
Although the Bank has experienced moderate loan losses to date, the
rapid growth of its loan portfolio from $83.4 million at December 31, 1993, to
$363.7 million at June 30, 1997, may result in an increase to its loan loss
experience. Due to the high volume of recent loans, many of the loans of the
Bank are unseasoned, thereby increasing the potential for additional loan losses
even if the Bank continues to adhere to the same underwriting criteria and
monitoring procedures that have resulted in the Bank's moderate loan loss
experience. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Lending Activities." The Office of the Comptroller of
the Currency (the "OCC") has previously stated that banks experiencing rapid
growth may be subject to greater risks.
Growth in Loan Portfolio ^; Concentration of Credit
During the past three years, the Company has experienced significant
growth in its loan portfolio. Net loans increased to $363.7 million at June 30,
1997, from $83.4 million at December 31, 1993. While many components of the loan
portfolio have contributed to this increase over the past three years, much of
this loan growth has occurred in the portfolio of commercial and industrial
loans. Commercial and industrial loans increased by 87.7% or $104.2 million
during 1996 as compared to 1995 and comprised 75.5% of total loans as of
December 31, 1996. As of June 30, 1997, commercial and industrial loans
comprised 77.5% of total loans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Analysis of Loan Portfolio." As a
result of this recent growth, a significant portion of the Company's total loan
portfolio may be considered unseasoned and, therefore, specific payment and loss
experience for this portion of the portfolio has not yet been fully established.
In addition, the nature of commercial and industrial loans is such that they may
present more credit risk to the Company than other types of loans such as home
equity or residential real estate loans. Further, these loans are concentrated
in Atlantic, Burlington, Camden, Cape May, Cumberland, Ocean, and Salem
Counties, in southern New Jersey. As a result, a decline in the general economic
conditions of southern New Jersey could have a material adverse effect on the
Company's financial condition and results of operations taken as a whole. See
"Business of the Company--Lending Activities--Commercial and Industrial Loans."
Adequacy of Allowance for Loan Losses
The risk of loan losses varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value of the collateral for the loan. Management maintains an allowance for
loan losses based upon, among other things, historical experience, an evaluation
of economic conditions and regular review of delinquencies and loan portfolio
quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectibility of the loan portfolio and provides
an allowance for loans losses based upon a percentage of the outstanding
balances and for specific loans when their ultimate collectibility is considered
questionable. If management's assumption and judgments prove to be incorrect and
the allowance for loan losses is inadequate to absorb future credit losses, or
if the bank regulatory authorities require the Bank to increase the allowance
for loan losses, the Bank's earnings could be significantly and adversely
affected. Because certain lending activities involve greater risks, the
percentage applied to specific loan types may vary.
12
<PAGE>
As of June 30, 1997, the allowance for loan losses was $3.4 million,
which represented 0.91% of total loans. The allowance for loan losses as a
percentage of nonperforming loans was 127.32% as of June 30, 1997. The Company
actively manages its nonperforming loans in an effort to minimize credit losses
and monitors its asset quality to maintain an adequate allowance for loan
losses. As its loan growth has increased, the Bank has increased its allowance
for loan losses. The Company believes that such allowance is adequate, however,
future additions to the allowance in the form of the provision for loan losses
may be necessary due to changes in economic conditions and growth of the Bank's
loan portfolio.
Control by Management
A total of ^ 1,956,313 Common Shares of the Company ^ will be
beneficially owned by the directors and executive officers of the Company, or ^
45.26% of the Common Shares outstanding following the Offering, assuming
directors and executive officers purchase ^ 225,000 shares in the Offering and
that the Underwriters do not exercise the over-allotment option. As of October
9, 1997, Bernard A. Brown beneficially owned 1,411,443 shares, or 43.49%, of the
Company's outstanding Common Shares. Therefore, to the extent they vote
together, the directors and executive officers of the Company will have the
ability to exert significant influence over the election of the Company's Board
of Directors and other corporate actions requiring stockholder approval. See
"Security Ownership of Certain Beneficial Owners and Management" and
"Underwriting."
Limitations on Payment of Dividends
Historically, the Company has not paid cash dividends on its Common
Shares. The Bank is a wholly owned subsidiary of the Company and its principal
income-producing entity. Accordingly, dividends payable by the Company are
subject to the financial condition of the Bank and the Company as well as other
business considerations. In addition, because the Bank is a depository
institution insured by the FDIC, it may not pay dividends or distribute any of
its capital assets if it is in default on any assessment due the FDIC. Payment
of dividends by the Bank is restricted by statutory limitations. 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. OCC
regulations also impose certain minimum capital requirements that affect the
amount of cash available for the payment of dividends by the Bank. At June 30,
1997, under the recent earnings test, which is presently the more restrictive of
the available methods of calculating the dividend limitations of a national
bank, $8.3 million was available for payment as dividends from the Bank to the
Company without the need for approval from the OCC. Even if the Bank is able to
generate sufficient earnings to pay dividends, there is no assurance that its
Board of Directors might not decide or be required to retain a greater portion
of the Bank's earnings in order to maintain existing capital or achieve
additional capital necessary because of (i) an increase in the capital
requirements established by the OCC, (ii) a significant increase in the total of
risk-weighted assets held by the Bank, (iii) a significant decrease in the
Bank's income, (iv) a significant deterioration of the quality of the Bank's
loan portfolio, (v) a determination by the OCC that the payment of a dividend
would (under the circumstances) constitute an "unsafe or unsound" banking
practice, or (vi) new federal or state regulations. The occurrence of any of
these events would decrease the amount of funds potentially available for the
payment of dividends. In addition, under Federal Reserve policy, the Company is
required to maintain adequate regulatory capital and is expected to act as a
source of financial strength to the Bank and to commit resources to support the
Bank in circumstances where it might not do so absent such a policy. This policy
could have
13
<PAGE>
the effect of reducing the amount of dividends declarable by the Company. See
"Supervision and Regulation."
The Company's subsidiary, Sun Capital Trust (the "Trust") issued $28.8
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 $28.8 million of 9.85% Junior
Subordinated Debentures (the "Debentures") of the Company, due in March 2027.
The Company has the right to defer payment of interest on the Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarterly
periods with respect to each deferred period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the maturity of the
Debentures. If interest payments on the Debentures are so deferred, the Company
will be prohibited from paying cash dividends on its Common Shares until such
time as the payment of all amounts due on the Debentures are paid and the
Extension Period is terminated.
High Degree of Competition
The banking business is highly competitive. In its primary market area,
the Bank competes with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
the Bank's primary competitors have substantially greater resources and lending
limits than the Bank and may offer certain services, such as trust services,
that the Bank does not provide at this time. The profitability of the Company
depends upon the Bank's ability to compete in its primary market area.
See "Business -- Competition."
^ Limitations Imposed by Industry Regulation
Bank holding companies and banks operate in a highly regulated
environment and are subject to the supervision and examination by several
federal regulatory agencies. The Company is subject to the Bank Holding Company
Act of 1956, as amended ("BHCA"), and to regulation and supervision by the
Federal Reserve, and the Bank is subject to regulation and supervision by the
OCC and the FDIC. The Bank is also a member of the Federal Home Loan Bank of New
York (the "FHLB") and is subject to regulation thereby. Federal and state
banking laws and regulations govern matters ranging from the regulation of
certain debt obligations, changes in the control of bank holding companies, and
the maintenance of adequate capital to the general business operations and
financial condition of the Bank, including permissible types, amounts and terms
of loans and investments, the amount of reserves against deposits, restrictions
on dividends, establishment of branch offices, and the maximum rate of interest
that may be charged by law. The Federal Reserve, the FDIC, and the OCC also
possess cease and desist powers over bank holding companies and banks, to
prevent or remedy unsafe or unsound practices or violations of law. These and
other restrictions limit the manner in which the Company and the Bank may
conduct their business and obtain financing. Furthermore, the commercial banking
business is affected not only by general economic conditions, but also by the
monetary policies of the Federal Reserve. These monetary policies have had, and
are expected to continue to have, significant effects on the operating results
of commercial banks. Changes in monetary or legislative policies may affect the
ability of the Bank to attract deposits and make loans. See "Supervision and
Regulation."
14
<PAGE>
Potential Impact of Changes in Interest Rates
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time period is considered liability-sensitive and is
reflected as negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and will
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and negatively impact earnings
in a rising interest rate environment. Fluctuations in interest rates are not
predictable or controllable. The Company has attempted to structure its asset
and liability management strategies to mitigate the impact on net interest
income of changes in market interest rates. However, there can be no assurance
that the Company will be able to manage interest rate risk so as to avoid
significant adverse effects in net interest income. At June 30, 1997, the
Company had a one year cumulative negative gap of 12.57%. This negative gap
position may, as noted above, have a negative impact on earnings in a rising
interest rate environment. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Gap Analysis."
Limited Trading Market; Possible Volatility of Stock Price
^ Since August 29, 1996, the Common Shares of the Company have been
quoted on the Nasdaq SmallCap Market^. Trading has been limited and infrequent^
and since such date trading volume for Common Shares has averaged less than
10,000 shares per week. Application has been made to have the Common Shares
approved for quotation on the Nasdaq National Market, but one of the
requirements for initial listing is the presence of three market makers for the
Common Shares. Nasdaq National Market maintenance standards require the
existence of two market makers for continued listing. Currently the Company has
four market makers. Advest, Inc. has advised the Company that it intends to
continue to make a market in Common Shares so long as the volume of trading
activity in the Common Shares and certain other market making considerations
justify doing so. ^ It is anticipated that the Nasdaq National Market initial
listing requirements will be met, including the presence of three market makers.
There can, however, be no assurance that an established and liquid trading
market will develop or, if developed, will be sustained following the Offering.
The market price of the Common Shares could be subject to significant
fluctuations in response to variations in quarterly and yearly operating
results, general trends in the banking industry and other factors. In addition,
the stock market can experience price and volume fluctuations that may be
unrelated or disproportionate to the operating performance of affected
companies. These broad fluctuations may adversely affect the market price of the
Common Shares.
Impact of Changes in Economic Conditions and Monetary Policies
Conditions beyond the Company's control may have a significant impact
on changes in net interest income from one period to another. Examples of such
conditions could include: (i) the strength of credit demands by customers; (ii)
fiscal and debt management policies of the federal government, including changes
in tax laws; (iii) the Federal Reserve's monetary policy; (iv) the introduction
and growth of new investment instruments and transaction accounts by non-bank
financial competitors; and (v) changes in rules and regulations governing the
payment of interest on deposit accounts.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ^ 900,000 Common
Shares offered by the Company (after giving effect to the payment of estimated
offering expenses) are estimated to be approximately ^ $ ($ if the Underwriters'
over-allotment option is exercised in full). Such proceeds will qualify under
the capital adequacy guidelines of the Federal Reserve as Tier 1 capital for the
Company. The net proceeds will be used by the Company to provide additional
equity capital to the Bank. The Bank intends to use the capital for general
corporate purposes^.
ORITANI AND BANK OF NEW YORK BRANCH PURCHASES
Oritani Branch Purchase
On July 24, 1997, the Bank acquired approximately $34 million in
deposit liabilities in three branch offices (the "Oritani branch purchase")
located in the Camden County, New Jersey communities of Clementon, Lindenwold
and Merchantville, from Oritani Savings Bank, SLA, Hackensack, New Jersey
("Oritani"). The Bank paid Oritani a premium of $2,151,000 for the assumption of
the deposit liabilities. The Bank purchased two branches owned by Oritani at
their fair market value and assumed the lease on the third branch location. The
Bank received approximately $30 million in net proceeds from the transaction.
The investment and lending activities of the Oritani branches purchased did not
transfer to the Bank.
As of June 30, 1997, the cost of funds related to the deposits assumed
from the Oritani branch purchase was approximately 4.64%. Management does not
believe there will be a material deposit outflow after the branch purchase. The
Bank has historically priced its deposit products to be competitive in the
markets served. For the six months ended June 30, 1997, the Bank's average cost
of deposits was 3.41%. It is anticipated that this practice, combined with the
level of personal service provided, will allow the Bank to retain a significant
portion of the deposits acquired. In this regard, Oritani has agreed not to
directly solicit the deposit customers affected by the branch purchases, nor
establish a branch or automatic teller machine ("ATM") facility within Camden
County, New Jersey for a period of one year.
^ The Oritani branch purchase ^ has not had a significant short-term
impact on ^ the Bank's performance. Management anticipates that the branch
purchase will positively contribute to earnings as the net cash received is
gradually invested in investment securities and loans.
Bank of New York Branch Purchase
On June 4, 1997, the Bank entered into a Branch Purchase and Deposit
Assumption Agreement with The Bank of New York to acquire approximately $177
million in deposit liabilities and approximately $29 million of loans and eleven
branch offices (the "Bank of New York branch purchase") located in the southern
and central New Jersey counties of Atlantic, Mercer, Middlesex and Somerset.
Based upon June 30, 1997 deposits, the Bank agreed to pay The Bank of New York a
premium of approximately $17.1 million (9.75%) for the assumption of the deposit
liabilities and will receive approximately $159.9 million in net proceeds in the
form of cash, real estate and loans. The deposits to be assumed consist of
$154.8 million in core deposits (demand deposits, savings deposits, money market
accounts, etc.) and $22.1 million in time deposits (certificates of deposit).
The investment and some of the lending activities of the Bank of New York
branches to be purchased will not be transferred to the Bank. The Bank of New
York branch purchase will be accounted for using the purchase method of
accounting and is expected to close during the fourth quarter of 1997, subject
to regulatory approval. There can be no assurance that regulatory approval will
be obtained, or that such approval, if any, will
16
<PAGE>
not delay consummation of The Bank of New York branch purchase, or will not
contain conditions that would cause the Bank to abandon the transaction.
As of June 30, 1997, based on information supplied to the Bank by The
Bank of New York, the cost of funds related to the deposits to be assumed from
the Bank of New York branch purchase, was approximately 1.70%. The Bank has
historically priced its deposit products to be competitive in the markets
served. It is anticipated that this practice, combined with the level of
personal service provided, will allow the Bank to retain a significant portion
of the deposits to be acquired, but there can be no assurance that the Bank will
not experience a material deposit outflow following consummation of the
transaction. In this regard, The Bank of New York has agreed not to directly
solicit the deposit customers affected by the branch purchase for a period of
two years.
^ Due to the current low cost of funds on the deposits to be assumed,
management expects the Bank of New York branch purchase will have ^ an immediate
positive impact on its interest rate spread and net interest income. As the cash
received in the branch purchase is ^ invested in loans and securities,
management anticipates that the purchase will have a further positive impact.
At June 30, 1997, the deposits at The Bank of New York ^ branches being
acquired by the Company were as follows:
Weighted
Average
Amount Interest Cost
------ -------------
(Dollars in thousands)
Demand deposits........................ $ 62,877 0.00%
Interest-bearing checking.............. 32,805 1.34%
Savings accounts....................... 59,088 2.39%
Time deposits.......................... 22,100 4.86%
------- ----
Total deposits....................... $176,870 1.65%
======= ====
17
<PAGE>
Pro Forma Consolidated Statement of Financial Condition
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
^ Oritani Bank of New Consolidated Pro Forma
Branch York Branch Company Stock Consolidated
Purchase Purchase before Stock Offering ^ Company After
Company Dr. (Cr.) Dr. (Cr.) Offering Dr. (Cr.) Stock Offering
------- --------- --------- -------- --------- --------------
(In thousands)
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and amounts due from banks......... $ 26,688 $ ^ 181 (1) $ 3,000 (1) $ ^ 29,869 $ -- $ 29,869
Federal funds sold...................... 11,150 ^ 33,338 (1) 135,300 (1) ^20,000 (4)
(2,151) (2) (17,100) (3) ^ 160,537 (1,380)(4) 179,157
Investment securities available-for-
sale.................................. 150,581 -- -- 150,581 150,581
Loans receivable (net).................. 363,705 ^-- (1) 29,000 (1) 392,705 392,705
Bank properties and equipment.......... 14,211 547 (1) 9,600 (1) ^ 24,358 24,358
Real estate owned...................... 666 666 666
Accrued interest receivable............. 4,587 4,587 4,587
Excess of cost over fair value
of net assets acquired................ 9,558 2,151 (2) 17,100 (3) ^ 28,809 28,809
Deferred taxes.......................... 1,227 1,227 1,227
Other assets............................ 2,846 -- -- 2,846 -- 2,846
----- ------- ------- ------- -------- ---------
Total................................ $585,219 $^34,066 $176,900 $798,185 $ ^ 18,620 $ 814,805
======= ======= ======= ======= ========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits................................ $467,394 $^ 33,922 (1) $176,900 (1) $678,216 $ ^-- $ 678,216
^ Securities sold under agreements
to repurchase......................... 57,425 57,425^ ^ 57,425
Other liabilities....................... 2,578 144 -- ^ 2,723 2,723
------- ------ ------- ------- --------
Total liabilities..................... 527,398 34,066 176,900 ^$738,364 738,364
------- ------ ------- ------- -------
Guaranteed preferred beneficial interest
in subordinated debt.................. 28,750 28,750 28,750
Shareholders' equity:
Preferred stock......................... -- --
Common stock............................ 1,945 1,945 ^ 900 (4) ^ 2,845
Surplus................................. 18,090 18,090 ^ 17,720 (4) ^ 35,810
Retained earnings....................... 9,902 9,902 9,902
Unrealized (loss) on securities, net
of income taxes....................... (866) -- -- (866) -- (866)
------ ------- ------- ------- -------- --------
Total shareholders' equity............ 29,071 ^-- -- 29,071 18,620 47,691
------- ------- ------- ------- ------- --------
Total................................. $585,219 $^34,066 $176,900 $796,185 $^18,620 $ 814,805
======= ======= ======= ======= ======= ========
</TABLE>
- -----------------
(1) To record branch purchase.
(2) To record premium paid on the assumption of the deposit liabilities
($2.2 million). The excess of cost over fair value of net assets
acquired will be amortized over a seven year period.
(3) To record premium paid on the assumption of the deposit liabilities
($17.1 million). The excess of cost over fair value of net assets
acquired will be amortized over a seven year period.
(4) To record net proceeds from common stock offering.
18
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of
the Company at June 30, 1997, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Common Shares hereby offered by the
Company assuming the Underwriters' over-allotment was not exercised, (iii) the
pro forma effect of the Oritani and Bank of New York branch purchases, and (iv)
the actual and pro forma capital ratios of the Company and the Bank.
<TABLE>
<CAPTION>
(Unaudited)
As Adjusted
--------------------------------------------------------
Sale of Common
Shares and Oritani
and Bank of New
Sale of York
Actual Common Shares Branch Purchases
------ ------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Guaranteed preferred beneficial interest in
subordinated debt................................ $28,750 $28,750 $28,750
SHAREHOLDERS' EQUITY:
Preferred stock $1 par value, 1,000,000
shares authorized, none issued................. -- -- --
Common stock $1 par value - 10,000,000
shares authorized; ^ 2,918,125 outstanding...... 1,945 ^ 2,845 ^ 2,845
^ Surplus........................................ 18,090 ^ 35,810 ^ 35,810
Retained earnings................................ 9,902 9,902 9,902
Unrealized loss on securities available-for-
sale, net of income taxes....................... (866) (866) (866)
------- ------- -------
Total shareholders' equity................... 29,071 47,691 47,691
-------- ------ ------
Total capitalization........................... ^ $57,821 $76,441 $ 74,441
====== ====== =======
COMPANY CAPITAL RATIOS(1):
Tier 1 risk-based capital ratio.................. 7.52% 13.54% 7.54%
Total risk-based capital ratio................... 12.99 17.44 10.88
Leverage ratio................................... 5.93 ^ 9.98 4.83
BANK CAPITAL RATIOS(2):
Tier 1 risk-based capital ratio.................. 11.44 15.93 9.55
Total risk-based capital ratio................... 12.27 16.76 10.25
Leverage ratio................................... 8.63 ^ 11.72 6.10
</TABLE>
- -----------------
(1) The capital ratios, as adjusted, are computed including the total
estimated net proceeds from the sale of the Common Shares, in a manner
consistent with Federal Reserve guidelines.
(2) Assumes that the Company will contribute all the net proceeds from the
sale of the Common Shares to the Bank. The capital ratios, as adjusted,
are computed in a manner consistent with OCC guidelines.
19
<PAGE>
PRICE RANGE OF COMMON SHARES; DIVIDENDS
The Company's Common Shares have been quoted on the Nasdaq SmallCap
Market under the symbol "SNBC" since August 29, 1996 with trading in Common
Shares being limited and infrequent. Since August 29, 1996, trading volume for
Common Shares has averaged less than 10,000 shares per week. Application has
been made to have the Common Shares approved for quotation on the Nasdaq
National Market. The following table sets forth the high and low closing sale
prices for the Common Shares for the calendar quarters indicated, as published
by the Nasdaq SmallCap Market.
High Low
-------- -------
1996
Third quarter (from August 29, 1996)....... $13.61 $12.70
Fourth quarter............................. 14.13 12.70
1997
First quarter.............................. 14.76 13.01
Second quarter............................. 15.67 13.65
Third quarter.............................. 22.00 14.83
Fourth quarter (through ^ October 16, 1997) ^ 22.75 21.75
The last reported sale price of the Common Shares on the Nasdaq
SmallCap Market as of ^ October 16, 1997, was ^ $22.50. There were ^ 270 holders
of record of the Company's Common Shares as of ^ October 10, 1997.
Historically, the Company has not paid cash dividends on its Common
Shares. The Company's Board of Directors does not currently intend to pay cash
dividends, but may consider such a policy in the future. No decision, however,
has been made as to the amount or timing of such cash dividends. The Company
paid a 5% stock dividend on October 30, 1996 and a 5% stock dividend on June 25,
1997. In August 1997, the Company declared a three for two Common Share stock
split effected by means of a 50% stock dividend paid in September 1997. Future
declarations of dividends by the Board of Directors will depend upon a number of
factors, including the Company's and the Bank's financial condition and results
of operations, investment opportunities available to the Company or the Bank,
capital requirements, regulatory limitations, tax considerations, the amount of
net proceeds retained by the Company and general economic conditions. No
assurances can be given, however, that any dividends will be paid or, if payment
is made, will continue to be paid.
The ability of the Company to pay dividends is dependent on the ability
of the Bank to pay dividends to the Company. Because the Bank is a depository
institution insured by the FDIC, it may not pay dividends or distribute any of
its capital assets if it is in default on any assessment due the FDIC. In
addition, OCC regulations also impose certain minimum capital requirements that
affect the amount of cash available for the payment of dividends by the Bank.
Under Federal Reserve policy, the Company is required to maintain adequate
regulatory capital and is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances where it
might not do so absent such a policy. This policy could have the effect of
reducing the amount of dividends declarable by the Company.
20
<PAGE>
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 and
commercial real estate 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.
Overview
Beginning in 1993, the Company embarked upon a strategy to expand its
operations and retail market throughout southern New Jersey through internal
growth and mergers and acquisitions. The Board and management perceived
opportunities to expand the Company as a result of a lack of competitive
commercial banking services being provided to local businesses and the need for
a locally based and managed community bank. Continued consolidation of the
banking industry and a regionalization of decision-making authority by larger
banking institutions left many businesses and individuals in the Bank's market
area underserved.
In mid-1994, the Company acquired the First National Bank of Tuckahoe
("Tuckahoe"), which operated three branch offices in Cape May County, for
approximately $7.1 million in cash, and Southern Ocean State Bank ("Ocean"),
which operated four branches in Ocean County, for approximately $6.6 million in
cash. The two transactions, combined, resulted in the acquisition of $49 million
of loans and $105 million of deposits and an increase in assets of $117 million.
These banks and their operations were merged into the Bank in 1994.
In 1995, as the result of further consolidation of banks and their
restructuring of operations in New Jersey, the Bank acquired $52 million of
deposits and four branches located in the southern New Jersey counties of
Cumberland, Atlantic and Ocean from NatWest Bank and $70 million of deposits and
four branches located in Cumberland and Burlington counties from New Jersey
National Bank. As a result of these two branch purchase transactions, the Bank
acquired $122 million of deposits; the corresponding amount of cash received to
fund the deposit transfer was initially used to purchase investment securities.
In addition, the Bank opened a new banking office in Pleasantville in 1995 and
an office in Cape May Court House in 1996.
On June 5, 1997, the Bank acquired $73 million in deposit liabilities
and $2.5 million of loans and four branch offices located in the southern New
Jersey counties of Salem and Burlington from First Union National Bank,
Avondale, Pennsylvania ("First Union"). On July 24, 1997, the Bank acquired
approximately $34 million in deposit liabilities and three branch offices
located in Camden County, New
21
<PAGE>
Jersey from Oritani. In addition, the Bank opened de novo branches in Cape May
in March 1997, Toms River in June 1997 and Long Beach Island in June 1997.
In recent years, the Bank also has experienced a significant level of
loan growth. The Bank's loan portfolio increased from $83.4 million at December
31, 1993, to $363.7 million at June 30, 1997. Much of this loan growth is
attributable to the Bank's hiring of a number of experienced loan officers
previously employed by money center and multi-state regional banking
organizations. In most cases, these loan officers brought with them established
contacts and relationships with individuals or entities throughout the Bank's
primary market area and have been able thereby to increase the Bank's customer
base and the number of loan originations. Loan growth has also been attributable
to market penetration. The Bank also has established a number of regional
advisory boards, comprised of prominent local business and community
representatives, that were responsible for referring approximately $50 million
in loans to the Bank in 1996, representing one-third of all new outstanding
loans in such year. In addition, the Bank has made significant efforts to
increase its ^ lending to businesses along the Southern New Jersey shore that
are primarily operational during only certain times of each year (i.e. seasonal
lending), which has contributed to the Bank's loan growth. As noted previously,
a significant portion of the Bank's total loan portfolio may be considered
unseasoned and, therefore, specific payment experience for this portion of the
portfolio has not yet been established.
To support and manage the expanded operations of the Bank and to
provide adequate management resources to support the further expansion and
growth, the Bank began to recruit and hire, in addition to experienced
commercial loan officers, credit, compliance, loan review and internal audit
personnel, operations personnel and senior level executives. In addition, the
Bank has enhanced and expanded its operational and management information system
and taken steps to enhance its oversight of third-party vendors. While the Bank
continues to monitor its rapid growth, and the adequacy of management and
resources available to support such growth, there can be no assurance that the
Bank will be successful in managing all elements relating to its rapid growth.
The growth and expansion of operations through mergers and acquisitions
and internal growth has resulted in a significant increase in assets, loans and
deposits since December 31, 1993, and a concomitant increase in net interest
income, non-interest income and non-interest expenses.
Results of Operations
Net income increased by $90,000 for the six months ended June 30, 1997,
to $1.5 million from $1.4 million for the six months ended June 30, 1996. Net
interest income increased $1.7 million and the provision for loan losses
increased $375,000 for the six months ended June 30, 1997, compared to the same
period in 1996. Other income decreased by $82,000 to $776,000 for the six months
ended June 30, 1997 as compared to $858,000 for the six months ended June 30,
1996. Other expenses increased by $1.2 million to $7.3 million for the six
months ended June 30, 1997, as compared to $6.1 million for the six months ended
June 30, 1996.
Net income for the year ended December 31, 1996, was $3.0 million or ^
$1.00 per share in comparison to $2.8 million or ^ $0.97 per share for the year
ended December 31, 1995. The increase in net income was primarily due to an
increase in net interest income of $3.6 million which was substantially offset
by an increase in non-interest expenses of $3.2 million, an increase in the
provision for loan losses of $92,000 and an increase in income tax expense of
$222,000 in comparison to the results of operations for 1995.
22
<PAGE>
Net income for the year ended December 31, 1995, increased $979,000, or
53.2%, to $2.8 million from $1.8 million for the year ended December 31, 1994.
The increase in net income was generally attributable to a large increase in net
interest income of $4.9 million and an increase of $900,000 in non-interest
income. Net interest income increased from $8.3 million in 1994 to $13.2 million
in 1995; and non-interest income increased from $732,000 in 1994 to $1.7 million
in 1995. This increase was partially offset by increases in non-interest
expenses of $4.1 million, an increase in the provision for loan losses of
$400,000 and an increase in income tax expense of $365,000. Non-interest
expenses increased from $6.0 million in 1994 to $10.0 million in 1995. The
provision for loan losses increased from $383,000 in 1994 to $808,000 in 1995.
Income tax expense increased from $775,000 in 1994 to $1.1 million in 1995.
Net Interest Income^
Net interest income is the most significant component of the Company's
income from operations. Net interest income is the difference between interest
received on interest-earning assets (primarily loans and investment securities)
and interest paid on interest-bearing liabilities (primarily deposits and
borrowed funds). Net interest income depends on the volume of and rate earned on
interest-earning assets and the volume of and interest rate paid on
interest-bearing liabilities.
23
<PAGE>
The following table sets forth a summary of average balances with
corresponding interest income and interest expense as well as average yield and
cost information for the periods presented. Average balances are derived from
daily balances.
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
-------------------------- ---------------------------------------------------------------------------------------
1997(1) 1996 1995 1994
-------------------------- ---------------------- --------------------------- -------------------------------
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-
earning assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
receivable(2).$318,016 $14,789 9.30% $235,744 $22,074 9.36% $155,139 $15,101 9.73 % $108,265 $9,591 8.86%
Investment
securities(3). 116,326 3,292 5.66 129,164 7,127 5.52 85,445 5,286 6.19 33,931 2,151 6.34
Federal funds
sold.......... 2,324 64 5.55 1,323 68 5.14 7,756 463 5.97 10,988 452 4.11
------- ------ ---- ------- ------- ---- ------ ------ ----- ------- ------- ------
Total
interest-
earning
assets...... 436,666 18,145 8.31 366,231 29,269 7.99 248,340 20,850 8.40 153,184 12,194 7.96
Non-interest-
earning
assets.......... 39,028 40,316 24,409 15,076
------- ------- ------- ------
Total assets....$475,694 $406,547 $272,749 $168,260
======= ======= ======== =======
Interest-bearing
liabilities:
Interest-bearing
deposit
accounts......$319,565 6,556 4.10 $298,538 11,954 4.00 $202,276 7,640 3.78 $122,843 3,845 3.13
Borrowed money.. 45,214 1,310 5.79 10,397 580 5.58 775 47 6.06 1,202 93 7.74
Interest on
guaranteed
preferred
beneficial
interest in
subordinated
debt.......... 16,391 825 10.07 -- -- -- -- -- -- -- -- --
------ ----- ----- ------- ------ ------- -------- --------- ------ --------- ------- ---------
Total
interest-
bearing
liabilities. 381,170 8,691 4.56 308,935 12,534 4.06 203,051 7,687 3.79 124,045 3,938 3.17
Non-interest-
bearing
liabilities..... 66,781 72,486 47,004 28,551
-------- ------- ------- -------
Total
liabilities... 447,951 381,421 250,055 152,596
Shareholders'
equity ^(4)..... 27,743 25,126 22,694 15,664
------- ------- ------- -------
Total
liabilities
and
shareholders'
equity........$475,694 $406,547 $272,749 $168,260
======= ======= ======= =======
Net interest
income.......... $9,454 $16,735 $13,163 $8,256
====== ======= ======= ======
Interest rate
spread ^(5)..... 3.75% 3.93 % 4.61 % 4.79%
==== ==== ==== ====
Net yield on
interest-
earning
assets ^(6)..... 4.33% 4.57 % 5.30 % 5.39%
==== ==== ==== ====
Ratio of
average
interest-
earning
assets
to average
interest-
bearing
liabilities..... 114.56% 118.55 % 122.30 % 123.49%
====== ====== ====== ======
</TABLE>
- -------------
(1) Ratios for six 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) Yields give effect to the fair value of financial instruments.
(4) Averages were computed using month end balances.
^(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities. ^
(6) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
24
<PAGE>
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).
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
----------------------------------------------- ----------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------------------- ----------------------------------------------
Rate / Rate /
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
Interest income: (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable ............ $ 7,847 ($ 575) ($ 299) $ 6,973 $ 4,156 $ 945 $ 409 $ 5,510
Investment securities ....... 2,707 (573) (293) 1,841 3,264 (51) (45) 3,135
Federal funds sold .......... (382) (65) 53 (394) (133) 204 (60) 11
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-
earning assets .......... $ 10,172 ($ 1,213) ($ 539) $ 8,420 $ 7,287 $ 1,098 $ 271 $ 8,656
======== ======== ======== ======== ======== ======== ======== ========
Interest expense:
Deposit accounts ............ $ 3,658 $ 445 $ 211 $ 4,314 $ 2,483 $ 796 $ 515 $ 3,795
Borrowings .................. 584 (4) (47) 533 (33) (20) 7 (46)
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-
bearing liabilities...... $ 4,242 $ 441 $ 164 $ 4,847 $ 2,450 $ 776 $ 522 $ 3,749
======== ======== ======== ======== ======== ======== ======== ========
Change in net interest income . $ 5,930 ($ 1,654) ($ 703) $ 3,573 $ 4,837 $ 322 ($ 252) $ 4,907
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Net interest income increased $1.7 million, or 22%, to $9.5 million at
June 30, 1997, as compared to June 30, 1996. The increase in net interest income
was due to a $4.8 million increase in interest income partially offset by a $3.1
million increase in interest expense. Net interest income increased $3.6
million, or 27%, to $16.7 million in 1996 compared to $13.2 million in 1995. The
increase is due primarily to the growth of average interest-earning assets from
$248.3 million in 1995 to $366.2 million in 1996, partially offset by a decline
in the interest rate spread from 4.61% in 1995 to 3.93% in 1996. The decline in
the interest rate spread had a corresponding impact on the net interest margin
which declined 73 basis points to 4.57% in 1996.
The increase in average interest-earning assets of $117.9 million from
December 31, 1995, to December 31, 1996, reflects an increase of $80.6 million
in average loans and $43.7 million in average investment securities which were
funded by an increase of $105.9 million of average interest-bearing liabilities
and an increase of $25.5 million of average non-interest-bearing liabilities.
This increase in interest-bearing liabilities reflects the acquisition of the
branches and deposits in 1995, the growth of deposits at existing offices in
1996, the opening of two new branches in 1995 and 1996, and an increase in
borrowings in 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
25
<PAGE>
in $3,750,000 of the Debentures of the Company. The Company may, however, redeem
the Debentures in whole (but not in part) at any time upon the occurrence of
certain changes in the tax laws or of changes in federal banking regulations
impacting the capital treatment of the Preferred Securities, or upon the
occurrence of changes in the laws resulting in the treatment of the Trust as an
investment company and, from and after March 31, 2002, may redeem the Debentures
at any time in whole or in part. In view of these transactions, the Company will
incur increased interest expense in future periods at a higher cost of funds
than the average cost of the Bank's deposits. For the six months ended June 30,
1997, the Company incurred $825,000 of such interest expense.
The interest rate spread and net interest margin decreased as of June
30, 1997, compared to December 31, 1996, due to higher costs on borrowed money
as well as interest on guaranteed preferred beneficial interest in subordinated
debt. The interest rate spread and net interest margin declined in 1996 compared
to 1995 due to a decline in the yield on average interest-earning assets from
8.40% in 1995 to 7.99% in 1996 and an increase in the interest cost of average
interest-bearing liabilities from 3.79% in 1995 to 4.06% in 1996. If the Bank is
able to maintain the low cost of funds on the deposits to be assumed in the Bank
of New York branch purchase, management anticipates such acquisition will
positively impact the interest rate spread and net interest margin in future
periods. However, there can be no assurance that the Company can maintain a low
cost of funds on such deposits or that the Company can retain ^ a substantial
portion of such deposits to be assumed, each of which may have an adverse impact
on the Company's results of operations and financial condition.
The yield on average interest-earning assets declined in 1996 due to a
decline in the yield on loans and investment securities. As general market
interest rates were relatively stable during 1995 and 1996, the decline in the
yield of loans in 1996 reflects the impact of increased competition for new loan
originations The decline in the yield of investment securities was due primarily
to a restructuring of the available-for-sale investment securities portfolio
during 1996.
The increase in the interest cost of average interest-bearing
liabilities is due principally to an increase in the interest cost of
interest-bearing deposits from 3.78% in 1995 to 4.00% in 1996. The higher
interest cost of deposits in 1996 reflects primarily the increase in
certificates of deposit, as a percentage of total deposits and premium interest
rates offered by the Bank on certificates of deposit during 1996. The premium
rates were offered on selected maturities of certificates of deposit to generate
deposit growth to fund the significant loan demand experienced by the Bank.
Net interest income increased $4.9 million, or 59%, to $13.2 million in
1995 compared to $8.3 million in 1994. The increase is due primarily to an
increase in average earning assets, from $153.2 million in 1994 to $248.3
million in 1995, partially offset by a decline in the interest rate spread from
4.79% in 1994 to 4.61% in 1995. The decline in the spread results from a shift
in the deposit mix from lower cost savings deposits into higher cost time
deposits and was offset by an increase in the yield on earning assets from 7.96%
in 1994 to 8.40% in 1995. The yield on earning assets increased due to a shift
in investment from lower yielding federal funds sold to investment securities,
an increase in loan yields from 8.86% in 1994 to 9.73% in 1995, and an increased
yield on federal funds sold from 4.11% in 1994 to 5.97% in 1995.
The $95.2 million increase in earning assets was largely the result of
branches acquired in 1995 and assets acquired in the Tuckahoe and Ocean
transactions completed in 1994.
The average balance of loans outstanding increased $46.9 million in
1995, to $155.1 million from $108.3 million in 1994. The increase in loans was a
result of the full year's impact of the acquisition of Tuckahoe and Ocean and
the origination of new loans during the year.
26
<PAGE>
The average balance of investment securities increased from $33.9
million in 1994 to $85.4 million in 1995 as a direct result of the acquisitions
that occurred in mid-1994 and branch acquisitions in 1995. The positive impact
on interest income resulting from increased balances was slightly offset by a
decline in yield from 6.34% to 6.19% in 1995.
Average interest-bearing deposit balances increased 65% from $122.8
million in 1994 to $202.3 million in 1995, primarily due to the bank and branch
acquisitions. The impact on interest expense was augmented by an increase in the
cost of deposits from 3.13% in 1994 to 3.78% in 1995. The increased interest
costs resulted from a shift in deposit composition and an increased cost on time
deposits. In 1994, savings and time deposits each comprised 31% of total
deposits, while time deposits in 1995 increased to 39% of deposits and savings
declined to 23% of deposits. In addition, the cost of time deposits increased
from 3.95% to 5.48% primarily due to generally higher market rates.
Interest on borrowed funds decreased $46,000 from $93,000 in 1994 to
$47,000 in 1995. The decrease was primarily due to a decrease in average
balances, from $1.2 million in 1994 to $775,000 in 1995. As a result of the cash
it received from its 1994 and 1995 acquisitions, the Bank had a significantly
lower need to borrow funds.
Provision for Loan Losses^
For the six months ended June 30, 1997, the provision for loan losses
amounted to $825,000, an increase of $375,000, or 83.3%, compared to $450,000
for the same period in 1996. The increase was primarily the result of the
increase in the Company's loan portfolio of approximately $130.2 million at June
30, 1997, compared with June 30, 1996, primarily reflecting growth in the Bank's
commercial loan portfolio. The Company recorded a provision for loan losses of
$900,000 in 1996 compared with $808,000 in 1995 and $383,000 in 1994. The
increase in the provision for loan losses in 1995 was attributable to an
increase in the size of the loan portfolio due to the bank acquisitions in 1994
and internal loan growth in 1995. Management regularly performs an analysis to
identify the inherent risk of loss in its loan portfolio. This analysis includes
evaluation of concentrations of credit, past loss experience, current economic
conditions, amount and composition of the loan portfolio (including loans being
specifically monitored by management), estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
The Bank will continue to monitor its allowance for loan losses and
make future adjustments to the allowance through the provision for loan losses
as conditions dictate. Although the Bank maintains its allowance for loan losses
at a level that it considers to be adequate to provide for the inherent risk of
loss in its loan portfolio, there can be no assurance that future losses will
not exceed estimated amounts or that additional provisions for loan losses will
not be required in future periods.
Non-Interest Income^
Other income decreased $82,000 for the six month period ended June 30,
1997, compared to the six month period ended June 30, 1996. The decrease was
primarily a result of lower gains on sales of investment securities in 1997.
These gains were $191,000 for the first six months of 1996 compared to $16,000
for the same period in 1997. This decrease was partially offset by an increase
of $97,000 on service charges on deposit accounts, from $488,000 for the six
months ended June 30, 1996, to $585,000 for the same period in 1997. The
increase was caused by a higher fee structure and from a larger deposit base
resulting from ^ branch acquisitions as well as internal growth.
27
<PAGE>
Other operating income increased $95,000, or 5.7%, from $1.65 million
for the year ended December 31, 1995, to $1.75 million for the year ended
December 31, 1996. The increase was primarily a result of an increase in service
charges on deposit accounts and other service charges, partially offset by a
reduction of gains on asset sales. Gains on sales of investment securities
declined by $170,000, from $377,000 in 1995 to $207,000 in 1996. During 1995,
the Company recognized $208,000 as gains on the sales of loans. During 1996,
there were no sales of loans in which gains or losses were recorded. Service
charges on deposit accounts increased $397,000, from $660,000 for the year ended
December 31, 1995, to $1.1 million in 1996. The increase was due to a larger
customer base in 1996 as a result of the branch acquisitions in 1995 and the
growth of the Bank's business and higher fees on deposit accounts. Other service
charges increased $88,000, from $28,000 in 1995 to $116,000 in 1996. The
increase was also a result of a larger customer base.
Other operating income increased $919,000, or 125%, from $732,000 for
the year ended December 31, 1994, to $1.7 million for the same period in 1995.
The increase was due to an increase in service charges on deposit accounts
augmented by gains on sales of loans and investment securities. Service charges
on deposit accounts increased $241,000, from $419,000 for the year ended
December 31, 1994, to $660,000 in 1995. The increased income was a result of a
larger customer base resulting from bank acquisitions occurring during 1994 and
branch acquisitions occurring during 1995. During 1995, the Company recorded
gains on sales of loans amounting to $208,000, and gains on sales of investment
securities amounting to $377,000. During 1994, there were no gains on sales of
loans or investment securities.
Non-Interest Expenses^
Other expenses increased approximately $1.2 million, to $7.3 million
for the six months ended June 30, 1997, as compared to $6.1 million for the same
period in 1996. The increase was a result of operating a larger organization. Of
the increase, $730,000 was in salaries and employee benefits, $183,000 in
equipment expense, $177,000 in data processing expense, $119,000 in
miscellaneous expenses, $77,000 in insurance expense and $55,000 in amortization
of excess of cost over fair value of assets acquired. This was offset by
decreases of $53,000 in postage and supplies and $61,000 in occupancy expense.
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 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 Bank's increased
capital, the FDIC premium has been reduced. Substantially all of the Bank's
deposits are federally insured by the BIF, however, approximately $34 million of
deposits, which were acquired pursuant to the Oritani branch purchase, are
federally insured by the SAIF. 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.
Other operating expenses increased $3.2 million, from $10.0 million for
the year ended December 31, 1995, to $13.2 million for the year ended December
31, 1996. The increase reflects the Company's strategy to build an
infrastructure to support planned expansion. Non-interest expense was directly
impacted by increased salaries and employee benefits, equipment expense, data
processing and amortization of intangibles, partially offset by a reduction of
insurance expense. Salaries and employee benefits increased $1.8 million, from
$4.7 million for the year ended December 31, 1995, to $6.5 million during 1996.
The increase was a result of a higher number of officers and other employees
during 1996. In addition, during 1996 the Company began a 401(k) benefits plan.
As a result of the Company match,
28
<PAGE>
as well as administrative costs, the Company incurred approximately $91,000 in
expenses during 1996. Equipment costs increased $359,000, from $459,000 for the
year ended December 31, 1995, to $818,000 in 1996. Equipment costs increased as
a result of the need for more equipment to operate a larger organization, as
well as upgrades to the Company's telephone system and establishment of a
computer network. Data processing fees increased $451,000, from $635,000 for the
year ended December 31, 1995, to $1.1 million for 1996. The increase was a
result of maintaining a larger deposit and loan base during 1996. The
amortization of the excess cost over fair value of assets increased $484,000,
from $343,000 for the year ended December 31, 1995, to $827,000 in 1996. The
increase was a result of a full year of amortizing the intangibles associated
with the 1995 acquisitions. Insurance expenses declined $187,000, from $383,000
for the year ended December 31, 1995, to $196,000 for 1996. The reduction of
insurance expense was a result of lower insurance premiums assessed by the FDIC
amounting to $181,000.
Other operating expenses increased $4.1 million, from $6.0 million for
the year ended December 31, 1994, to $10.1 million in 1995. The increase was due
to increased salaries and employee benefits, ^ data processing expense,
amortization of intangibles and other expenses. Salaries and employee benefits
increased $2.1 million, from $2.6 million for the year ended December 31, 1994,
to $4.7 million in 1995. The increase was a result of higher staffing levels as
a result of the acquisitions that occurred during 1995 and 1994. Data processing
fees increased by $316,000, from $319,000 for the year ended December 31, 1994,
to $635,000 in 1995. This increase was also due to added processing in
connection with the larger deposit and loan base resulting from the 1994 and
1995 acquisitions. The amortization of the excess cost over fair value of assets
acquired increased $209,000, from $134,000 for the year ended December 31, 1994,
to $343,000 in 1995. The increase was a direct result of the 1994 and 1995
acquisitions. Other expenses increased by $892,000, from $714,000 for the year
ended December 31, 1994, to $1.6 million in 1995. In 1995, these expenses
increased in almost all categories as a result of operating a larger
organization than in 1994.
Income Tax Expense^
Income taxes decreased $78,000, from $668,000 to $590,000 for the six
months ended June 30, 1996, and June 30, 1997, respectively. The decrease
resulted from a change in estimated taxes for prior periods. The Company does
not anticipate any significant change in its effective tax rate. Income taxes
increased $222,000, or 19%, from $1.1 million for the year ended December 31,
1995, to $1.4 million for 1996. The increase was due to increased pre-tax
income. For the same reason, income taxes increased by $365,000, from $775,000
for the year ended December 31, 1994, to $1.1 million in 1995.
Liquidity and Capital Resources
A major source of the Company's funding is its retail deposit branch
network, which management believes will be sufficient to meet its long-term
liquidity needs. The ability of the Company to retain and attract new deposits
is dependent upon the variety and effectiveness of its customer account
products, customer service and convenience, and rates paid to customers. The
Company also obtains funds from the repayment and maturities of loans and
maturities of investment securities, while additional funds can be obtained from
a variety of sources including loan sales, securities sold under agreements to
repurchase, FHLB advances, and other secured and unsecured borrowings. It is
anticipated that FHLB advances and securities sold under agreements to
repurchase will be secondary sources of funding, and management expects there to
be adequate collateral for such funding requirements.
The Company's primary uses of funds are the origination of loans, the
funding of the Company's maturing certificates of deposit, deposit withdrawals,
and the repayment of borrowings. Certificates of
29
<PAGE>
deposit scheduled to mature during the twelve months ending June 30, 1998, total
$200.8 million. The Company may renew these certificates, attract new
replacement deposits, or replace such funds with borrowings. As noted above, the
Company has paid premium rates on certain certificates of deposit, accordingly,
certain of these actions may require the continued payment of premium rates with
an adverse impact on net interest income. 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. The Company has met this
increased need for funds by attracting higher levels of time deposits and
utilizing lines of credit. For long-term liquidity requirements, the Company has
the ability to liquidate portions of its investment portfolio, the entire
balance of which was reclassified as available-for-sale.
The Company anticipates that cash and cash equivalents on hand, the
cash flow from assets as well as other sources of funds will provide adequate
liquidity for the Company's future operating, investing and financing needs. In
addition to cash and cash equivalents of $37.8 million at June 30, 1997, the
Company has substantial additional secured borrowing capacity with the FHLB and
other sources. The Company anticipates a substantial increase in liquidity due
to the net cash received and to be received pursuant to the recent and pending
branch purchases. Excess liquidity has a negative impact on earnings resulting
from the lower yields on short-term assets. However, such net cash received or
to be received will be invested in investment securities and loans over time,
which will have the effect of decreasing the Company's liquidity. Management
will continue to monitor its liquidity in order to maintain it at a level which
is adequate but not excessive.
Net cash provided by operating activities for the six months ended June
30, 1997, was ^ $358,000 compared to $703,000 for the same period in 1996. Net
cash provided by operating activities for the year ended December 31, 1996,
totaled $3.8 million, as compared to $4.1 million for the year ended December
31, 1995. Net cash provided by operating activities for the year ended December
31, 1995, totaled $4.1 million an increase of $2.6 million from the year ended
December 31, 1994.
Net cash used in investing activities for the six months ended June 30,
1997, totaled $102.0 million, as compared to $44.5 million for the six months
ended June 30, 1996. The increase was primarily attributable to a decrease of
$46.9 million in proceeds from maturities of investment securities
available-for-sale and a decrease of $50.9 million in proceeds from sale of
mortgage-backed securities available-for-sale, partially offset by $28.8 million
in proceeds from the issuance of the Debentures. Net cash used in investing
activities for the year ended December 31, 1996, totaled $64.4 million, a
decrease from the year ended December 31, 1995, of $80.7 million. The decrease
was primarily attributable to the 1995 branch acquisitions which resulted in an
increase in investment securities of $97.6 million, offset by an increase in
cash used for loan originations of approximately $62.0 million, and net proceeds
from sale of investment securities and mortgage-backed securities of
approximately $50.0 million.
Net cash used in investing activities for the year ended December 31,
1995, totaled $145.1 million, an increase from the year ended December 31, 1994,
of $137.6 million. This increase was primarily attributable to the 1995 branch
acquisitions which resulted in an increase in investment securities of $97.6
million and an increase in loan originations of $47.8 million.
Net cash provided by financing activities for the six months ended June
30, 1997, was $117.6 million, an increase of $74.6 million as compared to $43.0
million for the six months ended June 30, 1996. Net cash provided by financing
activities for the year ended December 31, 1996, totaled $65.1 million. This is
a result of a net increase in deposits of $50.7 million, an increase in net
borrowings of $13.3 million, and a $1.1 million increase resulting from the
proceeds of the exercise of stock options. The increase in deposits and net
borrowings were used primarily to fund the increase in loan originations and
investment securities.
30
<PAGE>
Net cash provided by financing activities for the year ended December
31, 1995, totaled $148.1 million. This is a result of an increase in deposits
resulting from the 1995 branch acquisitions of $122.5 million, a net increase in
customers deposits of $16.7 million, and an increase in net borrowings of $8.0
million. The increase in deposits and net borrowings were used primarily to fund
the increase in loan originations and investment securities.
The Company monitors its capital levels relative to its business
operations and growth and has sought to maintain the Bank's and its capital at
levels consistent with or in excess of the regulatory requirements. Due to the
pending branch purchases and the Company's anticipated further growth, the
Company is raising additional capital through this public offering of its Common
Shares.
The increase of commercial loans has also had 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.
The Company's Guaranteed Preferred Beneficial Interest in Subordinated
Debt qualifies as Tier 1 or core capital of the Company, subject to a 25%
capital limitation under risk-based capital guidelines developed by the Federal
Reserve. The portion that exceeds the 25% capital limitation qualifies as Tier 2
or supplementary capital of the Company.
It is the Company's intent to maintain adequate risk-based capital
levels. Management monitors capital levels and, when appropriate, will recommend
a capital-raising effort to the Company's board of directors. The Company has
the ability to raise capital through a private placement or a public offering,
as may be appropriate. The following table sets forth the Bank's risk-based
capital levels at June 30, 1997:
<TABLE>
<CAPTION>
To Be Well Capitalized Ratio
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
---------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital..... $45,876 11.44% $16,041 4.00% $24,061 6.00%
Total Risk-Based Capital...... 49,227 12.27% 32,096 8.00% 40,120 10.00%
Leverage...................... 45,876 8.63% 21,264 4.00% 26,580 5.00%
</TABLE>
The following table sets forth the Company's risk-based capital levels at June
30, 1997:
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------ ------------------ ----------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ---------- ------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital..... $30,359 7.52% $16,148 4.00% $24,222 6.00%
Total Risk-Based Capital...... 52,481 12.99% 32,321 8.00% 40,401 10.00%
Leverage...................... 30,359 5.93% 21,379 4.00% 26,724 5.00%
</TABLE>
At June 30, 1997, the Bank and the Company exceeded the required ratios
for classification as "well capitalized."
31
<PAGE>
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
longer maturity than its liabilities, the Company's earnings will tend to be
negatively affected during periods of rising interest rates. Conversely, this
mismatch should benefit the Company during periods of declining interest rates.
Management monitors the relationship between the interest rate sensitivity of
the Company's assets and liabilities. 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. On a
monthly basis, the Bank 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 June 30, 1997, the Bank had a negative position with respect to its
exposure to interest rate risk. Management monitors its gap position at monthly
meetings. The Asset/Liability Committee of the Bank's Board of Directors meets
quarterly to discuss the Bank's interest rate risk. The Bank uses simulation
models to measure the impact of potential changes of up to 200 basis points in
interest rates on the net interest income of the Company. As described below,
sudden changes to interest rates should not have a material impact to the Bank's
results of operations. Should the Bank experience a positive or negative
mismatch in excess of the approved range, it has a number of remedial options.
It has the ability to reposition its investment portfolio to include securities
with more advantageous repricing and/or maturity characteristics. It can attract
variable- or fixed-rate loan products as appropriate. It can also price deposit
products to attract deposits with maturity characteristics that can lower its
exposure to interest rate risk.
At June 30, 1997, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing during the same time period by $73.5 million, representing a negative
cumulative one-year gap ratio of 12.57%. As a result, the yield on
interest-earning assets of the Bank should adjust to changes in interest rates
at a slower rate than the cost of the Bank's interest-bearing liabilities.
Because the Bank had positive gap characteristics in its shorter maturity
periods, the Bank's one-year gap mismatch would have a negligible effect on the
Bank's net interest margin during periods of rising or declining market interest
rates.
The following table summarizes the maturity and repricing
characteristics of the Bank's interest-earning assets and interest-bearing
liabilities as of June 30, 1997. All amounts are categorized by their actual
maturity or repricing date with the exception of interest-bearing demand
deposits and savings deposits. The Bank's historical experience with both
interest-bearing demand deposits and savings deposits reflects an insignificant
change in deposit levels for these core deposits. As a result, the Bank
allocates approximately 35% to the 0-3 month category and 65% to the 1-5 year
category.
32
<PAGE>
<TABLE>
<CAPTION>
Maturity/Repricing Time Periods
0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
---------- ----------- --------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable.................... $123,056 $45,593 $136,438 $58,618 $363,705
Investment securities............... 48,617 12,846 57,031 32,087 150,581
Federal Funds sold.................. 11,500 -- -- -- 11,150
------- --------- --------- --------- -------
Total interest-earning assets..... 182,823 58,439 193,469 90,705 525,436
------- ------- ------- ------- -------
Interest-bearing demand deposits.... 27,001 -- 51,648 -- 78,649
Savings deposits.................... 27,851 -- 43,071 -- 70,922
Time certificates under $100,000.... 61,183 87,602 26,280 -- 175,065
Time certificates $100,000 or more.. 27,834 25,910 2,313 -- 56,057
Federal Home Loan Bank advances..... 48,500 -- -- -- 48,500
Securities sold under agreements
to repurchase..................... 8,926 -- -- -- 8,926
------- -------- -------- -------- ------
Total interest-bearing liabilities 201,295 113,512 123,312 -- 438,119
------- ------- ------- -------- -------
Periodic gap........................ $(18,472) $(55,073) $70,157 $90,705 $87,317
======= ======= ====== ====== ======
Cumulative gap...................... $(18,472) $(73,545) $(3,388) $87,317
======= ======= ====== ======
Cumulative gap ratio............... (3.16)% (12.57)% (0.58)% 14.92%
===== ====== ===== =====
</TABLE>
Impact of Inflation and Changing Prices
The consolidated 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.
Financial Condition
General^
The Company has experienced significant growth as a result of
acquisitions and internal growth. Increases were most prevalent in loans,
generally commercial loans, and deposits. The Company's assets increased by
$148.4 million, or 34%, from December 31, 1996, to June 30, 1997, and by $66.9
million, or 18%, from $369.9 million at December 31, 1995, to $436.8 million at
December 31, 1996. These increases in assets primarily reflect the Company's
deployment of proceeds into the loan portfolio, from sales of investment
securities and increased deposit levels. Comparing balances from June 30, 1997,
to December 31, 1996, and from December 31, 1996 to 1995, the Company's net
loans receivable increased $68.2 million and $111.9 million, respectively,
federal funds sold increased $6.4 million and $4.8 million, and investment
securities increased $56.0 million and decreased $51.4 million, respectively.
Total liabilities increased $118.0 million, or 29%, to $527.4 million at June
30, 1997, from $409.4 million at December 31, 1996, and they increased $64.2
million, or 19%, from $345.2 million at December 31, 1995, to December 31, 1996.
Deposits increased $81.4 million and borrowed funds increased $36.2 million from
December 31, 1996, to June 30, 1997. Deposits increased $50.7 million and
borrowed funds increased $13.2 million from December 31, 1995 to 1996. Before
the effect of
33
<PAGE>
unrealized gains or losses on securities held-for-sale, shareholders' equity
increased $1.5 million, or 6%, to $30.0 million at June 30, 1997, from December
31, 1996, and increased $4.1 million, or 17%, from $24.3 million at December 31,
1995, to $28.4 million at December 31, 1996.
Loans^
Net loans receivable increased $68.2 million, or 23%, from December 31,
1996, to June 30, 1997, due primarily to internally-generated commercial loan
growth. Net loans receivable increased $111.9 million, or 61%, from $183.6
million at December 31, 1995, to $295.5 million at December 31, 1996.
Approximately $104.2 million of this increase was in commercial loans --
predominately commercial real estate loans. This significant increase was a
result of a considerably larger commercial lending staff (many with
long-established customer relationships) available to offer competitively priced
loans. Installment loans increased $8.7 million, mostly due to a more active
consumer lending department and an increase in financing of mobile homes.
Residential real estate loans decreased $568,000 as a result of scheduled
principal repayments. During 1996, the Bank used outside loan correspondents to
originate residential mortgages. These loans were originated using the Bank's
underwriting standards, rates and terms, and were approved according to the
Bank's lending policy prior to origination. Prior to closing, the Bank usually
had commitments to sell these loans with servicing released, at par and without
recourse, in the secondary market. Secondary market sales were generally
scheduled to close shortly after the origination of the loan. Set forth below is
selected data relating to the composition of the Bank's loan portfolio by type
of loan on the dates indicated.
34
<PAGE>
Analysis of Loan Portfolio
<TABLE>
<CAPTION>
^ At June 30, At December 31,
------------------ -------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------------ ----------------- ---------------- ----------------- ----------------- -----------------
$ % $ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --- --- --
Type of Loan: (Dollars in thousands)
Commercial
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
and industrial... $284,363 78.19% $223,116 75.50% $118,874 64.73% $ 69,249 51.35% $41,642 49.94%^$34,475 42.00%
Home equity........ 22,151 6.09 22,070 7.47 25,129 13.68 26,799 19.87 23,510 28.19 22,257 27.12
Residential
real estate...... 31,200 8.58 31,777 10.75 29,287 15.95 29,633 21.97 19,151 22.97 26,213 31.94
Installment........ 29,342 8.07 21,133 7.15 12,409 6.76 10,787 8.00 151 0.18 219 0.27
Less: Loan
loss allowance..... 3,351 0.92 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
--------------- -------- ------- -------- ------ -------- ------ ------ ------ ------ -------
Net loans.......... $363,705 100.00% $295,501 100.00% $183,634 100.00% $134,861 100.00% $83,387 100.00%^$82,080 100 .00%
======= ====== ======= ======= ======= ====== ======= ====== ======= ====== ======= =======
Type of Security:
Residential
real estate:
1-4 family....... ^$84,563 23.25% $ 84,036 28 .44% $ 68,904 37.52% $ 72,466 53.73% $49,777 59.69%^$52,532 64.00%
Other............ 11,869 3.26 11,115 3.76 6,295 3.43 839 0.62 757 0.91 372 0.45
Commercial
real estate...... 189,646 52.14 166,893 56.48 85,239 46.42 48,845 36.22 28,682 34.40 23,930 29 .15
Commercial
business
loans........... ^ 59,792 16.44 20,455 6.92 13,822 7.53 6,621 4 .91 5,031 6.03 6,099 7.43
Consumer........... 19,436 5.34 15,229 5.15 11,214 6.11 6,511 4.83 151 0.18 219 0.27
Other.............. ^ 1,750 0.48 368 0.12 225 0.11 1,186 0.88 56 0.07 12 0.01
Less: Loan
loss allowance..... 3,351 0.92 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
--------------- -------- ------ -------- ------ -------- ------ ------ ------ ------ ------
Net loans.......... $363,705 100.00% $295,501 100.00% $183,634 100.00% $134,861 100.00% $83,387 100.00%^$82,080 ^100.00%
======= ====== ======= ====== ======= ====== ======= ====== ====== ====== ======= ======
</TABLE>
35
<PAGE>
The following table sets forth the estimated maturity of the Bank's
loan portfolio at December 31, 1996. The table does not include prepayments or
scheduled principal prepayments. Adjustable-rate mortgage loans are shown as
maturing based on contractual maturities.
<TABLE>
<CAPTION>
Due Due after Allowance
within 1 through Due after for
1 year 5 years 5 years Loan Loss Total
------ ------- ------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial.. $40,553 $109,168 $73,800 $ (1,301) $ 222,220
Home equity................ -- -- 22,069 (490) 21,579
Residential real estate.... 2,331 1,606 27,805 (139) 31,603
Installment................ 867 6,444 13,453 (167) 20,597
Unassigned reserve......... -- -- -- (498) (498)
-------- --------- ---------- -------- ----------
$43,751 $117,218 $137,127 $(2,595) $ 295,501
====== ======= ======= ====== =========
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1996, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(In thousands)
<S> <C> <C> <C>
Commercial and industrial................ $ 97,729 $ 84,885 $182,614
Home equity.............................. 621 21,111 21,732
Residential real estate.................. 23,588 5,237 28,825
Installment.............................. 19,897 -- 19,897
------- ------- -------
$141,835 $111,233 $253,068
======= ======= =======
</TABLE>
Non-Performing and Problem Assets
Loan Delinquencies^
The Bank'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, subsequent efforts are made to
contact the borrower. If the loan continues to be delinquent for 90 days or
more, the Bank 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 Bank's lending policy.
Commercial loans and commercial real estate loans are placed on
nonaccrual 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 charged off at 90 days
delinquent. In all cases, loans must be placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered doubtful.
36
<PAGE>
Non-Performing Assets^
Non-performing assets increased $122,000, or 3.8%, from $3.2 million at
December 31, 1996, to $3.3 million at June 30, 1997. During 1996, the Company
experienced a decline in the amount of loans that were on non-accrual. Total
non-performing assets declined by $903,000, or 22%, from $4.1 million at
December 31, 1995, to $3.2 million at December 31, 1996. The ratio of
non-performing assets to net loans, including Real Estate Owned, was ^ 0.91% at
June 30, 1997, compared to ^ 0.82% at December 31, 1996, and 1.74% at December
31, 1995. In 1995, non-performing assets increased by $563,000, from $3.5
million at December 31,1994, to $4.1 million at December 31, 1995. Although the
dollar amount increased, the ratio of non-performing assets to net loans plus
Real Estate Owned, decreased, from 1.84% at December 31, 1994, to 1.74% at
December 31, 1995. The following table sets forth information regarding loans
that are delinquent 90 days or more. Management of the Bank believes that all
loans accruing interest are adequately secured and in the process of collection.
At the dates shown, the Bank had no restructured loans within the definition of
SFAS No. 15.
Foreclosed Real Estate^
Real estate acquired by the Bank as a result 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 estimated disposal costs. Any
write-down of Real Estate Owned is charged to operations. At June 30, 1997, the
Bank had $666,000 classified as Real Estate Owned.
37
<PAGE>
Non-Performing Assets
<TABLE>
<CAPTION>
At June 30, At December 31,
--------------- ---------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Commercial and industrial ........................................... $ 352 $ 354 $1,721 $1,178 $1,074 $ 428
Home equity ......................................................... 472 337 295 341 204 33
Residential real estate ............................................. 273 586 607 342 265 199
Installment ......................................................... -- -- 35 40 -- --
------ ------ ------ ------ ------ ------
Total ................................................................. $1,097 $1,277 $2,658 $1,901 $1,543 $ 660
====== ====== ====== ====== ====== ======
Accruing loans that are contractually past
due 90 days or more:
Commercial and industrial ........................................... $ 89 $ 404 $ 135 $ 525 $ -- $ --
Home equity ......................................................... 248 62 279 30 -- --
Residential real estate ............................................. 1,043 572 64 20 2 183
Installment ......................................................... 155 105 67 7 -- --
------ ------ ------ ------ ------ ------
Total ................................................................. $1,535 $1,143 $ 545 $ 582 $ 2 $ 183
====== ====== ====== ====== ====== ======
Total non-accrual and 90-day past due loans ........................... $2,632 $2,420 $3,203 $2,483 $1,545 $ 843
Real estate owned ..................................................... 666 756 876 1,033 359 144
------ ------ ------ ------ ------ ------
Total non-performing assets ........................................... $3,298 $3,176 $4,079 $3,516 $1,904 $ 987
====== ====== ====== ====== ====== ======
Total non-accrual and 90-day past due loans to net loans .............. 0.72% 0.82% 1.74% 1.84% 1.85% 1.03%
Total non-performing assets to total loans plus other real estate owned 0.56% 0.73% 1.10% 1.62% 1.70% 0.95%
Total allowance for loan losses to total non-performing loans ......... 127.32% 107.26% 64.47% 64.74% 69.10% 128.53%
</TABLE>
38
<PAGE>
Interest income that would have been recorded on loans on non-accrual
status, under the original terms of such loans, would have totaled $66,000 for
the six months ended June 30, 1997.
Allowance for Loan Losses 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. The following table sets forth information with respect
to the Bank's allowance for losses on loans at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- -----------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses ^,
^ beginning of period ...... $2,595 $2,065 $1,607 $1,067 $1,084 $1,095
Charge-offs:
Commercial ................. -- 307 286 312 -- 132
Mortgage ................... 35 9 73 1 25 --
Installment ................ 47 85 67 37 -- --
------ ------ ------ ------ ------ ------
Total charge-offs ........ 82 401 426 350 25 132
------ ------ ------ ------ ------ ------
Recoveries:
Commercial ................. 3 6 33 22 3 --
Mortgage ................... -- 4 28 -- -- 20
Installment ................ 10 21 15 13 3 5
------ ------ ------ ------ ------ ------
Total recoveries ......... 13 31 76 35 6 25
------ ------ ------ ------ ------ ------
Net charge-offs .............. 69 370 350 315 19 107
Provision for loan losses .... 825 900 808 383 2 96
Allowance on acquired loans .. -- -- -- 472 -- --
------ ------ ------ ------ ------ ------
Allowance for loan losses ^,
end of period .............. $3,351 $2,595 $2,065 $1,607 $1,067 $1,084
====== ====== ====== ====== ====== ======
Allowance for loan losses ^ to
total loans ................ 0.91% 0.87% 1.11% 1.18% 1.27% 1.31%
Net loans charged off as
a percent of average
loans outstanding .......... 0.02% 0.16% 0.23% 0.29% 0.02% 0.14%
</TABLE>
39
<PAGE>
The following table sets forth the allocation of the Bank'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 June 30, At December 31,
----------------- ------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------------- ----------------- ------------------- -------------------- ------------------ -----------------
Percent Percent Percent Percent Percent Percent
of of of of of 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
end of period
applicable to:
Commercial
and
industrial ...$1,943 77.47% $1,301 74.98% $1,094 64.02% $ 847 50.60% $ 561 50.72%$ 487 49.28%
Residential
real estate .. 146 6.04 139 10.65 403 15.96 231 21.94 91 23.85 267 23.59
Home equity .... 548 8.50 490 7.40 319 13.34 155 19.58 122 17.53 111 26.95
Installment .... 256 7.99 167 6.97 54 6.68 47 7.88 1 7.90 2 0.18
Unallocated .... 458 -- 498 -- 195 -- 327 -- 292 -- 217 --
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ---- ------
Total
allowance
for loan
losses .....$3,351 100.00% $2,595 100.00% $2,065 100.00% $1,607 100.00% $1,067 100.00%$1,084 100.00%
====== ====== ===== ====== ====== ====== ====== ====== ====== ====== ===== ======
</TABLE>
40
<PAGE>
Investment Securities
^ Substantially all of the Company's investment portfolio is held at
the Bank's wholly-owned subsidiary, Med-Vine, Inc. ("Med-Vine"). Total
investment securities increased $55.0 million, or 56%, from $95.6 million at
December 31, 1996, to $150.6 million at June 30, 1997. Total investment
securities decreased $51.4 million, or 35.0%, from $147.0 million at December
31, 1995, to December 31, 1996. During 1996, the investment portfolio was
managed by a professional portfolio manager. Under the arrangement with the
manager, the board-approved investment policy of Med-Vine and the Bank was
implemented and every securities transaction was approved by the investment
officers of Med- Vine, the Bank and/or the investment committee of the Board of
Directors. The investment portfolio, in most part, had been acquired in
connection with the Bank's purchase of Tuckahoe and Ocean in 1994, and which
were subsequently contributed to Med-Vine. The portfolios were comprised of
investments which were generally illiquid and of small principal amounts. The
bank acquisitions originally increased investments by approximately $59 million.
The branch acquisitions resulted in cash being converted to investments of
approximately $115 million. During the course of the year, the manager
restructured the portfolio by selling a large number of these investments, then
reinvesting them mostly in larger blocks of government and municipal bonds. Some
of these investments were sold during the year to fund the rapid growth of
commercial loans.
The investment policy of the Bank is established by senior management
and approved by the Board of Directors. Med-Vine's investment policy is
identical to that of the Bank. It is based on asset and liability management
goals and is designed to provide a portfolio of high quality investments that
optimizes interest income and provides acceptable limits of safety and
liquidity. Prior to the fourth quarter of 1995, investment securities were
purchased with the intent to hold them until their maturity. During the fourth
quarter of 1995, in accordance with the implementation of the SFAS No. 115
Guide, the Bank reclassified its entire portfolio of investment securities as
available-for-sale. As a result, the investment securities are carried at their
approximate market value.
During 1997, the Bank has used repurchase agreements from the FHLB of
approximately $48.5 million to match fund or partially match fund short-term
investment securities for an incremental profit in a structured transaction. The
purpose of the structured transaction was to increase net interest income and
partially offset the increase in interest expense resulting from the recent
issuance of trust preferred securities. The structured transaction is expected
to be discontinued upon consummation of the Bank of New York branch purchase.
41
<PAGE>
The following table sets forth the carrying value of the Bank's
investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------------- -------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ---------------------------------- ------------------------------------
Net Estimated Net Estimated Net Estimated
Amortized Unrealized Market Amortized Unrealized Market Amortized Unrealized Market
Cost Losses Value Cost Losses Value Cost Gains Value
---- ------ ----- ---- ------ ----- ---- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale:
U. S.
Treasury
securities....... ^$51,076 $ ^(861) $ 50,215 $51,955 $ (921) $51,034 $ 41,674 $ 230 $ 41,904
Mortgage-
backed
securities....... 49,986 45 50,031 63 -- 63 41,734 264 41,998
State and
political
subdivision
securities....... 20,737 (264) 20,473 20,168 (329) 19,839 16,667 75 16,742
Other securities... ^ 30,095 (233) 29,862 24,877 (232) 24,645 46,304 61 46,365
--------- ------ ------ ------ ------- ------ ------- ------ -------
Total
securities
available-
for-sale....... $151,894 $(1,313) $150,581 $97,063 $(1,482) $95,581 $146,379 $ ^ 630 ^ $147,009
======= ====== ======= ====== ====== ====== ======= ====== =======
</TABLE>
December 31,
-------------------------------------
1994
-------------------------------------
Net Estimated
Amortized Unrealized Market
Cost Losses Value
---- ------ -----
(In thousands)
Held-to-maturity:
U. S.
Treasury
securities....... $ 20,034 $ (370) ^ $19,664
Government
agency and
mortgage-
backed
securities....... 19,335 (505) 18,830
State and
political
subdivision
securities....... 13,550 (287) 13,263
Other securities... 7,406 (178) 7,229
------- ------- -------
Total
securities
held-to-
maturity....... 60,325 (1,340) 58,985
------- ------ -------
Available-
for-sale:
U. S.
Treasury
securities....... -- -- --
Government
agency and
mortgage-
backed
securities....... -- -- --
State and
political
subdivision
securities....... -- -- --
Other securities... 313 -- 313
------- ------- -------
Total
securities
available-
for-sale....... 313 -- 313
------- ------- -------
Total
investment
securities... $ 60,638 $^(1,340) $59,298
======= ======= ======
42
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Bank's investment
portfolio at June 30, 1997. All securities are classified as being
available-for-sale, therefore the carrying value is the estimated market value.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total
------------------ ------------------- -------------------- ------------------- ------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations............ $11,074 5.32% $39,141 5.58% $ -- -- % $ -- -- % $50,215 5.52%
Government agency and
mortgage-backed securities 697 5.29 10,921 6.29 2,980 6.77 50,020 6.85 64,618 6.67
Municipal obligations... 557 4.09 1,257 4.54 13,389 4.81 5,270 4.94 20,473 4.81
Other securities........ 1,164 5.15 5,136 6.03 5 6.00 8,970 6.62 15,275 6.30
------- ---- ------- ---- ------- ---- ------- ---- -------- ----
Total............... $13,492 5.30% $56,455 5.74% $16,374 5.17% $64,260 6.66% $150,581 6.03%
======= ===== ======= ===== ======= ===== ======= ===== ======== =====
</TABLE>
Deposits
^ Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including checking, regular savings, money market,
certificates of deposit 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 Bank
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it solicit funds outside the State of
New Jersey.
Deposits at June 30, 1997, totaled $467.4 million, an increase of $81.4
million or 21%, compared to December 31, 1996, at which date total deposits
amounted to $386.0 million, an increase of $50.8 million, or 15%, over the
December 31, 1995, balance of $335.2 million. Demand deposits, including NOW
accounts and money market accounts, increased $31.7 million, or 24%, at June 30,
1997, to $165.3 million, compared to December 31, 1996, and they increased $4.8
million, from $128.8 million at December 31, 1995, to $133.6 million at December
31, 1996. Savings deposits increased $7.4 million to $70.9 million at June 30,
1997, from $63.5 million at December 31, 1996, and decreased $3.5 million, from
$67.0 million at December 31, 1995, compared to December 31, 1996. Certificates
of deposit under $100,000 increased $25.2 million from December 31, 1996, to
$176.8 million at June 30, 1997, and they increased $35.1 million, from $116.5
million at December 31, 1995, to $151.6 million at December 31, 1996.
Certificates of deposit of $100,000 or more increased ^ $18.9 million to ^ $56.1
million at June 30, 1997, and they increased $14.2 million, from $23.0 million
at December 31, 1995, to $37.2 million at December 31, 1996. The increase in
certificates of deposit during 1997 was due in large part to the acquisition of
certificates of deposit in connection with the First Union branch office
purchase, as well as promotional rates offered on certain certificates of
deposit during the year in response to rates offered by the financial
institutions in the Bank's market areas. The increase in 1996 was primarily due
to promotional rates offered on certain certificates of deposit during the year
in response to rates offered by other financial institutions in the Bank's
market areas, as well as in response to a general increase in overall market
rates for certificates of deposit.
43
<PAGE>
The following table sets forth average deposits by various types of
demand and time deposits:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
-------------- ------------------------------------------------------------------
1997 Avg. Yield 1996 Avg. Yield 1995 Avg. Yield 1994 Avg. Yield
---- ---------- ---- ---------- ---- ---------- ---- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits..... $71,482 -- % $ 65,556 --% $ 45,562 --% $ 26,949 -- %
Interest-bearing demand
deposits............ 63,231 1.80 62,270 1.78 48,609 2.19 29,186 2.43
Savings deposits...... 63,030 2.21 65,393 2.23 57,470 2.28 44,968 3.10
Time deposits......... 193,089 5.54 170,875 5.49 96,256 5.48 45,611 3.95
-------- ---- --------- ---- ------- ---- ------ ----
Total............... $390,832 3.38% $ 364,094 3.28% $247,897 3.09% $146,714 3.66%
======== ==== ========= ==== ======= ==== ======= ====
</TABLE>
The following table indicates the amount of certificates of deposit of
$100,000 or more by remaining maturity at June 30, 1997:
(In thousands)
Remaining maturity:
Three months or less............................ ^ $27,834
Over three through six months................... 14,255
Over six through twelve months.................. 11,655
Over twelve months.............................. 2,313
------
^ $56,057
=======
Borrowings
^ Borrowings increased $36.2 million at June 30, 1997, to $57.4
million, compared to December 31, 1996. Borrowed funds at December 31, 1996, in
turn, reflected an increase of $13.3 million, from $8.0 million at December 31,
1995, to $21.3 million at December 31, 1996. The 1997 increase was a result of ^
a decrease of ^ $10.0 million in borrowings from the Federal Home Loan Bank
("FHLB") and an increase of ^ $42.2 million in securities sold under agreements
to repurchase ^. This was partially offset by a loan repayment of $6.0 million.
Of the 1996 increase, $2 million represents an increase in advances from the
FHLB. For the six months ended June 30, 1997, and for the years ended December
31, 1996 and 1995 the maximum month-end amount of borrowed funds were $10.0
million, $10.0 million and $6.0 million, respectively. Beginning in 1996, the
Company sold securities under agreements with customers to repurchase them, at
par, on the next business day. The securities sold were U.S. Treasury Notes. At
June 30, 1997 and December 31, 1996, securities sold under agreements to
repurchase amounted to $8.9 million and $5.3 million, respectively. For the six
months ended June 30, 1997 the maximum month-end amount of securities sold under
agreements to repurchase with customers was $8.9 million. There were no amounts
outstanding for the years ended December 31, 1996 and 1995. At December 30,
1996, the company obtained a $6 million revolving line of credit from a
correspondent bank with a term of 36 months. The floating rate of interest was
the prime rate plus fifty basis points. For the six months ended June 30, 1997,
and for the year ended December 31, 1996 the maximum month-end amount
outstanding from the line of credit was $6.0 million and $6.0 million,
respectively. There was no amount outstanding during 1995. During 1997, the Bank
engaged in structured transactions designed to offset
44
<PAGE>
the interest expense incurred in connection with the issuance of the Preferred
Securities. See "-- Investment Securities."
Federal Home Loan Bank Advances and Repurchase Agreements
<TABLE>
<CAPTION>
At June 30, At December 31,
-------------- ---------------------------------------------
1997 1996 1995 1994
-------------- --------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Amount outstanding at period end
Advances.................................... $ -- $10,000 $8,000 $ --
Interest rate............................... --% 7.375% 5.875% --%
Approximate average amount outstanding....... $11,915 $ 5,265 $ 150 $ --
Approximate weighted average rate............. 5.58% 5.44% 5.44% --%
Repurchase agreements outstanding
at end of period............................ $48,500 $ -- $ -- $ --
Interest rate................................. 5.61% --% --% --%
Approximate average amount outstanding........ $17,554 $ -- $ -- $ --
Approximate weighted average rate............. 5.58% --% --% --%
</TABLE>
Deposits are the primary source of funds for the bank's lending
activities, investment activities and general business purposes. Should the need
arise, the Bank has the ability to access lines of credit from various sources
including the Federal Reserve Bank, the Federal Home Loan Bank and various other
correspondent banks. In addition, on an overnight basis, the Bank has the
ability to offer securities sold under agreements to repurchase.
Guaranteed Preferred Beneficial Interest in Subordinated Debt
On March 17, 1997, the Company's subsidiary, Sun Capital Trust (the
"Trust") issued $25 million of 9.85% Preferred Securities with a stated
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 $3.75 million 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 $3.75 million of the Debentures of the Company.
The Preferred Securities represent preferred undivided beneficial
interests in the Trust's assets, which consists solely of the Debentures. The
distributions payable on each Preferred Security is fixed at a rate per annum of
9.85% of the stated liquidation amount per Preferred Security, is cumulative and
is payable quarterly. The Company has ^ fully, irrevocably and unconditionally
guaranteed the Trust's obligations under the Preferred Securities (including the
payment of distributions and certain other payments relating to the Preferred
Securities^). The Debentures mature on March 31, 2027. The Preferred Securities
are subject to mandatory redemption (i) in whole, but not in part, at the
maturity upon repayment of the Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at any time by the Company of the
Debentures upon the occurrence of certain events and (iii) in whole or in part
at any time on or after March 31, 2002, contemporaneously with the optional
redemption by the Company of the Debentures in whole or in part.
45
<PAGE>
BUSINESS OF THE COMPANY
General
The Company is a one-bank holding company headquartered in Vineland,
New Jersey engaged primarily in commercial and consumer banking services through
its sole bank subsidiary, the Bank. The Company's principal business is to serve
as a holding company for the Bank and was incorporated in 1985. The Company's
other subsidiary, the Trust, was formed solely to facilitate the issuance of the
Preferred Securities and the sale of the Debentures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Guaranteed Preferred Beneficial Interest in Subordinated Debt." In April 1995,
the Company changed its name from Citizens Investments, Inc. to its present
name. The Bank has one wholly-owned subsidiary, Med-Vine, Inc., a Delaware
corporation, which was formed in 1992 to hold a majority of the Company's
investment portfolio.
As previously discussed, the Company is focused on a strategy to expand
its franchise throughout southern and central New Jersey. Continued
consolidation of the banking industry, and a regionalization of decision-making
authority by larger banking institutions resulted in many area businesses and
individuals in the Bank's market being underserved. The opportunities provided
in this market prompted the Board and management to actively pursue strategic
acquisitions.
The Bank offers a wide variety of commercial and consumer lending and
deposit services through its 28 branch offices located throughout southern New
Jersey. The commercial loans offered by the Bank include short- and long-term
business loans, lines of credit, non-residential mortgage loans, and real estate
construction loans. Consumer loans include home equity loans, residential real
estate loans, and installment loans. The Bank also offers deposits and personal
banking services, including commercial banking services, retail deposit services
such as certificates of deposit, money market accounts, savings accounts and ATM
access and individual retirement accounts, and securities brokerage and
investment advisory services through a third-party arrangement.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through 28
branch offices and one loan administration office located in the southern New
Jersey counties of Atlantic, Burlington, Camden, Cape May, Cumberland, Mercer,
Ocean and Salem ("primary market area"). The Bank's deposit gathering base and
lending area is concentrated in the communities surrounding its offices.
The Bank is a community-based financial institution headquartered in
Cumberland County, New Jersey. The city of Vineland is approximately 30 miles
southeast of Philadelphia, Pennsylvania, and 30 miles southeast of Camden, New
Jersey. The Philadelphia International Airport is approximately 45 minutes from
Vineland.
Southern New Jersey is among the fastest growing population areas in
New Jersey and has a significant number of retired residents who have
traditionally provided the Bank with a stable source of deposit funds. The
economy of the Bank's primary market area is based upon a mixture of the
agriculture, transportation, manufacturing and tourism trade. The area is also
home to commuters working in New Jersey suburban areas around New York and
Philadelphia.
46
<PAGE>
Management considers the Bank's reputation for customer service as its
major competitive advantage in attracting and retaining customers in its market
area. The Bank also believes it benefits from its community orientation, as well
as its established deposit base and level of core deposits.
Lending Activities
General^
The principal lending activity of the Bank is the origination of
commercial real estate loans, commercial business and industrial loans, home
equity loans, mortgage loans and, to a much lesser extent, installment loans.
All loans are originated in the Bank's primary market area. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
description of the Bank's loan portfolio.
Commercial and Industrial Loans^
The Bank 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 Bank is on the origination of commercial loans secured by
real estate. The majority of the Bank's customers for these loans are small- to
medium-sized businesses located in the southern part of New Jersey.
Commercial Real Estate Loans^
Loans secured by commercial properties 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
effects of general economic conditions on income-producing properties and the
increased difficulty of evaluating and monitoring these types of loans. A
significant portion of the Bank's commercial real estate and commercial and
industrial loan portfolio includes a balloon payment feature. A number of
factors may affect a borrower's ability to make or refinance a balloon payment,
including without limitation the financial condition of the borrower at the
time, the prevailing local economic conditions, and the prevailing interest rate
environment. There can be no assurance that borrowers will be able to make or
refinance balloon payments when due.
Furthermore, the repayment of loans secured by commercial real estate
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. This cash flow shortage
may result in the failure to make loan payments. In such cases, the Company may
be compelled to modify the terms of the loan. In addition, the nature of these
loans is such that they are generally less predictable and more difficult to
evaluate and monitor. As a result, repayment of these loans may be subject to a
greater extent than residential loans to adverse conditions in the real estate
market or economy.
47
<PAGE>
Home Equity Loans^
The Bank 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 home equity loan is typically originated
as a fifteen-year note that allows the borrower to draw upon the approved line
of credit during the same period as the note. The Bank generally requires a
loan-to-value ratio in the range of 70% to 80% of the appraised value, less any
outstanding mortgage.
Residential Real Estate Loans^
The Bank uses outside loan correspondents to originate residential
mortgages. These loans are originated using the Bank's underwriting standards,
rates and terms, and are approved according to the Bank's lending policy prior
to origination. Prior to closing, the Bank usually has commitments to sell these
loans, at par and without recourse, in the secondary market. Secondary market
sales are generally scheduled to close shortly after the origination of the
loan.
The majority of the Bank's residential mortgage loans consist of loans
secured by owner-occupied, single-family residences. The Bank'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.
The Bank's residential mortgage loans customarily include due-on-sale
clauses, which are provisions giving the Bank 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
Bank's fixed-rate mortgage portfolio. The Bank usually exercises its rights
under these clauses.
Installment Loans^
The Bank originates installment or consumer loans secured by a variety
of collateral, such as new and used automobiles. The Bank makes a very limited
number of unsecured installment loans. Through its merger with Ocean in 1994,
the Bank acquired a credit card portfolio which it intends to reduce as current
customers pay off their lines of credit.
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, attorneys and regional advisory boards.
Upon receipt of a loan application, a credit report is ordered and
reviewed to verify specific information relating to the loan applicant's
creditworthiness. For residential mortgage loans, written verifications of
employment and deposit balances are requested by the Bank. The Bank requires
that an appraisal of the real estate intended to secure the proposed loan is
undertaken by a certified independent appraiser approved by the Bank and
licensed by the State. After all of the required information is obtained, the
Bank then makes its credit decision. Depending on the type, collateral and
amount of the
48
<PAGE>
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
approval authority 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 Bank management. All loans require the approval of
at least two lending officers.
Title insurance policies are required on all first mortgage loans.
Hazard insurance coverage is required on all properties securing loans made by
the Bank. Flood insurance is also required, when applicable.
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 Commitments^
When a commercial loan is approved, the Bank 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 Bank's commitments are accepted or rejected by the customer before the
expiration of the commitment. At June 30, 1997, the Bank had approximately $58.3
million in commercial loan commitments outstanding.
Credit Risk, Credit Administration and Loan Review^
Credit risk represents the possibility that a customer or counterparty
may not perform in accordance with contractual terms. The Bank incurs credit
risk whenever it extends credit to, or enters into other transactions with, its
customers. The risks associated with extensions of credit include general risk,
which is inherent in the lending business, and risk specific to individual
borrowers. Credit administration is responsible for the overall management of
the Bank's credit risk and the development, application and enforcement of
uniform credit policies and procedures the principal purpose of which is to
minimize such risk. One objective of credit administration is to identify and,
to the extent feasible, diversify extensions of credit by industry
concentration, geographic distribution and the type of borrower. Loan review and
other loan monitoring practices provide a means for the Bank's management to
ascertain whether proper credit, underwriting and loan documentation policies,
procedures and practices are being followed by the Bank's loan officers and are
being applied uniformly throughout the Bank. Within the last year, the Bank has
taken a number of steps to enhance its credit administration and loan review
functions in an effort to better manage its credit risk, especially in light of
the Bank's rapid growth. While the Bank continues to review these and other
related functional areas, there can be no assurance that the steps the Bank has
taken to date will be sufficient to enable it to identify, measure, monitor and
control all credit risk.
49
<PAGE>
Investment Securities Activities
General^
The investment policy of the Bank 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 within acceptable limits of safety and
liquidity. The Bank's investments consist primarily of federal funds, securities
issued or guaranteed by the United States Government or its agencies, states and
political subdivisions and corporate bonds. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a description of
the Bank's investment portfolio.
Sources of Funds
General^
Deposits are the major source of the Bank's funds for lending and other
investment purposes. In addition to deposits, the Bank derives funds from the
amortization, prepayment or sale of loans, maturities or sale 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a description of the Bank's sources of funds.
Deposits^
Consumer and commercial deposits are attracted principally from within
the Bank'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 Bank
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it solicit funds outside the State of
New Jersey.
Cash Management Services
In connection with the purchase of branches from the Bank of New York,
the Company will begin to offer a menu of cash management services designed to
meet the more sophisticated needs of its commercial customers. Headed by an
experienced cash management executive, the Cash Management Department will offer
products such as electronic banking, sweep accounts, lockbox services, PC
banking and controlled disbursement services. Many of these services will be
provided through third-party vendors with links to the Company's data center.
Competition
The Bank faces substantial competition both in attracting deposits and
in lending funds. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of
50
<PAGE>
the Bank to varying degrees. In order to compete with the many financial
institutions serving its primary market area, the Bank's operating goal is to
continue to provide a broad range of financial services with a strong emphasis
on customer service to individuals and businesses in southern and central New
Jersey.
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional and money center banks in the Bank's market area.
Competition for funds also include a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, multi-state regional and
money center banks, and mortgage-bankers many of whom have far greater resources
then the Bank. Non-bank competition, such as investment brokerage houses, has
intensified in recent years for all banks since non-bank competitors are not
subject to same regulatory burdens as banks.
Properties
The Company and the Bank operate from their main office and 28 branch
offices. The Bank leases its main office and 8 branch offices. The remainder of
the branch offices are owned by the Bank. The Bank has entered into a Branch
Purchase and Deposit Assumption Agreement with The Bank of New York to acquire
eleven branch offices.
Personnel
At June 30, 1997, the Company had 192 full-time and 58 part-time
employees, all of whom were on the payroll of the Bank. The Bank's employees are
not represented by a collective bargaining group. The Bank believes that its
relationship with its employees is good.
Legal Proceedings
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any such pending claims or lawsuits.
MANAGEMENT
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.
51
<PAGE>
The following table sets forth information with respect to the
directors and executive officers of the Company.
Director/Executive Director
Officer Age (1) Position Since
------- ------- -------- -----
Bernard A. Brown (2) 72 Chairman of the Board 1985
Sidney R. Brown (2) 40 Director, Secretary, Treasurer 1990
Adolph F. Calovi 75 Director, President and
Chief Executive Officer 1985
Peter Galetto, Jr. 43 Director 1990
Philip W. Koebig, III 55 Director, Executive 1995
Vice President
Anne E. Koons (2) 44 Director 1990
Robert F. Mack 48 Chief Financial Officer N/A
Bart A. Speziali 47 Senior Lending Officer N/A
James S. Killough 57 Senior Vice President N/A
- ----------------
(1) At June 30, 1997
(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
Directors and Executive Officers of the Company^
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 was named Secretary of the Company in March 1997.
Mr. Brown is ^ the chief executive 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 the Bank and, from 1985 to 1994, was its President and Chief
Executive Officer.
Peter Galetto, Jr. has been a director of the Company since April 1990.
Mr. Galetto also served as Secretary of the Company from April 1990 until March
1997. Mr. Galetto is the President/Sales for Stanker & Galetto, Inc., an
industrial and building contractor located in Vineland, New Jersey. He is also
the President of the Cumberland Technology Enterprise Center, a small business
incubator. Mr.
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<PAGE>
Galetto has been the Secretary/Treasurer of Trimark Building Contractors. He is
also an officer and director of several other corporations and organizations.
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 the 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. Ms.
Koons is a real estate agent with ^ Prudential Preferred Properties, 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.
Robert F. Mack has been with the Bank since 1992 and serves as its
Senior Vice President and Chief Financial Officer. Mr. Mack has twenty-five
years of extensive banking experience and has worked for several commercial
banks in New Jersey.
Bart A. Speziali has been with the Bank since 1992 as the Senior
Lending Officer and Senior Vice President. Mr. Speziali has over twenty years of
banking experience in southern New Jersey.
James S. Killough joined the Bank in February 1997 as Senior Vice
President of Administrations, Operations and Retail Banking. Before joining the
Bank, Mr. Killough was president and chief professional officer for the United
Way of Camden County, New Jersey for two years. Prior to that, Mr. Killough was
executive vice president for Central Jersey Bank and Trust and Midlantic
National Bank/South.
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, 1996, received total salary and bonus payments from the Bank
in excess of $100,000 ("Named Executive Officer"). Except as set forth below, no
executive officer of the Company had a salary and bonus during the year ended
December 31, 1996, that exceeded $100,000 for services rendered in all
capacities to the Company.
53
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation
------------------ ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Adolph F. Calovi 1996 $ 131,000 $ -- -- $ --
President and Chief 1995 131,000 -- -- --
Executive Officer 1994 130,500 -- -- 2,743(1)
Philip W. Koebig, III 1996 174,044 22,500 10,500 10,583(2)
Executive Vice 1995 150,000 -- 52,499 10,383(3)
President 1994 25,965 -- -- 240(4)
</TABLE>
- -----------------
(1) Constitutes life insurance premiums.
(2) Constitutes life and disability insurance premiums of $7,253 and $3,330 in
country club dues.
(3) Constitutes life and disability insurance premiums of $7,253 and $3,130 in
country club dues.
(4) Constitutes life and disability insurance premiums.
Stock Option Plans^
The Company has adopted the 1985 Stock Option Plan and the 1995 Stock
Option Plan (the "Option Plans"). Officers 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.
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.
In ^ the first quarter of 1998, the Board of Directors of the Company ^
intends to adopt, subject to shareholder approval, the ^ 1998 Stock Option Plan
(the ^"1998 Option Plan"). Officers, directors and employees are eligible to
receive, at no cost to them, options under the ^ 1998 Option Plan. Options
granted under the ^ 1998 Option Plan may be either incentive stock options 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 grant and are exercisable for
ten years after the date of grant. Option Shares may be paid in cash, shares of
the common stock, or a combination of both. ^ It is expected that 300,000 shares
of common stock will be reserved under the ^ 1998 Option Plan.
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<PAGE>
The following table sets forth additional information concerning
options granted under the Option Plans.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
-----------------------------------------------------------------------------------------
Potential Realizable ^
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------------------------ -------------------------
Number of Percent of Total
Securities ^Options
Underlying Granted Exercise
Options ^to Employees ^ Price Expiration
Name Granted in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------- ---------------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Philip W. Koebig, III 10,500 8.34 16.67 July 16, 87,518 175,035
2006
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
-------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised 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 101,346 $953,152 -- --
</TABLE>
Directors' Compensation
^ Each member of the Board of Directors, except for the Chairman and
employee directors, received a fee of $300 for each meeting attended for the
year ended December 31, 1996. For the year ended December 31, 1996, director
fees totaled $26,700. Beginning in 1997, directors receive their fees in shares
of common stock.
Employment Agreement^
The Company has an employment agreement, dated January 2, 1995, with
Adolph F. Calovi, its President and CEO. Under the terms of the agreement, Mr.
Calovi will receive an annual salary of $131,000 for each of the four years of
the agreement. In addition, he will receive all benefits offered officers of the
Company and will have the use of a Company-owned automobile.
If, during the term of the agreement, Mr. Calovi's employment
terminates for any reason except voluntary resignation, embezzlement, fraud, or
due to a material default by Mr. Calovi of his employment obligations, the
Company will be fully liable for all remaining salary payments under the
agreement.
55
<PAGE>
Compensation Committee Interlocks and Insider Participation^
The Compensation Committee of the Company during the year ended
December 31, 1996, 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.
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 $361,731 to Vineland Construction during the year ended
December 31, 1996, and has paid $179,102 to Vineland Construction for the six
months ended June 30, 1997. The Bank is also party to a lease agreement for an
office building with a partnership comprised of directors and shareholders of
the Bank. The Company believes that the lease is on terms substantially the
same, or at least as favorable to the Bank, as those that would be provided by a
non-affiliate. The annual rental required by this lease agreement is $96,000.
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. See Note 5 to the
Consolidated Financial Statements.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of ^ October 9, 1997, the shares of
common stock beneficially owned by (i) each person who was a beneficial owner of
more than five percent of the outstanding Common Shares; (ii) each director of
the Company; (iii) each Named Executive Officer of the Company and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Class Percent of Class
Beneficial Owner(1) Beneficial Ownership (2) Before Offering ^ After Offering (3)
- ------------------- -------------------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Bernard A. Brown
71 West Park Avenue
Vineland, New Jersey 08360 ^ 1,411,443 43.49% 37.95%
Adolph F. Calovi ^ 342 0.01% 0.01%
Sidney R. Brown 71,971 2.45% 1.88% ^
Peter Galetto, Jr. 29,415 1.00% 1.16% ^
Philip W. Koebig, III 130,711 4.32% 3.85% ^
Anne E. Koons 61,622 2.10% 1.61% ^
All directors and officers
as a group ^(9 persons) ^ 1,731,313 51.51% 45.26%
</TABLE>
- --------------
(1) Unless otherwise noted, the address for such individuals is 226 Landis
Avenue, Vineland, New Jersey 08360.
(2) 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 ^ October 9, 1997, pursuant to the exercise of stock options.
^(3) Assumes Messrs. Bernard Brown, Galetto and Koebig purchase 161,800,
15,000 and 20,300 shares, respectively, pursuant to the Offering.
SUPERVISION AND REGULATION
Introduction
Bank holding companies and banks are extensively regulated under both
federal and state law. The following information describes certain aspects of
that regulation applicable to the Company and the Bank, and does not purport to
be complete. The discussion is qualified in its entirety by reference to all
particular statutory or regulatory provisions.
The Company is a legal entity separate and distinct from the Bank.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Bank is necessarily subject to the prior claims of
creditors of the Bank, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principal source of the Company's
revenue and cash flow is dividends from the Bank. There are legal limitations on
the extent to which a subsidiary bank can finance or otherwise supply funds to
its parent holding company.
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<PAGE>
The Company
General^
As a registered holding company, the Company is regulated under the
BHCA and is subject to supervision and regular inspection by the Federal
Reserve. The BHCA requires, among other things, the prior approval of the
Federal Reserve in any case where the Company proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or indirect
ownership or control of more than 5 percent of the voting shares of any bank, or
(iii) merge or consolidate with any other bank holding company.
Acquisitions/Permissible Business Activities^
The BHCA currently permits bank holding companies from any state to
acquire banks and bank holding companies located in any other state, subject to
certain conditions, including certain nationwide- and state-imposed
concentration limits. The Bank has the ability, subject to certain restrictions,
to acquire by acquisition or merger branches outside its home state. The
establishment of new interstate branches is also possible in those states with
laws that expressly permit it. Interstate branches are subject to certain laws
of the states in which they are located. Competition may increase further as
banks branch across state lines and enter new markets.
Under the BHCA, the Company is prohibited, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5 percent of
any class of voting shares of any nonbanking corporation. Further, the Company
may not engage in any business other than managing and controlling banks or
furnishing certain specified services to subsidiaries, and may not acquire
voting control of nonbanking corporations except those corporations engaged in
businesses or furnishing services that the Federal Reserve deems to be closely
related to banking.
Community Reinvestment^
Bank holding companies and their subsidiary banks are subject to the
provisions of the Community Reinvestment Act of 1977, as amended ("CRA"). Under
the terms of the CRA, the Bank's record in meeting the credit needs of the
community served by the Bank, including low- and moderate- income neighborhoods,
is generally annually assessed by the OCC. When a bank holding company applies
for approval to acquire a bank or other bank holding company, the Federal
Reserve will review the assessment of each subsidiary bank of the applicant bank
holding company, and such records may be the basis for denying the application.
At December 31, 1996, the Bank was rated "Satisfactory" with respect to CRA.
Source of Strength Policy^
Under Federal Reserve policy, a bank holding company is expected to
serve as a source of financial strength to each of its subsidiary banks and to
commit resources to support each such bank. Consistent with its "source of
strength" policy for subsidiary banks, the Federal Reserve has stated that, as a
matter of prudent banking, a bank holding company generally should not maintain
a rate of cash dividends unless its net income available to common shareholders
has been sufficient to fund fully the dividends, and the prospective rate of
earnings retention appears to be consistent with the corporation's capital
needs, asset quality and overall financial condition.
58
<PAGE>
The Bank
General^
The Bank is subject to supervision and examination by the OCC. In
addition, the Bank is insured by and subject to certain regulations of the FDIC
and is a member of the FHLB. The Bank is also subject to various requirements
and restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types, amount and terms and
conditions of loans that may be granted 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 operations of the Bank.
Dividend Restrictions^
Dividends from the Bank constitute the principal source of income to
the Company. The Bank is subject to various statutory and regulatory
restrictions on its ability to pay dividends to the Company. Under such
restrictions, the amount available for payment of dividends to the Company by
the Bank totaled $8.3 million at June 30, 1997. In addition, the OCC has the
authority to prohibit the Bank from paying dividends, depending upon the Bank's
financial condition, if such payment is deemed to constitute an unsafe or
unsound practice. The ability of the Bank to pay dividends in the future is
presently, and could be further, influenced by bank regulatory and supervisory
policies.
Affiliate Transaction Restrictions^
The Bank is subject to federal laws that limit the transactions by
subsidiary banks to or on behalf of their parent company and to or on behalf of
any nonbank subsidiaries. Such transactions by a subsidiary bank to its parent
company or to any nonbank subsidiary are limited to 10 percent of a bank
subsidiary's capital and surplus and, with respect to such parent company and
all such nonbank subsidiaries, to an aggregate of 20 percent of such bank
subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits banks from purchasing "low-quality" assets
from affiliates.
FDIC Insurance Assessments^
Substantially all of deposits of the Bank are insured by the BIF and
the remaining deposits are insured by the SAIF, all of which are subject to FDIC
insurance assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based on their relative risk as measured by
regulatory capital ratios and certain other factors. During 1995, the FDIC's
Board of Directors significantly reduced premium rates assessed on deposits
insured by the BIF. Under the current regulations, the Company is assessed a
premium on BIF-insured deposits.
Enforcement Powers of Federal Banking Agencies^
Federal banking agencies possess broad powers to take corrective and
other supervisory action as deemed appropriate for an insured depository
institution and its holding company. The extent of these powers depends on
whether the institution in question is considered "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
or "critically undercapitalized". At June 30, 1997, the Bank and the Company
exceeded the required ratios for classification as "well capitalized." On a pro
forma basis, giving effect to the sale of the Common Shares, the Oritani and
Bank of New York branch purchases, ^ the Bank will be well capitalized and the
Company will be ^ adequately capitalized. The classification of depository
institutions is primarily for the purpose of applying the federal banking
59
<PAGE>
agencies' prompt corrective action and other supervisory powers and is not
intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution.
The agencies' prompt corrective action powers can include, among other
things, requiring an insured depository institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the institution's
parent company; placing limits on asset growth and restrictions on activities;
including restrictions on transactions with affiliates; restricting the interest
rate the institution may pay on deposits; prohibiting the payment of principal
or interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.
Capital Guidelines^
Under the risk-based capital guidelines applicable to the Company and
the Bank, the minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance-sheet activities) is 8.00 percent. At
least half of the total capital must be "Tier 1" or core capital, which
primarily includes common shareholders' equity and qualifying preferred stock,
less goodwill and other disallowed tangibles. "Tier 2" or supplementary capital
includes, among other items, certain cumulative and limited- life preferred
stock, qualifying subordinated debt and the allowance for credit losses, subject
to certain limitations, less required deductions as prescribed by regulation.
The proceeds received by the Company from the sale of the Debentures in
connection with the issuance of the Preferred Securities by the Trust presently
qualify as Tier 1 capital of the Company to the extent that such proceeds do not
exceed 25% of the Company's Tier 1 capital and otherwise qualify as Tier 2
capital.
In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing for a
minimum leverage ratio of 3 percent for bank holding companies and banks meeting
certain specified criteria, including that such institutions have the highest
regulatory examination rating and are not contemplating significant growth or
expansion. Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3 percent minimum by at least 100 to 200 basis points.
The federal bank regulatory agencies may, however, set higher capital
requirements when particular circumstances warrant. Under the federal banking
laws, failure to meet the minimum regulatory capital requirements could subject
a bank to a variety of enforcement remedies available to federal bank regulatory
agencies.
At June 30, 1997, the Bank's and the Company's respective total and
Tier 1 risk-based capital ratios and leverage ratios exceeded the minimum
regulatory capital requirements.
Legislative Proposals and Reforms
In recent years, significant legislative proposals and reforms
affecting the financial services industry have been discussed and evaluated by
Congress. Such proposals include legislation to revise the Glass-Steagall Act
and the BHCA to expand permissible activities for banks, principally to
facilitate the convergence of commercial and investment banking. Certain
proposals also sought to expand insurance activities of banks. It is unclear
wether any of these proposals, or any form of them, will be introduced in the
current Congress and become law. Consequently, it is not possible to determine
what effect, if any, they may have on the Company and the Bank.
60
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
$1.00 par value per share, and 1,000,000 shares of serial preferred stock, $1.00
par value per share. There were ^ 2,918,125 shares of Common Stock outstanding
on June 30, 1997, as adjusted to give effect to the three for two stock split
effected in the form of a 50% common stock dividend on September 25, 1997. The
capital stock of the Company represents non-withdrawable capital and is not
insured by the FDIC.
Common Stock
Dividends^
The Company can pay dividends out of statutory surplus or from certain
net profits if, as and when declared by its Board of Directors. The payment of
dividends by the Company is subject to limitations which are imposed by law and
applicable regulation. See "Risk Factors -- Limitations on Payment of Dividends"
and "Supervision and Regulation." The holders of Common Stock of the Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Company out of funds legally available
therefor. If the Company issues Preferred Stock, the holders thereof may have a
priority over the holders of the Common Shares with respect to dividends.
The Company has the right to defer payment of interest on the
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferred period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
maturity of the Debentures. If interest payments on the Debentures are so
deferred, the Company will be prohibited from paying cash dividends on its
Common Shares until such time as the payment of all amounts due on the
Debentures are paid and the Extension Period is terminated.
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.
Liquidation^
In the event of any liquidation, dissolution or winding up of the Bank,
the Company, as holder of the Bank's capital stock, would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
the Bank (including all deposit accounts and accrued interest thereon) all
assets of the Bank available for distribution. In the event of liquidation,
dissolution or winding up of the Company, the holders of its Common Shares would
be entitled to receive, after payment or provision for payment of all its debts
and liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Shares in the event of liquidation or dissolution.
61
<PAGE>
Preemptive Rights; Redemption^
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.
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.
SHARES ELIGIBLE FOR FUTURE SALE
The Company's Articles of Incorporation authorizes the issuance of
10,000,000 shares of Common Stock. Upon completion of the Offering, there will
be outstanding ^ 3,818,125 shares of Common Stock ^(3,953,125 shares if the
Underwriter's over-allotment option is exercised in full).
All shares of Common Stock issued in the Offering will be available for
resale in the public market without restriction or further registration under
the Securities Act, except for shares purchased by affiliates of the Company (in
general, any person who has a control relationship with the Company) which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. After the Offering, shares of Common Stock held by affiliates
will be considered to be "control shares", and are eligible for sale in the
public market in compliance with Rule 144. All officers and directors of the
Company have agreed, subject to certain exceptions, that they will not offer,
sell or otherwise dispose of any shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of Advest, Inc. The Company has agreed subject to certain exceptions,
that it will not offer, sell or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Advest, Inc.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of restricted shares
as to which at least one year has elapsed from the later of the acquisition of
such shares from the Company or an affiliate of the Company in an amount that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock ^(38,181 shares based upon ^ 3,818,125 shares to be outstanding
immediately after the Offering), or (ii) if the Common Shares are quoted on the
Nasdaq National Market or a stock exchange, the average weekly trading volume of
the Common Shares during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice, and the availability of current public information about the
Company. However, a person who is not deemed to have been an affiliate of the
Company during the 90 days preceding a sale by such person and who has
beneficially owned shares as to which at least two
62
<PAGE>
years has elapsed from the later of the acquisition of such shares from the
Company or an affiliate of the Company is entitled to sell them without regard
to the volume, manner of sale, or notice requirements of Rule 144.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated ^, 1997, between the Company and Advest, Inc.,
as representative (the "Representative") of the several underwriters named
therein (the "Underwriters"), the Company has agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase from the
Company the following respective amount of Common Shares at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
Underwriter: Number of Shares:
- ------------ -----------------
Advest, Inc...............................................
Total..................................................... 900,000
=======
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Common Shares offered hereby if any of
such Common Shares are purchased.
The Company has been advised by the Representative that the
Underwriters propose to offer the Common Shares ^(including the shares to be
purchased by directors, officers and employees, and their associates, of the
Company and the Bank ^) to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of ^ $ per Common Share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of ^ $ per
Common Share to certain other dealers. After the Offering, the public offering^
price, concession and reallowance to dealers may be changed by the ^
Representative. No such change shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus. In
addition, the Company has agreed to pay a financial advisory fee of $100,000 to
the Representative.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional ^ 135,000 Common Shares at the public offering price. To the extent
that the Underwriter exercises such option, the Company will be obligated,
pursuant to the option, to sell such Common Shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Shares offered hereby. If purchased, the
Underwriters will offer such additional Common Shares on the same terms as those
on which the ^ 900,000 Common Shares are being offered.
63
<PAGE>
The Underwriters have reserved ^ 225,000 Common Shares offered in the
Offering for sale at the public offering price to directors, officers and
employees (and their associates) of the Company and the Bank ^. The Underwriters
will not receive any discounts or commissions on Common Shares purchased by such
officers, directors or employees (and their associates) of the Company and the
Bank. The number of Common Shares available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same basis as the other Common Shares offered
hereby.
The Underwriters and dealers may engage in passive market making
transactions in the Common Shares in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase Common Shares at a price that exceeds the highest independent
bid. In addition, the net daily purchases made by any passive market maker
generally may not exceed 30% of its average daily trading volume in the Common
Shares during a specified two-month prior period, or 200 shares, whichever is
greater. A passive market maker must identify passive market making bids as such
on the Nasdaq electronic inter-dealer reporting system. Passive market making
may stabilize or maintain the market price of the Common Shares above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
In connection with is Offering, certain Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may overallot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Shares in the open market to cover syndicate short positions
or to stabilize the price of Common Shares. Finally, the underwriting syndicate
may reclaim selling concessions from syndicate members if the syndicate
repurchases previously distributed Common Shares in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Shares above
independent market levels. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representative and certain of the other Underwriters have in the
past and may in the future perform various services for the Company, including
investment banking services, for which they have or may receive customary fees.
The Representative also served as managing underwriter in the Company's sale of
the Preferred Securities and the Debentures, and advised the Company in its Bank
of New York branch purchase.
VALIDITY OF SECURITIES
The validity of the Common Shares offered hereby will be passed upon
for the Company by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.,
counsel to the Company. Certain legal matters will be passed upon and for the
Underwriters by Arnold & Porter, Washington, D.C. and New York, New York.
64
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for the three years ended December 31, 1996, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this Prospectus, and have been included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. This Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto, which
the Company has filed with the Commission under the Securities Act and to which
reference is hereby made.
65
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Sun Bancorp, Inc.:
We have audited the accompanying consolidated statements, as adjusted to reflect
the stock split described in Note 2, of financial condition of Sun Bancorp, Inc.
and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Philadelphia, Pennsylvania
January 31, 1997 (April 9, 1997 as to Note 19,
and September 25, 1997 as to the effects of the
stock split described in Note 2)
F-1
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
-------------- -------------------------------
1997 1996 1995
-------------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................................................... $ 26,687,834 $ 17,006,758 $ 17,242,366
Federal funds sold.......................................................... 11,150,000 4,800,000 --
----------- ------------ -----------
Cash and cash equivalents................................................. 37,837,834 21,806,758 17,242,366
Investment securities available for sale (amortized cost - $151,893,591;
1997 and $97,063,398; 1996, and $146,379,244; 1995)...................... 150,580,632 95,581,384 147,008,896
Loans receivable (net of allowance for loan losses - $3,350,989; 1997,
$2,595,312; 1996, and $2,064,640; 1995).................................. 363,705,188 295,500,668 183,633,631
Bank properties and equipment............................................... 14,211,001 12,222,507 11,419,175
Real estate owned, net...................................................... 665,544 755,628 876,302
Accrued interest receivable................................................. 4,587,432 2,850,399 2,564,921
Excess of cost over fair value of assets acquired........................... 9,557,830 5,365,218 6,191,919
Deferred taxes.............................................................. 1,411,529 1,070,535 205,169
Other assets................................................................ 2,661,982 1,641,959 752,257
----------- ----------- -------------
TOTAL....................................................................... $585,218,972 $436,795,056 $369,894,636
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits.................................................................... $467,393,739 $385,986,905 $335,247,796
Advances from the Federal Home Loan Bank.................................... -- 10,000,000 8,000,000
Loans payable............................................................... -- 6,000,000 --
Securities sold under agreements to repurchase.............................. 57,425,585 5,253,048 --
Other liabilities........................................................... 2,578,771 2,140,527 1,976,044
----------- ----------- -----------
Total liabilities......................................................... 527,398,095 409,380,480 345,223,840
----------- ----------- ------------
Guaranteed preferred beneficial interest in subordinated debt............... 28,750,000 -- --
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized, none issued..... -- -- --
Common stock, $1 par value, 10,000,000 shares authorized, issued and
outstanding: 2,918,125 in 1997; 2,773,393 in 1996; and 2,476,762 in 1995). 1,945,417 1,848,929 1,651,175
Surplus..................................................................... 18,090,101 18,124,359 17,197,275
Retained earnings........................................................... 9,901,912 8,419,417 5,406,774
Unrealized (loss) gain on securities available for sale, net of income taxes (866,553) (978,129) 415,572
--------- ---------- -----------
Total shareholders' equity................................................ 29,070,877 27,414,576 24,670,796
----------- ----------- -----------
TOTAL....................................................................... $585,218,972 $436,795,056 $369,894,636
=========== =========== ===========
</TABLE>
- ------------------
See notes to consolidated financial statements
F-2
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
----------------------------- ---------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans..................... $14,788,616 $9,596,375 $22,073,767 $15,100,885 $ 9,590,994
Interest on investment securities.............. 3,292,619 3,709,481 7,127,393 5,285,877 2,151,351
Interest on federal funds sold................. 64,229 65,023 68,366 463,001 452,117
----------- ----------- ----------- ----------- -----------
Total interest income........................ 18,145,464 13,370,879 29,269,526 20,849,763 12,194,462
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits .......................... 6,556,216 5,511,184 11,953,591 7,639,933 3,844,753
Interest on funds borrowed..................... 1,310,436 87,068 580,412 47,158 93,796
Interest on guaranteed preferred
beneficial interest in
subordinated debt............................ 825,232 -- -- -- --
--------- ------------- -------------- -------------- -------------
Total interest expense....................... 8,691,884 5,598,252 12,534,003 7,687,091 3,938,549
---------- ---------- ---------- ---------- ----------
Net interest income.......................... 9,453,580 7,772,627 16,735,523 13,162,672 8,255,913
PROVISION FOR LOAN LOSSES........................ 825,000 450,000 900,000 807,660 382,671
---------- ---------- ----------- ----------- -----------
Net interest income after
provision for loan losses.................. 8,628,580 7,322,627 15,835,523 12,355,012 7,873,242
--------- ---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts............ 585,479 488,272 1,057,139 659,811 419,363
Other service charges.......................... 19,834 44,747 115,999 28,068 17,224
Gain on sale of fixed assets................... 1,200 14,529 45,207 46,487 21,164
Gain on sale of loans.......................... -- -- -- 207,984 --
Gain on sale of investment securities.......... 15,592 191,288 206,538 377,126 --
Other.......................................... 154,223 119,654 320,890 331,513 274,533
--------- ---------- --------- ----------- ----------
Total other income........................... 776,328 858,490 1,745,773 1,650,989 732,284
--------- ---------- --------- ----------- ----------
OTHER EXPENSES:
Salaries and employee benefits................. 3,596,992 2,867,345 6,525,903 4,689,269 2,626,679
Occupancy expense.............................. 708,593 770,045 1,407,875 1,269,514 1,090,833
Equipment expense.............................. 532,925 349,785 817,696 459,460 249,951
Provision for losses in real estate owned...... 15,000 -- -- 78,000 120,000
Professional fees and services................. 138,295 154,147 352,970 249,760 164,770
Data processing expense........................ 692,458 515,259 1,085,874 634,753 318,552
Amortization of excess cost over
fair value of assets acquired................ 468,820 413,420 826,701 342,562 134,435
Postage and supplies........................... 190,030 242,538 420,120 335,055 173,823
Insurance...................................... 151,211 73,964 196,110 382,554 397,961
Other.......................................... 838,089 734,143 1,573,404 1,606,404 713,733
---------- ---------- ---------- ---------- -----------
Total other expenses ........................ 7,332,413 6,120,646 13,206,653 10,047,331 5,990,737
--------- --------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES....................... 2,072,495 2,060,471 4,374,643 3,958,670 2,614,789
INCOME TAXES..................................... 590,000 668,000 1,362,000 1,140,000 775,134
---------- ---------- ---------- ---------- -----------
NET INCOME................................... $1,482,495 $ 1,392,471 $ 3,012,643 $ 2,818,670 $1,839,655
========= ========== ========== ========== =========
Earnings per common and common
equivalent share
Net income..................................... $ 0.47 $ 0.48 $ 1.00 $ 0.97 $ 0.90
========= ========== ========== ============ =========
Earnings per common share -
assuming full dilution
Net income..................................... $ 0.47 $ 0.48 $ 0.99 $ 0.97 $ 0.90
========= ========== ========== ============ =========
Weighted average shares.......................... 2,915,789 2,763,513 2,831,693 2,709,464 1,890,792
========= ========== ========== ========== =========
</TABLE>
- -----------------
See notes to consolidated financial statements
F-3
<PAGE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<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, 1994........................... $ 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
Stock dividend................................... 87,892 (87,892)
Cash paid for fractional interest
resulting from stock dividend.................. (2,146) (2,146)
Exercise of stock options........................ 109,862 1,017,122 1,126,984
Unrealized loss on securities
available for sale,
net of income taxes............................ (1,393,701) (1,393,701)
Net income....................................... 3,012,643 3,012,643
---------- ---------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1996......................... 1,848,929 18,124,359 8,419,417 (978,129) 27,414,576
Exercise of stock options (unaudited)............ 2,331 27,229 29,560
Sale of common stock (unaudited)................. 1,646 34,147 35,793
Stock dividend (unaudited)....................... 92,511 (92,511)
Cash paid for fractional interest
resulting from stock dividend (unaudited)...... (3,123) (3,123)
Change in unrealized loss on securities
available for sale, net of income taxes (unaudited) 111,576 111,576
Net income (unaudited)........................... 1,482,495 1,482,495
---------- ---------- --------- ---------- ---------
BALANCE, JUNE 30, 1997
(UNAUDITED)...................................... $1,945,417 $18,090,101 $9,901,912 $ (866,553) $29,070,877
========= ========== ========= ========= ==========
</TABLE>
- -----------------
See notes to consolidated statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
-------------------------------- --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .................................... $ 1,482,495 $ 1,392,471 $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses ................... 825,000 450,000 900,000 807,660 382,671
Provision for loss on real estate owned ..... 15,000 -- -- 78,000 120,000
Depreciation and amortization ............... 300,846 233,192 484,059 325,913 215,381
Amortization of excess cost over fair
value of assets acquired .................. 468,820 413,420 826,701 342,562 134,435
Gain on sale of loans ....................... -- -- -- (207,984) --
Gain on sale of investment securities
available for sale ........................ (15,592) (191,288) (206,538) (246,129) --
Gain on sale of mortgage-backed securities
available for sale ........................ -- -- -- (130,997) --
Gain on sale of bank properties and equipment (1,200) (14,529) (29,298) (46,487) (21,164)
Deferred income taxes ....................... (398,473) 516,413 (147,401) (27,398) (193,836)
Changes in assets and liabilities which
provided (used) cash:
Accrued interest and other assets ......... (2,757,056) (2,567,387) (1,175,180) (838,246) 196,972
Accounts payable and accrued expenses ..... 438,244 470,449 164,483 1,215,343 (1,145,147)
------------- ------------- ------------- ------------- -------------
Net cash provided by
operating activities ............... 358,084 702,741 3,829,469 4,090,907 1,528,967
------------- ------------- ------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of investment
securities held to maturity ................. -- -- -- (30,094,922) (6,056,403)
Purchases of investment securities
available for sale .......................... (68,259,459) (125,543,579 (194,220,677) (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 ................. -- -- -- 65,280,038 8,141,545
Proceeds from maturities of investment
securities available for sale ............... 1,055,674 47,965,005 99,213,685 10,344,666 --
Proceeds from maturities of mortgage-backed
securities held to maturity ................. -- -- -- 19,908,185 176,542
Proceeds from maturities of mortgage-backed
securities available for sale ............... -- -- 125,716 -- --
Proceeds from sale of investment securities
available for sale .......................... 12,389,184 33,899,410 93,679,375 16,880,505 --
Proceeds from sale of mortgage-backed
securities available for sale ............... -- 50,850,000 50,782,081 7,359,934 --
Proceeds from sale of loans ................... -- -- -- 1,870,608 --
Net increase in loans ......................... (66,716,228) (51,485,050) (112,767,037) (50,605,944) (2,845,797)
Increase in loans resulting from branch
acquisitions ................................ (2,313,292) -- -- (636,714) --
Purchase of bank properties and equipment ..... (534,516) (302,228) (1,359,295) (825,912) (481,895)
Increase in bank properties and equipment
resulting from branch acquisitions .......... (1,754,824) -- -- (5,430,744) --
Proceeds from sale of bank properties
and equipment ............................... 1,200 14,529 42,606 250,824 21,164
Proceeds from issuance of guaranteed
preferred beneficial interest in
subordinated debt ........................... 28,750,000 -- -- -- --
Excess of cost over fair value of
branch assets acquired ...................... (4,661,432) -- -- --
Decrease (increase) in real estate owned ...... 75,084 85,924 120,674 (244,249)
Purchase price of acquisitions, net of
cash received ............................... -- -- -- -- (5,410,572)
------------- ------------- ------------- ------------- ------------
Net cash used in investing activities. (101,968,609) (44,515,989) (64,382,072) (145,113,582) (7,477,825)
------------- ------------- ------------- ------------- ------------
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
----------------------------- --------------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in deposits .... 14,855,165 35,767,281 50,739,109 16,685,101 (6,638,004)
Increase in deposits
resulting from branch acquisitions ... 66,551,669 -- -- 122,543,875 --
Net borrowings under line of credit
and repurchase agreements ............ 42,172,537 6,236,197 21,253,048 12,500,000 4,500,000
Principal payments on borrowed funds ... (6,000,000) -- (8,000,000) (4,500,000) (5,750,000)
Proceeds from exercise of stock options 29,560 1,009,446 1,126,984 605,368 3,393
Payments for fractional interests
resulting from stock dividend ........ (3,123) -- (2,146) -- --
Proceeds from issuance of common stock . 35,793 -- -- 260,000 6,421,877
------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities ........ 117,641,601 43,012,924 65,116,995 148,094,344 (1,462,734)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................... 21,806,758 17,242,366 17,242,366 10,170,697 17,582,289
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . $ 37,837,834 $ 16,442,042 $ 21,806,758 $ 17,242,366 $ 10,170,697
============= ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION-
Interest paid .......................... $ 8,470,898 $ 5,563,571 $ 12,743,696 $ 6,100,954 $ 3,827,301
============= ============= ============= ============= =============
Income taxes paid ...................... $ 575,000 $ 520,000 $ 1,577,757 $ 994,516 $ 1,115,000
============= ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS -
Transfer of loans to real estate owned . $ 276,409 $ 124,878 $ 424,644 $ 196,181 $ 449,478
============= ============= ============= ============= =============
</TABLE>
- -------------
See notes to consolidated financial statements.
F-6
<PAGE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Sun Bancorp, 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 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 Company and the Bank have their administrative offices in Vineland, New
Jersey. At June 30, 1997, the Bank had twenty-five 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. The Trust is a Delaware business trust which holds the Debentures
issued by the Company. Med-Vine, Inc. is a Delaware holding company which
holds the majority of the Bank's investment portfolio. 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.
Investment Securities - The Bank accounts for debt and equity securities as
follows:
Held to Maturity - Debt 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 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. Realized gains and losses on the sale of investment
securities are reported in the consolidated statement of
F-7
<PAGE>
income and determined using the adjusted cost of the specific security
sold. Unrealized losses, net of taxes, amounting to $866,553 are reported
as a component of shareholders' equity at June 30, 1997. Unrealized losses,
net of taxes, amounting to $978,129 are reported as a component of
shareholders' equity at December 31, 1996. Unrealized gains, net of taxes,
amounting to $415,572 are reported as a component of shareholders' equity
at December 31, 1995.
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 when earned 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.
The Bank adopted the requirements of Statement of Financial Accounting
Standard ("SFAS") No. 114, Accounting by Creditors for Impairment of a
Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, 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.
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
F-8
<PAGE>
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 net assets acquired is net of accumulated amortization
of $2,506,686, $2,037,866 and $1,211,165 at June 30, 1997, December 31,
1996 and 1995, respectively, and is amortized by the straight-line method
over 15 years for bank acquisitions and over 7 years for branch
acquisitions. The Company periodically reviews the excess of cost over fair
value of net assets acquired for impairment.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include amounts due from banks and 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 equivalent
shares outstanding during the period.
Stock Dividend - On May 20, 1997, and September 17, 1996, the Company's
Board of Directors declared special 5% stock dividends which were paid on
June 25, 1997 and October 30, 1996, respectively, to stockholders of record
on June 2, 1997 and October 15, 1996, respectively. Accordingly, earnings
per share for the years ended December 31, 1996, 1995 and 1994 have been
restated to reflect the increased number of shares outstanding.
Stock Split - On August 28, 1997, the Company's Board of Directors declared
a three-for-two stock split effected in the form of a 50% stock dividend
payable on September 25, 1997, to shareholders of record on September 11,
1997. Accordingly, earnings per share for the six months ended June 30,
1997 and for the years ended December 31, 1996, 1995 and 1994 have been
restated to reflect the increased number of shares outstanding.
Accounting for Stock Options - The Company accounts for stock-based
compensation in accordance with the Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees. This method
calculates compensation expense using the intrinsic value method which
recognizes as expense the difference between the market value of the stock
and the exercise price at grant date. The Company has not recognized any
compensation expense under this method. In the year ended December 31,
1996, the Company adopted the reporting disclosure requirements of SFAS No.
123, Accounting for Stock-Based Compensation which requires the Company to
disclose the pro forma effects of accounting for stock-based compensation
using the fair value method as described in the accounting requirements of
SFAS No. 123. As permitted by SFAS No. 123, the Company will continue to
account for stock-based compensation under APB Opinion No. 25.
F-9
<PAGE>
Accounting Principles Issued and Not Adopted - In June 1996, the FASB
issued SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. The statement which is effective
for transactions occurring after December 31, 1996, requires an entity to
recognize, prospectively, the financial and servicing assets it controls
and the liabilities it has incurred, derecognize financial assets when
control has been surrendered, and derecognize liabilities when
extinguished. It requires that servicing assets and other retained
interests in transferred assets be measured by allocating the previous
carrying amount between the asset sold, if any, and retained interest, if
any, based on their relative fair values at the date of transfer. It also
provides implementation guidance for servicing of financial assets,
securitizations, loan syndications, and participations and transfers of
loan receivables with recourse. The Statement supersedes SFAS No. 122,
Accounting for Mortgage Servicing Rights, which was adopted by the Company
on January 1, 1996, and which management of the Company determined had no
material impact on the Company's results of operations or financial
position. In December 1996, the FASB issued SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125. SFAS No.
127 defers for one year the effective date of Statement No. 125 as it
relates to transactions involving secured borrowings and collateral and
transfers and servicing of financial assets. This Statement also provides
additional guidance on these types of transactions. Management of the
Company does not believe the Statements will have a material impact on the
Company's results of operations or financial position when adopted.
In February, 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement is effective for fiscal years beginning after December 15, 1997
and is to be applied retroactively. Earlier application is not permitted.
Management has not completed an analysis of the impact of applying this new
statement, however, the Company intends to begin applying the standard
effective January 1, 1998.
In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. These statements are effective for fiscal years
beginning after December 15, 1997 and early adoption is permitted.
Management has not completed an analysis of the impact of applying the new
statements, however, the Company intends to adopt both standards effective
January 1, 1998.
Reclassifications - Certain reclassifications have been made in the 1996,
1995 and 1994 consolidated financial statements to conform to those
classifications used in 1997.
3. ACQUISITIONS
On June 5, 1997, the Bank purchased four branches from First Union National
Bank, Avondale, Pennsylvania ("First Union"). The Bank acquired
approximately $66,552,000 of deposit liabilities plus $222,000 of accrued
interest, $1,755,000 of real estate and equipment, $2,313,000 of loans plus
related accrued interest and $1,203,000 in cash. The Bank paid a premium of
approximately $4,661,000, 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
F-10
<PAGE>
$1,009,000 in cash. The Bank paid a premium of approximately $2,368,000,
which is being amortized over seven years.
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 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 purchased....................... $ 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.
F-11
<PAGE>
4. INVESTMENT SECURITIES
During 1995, in accordance with the implementation of the SFAS No. 115
Guide, the Company reclassified its portfolio of investment securities as
available for sale. The carrying amounts of investment securities and the
approximate market values at June 30, 1997, December 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
---- ----- ------ -----
Debt Securities (Unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury Obligations............. $ 51,075,981 $ 61,895 $ (923,115) $ 50,214,761
State and Municipal Obligations....... 20,736,907 16,688 (280,956) 20,472,639
Other bonds........................... 21,444,997 3,510 (235,975) 21,212,532
Mortgage-backed securities............ 49,986,456 71,875 26,881 50,031,450
--------------- ----------- ------------- ----------------
Total debt securities............... 143,244,341 153,968 (1,446,927) 141,931,382
--------------- ----------- ------------- ----------------
Equity Securities
Federal Reserve Bank stock............ 801,100 -- -- 801,100
Federal Home Loan Bank stock.......... 6,564,900 -- -- 6,564,900
Atlantic Central Bankers Bank stock... 83,250 -- -- 83,250
Trust Preferred Securities............ 1,200,000 -- -- 1,2000,000
--------------- ----------- ------------- ----------------
Total equity securities............. 8,649,250 -- -- 4,801,950
--------------- ----------- -------------- ----------------
Total............................. $ 151,893,591 $ 153,968 $ (1,466,927) $ 150,580,632
=============== =========== ============ ================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
---- ----- ------ -----
Debt Securities
<S> <C> <C> <C> <C>
U. S. Treasury Obligations............ $ 51,954,682 $ 12,086 $ (932,957) $ 51,033,811
State and Municipal Obligations....... 20,168,222 28,006 (356,822) 19,839,406
Other bonds........................... 20,075,483 7,635 (239,962) 19,843,156
Mortgage-backed securities............ 63,061 -- -- 63,061
-------------- ----------- -------------
Total debt securities............... 92,261,448 47,727 (1,529,741) 90,779,434
--------------
Equity Securities
Federal Reserve Bank stock............ 617,800 -- -- 617,800
Federal Home Loan Bank stock.......... 4,100,900 -- -- 4,100,900
Atlantic Central Bankers Bank stock... 83,250 -- -- 83,250
--------------- ----------- ------------- ----------------
Total equity securities............. 4,801,950 -- -- 4,801,950
--------------- ----------- ------------- ----------------
Total............................. $ 97,063,398 $ 47,727 $ (1,529,741) $ 95,581,384
============== =========== ============= ================
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
---- ----- ------ -----
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) 41,997,867
------------ ----------- ----------- -----------
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 Bankers Bank 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>
During the six months ended June 30, 1997, the Company sold $12,389,184 of
securities available for sale resulting in a gross gain of $15,592. During
1996, the Bank sold $144,462,256 of securities available for sale resulting
in a gross gain of $206,538. 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.
At June 30, 1997 and December 31, 1996 the Bank was required to maintain an
average reserve balance with the Federal Reserve of $5,424,000 and
$3,579,000, respectively.
The maturity schedule of the investment in debt securities available for
sale at June 30, 1997 and December 31, 1996 is as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
---------------------------- ------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less................................ $ 13,509,484 $ 13,491,428 $ 8,828,772 $ 8,786,619
Due after one year through five years.................. 57,496,366 56,454,636 61,132,578 60,063,074
Due after five years through ten years................. 16,286,313 16,062,435 15,890,087 15,708,094
Due after ten years.................................... 5,965,723 5,891,434 6,346,950 6,158,586
----------- ----------- ----------- -----------
93,257,886 91,899,933 92,198,387 90,716,373
Mortgage-backed securities............................. 49,986,455 50,031,450 63,061 63,061
----------- ---------- ----------- -----------
$143,244,341 $141,931,382 $92,261,448 $ 90,779,434
=========== =========== ========== ===========
</TABLE>
At June 30, 1997 and December 31, 1996, $4,000,000 of U.S. Treasury Notes
were pledged to secure public deposits.
F-13
<PAGE>
5. LOANS
The components of loans for the periods indicated were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
------------ ---------------------------------
1997 1996 1995
------------ ---------------------------------
(Unaudited)
<S> <C> <C> <C>
Commercial and industrial............. $284,363,027 $223,116,474 $118,874,150
Real estate-residential mortgages..... 53,351,319 53,846,436 54,414,800
Installment........................... 29,341,831 21,133,070 12,409,321
---------- ----------- -----------
Total gross loans................... 367,056,177 298,095,980 185,698,217
Allowance for loan losses ............ (3,350,989) (2,595,312) (2,064,640)
---------- ----------- -----------
Net loans............................. $363,705,188 $295,500,668 $183,633,631
=========== ============ ===========
Non-accrual loans..................... $ 1,096,792 $ 1,277,208 $ 2,658,118
=========== =========== ===========
</TABLE>
There were no irrevocable commitments to lend additional funds on
nonaccrual loans at June 30, 1997 and December 31, 1996. The reduction in
interest income resulting from nonaccrual loans was $66,264 for the six
months ended June 30, 1997; and $151,614, $276,955 and $146,308 for the
years ended December 31, 1996, 1995 and 1994, respectively. Interest income
recognized on these loans for the six months ended June 30, 1997 was
$36,857; and during the years ended December 31, 1996, 1995 and 1994 was
$15,414, $24,989 and $18,907, respectively.
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 nonrelated party
transactions. The aggregate dollar amount of these loans to related parties
as of June 30, 1997, December 31, 1996 and 1995, along with an analysis of
the activity for the first six months of 1997 and the years ended December
31, 1996 and 1995, is summarized as follows:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
June 30, December 31,
-------------- ----------------------------------
1997 1996 1995
-------------- ----------------- --------------
(Unaudited)
<S> <C> <C> <C>
Balance, beginning of year............................. $ 11,437,134 $ 8,621,460 $ 6,132,256
Additions.............................................. 948,884 7,306,997 4,272,121
Repayments............................................. (1,186,751) (4,491,323) (1,782,917)
----------- ----------- -----------
Balance, end of year................................... $ 11,199,267 $ 11,437,134 $ 8,621,460
=========== ========== ============
</TABLE>
Under approved lending decisions, the Company has commitments to lend
additional funds totaling approximately $58,324,485, $58,635,413 and
$67,928,316 at June 30, 1997, December 31, 1996 and 1995, 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 creditworthiness 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.
F-14
<PAGE>
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.
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
For the
Six Months Ended
June 30, For the Years Ended December 31,
------------- -----------------------------------------
1997 1996 1995 1994
------------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period.. $ 2,595,312 $ 2,064,640 $ 1,607,375 $ 1,067,402
Charge-offs .................. (81,975) (400,387) (426,289) (349,439)
Recoveries ................... 12,652 31,059 75,894 34,829
---------- ---------- ---------- ----------
Net charge-offs ............. (69,323) (369,328) (350,395) (314,610)
Allowance on acquired loans -- -- -- 471,912
Provision for loan losses .... 825,000 900,000 807,660 382,671
---------- ---------- ---------- ----------
Balance, end of period ....... $ 3,350,989 $ 2,595,312 $ 2,064,640 $ 1,607,375
=========== =========== =========== ===========
</TABLE>
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of estimated 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>
June 30, December 31,
--------------------- -------------------------------------
1997 1996 1995
--------------------- --------------- ---------------------
(Unaudited)
<S> <C> <C> <C>
Impaired loans with related reserve for
loan losses ($296,307) calculated
under SFAS No. 114....................... $ -- $ -- $ 454,489
Impaired loans with no related reserve for
loan losses calculated.....................
under SFAS No. 114....................... 454,170 584,114 527,908
---------------- -------------- ---------------
Total impaired loans..................... $ 454,170 $ 584,114 $ 982,397
================ ============== ===============
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
---------------- ------------------------------
1997 1996 1995
---------------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Average impaired loans....................... $459,319 $596,519 $411,289
======= ======= =======
Interest income recognized on impaired loans. $ 5,242 $ 18,284 $ 18,561
===== ======= =======
Cash basis interest income recognized on
impaired loans............................. $ 31,615 $ 15,414 $ --
======= ======= =======
</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 nonaccrual
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 nonaccrual 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 nonaccrual 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 at June 30, 1997, December 31, 1996 and 1995
consist of the following major classifications:
<TABLE>
<CAPTION>
June 30, December 31,
------------ -------------------------------
1997 1996 1995
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Land.............................................................. $ 3,312,395 $ 3,084,395 $ 2,873,500
Buildings......................................................... 8,316,949 6,982,449 6,861,123
Leasehold improvements and equipment.............................. 4,699,987 3,991,723 3,090,188
------------ ----------- -----------
16,329,331 14,058,567 12,824,811
Accumulated depreciation and amortization......................... (2,118,330) (1,836,060) (1,405,636)
---------- ----------- -----------
Total............................................................. $ 14,211,001 $ 12,222,507 $ 11,419,175
=========== ============ ===========
</TABLE>
F-16
<PAGE>
8. REAL ESTATE OWNED
Real estate owned consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
--------- -------------------------
1997 1996 1995
--------- --------- --------
(Unaudited)
<S> <C> <C> <C>
Commercial properties........................................... $ 412,527 $ 435,765 $ 492,501
Residential properties.......................................... 291,017 360,863 471,801
------- --------- --------
703,544 796,628 964,302
Allowance....................................................... (38,000) (41,000) (88,000)
-------- --------- --------
Total........................................................... $ 665,544 $ 755,628 $ 876,302
======== ========= ========
</TABLE>
For the first six months of 1997, $15,000 was charged against operations to
adjust real estate owned for declines in value. During 1996, 1995 and 1994,
$0, $78,000 and $120,000, 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>
June 30, December 31,
------------ ---------------------------------
1997 1996 1995
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Demand Deposits....................... $165,349,497 $133,624,391 $128,802,293
Savings Deposits...................... 70,922,212 63,506,894 66,970,293
Time Certificates under $100,000...... 175,065,374 151,615,202 116,462,390
Time Certificates $100,000 or more.... 56,056,656 37,240,418 23,012,820
---------- ----------- ------------
Total................................. $467,393,739 $385,986,905 $335,247,796
=========== =========== ===========
</TABLE>
Of the total demand deposits, approximately $86,700,000, $76,500,000 and
$62,700,000 are non-interest bearing at June 30, 1997, December 31, 1996
and 1995, respectively.
F-17
<PAGE>
A summary of certificates by year of maturity is as follows:
Year Ended June 30,
(Unaudited)
1998.................................. $200,833,019
1999.................................. 22,984,056
2000.................................. 4,551,396
Thereafter............................ 2,753,560
-----------
Total................................. $231,122,031
===========
Year Ended December 31,
1997................................ $169,482,951
1998................................ 12,828,611
1999................................ 4,032,751
Thereafter.......................... 2,511,307
-----------
Total............................... $188,855,620
===========
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------ --------------------------------------
1997 1996 1995 1994
------------ ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Savings deposits ........ $ 684,319 $ 1,455,043 $1,394,849 $1,334,432
Time certificates ....... 5,308,870 9,382,920 5,274,045 1,802,296
Interest-bearing checking 563,027 1,115,628 971,039 708,025
---------- ----------- ----------- -----------
Total ................... $ 6,556,216 $11,953,591 $7,639,933 $3,844,753
=========== =========== =========== ===========
</TABLE>
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
Federal Home Loan Bank ("FHLB") advances at June 30, 1997, December 31,
1996 and 1995 were $0, $10,000,000 and $8,000,000, respectively.
Advances are collateralized under a blanket collateral lien agreement.
The amounts outstanding at December 31, 1996 and 1995 were borrowed
under overnight lines of credit at interest rates of 7.375% and 5.875%,
respectively. Interest expense on advances was $329,847 and $29,050 for
the six months ended June 30, 1997 and 1996, respectively. Interest
expense on advances was $286,316 and $6,733 for the years ended
December 31, 1996 and 1995, respectively. There were no such borrowings
during 1994.
F-18
<PAGE>
In 1997, the Company entered into repurchase agreements with the FHLB.
At June 30, 1997, the amount outstanding was $48,500,000, maturing July
15, 1997 and bearing an interest rate of 5.62%. Interest expense on
FHLB repurchase agreements was $485,972 for the six months ended June
30, 1997. There were no such repurchase agreements during 1996 or 1995.
Collateral for the repurchase agreements were U.S. Government Agency
Collateralized Mortgage Obligations.
During 1997, the Company entered into overnight repurchase agreements
with customers. At June 30, 1997, December 31, 1996 and December 31,
1995, the amounts outstanding were $8,925,585, $5,253,048 and $0,
respectively. At June 30, 1997 and December 31, 1996, the amounts were
borrowed at interest rates of 4.77% and 5.11%, respectively. Collateral
for customer repurchase agreements were U.S. Treasury Notes.
At December 30, 1996, the Company obtained a $6,000,000 revolving line
of credit from a correspondent bank with a term of 36 months. The
floating rate of interest is the prime rate plus fifty basis points. At
December 31, 1996, there was $6,000,000 outstanding at an interest rate
of 8.75%. At June 30, 1997, there were no amounts outstanding under the
line of credit.
11. STOCK OPTION PLANS
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 nonqualified 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 496,125 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 nonqualified 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. At June 30, 1997, there were 208,285 shares of
stock reserved for issuance under the 1985 Plan.
Options granted under the 1995 and 1985 Plans, adjusted for the 5%
stock dividends granted in 1996 and 1997 and the three for two stock
split granted in 1997, are as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Incentive Nonqualified
--------- ------------
<S> <C> <C>
Options granted and outstanding:
June 30, 1997 at prices ranging from $4.56 to $15.00 per share................. 240,662 312,273
============= ==========
December 31, 1996 at prices ranging from $4.78 to $11.11 per share............. 436,083 76,011
============= ==========
December 31, 1995 at prices ranging from $4.78 to $10.28 per share............. 279,229 235,630
============= ==========
December 31, 1994 at prices ranging from $4.78 to $10.28 per share............. 137,371 302,365
============== ==========
</TABLE>
Activity in the stock option plans for the period beginning January 1,
1994 and ending June 30, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number Price Price
of Shares Per Share Per Share
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at January 1, 1994........ 465,776 $4.56 - $9.79 $ 5.39
1994:
Exercised........................... (744) $4.56 4.56
Expired............................. (3,308) $7.86 7.86
----------
Outstanding at December 31, 1994...... 461,724 5.37
1995:
Granted............................. 206,720 $ 7.86 7.86
Exercised........................... (123,603) $4.56 - $6.33 4.89
Expired............................. (4,238) $4.56 - $9.79 8.77
----------
Outstanding at December 31, 1995...... 540,603 6.43
1996:
Granted............................. 179,432 $10.59 10.59
Exercised........................... (181,602) $4.56 - $ 5.76 5.60
Expired............................. (734) $9.79 9.79
----------
Outstanding at December 31, 1996...... 537,699 $4.56 - $10.59 8.08
1997:
Granted............................. 18,900 $13.33 13.33
Exercised........................... (3,664) $7.86 - $9.79 8.05
Expired............................. --
----------
Outstanding at June 30, 1997.......... 552,935 $4.56 - $13.33 8.31
==========
</TABLE>
F-20
<PAGE>
The following table summarizes stock options outstanding at June 30,
1997:
<TABLE>
<CAPTION>
Number of Options Weighted Average Remaining Weighted Average
Range of Exercise Price Outstanding Contractual Life Exercise Price
----------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$ 4.56 - $ 5.01 120,431 4 $ 4.67
7.86 - 9.79 234,165 6 8.00
10.59 - 11.65 179,439 9 10.64
15.00 18,900 10 13.33
------- ----- -----
552,935 7 $ 8.31
======= ===== =====
</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.
The Company accounts for stock-based compensation in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees. This
method calculates compensation expense using the intrinsic value method
which recognizes as expense the difference between the market value of
the stock and the exercise price at grant date. The Company has not
recognized any compensation expense under this method. In the year
ended December 31, 1996, the Company adopted the reporting disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation
which requires the Company to disclose the pro forma effects of
accounting for stock-based compensation using the fair value method as
described in the accounting requirements of SFAS No. 123. As permitted
by SFAS No. 123, the Company will continue to account for stock-based
compensation under APB Opinion No. 25.
Had compensation cost for the Company's two stock option plans been
determined based on the fair value at the dates of awards under those
plans consistent with the method of SFAS No. 123, the Company's net
income and income per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
June 30, December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income: As reported........ $ 1,482,495 $ 3,012,643 $ 2,818,670
Pro forma.......... $ 1,444,742 $ 2,461,089 $ 2,370,020
Net income per common and common equivalent share:
Primary As reported........ $ 0.47 $ 1.00 $ 0.97
Pro forma.......... $ 0.46 $ 0.82 $ 0.81
Fully diluted As reported........ $ 0.47 $ 0.99 $ 0.97
Pro forma.......... $ 0.45 $ 0.81 $ 0.81
Weighted average fair value of options granted during the period.............. $ 4.00 $ 5.13 $ 3.59
</TABLE>
F-21
<PAGE>
Significant assumptions used to calculate the above fair value of the awards are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------- ---------------
<S> <C> <C> <C>
Risk free interest rate of return... 6.28% 6.44% 5.65%
Expected option life................ 60 months 60 months 60 months
Expected volatility................. 16% 14% 15%
Expected dividends.................. 0 0 0
</TABLE>
12. BENEFITS
During 1996, the Company established a 401(k) Savings Plan (the "401(k)
Plan") for all qualified employees. Substantially all employees are
eligible to participate in the 401(k) Plan following completion of one
year of service and attaining age 21. Vesting in the Company's
contribution accrues over four years at 25% each year. Pursuant to the
401(k) Plan, employees can contribute up to 15% of their compensation
to a maximum of $9,500 in 1996 and 1997. The Company contributes 50% of
the employee contribution, up to 6% of compensation. The Company's
contribution to the 401(k) Plan was $38,113 for the six months ended
June 30, 1997 and $85,722 for the year ended December 31, 1996. The
Company paid $5,350 for the first six months of 1997 and $4,861 during
1996 to administer the 401(k) Plan.
13. COMMITMENTS, CONTINGENT LIABILITIES AND RELATED PARTIES
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 $10,155,000, $9,663,853 and $6,196,871 at
June 30, 1997, December 31, 1996 and 1995, 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 $296,109 with annual increases based on increases in the
Consumer Price Index.
F-22
<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 June
30, 1997.
<TABLE>
<CAPTION>
<S> <C>
1997............................................................................... $ 296,766
1998............................................................................... 515,797
1999............................................................................... 504,596
2000............................................................................... 408,260
2001............................................................................... 389,860
Thereafter......................................................................... 3,667,405
------------------
$ 5,782,684
===================
</TABLE>
Rental expense included in occupancy expense for all operating leases
was $270,940 for the six months ended June 30, 1997 and $516,526,
$510,285 and $390,157 for 1996, 1995 and 1994, respectively.
14. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
--------------- -------------------------------------------------------------
1997 1996 1995 1994
--------------- ------------------- -------------------- --------------------
(Unaudited)
<S> <C> <C> <C> <C>
Current........................... $ 988,473 $ 1,509,401 $ 1,167,398 $ 968,970
Deferred.......................... (398,473) (147,401) (27,398) (193,836)
--------- --------------- ----------- ----------
Total............................. $ 590,000 $ 1,362,000 $ 1,140,000 $ 775,134
======= =============== =========== ==========
</TABLE>
F-23
<PAGE>
Items that gave rise to significant portions of the deferred tax
accounts at June 30, 1997, December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
June 30, December, 31
------------ --------------------------------
1997 1996 1995
------------ ----------------- ---------------
Deferred tax asset: (Unaudited)
<S> <C> <C> <C>
Allowance for loan losses............. $ 847,297 $ 590,257 $ 427,997
Deferred loan fees.................... 63,900 63,900 89,012
Other real estate..................... 73,344 73,344 89,324
Goodwill amortization................. 171,266 72,150 20,358
Unrealized loss on investment securities 446,406 503,885 --
Other................................. 76,641 51,274 62,229
--------- ------------- -------------
Total deferred tax asset................ 1,678,804 1,354,810 688,920
Deferred tax liability:
Property.............................. (267,275) (284,275) (269,671)
Unrealized gain on investment securities -- -- (214,080)
--------- ------------- -----------
Total deferred tax liability............ (267,275) (284,275) (483,751)
--------- ------------- -----------
Net deferred tax asset.................. $ 1,411,529 $ 1,070,535 $ 205,169
========= ============= ===========
</TABLE>
The provision for federal income taxes for the six months ended June
30, 1997 and for the years ended December 31, 1996, 1995 and 1994,
differs from that completed at the statutory rate as follows:
<TABLE>
<CAPTION>
June 30, Years Ended December 31,
----------- ----------------------------------------------
1997 1996 1995 1994
----------- ------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Tax computed at the statutory rate.................. $ 704,648 $ 1,487,379 $ 1,345,948 $ 889,028
Increase in charge resulting from:
State tax, net of federal benefit................. -- -- -- 33,785
Goodwill amortization............................. 28,664 57,327 57,160 43,464
Tax exempt interest (net)......................... (122,678) (340,896) (157,940) (72,009)
Other, net........................................ (20,634) 158,190 (105,168) (119,134)
---------- ------------- ------------ ----------
$ 590,000 $ 1,362,000 $ 1,140,000 $ 775,134
======== =========== ============ ==========
</TABLE>
F-24
<PAGE>
15. EARNINGS PER SHARE
Earnings per common share and common equivalent share is computed by
dividing the 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. The number of
common shares was increased 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. 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. Retroactive recognition has been given to market
values, common stock and common stock equivalents outstanding for
periods prior to the date of the Company's stock dividend and stock
split.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
June 30, December 31,
----------------- ----------------------------------------------
1997 1996 1995 1994
----------------- ------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Assumptions:
Net income for the period............................ $ 1,482,495 $ 3,012,643 $ 2,818,670 $ 1,839,655
Average common shares outstanding.................... 2,915,789 2,831,693 2,709,464 1,890,792
Dilutive options outstanding to purchase equivalent shares 552,935 537,699 540,604 428,052
Average exercise price per share..................... $ 8.31 $ 8.08 $ 6.42 $ 5.13
Estimated average market value per common share -
for primary computation............................ $ 14.19 $ 11.96 $ 10.28 $ 7.86
Estimated period-end market value per common share -
for fully diluted computation...................... $ 15.67 $ 13.33 $ 10.28 $ 7.86
Computation:
Application of assumed proceeds:
Towards repurchase of outstanding common
shares at applicable market value................ $ 4,596,913 $ 4,346,654 $ 3,471,962 $ 2,196,232
Adjustment of shares outstanding - primary:
Actual average shares.............................. 2,915,789 2,831,693 2,709,464 1,890,792
Net additional shares issuable..................... 228,987 174,283 202,854 148,666
------------- ----------- ----------- -----------
Adjusted shares outstanding........................ 3,144,776 3,005,976 2,912,318 2,039,458
============= =========== =========== ===========
Adjustment of shares outstanding - fully diluted:
Actual average shares.............................. 2,915,789 2,831,693 2,709,464 2,196,232
Net additional shares issuable..................... 259,515 211,700 202,854 148,666
------------- ----------- ----------- -----------
Adjusted shares outstanding........................ 3,175,304 3,043,393 2,912,318 2,039,458
============= =========== =========== ===========
Earnings per common and common equivalent share
Primary............................................ $ 0.47 $ 1.00 $ 0.97 $ 0.90
Fully diluted...................................... $ 0.47 $ 0.99 $ 0.97 $ 0.90
</TABLE>
F-25
<PAGE>
16. REGULATORY MATTERS
The ability of the Bank to pay dividends to the Company is controlled
by certain regulatory restrictions. Permission from the Office of the
Comptroller of the Currency ("OCC") 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 subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory --and possibly
additional discretionary -- actions by regulators, that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications
are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of capital (as defined in the regulations) to
total adjusted assets (as defined), and of risk-based capital (as
defined) to risk- weighted assets (as defined). Management believes, as
of June 30, 1997, that the Bank meets all applicable capital adequacy
requirements.
As of June 30, 1997, the most recent notification from the OCC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as adequately
capitalized, the Bank must maintain minimum Tier 1 Capital, Total
Risk-Based Capital and Leverage Ratios as set forth in the table.
<TABLE>
<CAPTION>
To Be
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1997
Tier 1 Risk-Based Capital............... $ 48,876,324 11.44 % $ 16,040,672 4.00 % $ 24,061,009 6.00 %
Total Risk-Based Capital................ 49,227,313 12.27 32,096,047 8.00 40,120,059 10.00
Leverage................................ 45,876,324 8.63 21,263,650 4.00 26,579,562 5.00
At December 31, 1996
Tier 1 Risk-Based Capital............... $ 28,907,862 9.34 % $ 12,380,480 4.00 % $ 18,570,720 6.00 %
Total Risk-Based Capital................ 31,503,174 10.18 24,760,960 8.00 30,951,200 10.00
Leverage................................ 28,907,862 6.81 16,974,791 4.00 21,218,489 5.00
At December 31, 1995
Tier 1 Risk-Based Capital............... $ 18,063,305 8.26 % $ 8,750,160 4.00 % $ 13,125,240 6.00 %
Total Risk-Based Capital................ 20,127,945 9.20 17,500,320 8.00 21,875,400 10.00
Leverage................................ 18,063,305 5.61 12,869,123 4.00 16,086,404 5.00
</TABLE>
F-26
<PAGE>
17. 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.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 December 31, 1995
---------------------------- -------------------------- -------------------------------
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Assets: (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...... $ 37,837,834 $ 37,837,834 $ 21,806,758 $ 21,806,758 $ 17,242,366 $ 17,242,366
Investment securities.......... 150,580,632 150,580,632 95,581,384 95,581,384 147,008,896 147,008,896
Loans receivable, net.......... 363,705,188 364,593,216 295,500,668 293,777,592 183,633,631 187,037,088
Liabilities:
Demand deposits................ 165,349,497 165,349,497 133,624,391 133,624,391 128,802,293 128,802,293
Savings deposits............... 70,922,212 70,922,212 63,506,894 63,506,894 66,970,293 66,970,293
Certificates of deposit........ 231,122,030 231,156,590 188,855,620 191,448,487 139,475,210 140,877,573
Federal Home Loan Bank
advances..................... -- -- 10,000,000 10,000,000 8,000,000 8,000,000
Loans payable.................. -- -- 6,000,000 6,000,000 -- --
Repurchase agreements.......... 48,500,000 48,500,000 5,253,048 5,253,048 -- --
</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.
Loan payable - The fair value of the loan payable is estimated to be
the amount outstanding at the reporting date. The interest rate on the
loan adjusts with changes in the prime lending rate.
Repurchase agreements - Securities sold under agreements to repurchase
are overnight transactions, therefore the carrying amount is a
reasonable estimate of fair value.
F-27
<PAGE>
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 estimated fair value approximates the
recorded deferred fee amounts, which are not significant.
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 June 30, 1997, December 31,
1996 and 1995. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since June 30, 1997, December 31,
1996 and 1995, and therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
18. 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.
19. 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. Upon 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.
F-28
<PAGE>
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.
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.
20. ACQUISITIONS (UNAUDITED)
On July 24, 1997, the Bank purchased three branches from Oritani
Savings Bank. The Bank acquired approximately $33,922,000 of deposit
liabilities plus $144,000 of accrued interest, $547,000 of real estate
and equipment and $180,000 in cash. The Bank paid a premium of
$2,151,000, which is being amortized over seven years.
On June 5, 1997, the Bank entered into a branch purchase and deposit
assumption agreement with The Bank of New York ("BNY"), whereby the
Bank will assume certain deposits liabilities of eleven branch offices
from BNY. At June 30, 1997, the branches had deposits of approximately
$177 million. In addition, the Bank will acquire approximately $29
million of loans as well as property and equipment pertaining to the
branches. The transaction is expected to be completed in the fourth
quarter of 1997. The agreement is subject to raising additional capital
and regulatory approval.
F-29
<PAGE>
21. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition June 30 December 31,
------------ ---------------------------------
1997 1996 1995
------------ --------------- -------------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash.......................................................... $ 498,887 $ 27,187 $ 159,205
Investments................................................... 1,200,000 -- --
Investments in subsidiaries................................... 54,567,601 33,294,851 24,463,659
Office property and equipment................................. -- -- 9,756
Accrued interest and other assets............................. 1,554,389 95,417 38,176
--------- ----------- ------------
Total......................................................... $ 57,820,877 $ 33,417,455 $ 24,670,796
=========== ============ ============
Liabilities and Shareholders' Equity
Loans payable................................................. $ -- $ 6,000,000 $ --
Accrued interest payable...................................... -- 2,879 --
Guaranteed preferred beneficial interest in subordinated debt. 28,750,000 -- --
Shareholders' equity.......................................... 29,070,877 27,414,576 24,670,796
---------- ------------ ------------
Total......................................................... $ 57,820,877 $ 33,417,455 $ 24,670,796
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Six Months Ended
June 30, Years Ended December 31,
-------------------------- -------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ---------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net interest (expense) ........................................ $ (111,295) $ 498 $(1,888) $ -- $(27,045)
Other income................................................... -- -- 15,909 12,278 7,200
Expenses....................................................... ( 851,384) (11,043) (16,271) (27,025) (8,090)
-------- --------- --------- ---------- ---------
(Loss) before equity in undistributed
income of subsidiaries and income tax expense................ (962,679) (10,545) (2,250) (14,747) (27,935)
Equity in undistributed income of subsidiaries................. 2,445,174 1,403,016 3,014,893 2,833,417 1,877,590
Income tax expense............................................. -- -- -- -- (10,000)
--------- --------- ---------- ---------- ---------
Net income..................................................... $ 1,482,495 $1,392,471 $ 3,012,643 $ 2,818,670 $1,839,655
========== ========= ========== ========== =========
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Six Months Ended
June 30, Years Ended December 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Operating activities: (Unaudited)
<S> <C> <C> <C> <C> <C>
Net income ............................................ $ 1,482,495 $ 1,392,470 $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ....................... -- 4,181 9,756 8,360 4,486
Undistributed income of subsidiaries ................ (2,445,174) (1,403,016) (3,014,893) (2,833,417) (1,877,590)
Tax benefit from exercise of non-qualified stock
options (net) ..................................... -- -- (110,000) -- --
Changes in assets and liabilities which provided
(used) cash:
Accrued interest and other assets ................. (1,458,974) 6,782 (57,241) 9,665 (9,701)
Accounts payable and accrued expenses ............. 2,877 -- 2,879 -- --
---------- --------- --------- ------- ---------
Net cash provided by (used in) operating
activities ................................ (2,424,530) 417 (156,856) 3,278 (43,150)
---------- ---------- ---------- ---------- ----------
Investing activities:
Purchases of investment securities available for sale (1,200,000) -- -- -- --
Proceeds from maturities of investment securities ..... -- -- -- -- 2,000,000
Purchase price of acquisitions, net of cash received .. -- -- -- -- (7,801,950)
Purchase of bank properties and equipment ............. -- -- -- -- (20,904)
Dividend from subsidiary .............................. 150,000 -- -- -- 1,400,000
Advances to subsidiary ................................ (18,866,000) (1,100,000) (7,100,000) (1,700,000) (1,200,000)
----------- ---------- ---------- ---------- ----------
Net cash used in investing activities ........ (19,916,000) (1,100,000) (7,100,000) (1,700,000) (5,622,854)
----------- ---------- ---------- ---------- ----------
Financing activities:
Net borrowings under line of credit agreement ......... -- -- 6,000,000 -- 4,500,000
Repayments of short-term borrowings ................... (6,000,000) -- -- -- (4,500,000)
Exercise of stock options ............................. 29,560 1,009,446 1,126,984 605,358 3,393
Proceeds from issuance of guaranteed beneficial
interest in subordinated debt ........................ 28,750,000 -- -- -- --
Proceeds from issuance of common stock ................ 35,793 -- -- 260,000 6,421,877
Payment for fractional interests resulting from stock
dividend ........................................... (3,123) -- (2,146) -- --
---------- --------- ---------- ---------- ----------
Net cash provided by financing activities .... 22,812,230 1,009,446 7,124,838 865,358 6,425,270
---------- --------- ---------- ---------- ----------
(Decrease) increase in cash ............................. 471,700 (90,137) (132,018) (831,364) 759,266
Cash, beginning of period ............................... 27,187 159,205 159,205 990,569 231,303
---------- --------- ---------- ---------- ----------
Cash, end of period...................................... $ 498,887 $ 69,068 $ 27,187 $ 159,205 $ 990,569
========== ========= ========= ========== ==========
</TABLE>
F-31
<PAGE>
=================================================== ===========================
No ^ dealer, salesperson or other individual has
been authorized ^ to give any information or to ^900,000 Shares
make any ^ representations not contained in this
^ Prospectus in connection with the offering
covered by this Prospectus. If given or made,
such information or ^ representations must not
be relied upon as having been authorized by the ^
Company or the Underwriters. This
Prospectus does not constitute an offer to sell or
a solicitation of any offer to buy ^, the Common [Logo]
Shares in any jurisdiction where, or to any
person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this
^ Prospectus nor any sale made hereunder shall,
under any circumstances, create ^ an
implication that there has not been any change SUN BANCORP, INC.
in the affairs of the Company since the date
hereof. Common Stock
--------------
TABLE OF CONTENTS
-------------------
Page
----
P R O S P E C T U S
Prospectus Summary............................. 3
Selected Consolidated Financial Data........... 6 -------------------
Recent Developments............................ 7
Risk Factors...................................11
Use of Proceeds................................16
Oritani and Bank of New York
Branch Purchases............................16
Capitalization.................................19
Price Range of Common Shares;
Dividends....................................20 Advest, Inc.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................21
Business of the Company........................46
Management.....................................51
Security Ownership of Certain
Beneficial Owners and Management.............57 ^, 1997
Supervision and Regulation.....................57
Description of the Capital Stock...............61
Shares Eligible for Future Sale................62
Underwriting...................................63
Validity of Securities.........................64
Experts........................................65
Available Information..........................65
Financial Statements .........................F-1
=================================================== ===========================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Registration Fees..................................... $ 6,000
* Legal Services........................................ 100,000
* Printing and Engraving................................ 25,000
Nasdaq Listing Fees................................... 20,000
* Accounting Fees....................................... 75,000
* Miscellaneous......................................... 4,000
-------
* TOTAL................................................. $230,000
=======
* Estimated
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits:
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Sun Bancorp, Inc. *
3.2 Bylaws of Sun Bancorp, Inc. *
4.1 Common Security Specimen.*
5.1 Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.
10.1 Employment Agreement with Adolph F. Calovi. **
10.2 Lease Agreement with Vineland Construction Company
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Malizia, Spidi, Sloane & Fisch, P.C.
(included in Exhibit 5.1).
(b) Financial Statements Schedules***
- -------------------
* Incorporated by reference to the registrant's Registration Statement on
Form 10, file no. 0-20957.
** Incorporated by reference to the registrant's Registration Statement on
Form S-1, file no. 333- 21903.
*** All schedules are omitted because they are not required or applicable or
the required information is shown in the financial statements or the notes
thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Vineland, New Jersey, on October 22,
1997.
SUN BANCORP, INC.
By: /s/ Adolph F. Calovi
-------------------------------------
Adolph F. Calovi
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment has been signed below by the following persons in the capacities
indicated on October 22, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Adolph F. Calovi /s/ Bernard A. Brown
- ----------------------------------------------- ---------------------------------------
Adolph F. Calovi Bernard A. Brown
President, Chief Executive Officer and Director Chairman of the Board
(Principal Executive Officer)
/s/ Sidney R. Brown /s/ Philip W. Koebig, III
- ----------------------------------------------- ---------------------------------------
Sidney R. Brown Philip W. Koebig, III
Treasurer, Secretary and Director Executive Vice President and Director
/s/ Peter Galetto, Jr. /s/ Anne E. Koons
- ----------------------------------------------- ---------------------------------------
Peter Galetto, Jr. Anne E. Koons
Director Director
/s/ Robert F. Mack
- -----------------------------------------------
Robert F. Mack
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
Exhibit 1.1
Form of Underwriting Agreement
<PAGE>
[ ] Shares
(plus [ ] Shares to cover over-allotments, if any)
SUN BANCSHARES, INC.
COMMON STOCK, PAR VALUE $1.00 PER SHARE
UNDERWRITING AGREEMENT
October ___, 1997
ADVEST, INC.
As Representative (the "Representative")
of the Several Underwriters
Named in Schedule I hereto
c/o Advest, Inc.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Dear Sirs and Mesdames:
Sun Bancorp, Inc., a New Jersey corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to sell to the
several Underwriters named in Schedule I hereto (the "Underwriters"), an
aggregate of [ ] shares (the "Firm Shares") of the Company's common stock, par
value $1.00 per share (the "Common Stock").
In addition, in order to cover over-allotments in the sale of
the Firm Shares, the Underwriters may, at the Underwriters' election and subject
to the terms and conditions stated herein, purchase ratably in proportion to the
amounts set forth opposite their respective names in Schedule I hereto, up to [
] additional shares of Common Stock from the Company (such additional shares of
Common Stock, the "Optional Shares"). The Firm Shares and the Optional Shares
are referred to collectively as the "Shares."
As part of the offering of [ ] Firm Shares contemplated by
this Agreement, Advest, Inc. ("Advest") has agreed to reserve out of the Firm
Shares set forth opposite its name on Schedule I hereto, up to [ ] Shares, for
sale to the Company's employees, officers and directors (collectively, the
"Participants"), as set forth in the Prospectus in the section entitled
"Underwriting" (the "Directed Share Program"). The Shares to be sold by Advest
pursuant to the Directed Share Program (the "Directed Shares") will be sold by
Advest pursuant to this Agreement [at the public offering price] [at the price
specified in the Prospectus]. [Any Directed Shares not orally confirmed for
purchase by any Participants by the end of the first business day
<PAGE>
after the date on which this Agreement is executed will be offered to the public
by Advest as set forth in the Prospectus.]
The Company, intending to be legally bound, hereby confirms
its agreement with the Underwriters as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File
No. 333-________) with respect to the Shares, including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and one or more amendments to such registration statement may have been
so filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, a prospectus in the form
most recently included in an amendment to such registration statement (or, if no
such amendment shall have been filed, in such registration statement) with such
changes or insertions as are required by Rule 430A or permitted by Rule 424(b)
under the Act and as have been provided to and approved by the Representative,
or (ii) if such registration statement, as it may have been amended, has not
become effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been provided to
and approved by the Representative prior to the execution of this Agreement. As
used in this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including (A) all financial statements, schedules and exhibits
thereto, (B) all documents (or portions thereof) incorporated by reference
therein, and (C) any information omitted therefrom pursuant to Rule 430A under
the Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion included in
such registration statement or any amendment or post-effective amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective), including
all documents (or portions thereof) incorporated by reference therein; and the
term "Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is required to be so filed,
such term means the prospectus included in the Registration Statement, in either
case, including all documents (or portions thereof) incorporated by reference
therein. As used herein, any reference to any statement or information as being
"made," "included," "contained," "disclosed" or "set forth" in any
- 2 -
<PAGE>
Preliminary Prospectus, a Prospectus or any amendment or supplement thereto, or
the Registration Statement or any amendment thereto (or other similar
references) shall refer both to information and statements actually appearing in
such document as well as information and statements incorporated by reference
therein.
(b) No order preventing or suspending the use of
any Preliminary Prospectus has been issued and no proceeding for that purpose
has been instituted or threatened by the Commission or the securities authority
of any state or other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no proceeding for
that purpose has been instituted or threatened or, to the knowledge of the
Company, contemplated by the Commission or the securities authority of any state
or other jurisdiction.
(c) When any Preliminary Prospectus was filed
with the Commission it contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder. When the
Registration Statement or any amendment thereto was or is declared effective,
and at each Time of Delivery (as hereinafter defined), it (i) contained and will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
and will not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading. When
the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time, (i) contained and will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (ii) did not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (c) do not apply to statements or omissions made in
the Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you specifically
for use therein. It is understood that the statements set forth in the
Registration
- 3 -
<PAGE>
Statement or any amendment thereto or the Prospectus or any amendment or
supplement thereto (W) in the last paragraph of the cover page of the
Prospectus, (X) on the inside cover page with respect to stabilization and
passive market making, and (Y) in the [ ]1, [ ]2 and [ ]3 paragraphs and the
list of Underwriters under the section entitled "Underwriting," constitute the
only written information furnished to the Company by or on behalf of any
Underwriter through you specifically for use in the Registration Statement or
any amendment thereto or the Prospectus and any amendment or supplement thereto,
as the case may be.
(d) There are no legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
subsidiary is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(e) Each of the Company and its subsidiaries has
been duly incorporated, is validly existing as a corporation or banking
association in good standing under the laws of its jurisdiction of incorporation
and has full power and authority (corporate and other) to own or lease its
properties and conduct its business as described in the Prospectus. The Company
is duly registered under the Bank Holding Company Act of 1956, as amended. The
Company has full power and authority (corporate and other) to enter into this
Agreement and to perform its obligations hereunder. Each of the Company and its
subsidiaries is duly qualified to transact business as a foreign corporation and
is in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial position, results of operations or business of
the Company and its subsidiaries taken as a whole.
- --------
1 Insert number of paragraph included in the section of the Prospectus
entitled "Underwriting" regarding selling concessions.
2 Insert number of paragraph included in the section of the Prospectus
entitled "Underwriting" regarding sales to discretionary accounts.
3 Insert number of paragraph included in the section of the Prospectus
entitled "Underwriting" regarding stabilization.
- 4 -
<PAGE>
(f) The Company's authorized, issued and
outstanding capital stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company, have been duly authorized and validly
issued, are fully paid and nonassessable and conform to the descriptions of the
Common Stock contained in the Prospectus. None of the issued shares of capital
stock of the Company or any of its subsidiaries has been issued or is owned or
held in violation of any statutory (or to the knowledge of the Company, any
other) preemptive rights of shareholders, and no person or entity (including any
holder of outstanding shares of capital stock of the Company or its
subsidiaries) has any statutory (or to the knowledge of the Company, any other)
preemptive or other rights to subscribe for any of the Shares. None of the
capital stock of the Company has been issued in violation of applicable federal
or state securities laws.
(g) All of the issued shares of capital stock of
each subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable and are owned beneficially by the Company or one of its
subsidiaries, free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting agreements, proxies,
voting trusts, equities or claims of any nature whatsoever. Other than the
outstanding capital stock of Sun National Bank and the equity securities held in
the investment portfolios of the Company and such subsidiaries (the composition
of which is not materially different than the disclosures in the Prospectus as
of specific dates), the Company does not own, directly or indirectly, any
capital stock or other equity securities of any other corporation or any
ownership interest in any partnership, joint venture or other association.
(h) Except as disclosed in the Prospectus, there
are no outstanding (i) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any of its subsidiaries, (ii) warrants, rights or options to
subscribe for or purchase from the Company or any of its subsidiaries any such
capital stock or any such convertible or exchangeable securities or obligations
or (iii) obligations of the Company or any of its subsidiaries to issue any
shares of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(i) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
neither the Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not in the
ordinary course of business, that are material to the Company and its
subsidiaries, (ii) the Company has not purchased any of its outstanding capital
- 5 -
<PAGE>
stock or declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock, (iii) there has not been any change in the capital
stock, long-term debt or short-term debt of the Company or any of its
subsidiaries, and (iv) there has not been any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
financial position, results of operations or business of the Company and its
subsidiaries, in each case other than as disclosed in or contemplated by the
Prospectus.
(j) There are no contracts, agreements or
understandings between the Company and any person granting such person the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such person or,
requiring the Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been effectively
waived) or requiring the registration of any securities pursuant to any other
registration statement filed by the Company under the Act. Neither the filing of
the Registration Statement nor the offering or sale of Shares as contemplated by
this Agreement gives any security holder of the Company any rights for or
relating to the registration of any shares of Common Stock or any other capital
stock of the Company, except such as have been satisfied or waived.
(k) Neither the Company nor any of its
subsidiaries is, or with the giving of notice or passage of time or both would
be, in violation of its Articles of Incorporation or Bylaws or in default under
any indenture, mortgage, deed of trust, loan agreement, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party or to
which any of their respective properties or assets are subject.
(l) The Company and its subsidiaries have good
and marketable title in fee simple to all real property, if any, and good title
to all personal property owned by them, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages and
defects, except such as are disclosed in the Prospectus or such as would not
have a material adverse effect on the financial position, results of operations
or business of the Company and its subsidiaries taken as a whole and do not
interfere with the use made or proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company or any of its subsidiaries are held under valid, subsisting
and enforceable leases, with such exceptions as are disclosed in the Prospectus
or are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or any subsidiary.
- 6 -
<PAGE>
(m) The Company does not require any consent,
approval, authorization, order or declaration of or from, or registration,
qualification or filing with, any court or governmental agency or body in
connection with the sale of the Shares or the consummation of the transactions
contemplated by this Agreement, except the registration of the Shares under the
Act (which, if the Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this Agreement) and such as
may be required by the National Association of Securities Dealers, Inc. (the
"NASD") or under state securities or blue sky laws in connection with the offer,
sale and distribution of the Shares by the Underwriters.
(n) Other than as disclosed in the Prospectus,
there is no litigation, arbitration, claim, proceeding (formal or informal) or
investigation (including without limitation, any bank regulatory proceeding)
pending or, to the Company's knowledge, threatened in which the Company or any
of its subsidiaries is a party or of which any of their respective properties or
assets are the subject which, if determined adversely to the Company or any
subsidiary, would individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole. Neither the Company nor any
subsidiary is in violation of, or in default with respect to, any law, statute,
rule, regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the aggregate have
a material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole, and neither the
Company nor any subsidiary is required to take any action in order to avoid any
such violation or default.
(o) Deloitte & Touche LLP, which has certified
certain financial statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus, are independent
public accountants as required by the Act, the Exchange Act and the respective
rules and regulations of the Commission thereunder.
(p) The consolidated financial statements and
schedules (including the related notes) of the Company and its consolidated
subsidiaries included or incorporated by reference in the Registration
Statement, the Prospectus and/or any Preliminary Prospectus were prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and fairly present the financial position and
results of operations of the Company and its subsidiaries, on a consolidated
basis, at the dates and for the periods presented. The selected financial data
and operating and statistical information set forth under the captions
"Summary," "Selected Consolidated Financial Data," "Use of Proceeds,"
"Capitalization," "Business of the
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<PAGE>
Company," "Management" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Prospectus fairly present, on the
basis stated in the Prospectus, the information included therein, and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement. The supporting notes and schedules
included in the Registration Statement, the Prospectus and/or any Preliminary
Prospectus fairly state in all material respects the information required to be
stated therein in relation to the financial statements taken as a whole. The
unaudited interim consolidated financial statements included or incorporated by
reference in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of Rule 10-01 of Regulation
S-X under the Act.
(q) This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due execution by the
Representative of the Underwriters, constitutes the valid and binding agreement
of the Company enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws relating to or affecting the enforcement of
creditors' rights generally and to general equitable principles and except as
the enforceability of rights to indemnity and contribution under this Agreement
may be limited under applicable securities laws or the public policy underlying
such laws.
(r) The sale of the Shares and the performance of
this Agreement and the consummation of the transactions herein contemplated will
not (with or without the giving of notice or the passage of time or both) (i)
conflict with or violate any term or provision of the articles of incorporation
or bylaws or other organizational documents of the Company or any subsidiary,
(ii) result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company or any
subsidiary is a party or to which any of their respective properties or assets
is subject, (iii) conflict with or violate any law, statute, rule or regulation
or any order, judgment or decree of any court or governmental agency or body
having jurisdiction over the Company or any subsidiary or any of their
respective properties or assets or (iv) result in a breach, termination or lapse
of the corporate power and authority of the Company or any subsidiary to own or
lease and operate their respective assets and properties and conduct their
respective business as described in the Prospectus.
(s) When the Shares to be sold by the Company
hereunder have been duly delivered against payment therefor as contemplated by
this Agreement, the Shares will be validly issued, fully paid and nonassessable,
and the holders thereof will not be
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<PAGE>
subject to personal liability solely by reason of being such holders. The
certificates representing the Shares are in proper legal form under, and conform
in all respects to the requirements of, the New Jersey Business Corporation Act
and the requirements of the NASD.
(t) The Company has not distributed and will not
distribute any offering material in connection with the offering and sale of the
Shares other than the Registration Statement, a Preliminary Prospectus, the
Prospectus and other material, if any, permitted by the Act.
(u) Neither the Company nor any of its officers,
directors or affiliates has (i) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or (ii)
since the filing of the Registration Statement (A) sold, bid for, purchased or
paid anyone any compensation for soliciting purchases of, the Shares or (B) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(v) The operations of the Company and its
subsidiaries with respect to any real property currently leased or owned or by
any means controlled by the Company or any subsidiary (the "Real Property") are
in compliance in all material respects with all federal, state, and local laws,
ordinances, rules, and regulations relating to occupational health and safety
and the environment (collectively, "Laws"), and the Company and its subsidiaries
have not violated any Laws in a way which would have a material adverse effect
on the financial position, results of operations or business of the Company and
its subsidiaries taken as a whole. Except as disclosed in the Prospectus, there
is no pending or, to the Company's knowledge, threatened claim, litigation or
any administrative agency proceeding, nor has the Company or any subsidiary
received any written or oral notice from any governmental entity or third party,
that: (i) alleges a violation of any Laws by the Company or any subsidiary or
(ii) alleges the Company or any subsidiary is a liable party under the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq. or any state superfund law.
(w) Neither the Company nor any subsidiary owns
or has the right to use patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, trade secrets,
proprietary or other confidential information and intangible properties and
assets (collectively, "Intangibles"), the loss of any of which would have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole;
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<PAGE>
and, to the best knowledge of the Company, neither the Company nor any
subsidiary has infringed or is infringing, and neither the Company nor any
subsidiary has received notice of infringement with respect to, asserted
Intangibles of others.
(x) Each of the Company and its subsidiaries
makes and keeps accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that (i)
transactions are executed in accordance with management's authorization, (ii)
transactions are recorded as necessary to permit preparation of the Company's
consolidated financial statements in accordance with generally accepted
accounting principles and to maintain accountability for the assets of the
Company, (iii) access to the assets of the Company and each of its subsidiaries
is permitted only in accordance with management's authorization, and (iv) the
recorded accountability for assets of the Company and each of its subsidiaries
is compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(y) The Company and its subsidiaries have filed
all foreign, federal, state and local tax returns that are required to be filed
by them and have paid all taxes shown as due on such returns as well as all
other taxes, assessments and governmental charges that are due and payable; and
no material deficiency with respect to any such return has been assessed or
proposed.
(z) Except for such plans that are expressly
disclosed in the Prospectus, the Company and its subsidiaries do not maintain,
contribute to or have any material liability with respect to any employee
benefit plan, profit sharing plan, employee pension benefit plan, employee
welfare benefit plan, equity-based plan or deferred compensation plan or
arrangement ("Plans") that are subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended, or the rules and regulations
thereunder ("ERISA"). All Plans are in compliance in all material respects with
all applicable laws, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"), and have been operated and administered
in all material respects in accordance with their terms. No Plan is a defined
benefit plan or multi employer plan. The Company does not provide retiree life
and/or retiree health benefits or coverage for any employee or any beneficiary
of any employee after such employee's termination of employment, except as
required by Section 4980B of the Code or under a Plan which is intended to be
"qualified" under Section 401(a) of the Code. No material liability has been, or
could reasonably be expected to be, incurred under Title IV of ERISA or Section
412 of the Code by any entity required to be aggregated with the Company or any
of the Subsidiaries pursuant to Section 4001(b) of ERISA and/or Section
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<PAGE>
414(b) or (c) of the Code (and the regulations promulgated thereunder) with
respect to any "employee pension benefit plan" which is not a Plan. As used in
this subsection, the terms "defined benefit plan," "employee benefit plan,"
"employee pension benefit plan," "employee welfare benefit plan" and
"multiemployer plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
(aa) No material labor dispute exists with the
Company's or any subsidiary's employees, and no such labor dispute is
threatened. The Company has no knowledge of any existing or threatened labor
disturbance by the employees of any of its principal agents, suppliers,
contractors or customers that would have a material adverse effect on the
financial position, results of operations or business of the Company and its
subsidiaries taken as a whole.
(bb) The Company and its subsidiaries have
received all permits, licenses, franchises, authorizations, registrations,
qualifications and approvals (collectively, "Permits") of governmental or
regulatory authorities (including, without limitation, state or federal bank
regulatory authorities) as may be required of them to own their properties and
conduct their businesses in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus; and the Company and
its subsidiaries have fulfilled and performed all of their material obligations
with respect to such Permits, and no event has occurred which allows or, after
notice or lapse of time or both, would allow revocation or termination thereof
or result in any other material impairment of the rights of the holder of any
such Permit, subject in each case to such qualification as may be set forth in
the Prospectus; and, except as described in the Prospectus, such Permits contain
no restrictions that materially affect the ability of the Company and its
subsidiaries to conduct their businesses and no state or federal bank regulatory
agency or body has issued any order or decree impairing, restricting or
prohibiting the payment of dividends by any of its subsidiaries to the Company.
(cc) The Company and each of its subsidiaries has
filed, or has had filed on its behalf, on a timely basis, all materials,
reports, documents and information, including but not limited to annual reports,
call reports and reports of examination with each applicable bank regulatory
authority, board or agency, which are required to be filed by it, except where
the failure to have timely filed such materials, reports, documents and
information would not have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries taken as a
whole.
(dd) Neither the Company, nor any subsidiary is an
"investment company" or a company "controlled" by an investment
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<PAGE>
company as such terms are defined in Sections 3(a) and 2(a)(9), respectively, of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and, if the Company or any subsidiary conducts its business as set forth in the
Registration Statement and the Prospectus, will not become an "investment
company" and will not be required to register under the Investment Company Act.
(ee) The Company has not offered, or caused the Underwriters
Underwriters to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
(ff) Sun National Bank is a member in good
standing of the Federal Reserve System and its deposits are insured by the
Federal Deposit Insurance Corporation up to the legal limits.
(gg) The Company and each Subsidiary have in place
and effective such policies of insurance, with limits of liability in such
amounts, as are normal and prudent in the ordinary scope of business similar to
that of the Company and such subsidiary in the respective jurisdiction in which
they conduct business.
2. Purchase and Sale of Shares.
(a) Subject to the terms and conditions herein
set forth, the Company agrees to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price of [ ] Dollars and [ ] cents ($[ ]) per share (the
"Per Share Price"), the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by the Company as set forth in the first paragraph of
this Agreement by a fraction, the numerator of which is the aggregate number of
Firm Shares to be purchased by such Underwriter as set forth opposite the name
of such Underwriter in Schedule I hereto, and the denominator of which is the
aggregate number of Firm Shares to be purchased by the several Underwriters
hereunder.
(b) The Company hereby grants to the Underwriters
the right to purchase at their election in whole or in part from time to time up
to [ ] Optional Shares, at the Per Share Price, for the sole purpose of covering
over-allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised by written notice from the Representative to
the Company, given at any time and from time to time within a period of 30
calendar days after the date of this Agreement and
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<PAGE>
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as hereinafter defined) or,
unless the Representative otherwise agrees in writing, earlier than two or later
than ten business days after the date of such notice. In the event the
Underwriters elect to purchase all or a portion of the Optional Shares, the
Company agrees to furnish or cause to be furnished to the Representative the
certificates, letters and opinions, and to satisfy all conditions, set forth in
Section 7 hereof at each Subsequent Time of Delivery (as hereinafter defined).
(c) In making this Agreement, each Underwriter is
contracting severally, and not jointly, and except as provided in Sections 2(b)
and 9 hereof, the agreement of each Underwriter is to purchase only that number
of shares specified with respect to that Underwriter in Schedule I hereto. No
Underwriter shall be under any obligation to purchase any Optional Shares prior
to an exercise of the option with respect to such Shares granted pursuant to
Section 2(b) hereof.
3. Offering by the Underwriters. Upon the authorization by the
Representative of the release of the Shares, the several Underwriters propose to
offer the Shares for sale upon the terms and conditions disclosed in the
Prospectus.
4. Delivery of Shares; Closing. Certificates in definitive
form for the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as the Representative may request
upon at least 48 hours' prior notice to the Company, shall be delivered by or on
behalf of the Company to the Representative for the account of such Underwriter,
against payment by such Underwriter on its behalf of the purchase price therefor
by wire transfer of immediately available funds to such accounts as the Company
shall designate in writing. The closing of the sale and purchase of the Shares
shall be held at the offices of Arnold & Porter, 555 12th Street, N.W.,
Washington, D.C. 20004, except that physical delivery of such certificates shall
be made at the office of The Depository Trust Company, 55 North Water Street,
New York, New York 10041. The time and date of such delivery and payment shall
be, with respect to the Firm Shares, at 10:00 a.m., New York, New York time, on
the third (3rd) full business day after this Agreement is executed or at such
other time and date as the Representative and the Company may agree upon in
writing, and, with respect to the Optional Shares, at 10:00 a.m., New York, New
York time, on the date specified by the Representative in the written notice
given by the Representative of the Underwriters' election to purchase all or
part of such Optional Shares, or at such other time and date as the
Representative and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein
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<PAGE>
called the "First Time of Delivery," such time and date for delivery of any
Optional Shares, if not the First Time of Delivery, is herein called a
"Subsequent Time of Delivery," and each such time and date for delivery is
herein called a "Time of Delivery." The Company will make such certificates
available for checking and packaging at least 24 hours prior to each Time of
Delivery at the office of The Depository Trust Company, 55 North Water Street,
New York, New York 10041 or at such other location specified by you in writing
at least 48 hours prior to such Time of Delivery.
5. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company will use its best efforts to
cause the Registration Statement, if not effective prior to the execution and
delivery of this Agreement, to become effective. If the Registration Statement
has been declared effective prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if consented to
by you, subparagraph (4)) of Rule 424(b) within the time period required under
Rule 424(b) under the Act. The Company will advise you promptly of any such
filing pursuant to Rule 424(b). The Company will file timely all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
(b) The Company will not file with the Commission
the Prospectus or the amendment referred to in Section 1(a) hereof, any
amendment or supplement to the Prospectus or any amendment to the Registration
Statement unless you have received a reasonable period of time to review any
such proposed amendment or supplement and consented to the filing thereof and
will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. Upon the request of
the Representative or counsel for the Underwriters, the Company will promptly
prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or advisable
in connection with the distribution of the Shares by the several Underwriters
and will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. If required, the
Company will file any amendment or supplement to the Prospectus with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. The Company will advise the Representative, promptly after
receiving notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus or any
amendment or
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<PAGE>
supplement thereto has been filed and will provide evidence to the
Representative of each such filing or effectiveness.
(c) The Company will advise the Representative
promptly after receiving notice or obtaining knowledge of (i) when any
post-effective amendment to the Registration Statement is filed with the
Commission, (ii) the receipt of any comments from the Commission concerning the
Registration Statement, (iii) when any post-effective amendment to the
Registration Statement becomes effective, or when any supplement to the
Prospectus or any amended Prospectus has been filed, (iv) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any part thereof or any order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (v) the suspension of the qualification of the Shares for offer or sale
in any jurisdiction or of the initiation or threatening of any proceeding for
any such purpose, or (vi) any request made by the Commission or any securities
authority of any other jurisdiction for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
or suspension and, if any such stop order or suspension is issued, to obtain the
withdrawal thereof as promptly as possible.
(d) If the delivery of a prospectus relating to
the Shares is required under the Act at any time prior to the expiration of nine
months after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if for any
reason it is necessary during such same period to amend or supplement the
Prospectus, the Company will promptly notify the Representative and upon its
request (but at the Company's expense) prepare and file with the Commission an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance and will furnish without charge to each
Underwriter and to any dealer in securities as many copies of such amended or
supplemented Prospectus as the Representative may from time to time reasonably
request.
(e) The Company promptly from time to time will
take such action as the Representative may reasonably request to qualify the
Shares for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may request and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction. The
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<PAGE>
Company will file such statements and reports as may be required by the laws of
each jurisdiction in which the Shares have been qualified as above provided.
(f) The Company will promptly provide the
Representative, without charge, (i) two manually executed copies of the
Registration Statement as originally filed with the Commission and of each
amendment thereto, including all exhibits and all documents or information
incorporated by reference therein, (ii) for each other Underwriter, a conformed
copy of the Registration Statement as originally filed and of each amendment
thereto, without exhibits but including all documents or information
incorporated by reference therein and (iii) so long as a prospectus relating to
the Shares is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Representative may reasonably request.
(g) As soon as practicable, but not later than
the Availability Date (as defined below), the Company will make generally
available to its security holders an earnings statement of the Company and its
subsidiaries, if any, covering a period of at least 12 months beginning after
the effective date of the Registration Statement (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations
thereunder. "Availability Date" means the forty-fifth (45th) day after the end
of the fourth fiscal quarter following the fiscal quarter in which the
Registration Statement went effective, except that if such fourth fiscal quarter
is the last quarter of the Company's fiscal year, "Availability Date" means the
ninetieth (90th) day after the end of such fourth fiscal quarter.
(h) During the period beginning from the date
hereof and continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, and will cause its officers and directors not
to, without the prior written consent of the Representative, directly or
indirectly (i) offer, sell, contract to sell or otherwise dispose of, any shares
of Common Stock or securities convertible into or exercisable or exchangeable
for shares of Common Stock or (ii) enter into any swap or other agreement or any
transaction that transfers, in whole or in part, the economic consequences of
ownership of shares of Common Stock whether any such swap or other agreement is
to be settled by delivery of shares of Common Stock, other securities, cash or
otherwise; except for the sale of the Shares hereunder and except for the
issuance of Common Stock upon the exercise of stock options or warrants or the
conversion of convertible securities outstanding on the date of this Agreement
to the extent that such stock options, warrants and convertible securities are
disclosed in the Prospectus or except for the grant to employees of stock
options to purchase Common Stock which are not exercisable within such 180 days.
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<PAGE>
(i) During the period of three years after the
effective date of the Registration Statement, the Company will furnish to the
Representative and, upon request, to each of the other Underwriters, without
charge, (i) copies of all reports or other communications (financial or other)
furnished to shareholders and (ii) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the Commission, the
NASD or any national securities exchange.
(j) Prior to the termination of the underwriting
syndicate contemplated by this Agreement, neither the Company nor any of its
officers, directors or affiliates will (i) take, directly or indirectly, any
action designed to cause or to result in, or that might reasonably be expected
to cause or result in, the stabilization or manipulation of the price of any
security of the Company or (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares.
(k) In case of any event, at any time within the
period during which a prospectus is required to be delivered under the Act, as a
result of which any Preliminary Prospectus or the Prospectus, as then amended or
supplemented, would contain an untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, if it
is necessary at any time to amend any Preliminary Prospectus or the Prospectus
to comply with the Act or any applicable securities or blue sky laws, the
Company promptly will prepare and file with the Commission, and any applicable
state securities commission, an amendment, supplement or document that will
correct such statement or omission or effect such compliance and will furnish to
the several Underwriters such number of copies of such amendment(s),
supplement(s) or document(s) as the Representative may reasonably request. For
purposes of this subsection (k), the Company will provide such information to
the Representative, the Underwriters' counsel and counsel to the Company as
shall be necessary to enable such persons to consult with the Company with
respect to the need to amend or supplement the Registration Statement, any
Preliminary Prospectus or the Prospectus or file any document, and shall furnish
to the Representative and the Underwriters' counsel such further information as
each may from time to time reasonably request.
(l) The Company will use its best efforts to
obtain, and thereafter maintain, the qualification or listing of the shares of
Common Stock (including, without limitation, the Shares) on the Nasdaq National
Market System.
6. Expenses and Fees.
(a) The Company will pay all costs and expenses
incident to the performance of the obligations of the Company
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<PAGE>
under this Agreement, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated pursuant to Section 10 hereof,
including, without limitation, all costs and expenses incident to (i) the
printing of and mailing expenses associated with the Registration Statement, the
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto, this Agreement, the Agreement among Underwriters, the Underwriters'
Questionnaire submitted to each of the Underwriters by the Representative in
connection herewith, the power of attorney executed by each of the Underwriters
in favor of Advest, Inc. in connection herewith, the Dealer Agreement and
related documents (collectively, the "Underwriting Documents") and the
preliminary Blue Sky memorandum relating to the offering prepared by Arnold &
Porter, counsel to the Underwriters (collectively with any supplement thereto,
the "Preliminary Blue Sky Memorandum"); (ii) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation and, if applicable, filing of the Registration Statement
(including all amendments thereto), any Preliminary Prospectus, the Prospectus
and any amendments and supplements thereto, the Underwriting Documents and the
Preliminary Blue Sky Memorandum; (iii) the delivery of copies of the foregoing
documents to the Underwriters; (iv) the filing fees of the Commission and the
NASD relating to the Shares; (v) the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees; (vi) the qualification of the Shares for offering
and sale under state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Underwriters (and local counsel
therefor) relating thereto; (vii) any listing of the Shares on the Nasdaq
National Market System; (viii) any expenses for travel, lodging and meals
incurred by the Company and any of its officers, directors and employees in
connection with any meetings with prospective investors in the Shares; (ix) the
costs of advertising the offering, including, without limitation, with respect
to the placement of "tombstone" advertisements in publications selected by the
Representative; and (x) all other costs and expenses reasonably incident to the
performance of the Company's obligations hereunder that are not otherwise
specifically provided for in this Section 6.
(b) The Representative and the Underwriters will
pay their own expenses, including the fees of their counsel (except as provided
in Section 6(a)(vi) hereof), public advertisement of the offering, and their own
marketing and due diligence expenses.
(c) At the First Time of Delivery, the Company
shall pay to the Representative the sum of One Hundred Thousand Dollars
($100,000) as a financial advisory fee.
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<PAGE>
7. Conditions of the Underwriters' Obligations. The
-------------------------------------------
obligations of the Underwriters hereunder to purchase and pay for the Shares to
be delivered at each Time of Delivery shall be subject, in their discretion, to
the accuracy of the representations and warranties of the Company contained
herein as of the date hereof and as of such Time of Delivery, to the accuracy of
the statements of the Company's officers made pursuant to the provisions hereof,
to the performance by the Company of its covenants and agreements hereunder, and
to the following additional conditions precedent:
(a) If the registration statement as amended to
date has not become effective prior to the execution of this Agreement, such
registration statement shall have been declared effective not later than 11:00
a.m., New York City time, on the date of this Agreement or such later date
and/or time as shall have been consented to by you in writing. If required, the
Prospectus and any amendment or supplement thereto shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for that
purpose shall have been instituted, threatened or, to the knowledge of the
Company and the Representative, contemplated by the Commission; and all requests
for additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction.
(b) The Representative shall have received a copy
of an executed lock-up agreement from the Company and each of the Company's
officers and directors and certain shareholders of Common Stock, in the form
attached hereto as Exhibit A.
(c) You shall have received an opinion, dated
such Time of Delivery, of Malizia, Spidi, Sloane & Fisch, P.C., counsel for the
Company, in form and substance satisfactory to you and your counsel, to the
effect that:
(i) The Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
State of New Jersey and has the corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement and perform its
obligations hereunder. The Company is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any business, so
as to require such qualification, except where the failure to so qualify would
not have a material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries taken as a whole.
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<PAGE>
The Company is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended.
(ii) Each of the Company's subsidiaries is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus. Each subsidiary is duly qualified to
transact business as a foreign corporation and is in good standing under the
laws of each other jurisdiction in which it owns or leases property, or conducts
any business, so as to require such qualification, except where the failure to
so qualify would not have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries taken as a
whole.
(iii) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued shares of capital
stock of the Company have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description of the Common Stock
contained in the Prospectus. None of the issued shares of Common Stock of the
Company or capital stock of any of its subsidiaries has been issued or is owned
or held in violation of any statutory (or, to the knowledge of such counsel, any
other) preemptive rights of shareholders, and no person or entity (including any
holder of outstanding shares of Common Stock of the Company or capital stock of
its subsidiaries) has any statutory (or, to the knowledge of such counsel, any
other) preemptive or other rights to subscribe for any of the Shares.
(iv) All of the issued shares of capital
stock of each of the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable, and, to such counsel's
knowledge, are owned beneficially by the Company or its subsidiaries, free and
clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, voting agreements, proxies, voting trusts, defects,
equities or claims of any nature whatsoever (collectively, "Encumbrances"),
including, without limitation, any Encumbrance arising or resulting from any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement of
or entered into by the Company or its subsidiaries. To such counsel's knowledge,
other than the outstanding capital stock of Sun National Bank and the equity
securities held in the investment portfolios of the Company and such
subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other association.
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<PAGE>
(v) Except as disclosed in the Prospectus,
there are, to such counsel's knowledge, no outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the Company or any
of its subsidiaries any such capital stock or any such convertible or
exchangeable securities or obligations or (C) obligations of the Company or any
of its subsidiaries to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants, rights or
options.
(vi) When the Shares to be sold by the Company
have been duly delivered against payment therefor as contemplated by this
Agreement, the Shares will be duly authorized, validly issued and fully paid and
nonassessable, the holders thereof will not be subject to personal liability
solely by reason of being such holders and the Shares will conform to the
description of the Common Stock contained in the Prospectus; the certificates
evidencing the Shares will comply with all applicable requirements of New Jersey
law.
(vii) There are no contracts, agreements or
understandings known to such counsel between the Company and any person granting
such person the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or to be owned
by such person or, requiring the Company to include such securities in the
securities registered pursuant to the Registration Statement (or any such right
has been effectively waived) or requiring the registration of any securities
pursuant to any other registration statement filed by the Company under the Act.
(viii) To such counsel's knowledge, neither the
Company nor any of its subsidiaries is, or with the giving of notice or passage
of time or both, would be, in violation of its articles of incorporation or
bylaws, in each case as amended to date, or, in default in any material respect
under any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or to which any of their respective properties or assets
is subject.
(ix) The sale of the Shares being sold at such
Time of Delivery and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or violate any
provision of the articles of incorporation or bylaws of the Company or any of
its subsidiaries, in each case as amended to date, or to such counsel's
knowledge, any existing law, statute, rule or regulation, or in any material
respect, conflict with, or (with or without the giving of notice or the passage
of time or both)
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<PAGE>
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or to which any of their
respective properties or assets is subject, or, conflict with or violate any
order, judgment or decree known to such counsel, of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets.
(x) To such counsel's knowledge, no consent,
approval, authorization, order or declaration of or from, or registration,
qualification or filing with, any court or governmental agency or body is
required for the sale of the Shares or the consummation of the transactions
contemplated by this Agreement, except such as have been or will have been
obtained and are or will be in effect, and except the registration of the Shares
under the Act, and such as may be required by the NASD or under state securities
or blue sky laws in connection with the offer, sale and distribution of the
Shares by the Underwriters.
(xi) To such counsel's knowledge and other than
as disclosed in or contemplated by the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation pending or
threatened, in which the Company or any of its subsidiaries is a party or of
which any of their respective properties or assets is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the financial
position, results of operations or business of the Company and its subsidiaries
taken as a whole; and, to such counsel's knowledge, neither the Company nor any
of its subsidiaries is in violation of, or in default with respect to, any law,
statute, rule, regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the aggregate have
a material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole, nor is the
Company or any of its subsidiaries required to take any action in order to avoid
any such violation or default.
(xii) The statements in the Prospectus under
"Summary," "Price Range of the Common Shares; Dividends," "Business of the
Company," "Supervision and Regulation," "Description of the Capital Stock," and
"Shares Eligible for Future Sale" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes, licenses,
rules or regulations, or legal conclusions, are correct in all material
respects.
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<PAGE>
(xiii) This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due execution by the
Representative of the Underwriters, constitutes the valid and binding agreement
of the Company, enforceable against the Company, in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws relating to or affecting the enforcement of
creditors' rights generally and to general equitable principles and except as
the enforceability of rights to indemnity and contribution under this Agreement
may be limited under applicable securities laws or the public policy underlying
such laws.
(xiv) Neither the Company nor any of its subsidiaries is an
"investment company" or a company "controlled" by an investment company as such
terms are defined in Sections 3(a) and 2(a)(9), respectively, of the Investment
Company Act.
(xv) To such counsel's knowledge, the Company
and its subsidiaries have received all permits, licenses, franchises,
authorizations, registrations, qualifications and approvals (collectively,
"permits") of governmental or regulatory authorities (including, without
limitation, state and/or other insurance regulatory authorities) as may be
required of them to own their properties and to conduct their businesses in the
manner described in the Prospectus, subject to such qualification as may be set
forth in the Prospectus; to such counsel's knowledge, the Company and its
subsidiaries have fulfilled and performed all of their material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time or both would allow, revocation or termination thereof or
result in any other material impairment of the rights of the holder of any such
permits, subject in each case to such qualifications as may be set forth in the
Prospectus; and other than as described in the Prospectus, such permits contain
no restrictions that materially affect the ability of the Company and its
subsidiaries to conduct their businesses.
(xvi) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements, the notes
and schedules thereto and other financial data included therein, to which such
counsel need express no opinion), as of their respective effective or issue
dates, complied as to form in all material respects with the requirements of the
Act and the respective rules and regulations thereunder. The descriptions in the
Registration Statement and the Prospectus of contracts and other documents are
accurate and fairly present the information required to be shown; and such
counsel do not know of any contracts or documents of a character required to be
described in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement which are not described and filed as required.
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<PAGE>
(xvii) The Registration Statement was declared
effective under the Act as of the date and time specified in such opinion and,
to such counsel's knowledge and information, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act and no
proceedings therefor have been initiated or threatened by the Commission.
Such counsel shall also state that they have participated in
the preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of and counsel to the Underwriters at which the contents of the
Registration Statement, the Prospectus and related matters were discussed and,
although such counsel has not passed upon or assumed any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, and although such counsel has not
undertaken to verify independently the accuracy or completeness of the
statements in the Registration Statement or the Prospectus, nothing has come to
such counsel's attention to lead them to believe that the Registration
Statement, or any further amendment thereto made prior to such Time of Delivery,
on its effective date and as of such Time of Delivery, contained or contains any
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
not misleading, or that the Prospectus, or any amendment or supplement thereto
made prior to such Time of Delivery, as of its issue date and as of such Time of
Delivery, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements, the notes and schedules thereto and other
financial data contained in the Registration Statement, any amendment thereto,
or the Prospectus, or any amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deem proper, on certificates of
officers of the Company, public officials and letters from officials of the NASD
[and such counsel may rely as to matters governed by the laws of the State of
New Jersey on the opinion of _________________, special New Jersey counsel to
the Company, provided that such Company counsel shall state in their opinion
that they believe that both they and the Underwriters are justified in relying
upon the opinion of such special New Jersey counsel]. Copies of such
certificates of officers of the Company and other opinions shall be addressed
and furnished to the Underwriters and furnished to counsel for the Underwriters.
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<PAGE>
(d) Arnold & Porter, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(e) The Representative shall have received from
Deloitte & Touche LLP, independent public accountants, in form and substance
satisfactory to the Representative, letters dated as of the date hereof, the
date of delivery of the Firm Securities and the date(s) of delivery of any
Option Securities, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and Prospectus; provided that the letter dated as of the
date of delivery of the Firm Securities shall use a "cut-off date" not earlier
than the date hereof.
(f) Since the date of the latest audited
financial statements included in the Prospectus, neither the Company nor any of
the Subsidiaries shall have sustained any change, or any development involving a
prospective change (including, without limitation, a change in management or
control of the Company), in or affecting the position (financial or otherwise),
results of operations, net worth or business prospects of the Company and its
subsidiaries, otherwise than as disclosed in or contemplated by the Prospectus,
the effect of which, in either such case, in your sole judgment makes it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof, there shall
not have occurred any of the following: (i) any suspension or limitation in
trading in securities generally on the New York Stock Exchange, and/or the
American Stock Exchange or any setting of minimum prices for trading on such
exchange, or in the Common Stock of the Company by the Commission or the NASD;
(ii) a moratorium on commercial banking activities in New York, New Jersey or
Connecticut declared by either federal or state authorities; or (iii) any
outbreak or escalation of hostilities involving the United States, declaration
by the United States of a national emergency or war or any other national or
international calamity or emergency if the effect of any such event specified in
this clause (iii) in your sole judgment makes it impracticable or inadvisable to
proceed with the purchase, sale and delivery of the Shares being delivered at
such Time of Delivery as contemplated by the Registration Statement, as amended
as of the date hereof.
(h) The Company shall have furnished to you at
such Time of Delivery certificates of the chief executive and
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<PAGE>
chief financial officers of the Company satisfactory to you, as to the accuracy
of the representations and warranties of the Company herein at and as of such
Time of Delivery with the same effect as if made at such Time of Delivery, as to
the performance by the Company of all of its respective obligations hereunder to
be performed at or prior to such Time of Delivery, and as to such other matters
as you may reasonably request, and the Company shall have furnished or caused to
be furnished certificates of such officers as to such matters as you may
reasonably request.
[the following was included in the officers' closing certificate:]
(i) The representations and warranties of
the Company in this Agreement and in the certificates delivered by the Company
pursuant to this Agreement shall be true and correct in all material respects
when made and on and as of each Time of Delivery as if made at such time, and
the Company shall have performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or satisfied by
the Company at or before such Time of Delivery.
(j) The Shares shall have been approved for
quotation in the Nasdaq National Market System.
(k) Each person purchasing Shares pursuant to the
Directed Share Program shall have executed and delivered to the Representative a
subscription agreement in form and substance acceptable to the Representative.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by the Company in Section 1 of this Agreement;
(ii) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Shares
under the securities or blue sky laws thereof or filed with the Commission or
any securities association or securities exchange (each an "Application"); or
(iii) the omission of or alleged omission to state in the Registration Statement
or any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or any Application of a material fact required
to be stated
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<PAGE>
therein or necessary to make the statements therein not misleading; and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through you expressly for use therein (which information is solely
as set forth in Section 1(c) hereof). The Company will not, without the prior
written consent of the Representative of the Underwriters, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not any
Underwriter is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of each
Underwriter from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
(b) The Company agrees to indemnify and hold
harmless Advest and each person, if any, who controls Advest within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Advest Entities"), against any and all losses, claims, damages or liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim): (i)
caused by the failure of any Participant to pay for and accept delivery of the
Shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase; or (ii)
related to, arising out of, or in connection with the Directed Share Program,
provided that the Company shall not be responsible under this subsection 8(b)
for any losses, claims, damages or liabilities (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad faith or
gross negligence of Advest Entities.
(c) Each Underwriter, severally but not jointly,
agrees to indemnify and hold harmless the Company against any losses, claims,
damages or liabilities to which the Company may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
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<PAGE>
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through you expressly for use
therein (which information is solely as set forth in Section 1(c) hereof); and
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any such loss,
claim, damage, liability or action.
(d) Promptly after receipt by an indemnified
party under subsection (a), (b) or (c) above of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than under
such subsection (a), (b) or (c). In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party);
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party and such indemnified party shall have the right to select separate counsel
to defend such action on behalf of such indemnified party. After such notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. Nothing in this
Section 8(d) shall preclude an indemnified party from participating at its own
expense in the defense of any such action so assumed by the indemnifying party.
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<PAGE>
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to section 8(b) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of
counsel for Advest for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Advest within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act.
(e) If the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party under subsection (a) or (c) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (d) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed
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<PAGE>
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company under this
Section 8 shall be in addition to any liability which the Company may otherwise
have and shall extend, upon the same terms and conditions, to each officer,
director and employee of the Underwriters and to each person, if any, who
controls any Underwriter within the meaning of the Act or the Exchange Act; and
the obligations of the Underwriters under this Section 8 shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer, trustee and
director of the Company and to each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act.
9. Default of Underwriters.
(a) If any Underwriter defaults in its obligation
to purchase Shares at a Time of Delivery, you may in your discretion arrange for
you or another party or other parties to purchase such Shares on the terms
contained herein within thirty-six (36) hours after such default by any
Underwriter. In the event that, within the respective prescribed period, you
notify the Company that you have so arranged for the purchase of such Shares,
you shall have the right to postpone a Time of Delivery for a period of not more
than seven (7) days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your opinion
may thereby be made necessary. The cost of preparing, printing and filing any
such amendments shall be paid for by the Underwriters. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Shares.
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<PAGE>
(b) If, after giving effect to any arrangements
for the purchase of the Shares of a defaulting Underwriter or Underwriters by
you as provided in subsection (a) above, if any, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh (1/11) of the
aggregate number of Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made.
10. Termination.
(a) This Agreement may be terminated in the sole
discretion of the Representative by notice to the Company given prior to the
First Time of Delivery or any Subsequent Time of Delivery, respectively, in the
event that (i) any condition to the obligations of the Underwriters set forth in
Section 7 hereof has not been satisfied, or (ii) the Company shall have failed,
refused or been unable to deliver Certificates in definitive form for the Shares
or the Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on their respective parts to be performed
or satisfied hereunder at or prior to such Time of Delivery, in either case
other than by reason of a default by any of the Underwriters. If this Agreement
is terminated pursuant to this Section 10(a), the Company will reimburse the
Underwriters severally upon demand for all reasonable out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Shares. Any termination
pursuant to this Section 10(a) shall be without liability on the part of any
Underwriter to the Company or on the part of the Company to any Underwriter
(except for expenses to be paid by the Company pursuant to Section 6 hereof or
reimbursed by the Company pursuant to this Section 10(a) and except as to
indemnification and contribution to the extent provided in Section 8 hereof).
(b) If, after giving effect to any arrangements
for the purchase of the Shares of a defaulting Underwriter or Underwriters by
you as provided in Section 9(a), the aggregate number of such Shares which
remains unpurchased exceeds one- eleventh (1/11) of the aggregate number of
Shares to be purchased at such Time of Delivery, then this Agreement (or, with
respect to a Subsequent Time of Delivery, the obligations of the Underwriters to
purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company, except for the expenses to
- 31 -
<PAGE>
be borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. Survival. The respective indemnities, agreements,
representations, warranties and other statements of the Company, its officers
and the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person referred to in Section 8(f) or the Company, or any officer, trustee or
director or controlling person of the Company referred to in Section 8(f), and
shall survive delivery of and payment for the Shares. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8 hereof
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
12. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be mailed, delivered or
telegraphed and confirmed in writing to you in care of Advest, Inc., One
Rockefeller Plaza, 20th Floor, New York, New York 10020, Attention: Michael T.
Mayes (with a copy to Arnold & Porter, 555 12th Street, N.W., Washington, D.C.
20004, Attention: Steven Kaplan); if to the Company shall be sufficient in all
respects if mailed, delivered or telegraphed and confirmed in writing to Sun
Bancorp, Inc., 226 Landis Avenue, Vineland, New Jersey 08360, Attention: Philip
W. Koebig, III (with a copy to Malizia, Spidi, Sloane & Fisch, P.C., One
Franklin Square, 1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005,
Attention: John J. Spidi).
13. Binding Effect. This Agreement shall be binding upon, and
inure solely to the benefit of, the Underwriters, the Company and, to the extent
provided in Sections 8 and 10 hereof, the officers, trustees, directors and
employees and controlling persons referred to therein and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to any provisions regarding conflicts of laws.
15. Counterparts. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but
- 32 -
<PAGE>
all such counterparts shall together constitute one and the same
instrument.
- 33 -
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one of the counterparts hereof, and
upon the acceptance hereof by Advest, Inc., on behalf of each of the
Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Agreement among Underwriters, a copy of which shall be submitted to
the Company for examination, upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
SUN BANCORP, INC.
By:
---------------------------------------------
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above at New York, New York.
ADVEST, INC.
By: ADVEST, INC.
By:
----------------------------------
Name:
Title:
On behalf of each of the Underwriters
<PAGE>
SCHEDULE I
Number of Optional
Total Number Shares to be Purchased
of Firm Shares if Maximum
Underwriter to be Purchased Option Exercised
- ----------- --------------- ----------------
Advest, Inc.
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
<PAGE>
SUN BANCORP, INC.
LOCK-UP AGREEMENT
__________ __, 1997
Advest, Inc.
As Representative of the Several Underwriters
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Ladies and Gentlemen:
The undersigned understands that you, as Representative of the several
underwriters (the "Underwriters"), propose to enter into an underwriting
agreement (the "Underwriting Agreement") with Sun Bancorp, Inc. (the "Company")
providing for the public offering (the "Public Offering") by the Underwriters,
including yourself, of common stock of the Company (the "Common Stock") pursuant
to the Company's Registration Statement on Form S-1 (the "Registration
Statement").
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period of 180 days after the effective date of the Registration
Statement (the "Lock-Up Period"), not to sell, offer to sell, solicit an offer
to buy, contract to sell, encumber, distribute, pledge, grant any option for the
sale of, or otherwise transfer or dispose of, directly or indirectly, in one or
a series of transactions (collectively, a "Disposition"), any shares of Common
Stock or any securities convertible or exercisable into or exchangeable for
shares of Common Stock (collectively, "Securities"), now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has
acquired or hereafter acquires the power of disposition, without the prior
written consent of Advest, Inc. Prior to the expiration of the Lock-Up Period,
the undersigned agrees that it will not announce or disclose any intention to do
anything after the expiration of such period which the undersigned is
prohibited, as provided in the preceding sentence, from doing during the Lock-Up
Period. In addition, for the benefit of the Company and the Underwriters, the
undersigned hereby (i) waives any right it may have to cause the Company to
register pursuant to the Securities Act of 1933, as amended, shares of Common
Stock now owned or hereafter acquired or received by the undersigned as a result
of the Public Offering and (ii) during the Lock-Up Period, agrees not to
exercise any such registration rights and further agrees that the Company shall
not be obligated to register any shares in violation of the Underwriting
Agreement.
The undersigned acknowledges and agrees that the restrictions above are
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities (or the economic equivalent thereof)
during the Lock-Up Period even if such Securities would be disposed of by
someone other than the undersigned. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based marked basket or index) that
includes, relates to or derives any significant part of its value from the
Securities.
The undersigned hereby also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by the undersigned except in compliance with the Lock-Up
Agreement.
It is understood that, if the Underwriting Agreement is not executed,
or if the Underwriting Agreement shall terminate or be terminated prior to
payment for and delivery of the Common Stock the subject thereof, this Lock-Up
Agreement shall automatically terminate and be of no further force or effect.
This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without giving effect to its conflict of
laws provisions).
Very truly yours,
-----------------------------
Name:
Exhibit 5.1
Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
October 21, 1997
Board of Directors
Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form S-1 (Commission File No. 333-35535) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, (the "Act")
relating to the offer and sale (the "Offering") of up to 1,035,000 shares of
common stock, par value $1.00 per share (the "Common Stock"), of Sun Bancorp,
Inc. (the "Company"). As special counsel to the Company, we have reviewed such
legal matters as we have deemed appropriate for the purpose of rendering this
opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Offering against full payment
therefor, be validly issued, fully paid, and non-assessable shares of Common
Stock of the Company.
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the heading "Validity of
Securities." In giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission adopted under
the Act.
<PAGE>
This opinion is given as of the effective date of the Registration
Statement and we assume no obligation to advise you of changes that may
hereafter be brought to our attention.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
Exhibit 10.2
Lease Agreement with Vineland Construction Company
<PAGE>
THIRD ADDENDUM TO LEASE AGREEMENT
---------------------------------
THIS THIRD ADDENDUM TO LEASE AGREEMENT made this 21st day of November,
1995 by and between Vineland Construction Co., a New Jersey corporation with
offices located at 71 West Park Avenue, Vineland, New Jersey 08360 (hereinafter
referred to as the " Landlord") and Sun National Bank, a New Jersey corporation
with offices at 226 Landis Avenue, Vineland, New Jersey 08360 (hereinafter
referred to as "Lessee").
WITNESSETH:
-----------
That the Landlord and Lessee entered into that certain Lease Agreement
dated October 3, 1986, as amended by that certain Addendum to Lease dated
November 19, 1987, and that certain First Addendum to Lease Agreement dated
December 6, 1990 (collectively, the "Lease"), whereby Lessee leased
approximately 4,510 square feet of commercial space (the "Premises") on the
first floor of the building (the "Building") situated at 226 West Landis Avenue
(the "Land") in the City of Vineland, and State of New Jersey, and that the
Landlord and Lessee desire to amend the Lease upon the following terms,
covenants and conditions.
ARTICLE I Term
- --------- ----
Lessee agrees to exercise its option to extend the Lease term for an
additional five-year term pursuant to Paragraph 1 of the Addendum to Lease
dated November 19, 1987, extending the expiration date to October 31, 2012.
ARTICLE 2 The Lease
- --------- ---------
All other terms and conditions of the Lease, a copy of which is attached
hereto as Exhibit "A" and incorporated herein by reference, shall continue in
full force and effect without modification.
IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals
or caused these presents to be signed and sealed by their duly authorized
representatives the day and year first above written.
EXECUTED BY LESSEE, this 21st day of November, 1995.
By:
------------------------------------
Title: President & CEO
For: Sun National Bank
EXECUTED BY LANDLORD, this 24 day of November, 1995.
By: /s/John S. Krauser
---------------------------------------
John S. Krauser
President
For: Vineland Construction Co.
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
THIS SECOND AMENDMENT TO LEASE AGREEMENT made this first day of September,
1994 by and between Vineland Construction Co., a New Jersey, corporation with
offices located at 71 West Park Avenue, Vineland, New, Jersey 08360(hereinafter
referred to as the "Landlord") and Citizens' Investments, Inc., a New Jersey
corporation with offices at 99 Hartford Road, Medford, New Jersey 08054
(hereinafter referred to as "Lessee")
W I T N E S S E T H:
--------------------
That the Landlord and Lessee entered into that certain Lease Agreement
dated October 3, 1986, as amended by that certain First Addendum to Lease
Agreement dated December 6, 1990 (the "Lease"), whereby Lessee leased
approximately 9,010 square feet of office space (the "Premises") on the third
floor of the building (the "Building") situated at 226 West Landis Avenue (the
"Land") in the City of Vineland, and State of New Jersey, and that the Landlord
and Lessee desire to amend the Lease upon the following terms, covenants and
conditions.
ARTICLE 1 Premises
- --------- --------
(a) Effective September 1, 1994, the demised Premises shall consist of
Fourteen Thousand Two Hundred Ninety Two (l4,292) square feet, constituting the
entire third floor of the Building.
(b) The Landlord shall re-let and deliver the Premises to Lessee in its
present condition, and supply Lessee with a key. Lessee has examined the
Premises, and accepts them in their present condition and without any
representations on the part of the Landlord or the Landlord's agents as to the
present or future condition of the Premises.
ARTICLE 2 The Lease
- --------- ---------
All other terms and conditions of the Lease, a copy of which is attached
hereto as Exhibit "A" and incorporated herein by reference, shall continue in
full force and effect without modification.
ARTICLE 3 Term
- --------- ----
Lessee agrees to exercise its option to extend the Lease term for an
additional five-year term pursuant to Paragraph 1 of the First Addendum to
Lease, thereby extending the expiration date to October 31, 2012.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals
or caused these presents to be signed and sealed by their duly authorized
representatives the day and year first above written.
EXECUTED BY LESSEE, this first day of September, 1994.
By: /s/
------------------------------------
Title:
For: Citizens Investments, Inc.
EXECUTED BY LANDLORD, this first day of September, 1994.
By: /s/John S. Krauser
---------------------------------------
John S. Krauser
President
For: Vineland Construction Co.
<PAGE>
RIDER ATTACHED TO BUSINESS LEASE
between CITIZENS INVESTMENT, INC.
and
NFI INDUSTRIES
dated November 1, 1987
Thirtieth.-Notwithstanding anything to the contrary in the printed portions
of this lease, it is the intention of the Landlord and the Tenant that the rent
herein specified shall be net to the Landlord in each year during the term of
this lease. Accordingly, all costs, expenses and obligations of every kind
relating to the leased property which may arise or become due during the term of
this lease, shall be paid by the Tenant, and the Landlord shall be indemnified
by the Tenant against such costs, expenses and obligations.
The net rent shall be paid to the Landlord without notice or demand and
without abatement, deduction or set-off. The net rent shall be paid in equal
monthly installments in advance on the first day of each calendar month during
the term of this lease.
Furthermore, it is the intention of the parties that the Landlord shall
receive the rents, additional rents, and all sums payable by the Tenant under
this lease, free of all taxes, expenses, charges, damages and deductions of any
nature whatsoever, and the Tenant covenants and agrees to pay all sums which
except for this lease would have been chargeable against the leased property or
payable by the Landlord. The Tenant shall, however, be under no obligation to
pay interest on any mortgage on the fee of the leased property, any franchise or
income tax payable by the Landlord or any gift, inheritance, transfer, estate,
or succession tax by reason of any present future law which may be enacted
during the term of this lease.
The common charges for the operation and maintenance of the building,
including, but not limited to, fire insurance on the building, real estate
taxes, snow removal, landscape and gardening, repair and maintenance of common
areas of building and grounds, and any other common items shall be apportioned
to the Tenant based on the proportion of the Tenant occupancy of the building to
the total square footage of the building.
Thirty-first.-The Landlord shall maintain the roof and exterior walls of
the building and keep same in good condition. The Tenant shall be responsible
for the maintenance and repair of the areas occupied by the Tenant.
Thirty-second.-After the first year anniversary date and each year
thereafter, the monthly rental shall be increased based upon the percentage
increase in the Consumer Price Index (CPI).
CPI shall mean the Consumer Price Index for the urban wage earners and
clerical workers for all items as published by the United States Department of
Labor, Bureau of Labor Statistics. If the CPI or successor or substitute index
shall no longer be published, the parties shall use such other reliable
governmental or impartial index or publication which reasonably reflects the
change in the Cost of Living or the fluctuation in the purchasing power of the
U.S. Dollar between the periods set forth above for determination of the Annual
Minimum Rent during the Lease Term. In no event shall the monthly rental for the
Lease Term be less than the rental of the previous period.
<PAGE>
Rider
November 1, 1987
Thirty-third.-Landlord shall be responsible for the construction of the
shell space of the Leased Premises, including the demising walls, framed doorway
openings and doors, electrical and water and sanitary sewer service connections,
and the exterior and glass wall of the building, but not including the interior
finish of any such walls (such work, the "Landlord's Work"). All Landlord's work
shall be done in a good and workmanlike manner and in compliance with all
applicable laws, ordinances, regulations and orders of governmental authorities,
and with all applicable codes and rules of all insurers of the Building. Tenant
shall have the right to inspect the Landlord's work at reasonable times and
shall promptly give notice to Landlord of any observed defects.
Promptly, upon completion of the Landlord's work, and in no event later
than fifteen (15) days following the completion of the Landlord's Work, Tenant
shall, at its sole cost and expense, through contractors approved by Landlord,
commence all work required of Tenant for the finishing, improving, equipping and
furnishing of the Leased Premises for the uses permitted hereunder (such work
the "Tenant's Work"). Prior to the commencement of any such construction, Tenant
shall submit all plans and specifications therefore to Landlord's construction
representative for its approval, which approval shall not be unreasonably
withheld or delayed. All costs and expenses of such construction, direct and
indirect, shall be the sole responsibility of Tenant.
All Tenant's Work shall be done in a good and workmanlike manner and in
compliance with all applicable laws, ordinances, regulations and orders of
governmental authorities, and with all applicable codes and rules of insurers
insuring the Building. Landlord shall also have the right to approve working
drawings.
Prior to commencement of construction, Tenant shall deliver to Landlord a
certificate of structural engineer or other professional acceptable to Landlord,
to the effect that the floor load will not exceed the floor bearing capacity of
pounds per square foot, live and dead load.
Tenant shall complete such construction within ninety (90) days following
the completion of the Landlord's Work, subject to Force Majeure, any one of
which shall extend the completion date for the Tenant's Work for a period equal
to the total duration of such Force Majeure. All of the terms, provisions and
conditions of this Lease shall apply during the construction of the Tenant's
Work.
<PAGE>
A 880 - Lease of Business Premises.
JULIUS BLUMBERG, INC., LAW BLANK PUBLISHERS
This Lease, dated the 17th day of December 1987
Between CITIZENS INVESTMENT, INC.
Parties hereinafter referred to as the Landlord, and
NFI INDUSTRIES
hereinafter referred to as the Tenant,
WITNESSETH: That the Landlord hereby demises and leases unto the
Tenant, and the Tenant hereby hires and takes from the Landlord
for the term and upon the rentals hereinafter specified, the
premises described as follows, situated in the City of Vineland
County of Cumberland and State of New Jersey, 4,274 Sq. Ft. of
open space on the 3rd floor of 226 Landis Avenue, Vineland, New
Jersey 08360
Premises
Term The term of this demise shall be for ONE (1) year
beginning November 1, 1987 and ending October 31 1988 .
The rent for the demised term shall be TWELVE ($12.00)
Rent DOLLARS per sq. ft., FIFTY-ONE THOUSAND TWO HUNDRED EIGHTY-EIGHT
($ 51,288.00---), which shall accrue at the yearly rate of
The said rent is to be payable monthly in advance on the
first day of each calendar month for the term hereof, in
installments as follows:
Payment of
Rent FOUR THOUSAND TWO HUNDRED SEVENTY-FOUR ($4,274.00) DOLLARS per
month at the office of Citizens Investment, Inc., 226 Landis
Ave., Vineland, NJ 08360 or as may be otherwise directed by
the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
First.-The Landlord covenants that the Tenant, on paying the
Peaceful said rental and performing the covenants and conditions in this
Possession Lease contained, shall and may peaceably and quietly have, hold
and enjoy the demised premises for the term aforesaid.
Second.-The Tenant covenants and agrees to use the demised
premises as an office facility
Purpose
and agrees not to use or permit the premises to be used for any
other purpose without the prior written consent of the Landlord
endorsed hereon.
Third.-The Tenant shall, without any previous demand
Default in therefor, pay to the Landlord, or its agent, the said rent at the
Payment of times and in the manner above provided. In the event of the
Rent non-payment of said rent, or any installment thereof,at the times
and in the manner above provided, and if the same shall remain in
Abondonment default for ten days after becoming due or if the Tenant shall be
of Premises dispossessed for non-payment of rent, or if the leased premises
shall be deserted or vacated, the Landlord or its agents shall
Re-entry and have the right to and may enter the said premises as the agent of
Reletting by the Tenant, either by force or otherwise, without being liable
Landlord for any prosecution or damages therefor, and may relet the
premises as the agent of the Tenant, and receive the rent
Tenant Liable therefor, upon such terms as shall be satisfactory to the
for Deficiency Landlord, and all rights of the Tenant to repossess the premises
under this lease shall be forfeited. Such re-entry by the
Lien of Landlord shall not operate to release the Tenant from any rent to
Landlord to be paid or covenants to be performed hereunder during the full
Secure term of this lease. For the purpose of reletting, the Landlord
shall be authorized to make such repairs or alterations in or to
Performance the leased premises as may be necessary to place the same in good
Attorney's order and condition. The Tenant shall be liable to the Landlord
Fees for the cost of such repairs or alterations, and all expenses of
such reletting. If the sum realized or to be realized from the
reletting is insufficient to satisfy the monthly or term rent
provided in this lease, the Landlord, at its option, may require
the Tenant to pay such deficiency month by month, or may hold the
Tenant in advance for the entire deficiency to be realized during
the term of the reletting. The Tenant shall not be entitled to
and surplus accruing as a result of the reletting. The Landlord
is hereby granted a lien, in addition to any statutory lien or
right to distrain that may exist, on all personal property of the
Tenant in or upon the demised premises, to secure payment of the
rent and performance of the covenants and conditions of this
lease. The Landlord shall have the right, as agent of the Tenant,
to take possession of any furniture, fixtures or other personal
property of the Tenant found in or about the premises, and sell
the same at public or private sale and to apply the proceeds
thereof to the payment of any monies becoming due under this
lease, the Tenant hereby waiving the benefit of all laws
exempting property from execution, levy and sale on distress or
judgment. The Tenant agrees to pay, as additional rent, all
attorney's fees and other expenses incurred by the Landlord in
enforcing any of the obligations under this lease.
Fourth.-The Tenant shall not sub-let the demised premises
Sub-letting nor any portion thereof, nor shall this lease be assigned by
and the Tenant without the prior written consent of the Landlord
Assignment endorsed hereon.
Fifth.-The Tenant has examined the demised premises, and
Condition of accepts them in their present condition (except as otherwise
Premises, expressly provided herein) and without any representations on the
Repairs part of the Landlord or its agents as to the present or future
condition of the said premises. The Tenant shall keep the demised
premises in good condition, and shall redecorate, paint and
renovate the said premises as may be necessary to keep them in
repair and good appearance. The Tenant shall quit and surrender
the premises at the end of the demised term in as good condition
as the reasonable use thereof will permit. The Tenant shall not
make any alterations, additions, or improvements to said premises
without the
<PAGE>
Alterations prior written consent of the Landlord. All erections,
and alterations, additions and improvements, whether temporary or
Improvements permanent in character, which may be made upon the premises
either by the Landlord or the Tenant, except furniture or movable
Sanitation, trade fixtures installed at the expense of the Tenant, shall be
Inflammable the property of the Landlord and shall remain upon and be
Materials surrendered with the premises as a part thereof at the
termination of this Lease, without compensation to the Tenant.
Sidewalks The Tenant further agrees to keep said premises and all parts
thereof in a clean and sanitary condition and free from trash,
inflammable material and other objectionable matter. If this
lease covers premises, all or a part of which are on the ground
floor, the Tenant further agrees to keep the sidewalks in front
of such ground floor portion of the demised premises clean and
free of obstructions, snow and ice.
Sixth.-In the event that any mechanics' lien is filed
against the premises as a result of alterations, additions or
Mechanics' improvements made by the Tenant, the Landlord, at its option,
Liens after thirty days' notice to the Tenant, may terminate this lease
and may pay the said lien, without inquiring into the validity
thereof, and the Tenant shall forthwith reimburse the Landlord
the total expense incurred by the Landlord in discharging the
said lien, as additional rent hereunder.
Seventh.-The Tenant agrees to replace at the Tenant's
Glass expense any and all glass which may become broken in and on the
demised premises. Plate glass and mirrors, if any, shall be
insured by the Tenant at their full insurable value in a company
satisfactory to the Landlord. Said policy shall be of the full
premium type, and shall be deposited with the Landlord or its
agent.
Eighth.-The Landlord shall not be responsible for the
loss of or damage to property, or injury to persons, occurring in
or about the demised premises, by reason of any existing or
Liability of future condition, defect, matter or thing in said demised
Landlord premises or the property of which the premises are a part, or for
the acts, omissions or negligence of other persons or tenants in
and about the said property. The Tenant agrees to indemnify and
save the Landlord harmless from all claims and liability for
losses of or damage to property, or injuries to persons occurring
in or about the demised premises.
Ninth.-Utilities and services furnished to the demised
Services premises for the benefit of the Tenant shall be provided and paid
and for as follows: water by the Tenant ; gas by the tenant ;
Utilities electricity by the tenant heat by the tenant; refrigeration by
the tenant ; hot water by the tenant
The Landlord shall not be liable for any interruption or delay in
any of the above services for any reason.
Tenth.-The Landlord, or its agents, shall have the right to
Right to enter the demised premises at reasonable hours in the day or
Inspect and night to examine the same, or to run telephone or other wires, or
Exhibit to make such repairs, additions or alterations as it shall deem
necessary for the safety, preservation or restoration of the
improvements, or for the safety or convenience of the occupants
or users thereof (there being no obligation, however, on the part
of the Landlord to make any such repairs, additions or
alterations), or to exhibit the same to prospective purchasers
and put upon the premises a suitable "For Sale" sign. For three
months prior to the expiration of the demised term, the Landlord,
or its agents, may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
Eleventh.-In the event of the destruction of the demised
premises or the building containing the said premises by fire,
Damage by explosion, the elements or otherwise during the term hereby
Fire, created, or previous thereto, or such partial destruction
Explosion, thereof as to render the premises wholly untenantable or unfit
The Elements for occupancy, or should the demised premises be so badly injured
or Otherwise that the same cannot be repaired within ninety days from the
happening of such injury, then and in such case the term hereby
created shall, at the option of the Landlord, cease and become
null and void from the date of such damage or destruction, and
the Tenant shall immediately surrender said premises and all the
Tenant's interest therein to the Landlord, and shall pay rent
only to the time of such surrender, in which event the Landlord
may reenter and re-possess the premises thus discharged from this
lease and may remove all parties therefrom. Should the demised
premises be rendered untenantable and unfit for occupancy, but
yet be repairable within ninety days from the happening of said
injury, the Landlord may enter and repair the same with
reasonable speed, and the rent shall not accrue after said injury
or while repairs are being made, but shall recommence immediately
after said repairs shall be completed. But if the premises shall
be so slightly injured as not to be rendered untenantable and
unfit for occupancy, then the Landlord agrees to repair the same
with reasonable promptness and in that case the rent accrued and
accruing shall not cease or determine. The Tenant shall
immediately notify the Landlord in case of fire or other damage
to the premises.
Twelfth.-The Tenant agrees to observe and comply with all
Observation laws, ordinances, rules and regulations of the Federal, State,
of Laws, County and Municipal authorities applicable to the business to be
Ordinances, conducted by the Tenant in the demised premises. The Tenant
Rules and agrees not to do or permit anything to be done in said premises,
Regulations or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on
property kept therein, or which will obstruct or interfere with
the rights of other tenants, or conflict with the regulations of
the Fire Department or with any insurance policy upon said
improvements or any part thereof. In the event of any increase in
insurance premiums resulting from the Tenant's occupancy of the
premises, or from any act or omission on the part of the Tenant,
the Tenant agrees to pay said increase in insurance premiums on
the improvements or contents thereof as additional rent.
Thirteenth.-No sign, advertisement or notice shall be
Signs affixed to or placed upon any part of the demised premises by the
Tenant, except in such manner, and of such size, design and color
as shall be approved in advance in writing by the Landlord.
Fourteenth.-This lease is subject and is hereby subordinated
Subordination to all present and future mortgages, deeds of trust and other
to Mortgages encumbrances affecting the demised premises or the property of
and Deeds of which said premises are a part. The Tenant agrees to execute, at
Trust no expense to the Landlord, any instrument which may be deemed
necessary or desirable by the Landlord to further effect the
subordination of this lease to any such mortgage, deed of trust
or encumbrance.
Fifteenth.-In the event of the sale by the Landlord of the
Sale of demised premises, or the property of which said premises are a
Premises part, the Landlord or the purchaser may terminate this lease on
the thirtieth day of April in any year upon giving the Tenant
notice of such termination prior to the first day of January in
the same year.
Sixteenth.-The rules and regulations regarding the demised
premises, affixed to this lease, if any, as well as any other and
Rules and further reasonable rules and regulations which shall be made by
Regulations the Landlord, shall be observed by the Tenant and by the Tenant's
of Landlord employees, agents and customers. The Landlord reserves the right
to rescind any presently existing rules applicable to the demised
premises, and to make such other and further reasonable rules and
regulations as, in its judgment, may from time to time be
desirable for the safety, care and cleanliness of the premises,
and for the preservation of good order therein, which rules, when
so made and notice thereof given to the Tenant, shall have the
same force and effect as if originally made a part of this
lease. Such other and further rules shall not, however, be
inconsistent with the proper and rightful enjoyment by the Tenant
of the demised premises.
Seventeenth. - In case of violation by the Tenant of any of
the covenants, agreements and conditions of this lease, or of the
Violation of rules and regulations now or hereafter to be reasonably
Covenants, established by the Landlord, and upon failure to discontinue such
Forfeiture of violation within ten days after notice thereof given to the
Lease, Tenant, this lease shall thenceforth, at the option of the
Re-entry Landlord, become null and void, and the Landlord may re-enter
by Landlord without further notice or demand. The rent in such case shall
become due, be apportioned and paid on and up to the day of such
re-entry, and the Tenant shall be liable for all loss or damage
resulting from such violation as aforesaid. No waiver by the
Landlord of any violation or breach of condition by the Tenant
shall constitute or be construed as a waiver of any other
violation or breach of condition, nor shall lapse of time after
Non-waiver breach of condition by the Tenant before the Landlord shall
of Breach exercise its option under this paragraph operate to defeat the
right of the Landlord to declare this lease null and void and to
re-enter upon the demised premises after the said breach or
violation.
<PAGE>
Eighteenth.-All notices and demands, legal or otherwise,
incidental to this lease, or the occupation of the demised
Notices premises, shall be in writing. If the Landlord or its agent
desires to give or serve upon the Tenant any notice or demand, it
shall be sufficient to send a copy thereof by registered mail,
addressed to the Tenant at the demised premises, or to leave a
copy thereof with a person of suitable age found on the premises,
or to post a copy thereof upon the door to said premises. Notices
from the Tenant to the Landlord shall be sent by registered mail
or delivered to the Landlord at the place hereinbefore designated
for the payment of rent, or to such party or place as the
Landlord may from time to time designate in writing.
Nineteenth.-It is further agreed that if at any time during
Bankruptcy the term of this lease the Tenant shall make any assignment for
Insolvency, the benefit of creditors, or be decreed insolvent or bankrupt
Assignment according to law, or if a receiver shall be appointed for the
for Benefit Tenant, then the Landlord may, at its option, terminate this
of Creditors lease, exercise of such option to be evidenced by notice to that
effect served upon the assignee, receiver, trustee or other
person in charge of the liquidation of the property of the Tenant
or the Tenant's estate, but such termination shall not release or
discharge any payment of rent payable hereunder and then
accrued, or any liability then accrued by reason of any agreement
or covenant herein contained on the part of the Tenant, or the
Tenant's legal representatives.
Twentieth.-In the event that the Tenant shall remain in the
Holding Over demised premises after the expiration of the term of this lease
by Tenant without having executed a new written lease with the Landlord,
such holding over shall not constitute a renewal or extension of
this lease. The Landlord may, at its option, elect to treat the
Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant
provided by law in that situation, or the Landlord may elect, at
its option, to construe such holding over as a tenancy from month
to month, subject to all the terms and conditions of this lease,
except as to duration thereof, and in that event the Tenant shall
pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
Twenty-first.-If the property or any part thereof wherein
Eminent the demised premises are located shall be taken by public or
Domain, quasi-public authority under any power of eminent domain or
Condemnation condemnation, this lease, at the option of the Landlord, shall
forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
Twenty-second.-The Tenant has this day deposited with the
Security Landlord the sum of $ as security for the full and
faithful performance by the Tenant of all the terms, covenants
and conditions of this lease upon the Tenant's part to be
performed, which said sum shall be returned to the Tenant after
the time fixed as the expiration of the term herein, provided the
Tenant has fully and faithfully carried out all of sail terms,
covenants and conditions on Tenant's part to be performed. In
the event of a bona fide sale, subject to this lease, the
Landlord shall have the right to transfer the security to the
vendee for the benefit of the Tenant and the Landlord shall be
considerately released by the Tenant from all liability for the
return of such security; and the Tenant agrees to look to the new
Landlord solely for the return of the said security, and it is
agreed that this shall apply to every transfer or assignment made
of the security to a new Landlord. The security deposited under
this lease shall not be mortgaged, assigned or encumbered by the
Tenant without the written consent of the Landlord.
Twenty-third.-Any dispute arising under this lease shall
be settled by arbitration. Then Landlord and Tenant shall each
Arbitration choose an arbitrator, and the two arbitrators thus chosen shall
select a third arbitrator. The findings and award of the three
arbitrators thus chosen shall be final and binding on the parties
hereto.
Twenty-fourth.-No rights are to be conferred upon the Tenant
Delivery of until this lease has been signed by the Landlord, and an executed
Lease copy of the lease has been delivered to the Tenant.
Lease Twenty-fifth.-The foregoing rights and remedies are not
Provisions Not intended to be exclusive but as additional to all rights. and
Exclusive remedies the Landlord would otherwise have by law.
Twenty-six.-All of the terms, covenants and conditions of
Lease Binding this lease shall inure to the benefit of and be binding upon the
on Heirs, respective heirs, executors, administrators, successors and
Successors, assigns of the parties hereto. However, in the event of the death
Etc. of the Tenant, if an individual, the Landlord may, at its option,
terminate this lease by notifying the executor or administrator
of the Tenant at the demised premises.
Twenty-seventh.-This lease and the obligation of Tenant to
pay rent hereunder and perform all of the other covenants and
agreements hereunder on part of Tenant to be performed shall in
nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is
delayed in making any repairs, additions, alterations or
decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with the
National Emergency declared by the President of the United States
or in connection with any rule, order or regulation of any
department or subdivision thereof of any governmental agency or
by reason of the conditions of supply and demand which have been
or are affected by the war.
Twenty-eighth.-This instrument may not be changed orally.
Twenty-ninth.-Tenant shall, at its own cost and expense,
obtain public liability insurance in the sum of $1,000,000
combined single limit. Tenant agrees to furnish Landlord with a
certificate of insurance as evidence of its having obtained and
requested insurance and having paid premium thereof. /s/initialed
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and
seals the day and year first above written.
Witness: /s/ (SEAL)
-------------------------------------
Landlord
/s/ By /s/
- ----------------------------------------- ----------------------------------
/s/ /s/ (SEAL)
- ----------------------------------------- -------------------------------------
Tenant
<PAGE>
GUARANTY
In consideration of the execution of the within lease by the Landlord, at
the request of the undersigned and in reliance of this guaranty, the undersigned
hereby guarantees unto the Landlord, Its successors and asignees, the prompt
payment of all rent and the performance of all of the terms, covenants and
conditions provided in said lease, hereby waiving all notice of default, and
consenting to any extensions of time or changes in the manner of payment or
performance of any of the terms and conditions of the said lease the Landlord
may grant the Tenant, and further consenting to the assignment and the
successive assignments of the said lease, and any modifications thereof,
including the sub-letting and changing of the use of the demised premises, all
without notice to the undersigned. The undersigned agrees to pay :he Landlord
all expenses incurred in enforcing the obligations of the Tenant under the
within lease and in enforcing this guaranty.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
================================================================================
LEASE
================================================================================
Landlord
to
Tenant
================================================================================
Premises leased:
From:
--------------------------------------------------------------------------
To:
--------------------------------------------------------------------------
================================================================================
ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT
For value received the undersigned Tenant hereby assigns all of said
Tenant's right, title and interest in and to the within lease from and after
unto
heirs, successors, and assigns, the demised premises to be used and occupied for
and for no other purpose, it being expressly agreed
that this assignment shall not in any manner relieve the undersigned assignor
from liability upon any of the covenants of this lease.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
In consideration of the above assignment and the written consent of the
Landlord thereto, the undersigned assignee, hereby assumes and agrees from and
after to make all payments and to perform all covenants and conditions
provided in the within lease by the Tenant therein to be made and performed.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
CONSENT TO ASSIGNMENT
The undersigned Landlord hereby consents to the assignment of the within
lease to on the express conditions that the original Tenant
, the assignor, herein, shall remain liable
for the prompt payment of the rent and the performance of the covenants provided
in the said lease by the Tenant to be made and performed, and that no further
assignment of said lease or sub-letting of any part of the premises thereby
demised shall be made without the prior written consent of the undersigned
Landlord.
-------------------------------
Landlord
Date: By
----------------------------------------- -------------------------------
<PAGE>
A 880 - Lease of Business Premises
JULIUS BLUMBERG, INC., LAW BLANK PUBLISHERS
This Lease, dated the Third day of October 1986
Between
Vineland Construction Company
hereinafter referred to as the Landlord, and
Sun National Bank
hereinafter referred to as the Tenant,
WITNESSETH: That the Landlord hereby demises and leases unto the
Tenant, and the Tenant hereby hires and takes from the Landlord
for the term and upon the rentals hereinafter specified, the
premises described as follows, situated in the 226 Landis
Avenue of Vineland County of Cumberland and State of New Jersey
Premises
The term of this demise shall be for twenty years
Term beginning upon completion of bldg. 19 and ending 19 ,
by Landlord
The rent for the demised term shall be 10 dollars per square
Rent foot as finally determined by actual measurement($ ),
which shall accrue at the yearly rate of
upon completion of the building.
The said rent is to be payable monthly in advance on the
first day of each calendar month for the term hereof, in
instalments as follows:
Payment of If occupancy begins on a day other than the first month the
Rent first month's rent will be prorated to the end of the month.
at the office of Vineland Construction Company or as may be
otherwise directed by the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
Peaceful First.-The Landlord covenants that the Tenant, on paying the
Possession said rental and performing the covenants and conditions in this
Lease contained, shall and may peaceably and quietly have, hold
and enjoy the demised premises for the term aforesaid.
Second.-The Tenant covenants and agrees to use the demised
premises as a bank branch and activities normal and usual to the
operation of a bank or bank branch.
Purpose
and agrees not to use or permit the premises to be used for any
other purpose without the prior written consent of the Landlord
endorsed hereon.
Third.-The Tenant shall, without any previous demand
Default in therefor, pay to the Landlord, or its agent, the said rent at the
Payment of times and in the manner above provided. In the event of the
Rent non-payment of said rent, or any instalment thereof at the times
and in the manner above provided, and if the same shall remain in
Abondonment default for ten days after becoming due or if the Tenant shall be
of Premises dispossessed for non-payment of rent, or if the leased premises
shall be deserted or vacated, the Landlord or its agents shall
Re-entry and have the right to and may enter the said premises as the agent of
Reletting by the Tenant, either by force or otherwise, without being liable
Landlord for any prosecution or damages therefor, and may relet the
premises as the agent of the Tenant, and receive the rent
Tenant Liable therefor, upon such terms as shall be satisfactory to the
for Deficiency Landlord, and all rights of the Tenant to repossess the premises
under this lease shall be forfeited. Such re-entry by the
Lien of Landlord shall not operate to release the Tenant from any rent to
Landlord to be paid or covenants to be performed hereunder during the full
Secure term of this lease. For the purpose of reletting, the Landlord
shall be authorized to make such repairs or alterations in or to
Performance the leased premises as may be necessary to place the same in good
Attorney's order and condition. The Tenant shall be liable to the Landlord
Fees for the cost of such repairs or alterations, and all expenses of
such reletting. If the sum realized or to be realized from the
reletting is insufficient to satisfy the monthly or term rent
provided in this lease, the Landlord, at its option, may require
the Tenant to pay such deficiency month by month, or may hold the
Tenant in advance for the entire deficiency to be realized during
the term of the reletting. The Tenant shall not be entitled to
and surplus accruing as a result of the reletting. The Landlord
is hereby granted a lien, in addition to any statutory lien or
right to distrain that may exist, on all personal property of the
Tenant in or upon the demised premises, to secure payment of the
rent and performance of the covenants and conditions of this
lease. The Landlord shall have the right, as agent of the Tenant,
to take possession of any furniture, fixtures or other personal
property of the Tenant found in or about the premises, and sell
the same at public or private sale and to apply the proceeds
thereof to the payment of any monies becoming due under this
lease, the Tenant hereby waiving the benefit of all laws
exempting property from execution, levy and sale on distress or
judgment. The Tenant agrees to pay, as additional rent, all
attorney's fees and other expenses incurred by the Landlord in
enforcing any of the obligations under this lease.
Fourth.-The Tenant shall not sub-let the demised premises
Sub-letting nor any portion thereof, nor shall this lease be assigned by
and the Tenant without the prior written consent of the Landlord
Assignment endorsed hereon.
Fifth.-The Tenant has examined the demised premises, and
Condition of accepts them in their present condition (except as otherwise
Premises, expressly provided herein) and without any representations on the
Repairs part of the Landlord or its agents as to the present or future
condition of the said premises. The Tenant shall keep the demised
premises in good condition, and shall redecorate, paint and
renovate the said premises as may be necessary to keep them in
repair and good appearance. The Tenant shall quit and surrender
the premises at the end of the demised term in as good condition
as the reasonable use thereof will permit. The Tenant shall not
make any alterations, additions, or improvements to said premises
without the
<PAGE>
Alterations prior written consent of the Landlord. All erections,
and alterations, additions and improvements, whether temporary or
Improvements permanent in character, which may be made upon the premises
either by the Landlord or the Tenant, except furniture or movable
Sanitation, trade fixtures installed at the expense of the Tenant, shall be
Inflammable the property of the Landlord and shall remain upon and be
Materials surrendered with the premises as a part thereof at the
termination of this Lease, without compensation to the Tenant.
Sidewalks The Tenant further agrees to keep said premises and all parts
thereof in a clean and sanitary condition and free from trash,
inflammable material and other objectionable matter. If this
lease covers premises, all or a part of which are on the ground
floor, the Tenant further agrees to keep the sidewalks in front
of such ground floor portion of the demised premises clean and
free of obstructions, snow and ice.
Mechanics' Sixth.-In the event that any mechanics' lien is filed
Liens against the premises as a result of alterations, additions or
improvements made by the Tenant, the Landlord, at is option,
after thirty days' notice to the Tenant, may terminate this lease
and may pay the said lien, without inquiring into the validity
thereof, and the Tenant shall forthwith reimburse the Landlord
the total expense incurred by the Landlord in discharging the
said lien, as additional rent hereunder.
Glass Seventh,-The Tenant agrees to replace at the Tenant's
expense any and all glass which may become broken in and on the
demised premises. Plate glass and mirrors, if any, shall be
insured by the Tenant at their full insurable value in a company
satisfactory to the Landlord. Said policy shall be of the full
premium type, and shall be deposited with the Landlord or its
agent.
Eighth.-The Landlord shall not be responsible for the
loss of or damage to property, or injury to persons, occurrlng in
or about the demised premises, by reason of any existing or
Liability of future condition, defect, matter or thing in said demised
Landlord premises or the property of which the premises are a part, or for
the acts, omissions or negligence of other persons or tenants in
and about the said property. The Tenant agrees to indemnify and
save the Landlord harmless from all claims and liability for
losses of or damage to property, or injuries to persons occurring
in or about the demised premises.
Ninth.-Utilities and services furnished to the demised
Services premises for the benefit of the Tenant shall be provided and paid
and for as follows: water by the Tenant ; gas by the tenant ;
Utilities electricity by the tenant heat by the tenant; refrigeration by
the tenant ; hot water by the tenant
The Landlord shall not be liable for any interruption or delay in
any of the above services for any reason.
Tenth.-The Landlord, or its agents, shall have the right to
Right to enter the demised premises at reasonable hours in the day or
Inspect and night to examine the same, or to run telephone or other wires, or
Exhibit to make such repairs, additions or alterations as it shall deem
necessary for the safety, preservation or restoration of the
improvements, or for the safety or convenience of the occupants
or users thereof (there being no obligation, however, on the part
of the Landlord to make any such repairs, additions or
alterations), or to exhibit the same to prospective purchasers
and put upon the premises a suitable "For Sale" sign. For three
months prior to the expiration of the demised term, the Landlord,
or its agents, may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
Eleventh.-In the event of the destruction of the demised
premises or the building containing the said premises by fire,
Damage by explosion, the elements or otherwise during the term hereby
Fire, created, or previous thereto, or such partial destruction
Explosion, thereof as to render the premises wholly untenantable or unfit
The Elements for occupancy, or should the demised premises be so badly injured
or Otherwise that the same cannot be repaired within ninety days from the
happening of such injury, then and in such case the term hereby
created shall, at the option of the Landlord, cease and become
null and void from the date of such damage or destruction, and
the Tenant shall immediately surrender said premises and all the
Tenant's interest therein to the Landlord, and shall pay rent
only to the time of such surrender, in which event the Landlord
may reenter and re-possess the premises thus discharged from this
lease and may remove all parties therefrom. Should the demised
premises be rendered untenantable and unfit for occupancy, but
yet be repairable within ninety days from the happening of said
injury, the Landlord may enter and repair the same with
reasonable speed, and the rent shall not accrue after said injury
or while repairs are being made, but shall recommence immediately
after said repairs shall be completed. But if the premises shall
be so slightly injured as not to be rendered untenantable and
unfit for occupancy, then the Landlord agrees to repair the same
with reasonable promptness and in that case the rent accrued and
accruing shall not cease or determine. The Tenant shall
immediately notify the Landlord in case of fire or other damage
to the premises.
Twelfth.-The Tenant agrees to observe and comply with all
Observation laws, ordinances, rules and regulations of the Federal, State,
of Laws, County and Municipal authorities applicable to the business to be
Ordinances, conducted by the Tenant in the demised premises. The Tenant
Rules and agrees not to do or permit anything to be done in said premises,
Regulations or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on
property kept therein, or which will obstruct or interfere with
the rights of other tenants, or conflict with the regulations of
the Fire Department or with any insurance policy upon said
improvements or any part thereof. In the event of any increase in
insurance premiums resulting from the Tenant's occupancy of the
premises, or from any act or omission on the part of the Tenant,
the Tenant agrees to pay said increase in insurance premiums on
the improvements or contents thereof as additional rent.
Thirteenth.-No sign, advertisement or notice shall be
Signs affixed to or placed upon any part of the demised premises by the
Tenant, except in such manner, and of such size, design and color
as shall be approved in advance in writing by the Landlord.
Fourteenth.-This lease is subject and is hereby subordinated
Subordination to all present and future mortgages, deeds of trust and other
to Mortgages encumbrances affecting the demised premises or the property of
and Deeds of which said premises are a part. The Tenant agrees to execute, at
Trust no expense to the Landlord, any instrument which may be deemed
necessary or desirable by the Landlord to further effect the
subordination of this lease to any such mortgage, deed of trust
or encumbrance.
Fifteenth.-In the event of the sale by the Landlord of the
Sale of demised premises, or the property of which said premises are a
Premises part, the Landlord or the purchaser may terminate this lease on
the thirtieth day of April in any year upon giving the Tenant
notice of such termination prior to the first day of January in
the same year.
Sixteenth.-The rules and regulations regarding the demised
premises, affixed to this lease, if any, as well as any other and
Rules and further reasonable rules and regulations which shall be made by
Regulations the Landlord, shall be observed by the Tenant and by the Tenant's
of Landlord employees, agents and customers. The Landlord reserves the right
to rescind any presently existing rules applicable to the demised
premises, and to make such other and further reasonable rules and
regulations as, in its judgment, may from time to time be
desirable for the safety, care and cleanliness of the premises,
and for the preservation of good order therein, which rules, when
so made and notice thereof given to the Tenant, shall have the
same force and effect as if originally made a part of this
lease. Such other and further rules shall not, however, be
inconsistent with the proper and rightful enjoyment by the Tenant
of the demised premises.
Seventeenth. - In case of violation by the Tenant of any of
the covenants, agreements and conditions of this lease, or of the
Violation of rules and regulations now or hereafter to be reasonably
Covenants, established by the Landlord, and upon failure to discontinue such
Forfeiture of violation within ten days after notice thereof given to the
Lease, Tenant, this lease shall thenceforth, at the option of the
Re-entry Landlord, become null and void, and the Landlord may re-enter
by Landlord without further notice or demand. The rent in such case shall
become due, be apportioned and paid on and up to the day of such
Non-waiver re-entry, and the Tenant shall be liable for all loss or damage
of Breach resulting from such violation as aforesaid. No waiver by the
Landlord of any violation or breach of condition by the Tenant
shall constitute or be construed as a waiver of any other
violation or breach of condition, nor shall lapse of time after
breach of condition by the Tenant before the Landlord shall
exercise its option under this paragraph operate to defeat the
right of the Landlord to declare this lease null and void and to
re-enter upon the demised premises after the said breach or
violation.
<PAGE>
Eighteenth.-All notices and demands, legal or otherwise,
incidental to this lease, or the occupation of the demised
Notices premises, shall be in writing. If the Landlord or its agent
desires to give or serve upon the Tenant any notice or demand, it
shall be sufficient to send a copy thereof by registered mail,
addressed to the Tenant at the demised premises, or to leave a
copy thereof with a person of suitable age found on the premises,
or to post a copy thereof upon the door to said premises. Notices
from the Tenant to the Landlord shall be sent by registered mail
or delivered to the Landlord at the place hereinbefore designated
for the payment of rent, or to such party or place as the
Landlord may from time to time designate in writing.
Nineteenth.-It is further agreed that if at any time during
Bankruptcy the term of this lease the Tenant shall make any assignment for
Insolvency, the benefit of creditors, or be decreed insolvent or bankrupt
Assignment according to law, or if a receiver shall be appointed for the
for Benefit Tenant, then the Landlord may, at its option, terminate this
of Creditors lease, exercise of such option to be evidenced by notice to that
effect served upon the assignee, receiver, trustee or other
person in charge of the liquidation of the property of the Tenant
or the Tenant's estate, but such termination shall not release or
discharge any payment of rent payable hereunder and then
accrued, or any liability then accrued by reason of any agreement
or covenant herein contained on the part of the Tenant, or the
Tenant's legal representatives.
Twentieth.-In the event that the Tenant shall remain in the
Holding Over demised premises after the expiration of the term of this lease
by Tenant without having executed a new written lease with the Landlord,
such holding over shall not constitute a renewal or extension of
this lease. The Landlord may, at its option, elect to treat the
Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant
provided by law in that situation, or the Landlord may elect, at
its option, to construe such holding over as a tenancy from month
to month, subject to all the terms and conditions of this lease,
except as to duration thereof, and in that event the Tenant shall
pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
Twenty-first.-If the property or any part thereof wherein
Eminent the demised premises are located shall be taken by public or
Domain, quasi-public authority under any power of eminent domain or
Condemnation condemnation, this lease, at the option of the Landlord, shall
forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
Twenty-second.-The Tenant has this day deposited with
the Landlord the sum of $xxxx as security for the full and
faithful performance by the Tenant of all the terms, covenants
and conditions of this lease upon the Tenant's part to be
performed, which said sum shall be returned to the Tenant after
the time fixed as the expiration of the term herein, provided the
Tenant has fully and faithfully carried out all of said terms,
covenants and conditions on Tenant's part to be performed. In
the event of a bona fide sale, subject to this lease, the
Landlord shall have the right to transfer the security to the
vendee for the benefit of the Tenant and the Landlord shall be
considered released by the Tenant from all liability for the
return of such security; and the Tenant agrees to look to the new
Landlord solely for the return of the said security, and it is
agreed that this shall apply to every transfer or assignment made
of the security to a new Landlord. The security deposited under
this lease shall not be mortgaged, assigned or encumbered by the
Tenant without the written consent of the Landlord.
Twenty-third.-Any dispute arising under this lease shall
be settled by arbitration. Then Landlord and Tenant shall each
Arbitration choose an arbitrator, and the two arbitrators thus chosen shall
select a third arbitrator. The findings and award of the three
arbitrators thus chosen shall be final and binding on the parties
hereto.
Twenty-fourth.-No rights are to be conferred upon the Tenant
Delivery of until this lease has been signed by the Landlord, and an executed
Lease copy of the lease has been delivered to the Tenant.
Lease Twenty-fifth.-The foregoing rights and remedies are not
Provision Not intended to be exclusive but as additional to all rights. and
Exclusive remedies the Landlord would otherwise have by law.
Twenty-six.-All of the terms, covenants and conditions of
Lease Binding this lease shall inure to the benefit of and be binding upon the
on Heirs, respective heirs, executors, administrators, successors and
Successors, assigns of the parties hereto. However, in the event of the death
Etc. of the Tenant, if an individual, the Landlord may, at its option,
terminate this lease by notifying the executor or administrator
of the Tenant at the demised premises.
Twenty-seventh.-This lease and the obligation of Tenant to
pay rent hereunder and perform all of the other covenants and
agreements hereunder on part of Tenant to be performed shall in
nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is
delayed in making any repairs, additions, alterations or
decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with the
National Emergency declared by the President of the United States
or in connection with any rule, order or regulation of any
department or subdivision thereof of any governmental agency or
by reason of the conditions of supply and demand which have been
or are affected by the war.
Twenty-eighth.-This instrument may not be changed orally.
Twenty-ninth.-Tenant shall, at its own cost and expense,
obtain public liability insurance in the sum of $1,000,000
combined single limit. Tenant agrees to furnish Landlord with a
Certificate of Insurance as evidence of its having obtained and
requested insurance and having paid premium thereof.
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and
seals the day and year first above written.
Witness: CITIZENS INVESTMENT, INC. (SEAL)
-------------------------------------
Landlord
/s/ By /s/
- ----------------------------------------- ----------------------------------
/s/ NFI INDUSTRIES (SEAL)
- ----------------------------------------- -------------------------------------
Tenant
By /s/Bernard Braun
-----------------------------------
<PAGE>
RIDER ATTACHED TO BUSINESS LEASE
between VINELAND CONSTRUCTION COMPANY
and
SUN NATIONAL BANK
dated October 3, l986
Thirtieth-Notwithstanding anything to the contrary in the printed portions
of this lease it is the Intention of the Landlord and the Tenant, that the rent
herein specified shall be net to the Landlord in each year, during the term of
this lease. Accordingly, all costs, expenses, and obligations of every kind
relating to the leased property which any arise or become due during the term of
this lease shall be paid by the Tenant, and the Landlord shall be Indemnified by
the Tenant against such costs, expenses, and obligations.
The net rent shall be paid to the Landlord without notice or demand and
without abatement, deduction, or set-off. The net rent shall be paid in equal
monthly installments in advance on the first day of each calendar month during
the term of this lease.
Furthermore, it is the intention of the parties that the Landlord shall
receive the rents, additional rents, and all sums payable by the Tenant under
this lease free of all taxes, expenses, charges, damages, and deductions of any
nature whatsoever and the Tenant covenants and agrees to pay all sums which
except for this lease would have been chargeable against the leased property or
payable by the landlord. The Tenant shall, however, be under no obligation to
pay interest on any mortgage on the fee of the leased property, any franchise
or income tax payable by the Landlord or any gift, inheritance, transfer,
estate, or succession tax by reason of any present or future law which may be
enacted during the term of this lease.
The common charges for the operation and maintenance of the building,
including, but not limited to, fire insurance on the building, real estate
taxes, snow removal, landscape and gardening, repair and maintenance of common
areas of building and grounds, and any other common items shall be apportined to
the Tenant based on the proportion of the Tenant occupancy of the building to
the total square footage of the building.
Thirty-first.-The Landlord shall maintain the roof and exterior walls of
the building and keep same in good condition. The Tenant shall be responsible
for the maintenance and repair of the areas occupied by Tenant.
Thirty-second.-After the first year anniversary date and each year
hereafter, the monthly rental shall be increased based upon the percentage
increase in the Consumer Price Index (CPI).
CPI shall mean the Consumer Price Index for urban wage earners and clerical
workers for all items as published by the United States Department of Labor,
Bureau of Labor Statistics. If the CPI or successor or substitute index shall no
longer be published, the parties shall use such other reliable governmental or
impartial index or publication which reasonably reflects the change in the Cost
of Living or the fluctuation in the purchasing power of the U.S. Dollar between
the periods set forth above for determination of the Annual Minimum Rent during
the Lease Term. In no event shall the monthly rental for the Lease Term be less
than the rental of the previous period.
<PAGE>
Thirty-third.-Landlord shall be responsible for the construction of the
shell space of the Leased Premises, including the demising walls, framed doorway
openings and doors, electrical and water and sanitary sewer service connections
and the exterior and glass wall of the building, but not including the interior
finish of any such walls (such work, the "Landlord's Work"). All Landlord's work
shall be done in a good and workmanlike manner and in compliance with all
applicable laws, ordinances, regulations and orders of governmental authorities,
and with all applicable codes and rules of all insurers of the Building. Tenant
shall have the right to inspect the Landlord's work at reasonable times and
shall promptly give notice to Landlord of any observed defects.
Promptly upon completion of the Landlord's work, and in no event later than
fifteen (15) days following the completion of the Landlord's Work, Tenant shall,
at its sole cost and expense, through contractors approved by Landlord, commence
all work required of Tenant for the finishing, improving, equipping and
furnishing of the Leased Premises for the uses permitted hereunder (such work
the "Tenant's Work"). Prior to the commencement of any such construction, Tenant
shall submit all plans and specifications therefore to Landlord's construction
representative for its approval, which approval shall not be unreasonably
withheld or delayed. All costs and expenses of such construction, direct and
indirect, shall be the sole responsibility of Tenant.
All Tenant's Work shall be done in a good and workmanlike manner and in
compliance with all applicable laws, ordinances, regulations and orders of
governmental authorities, and with all applicable codes and rules of insurers
insuring the Building. Landlord shall also have the right to approve working
drawings.
Prior to commencement of construction, Tenant shall deliver to Landlord a
certificate of structural engineer or other professional acceptable to Landlord
to the effect that the floor load will not exceed the floor bearing capacity of
125 pounds per square foot, live and dead load.
Tenant shall complete such construction within ninety (90) days following
the completion of Landlord's Work, subject to Force Majeure, any one of which
shall extend the completion date for the Tenant's Work for a period equal to the
total duration of such Force MaJeure. All of the terms, provisions and
conditions of this Lease shall apply during the construction of the Tenant's
Work.
-2-
<PAGE>
GUARANTY
In consideration of the execution of the within lease by the Landlord at
the request of the undersigned and in reliance of this guaranty, the undersigned
hereby guarantees unto the Landlord, its successors and assigns, the prompt
payment of all rent and the performance of all of the terms, covenants and
conditions provided in said lease, hereby waiving all notice of default, and
consenting to any extensions of time or changes in the manner of payment or
performance of any of the terms and conditions of the said lease the Landlord
may grant the Tenant, and further consenting to the assignment and the
successive assignments of the said lease, and any modifications thereof,
including the sub-letting and changing of the use of the demised premises, all
without notice to the undersigned. The undersigned agrees to pay the Landlord
all expenses incurred in enforcing the obligations of the Tenant under the
within lease and in enforcing this guaranty.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
================================================================================
LEASE
================================================================================
Landlord
to
Tenant
================================================================================
Premises leased:
From:
--------------------------------------------------------------------------
To:
--------------------------------------------------------------------------
================================================================================
ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT
For value received the undersigned Tenant hereby assigns all of said
Tenant's right, title and interest in and to the within lease from and after
unto
heirs, successors, and assigns, the demised premises to be used and occupied for
and for no other purpose, it being expressly agreed
that this assignment shall not in any manner relieve the undersigned assignor
from liability upon any of the covenants if this lease.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
In consideration of the above assignment and the written consent of the Landlord
thereto, the undersigned assignee, hereby assumes and agrees from and after
to make all payments and to perform all covenants and conditions provided
in the within lease by the Tenant therein to be made and performed.
Witness: (SEAL)
------------------------------------- ------------------------
------------------------------------- ------------------------ (SEAL)
Date:
-----------------------------------------
CONSENT TO ASSIGNMENT
The undersigned Landlord hereby consents to the assignment of the within
lease to on the express conditions that the original Tenant
, the assignor, herein, shall remain liable
for the prompt payment of the rent and the performance of the covenants provided
in the said lease by the Tenant to be made and performed, and that no further
assignment of said lease or sub-letting of any part of the premises thereby
demised shall be made without the prior written consent of the undersigned
Landlord.
-------------------------------
Landlord
Date: By
----------------------------------------- -------------------------------
<PAGE>
Addendum to lease between Vineland Construction Company, Landlord, and Sun
National Bank, Tenant dated October 3, 1986
Whereas the term of the original lease is for a period of twenty years it is
mutually agreed between the parties to include the following options:
1. After the expiration of the original term Sun National Bank has the option to
extend the term for an additional five (5) year term with all other terms and
conditions of the lease remaining in effect for the extended term. If Sun
National Bank desires to exercise this option it will notify Vineland
Construction Company in writing of its intention 180 days prior to the
expiration of the original term of its intention to exercise this option.
2. After the expiration of the first option term Sun National Bank has the
option to extend the term for an additional five (5) year term with all other
terms and conditions of the lease remaining in effect for the extended term. If
Sun National Bank desires to exercise this option it will notify Vineland
Construction Company in writing of its intention 180 days prior to the
expiration of the first option term of its intention to exercise this option.
3. After the expiration of the second option term Sun National Bank has the
option to extend the term for an additional five (5) year term with all other
terms and conditions of the lease remaining in effect for the extended term. If
Sun National Bank desires to exercise this option it will notify Vineland
Construction company in writing of its intention 180 days prior to the
expiration of the second option term of its intention to exercise this option.
4. After the expiration of the third option term Sun National Bank has the
option to extend the term for an additional five (5) years with all other terms
and conditions of the lease remaining in effect for the extended term. If Sun
National Bank desires to exercise this option it will notify Vineland
Construction Company in writing of its intention 180 days prior to the
expiration of the third option term of its intention to exercise this option.
In witness whereof landlord and tenant have signed, scaled, executed and
delivered this lease addendum on the nineteenth day of November in the year
nineteen hundred eighty seven.
ATTEST: LANDLORD:
---------
VINELAND CONSTRUCTION COMPANY
/s/ BY /s/
- -------------------------------------- ----------------------------------------
ATTEST: TENANT:
-------
SUN NATIONAL BANK
/s/ /s/
- -------------------------------------- ----------------------------------------
<PAGE>
FIRST ADDENDUM TO LEASE BETWEEN VINELAND CONSTRUCTION COMPANY
AND SUN NATIONAL BANK DATED OCTOBER 3, 1986
1. In consideration of the sum of One Dollar ($1.00) cash in hand paid by
TENANT, and other good and valuable considerations, Sun National Bank, TENANT,
and Vineland Construction Company, LANDLORD, HEREBY AGREE to the following terms
to be incorporated into that Lease Agreement between Vineland Construction
Company, LANDLORD, and Sun National Bank, TENANT, dated October 23, 1986
concerning the demised premises located at 226 Landis Avenue, Vineland, New
Jersey. Except for the terms stated herein, the parties hereby confirm the terms
of the Lease Agreement as written therein.
2. The term of this demise shall be for Twenty Years beginning November 1,
1987 and ending October 31, 2007.
3. The rent for the demised term shall be Ten Dollars ($10.00) per square
foot for Four Thousand Five Hundred (4,510) square feet subject to the
provisions of paragraph Thirty-Second of the Lease.
IN WITNESS WHEREOF, the undersigned bind themselves as of this 6th Day of
December, 1990.
ATTEST: SUN NATIONAL BANK
/s/ BY /s/
- -------------------------------------- ----------------------------------------
Secretary
VINELAND CONSTRUCTION COMPANY
ATTEST
/s/ BY /s/
- -------------------------------------- ----------------------------------------
Ass't SECRETARY
Exhibit 23.1
Consent of Deloitte & Touche LLP.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-35535 of Sun Bancorp, Inc. on Form S-1 of our report dated January 31, 1997
(April 9, 1997 as to Note 19, and September 25, 1997 as to the effects of the
stock split described in Note 2), appearing in the Prospectus, which is part of
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/Deloitte & Touche, LLP
DELOITTE & TOUCHE, LLP
Philadelphia, Pennsylvania
October 20, 1997
