PROSPECTUS
700,000 Shares
[LOGO]
Sun Bancorp, Inc.
Common Stock
---------------------------------
Sun Bancorp, Inc., a New Jersey corporation (the "Company"), is
offering for sale 700,000 shares of its common stock, $1.00 par value per share
(the "Common Shares"), at a price of $20.625 per share (the "Offering"). The
Common Shares are currently quoted on the Nasdaq National Market under the
symbol "SNBC." The last reported sale price of the Common Shares on the Nasdaq
National Market as of November 10, 1998 was $21.625. See "Price Range of Common
Shares; Dividends."
---------------------------------
Prospective investors should carefully consider the factors set forth in "Risk
Factors" beginning on page 10 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 GOVERNMENTAL 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.
================================================================================
Underwriting Discounts
Price to Public and Commissions (1) Proceeds to Company (2)
- --------------------------------------------------------------------------------
Per Share... $20.625 $1.240 $19.385
- --------------------------------------------------------------------------------
Total(3).... $14,437,500 $682,000 $13,755,500
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. 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
$240,000 payable by the Company.
(3) The Company has granted the Underwriters an option to purchase up to
105,000 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
$16,603,125, $812,200 and $15,790,925, respectively. Advest, Inc. will
receive a financial advisory fee of $75,000 in connection with the
Offering.
---------------------------------
The Common Shares are offered by the several 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 Common Shares will be
made to the Underwriters on or about November 17, 1998.
Advest, Inc. Janney Montgomery Scott Inc.
The date of this Prospectus is November 10, 1998.
<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>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus and in the documents incorporated by reference. This summary
is not intended to be a summary of all information relating to the Offering and
should be read in conjunction with, and is qualified in its entirety by
reference to, the more detailed information contained elsewhere in this
Prospectus, including the documents incorporated by reference 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.
The Company
The Company, a New Jersey corporation, is a bank holding company
headquartered in Vineland, New Jersey. The Company's principal subsidiary is Sun
National Bank (the "Bank"). At June 30, 1998, the Company had total assets of
$1,154 million, total deposits of $754 million and total shareholders' equity of
$59 million. Substantially all of the Company's deposits are federally insured
by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The Company's remaining deposits are federally
insured by the Savings Association Insurance Fund ("SAIF"), 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 ongoing consolidation of the banking industry, as well as a
regionalization of decision-making authority by larger banking institutions, has
left many businesses and individuals in the Company's market area underserved.
Beginning in 1993, the Company embarked upon a strategy to expand its operations
and retail market share in central and southern New Jersey through mergers,
acquisitions and internal growth. More recently, this strategy has broadened to
include contiguous portions of Delaware. The Board of Directors and management
sees opportunities to expand the Company as a result of the lack of competitive
commercial banking services being provided to local businesses and recognizes
the need for a locally based and managed community bank. In executing its
expansion strategy, the Company has successfully completed the acquisition of
two commercial banks with a total of $119 million in assets, as well as six
branch purchase transactions in which the Company acquired a total of 27
branches with $404 million in deposits, and has opened five de novo branches
since 1993. An additional acquisition of two branches in southern and central
New Jersey from Summit Bank ("Summit") with $14.8 million in deposit liabilities
is pending.
In July 1998, the Company entered into an agreement that will expand
its banking operations into Delaware through the assumption, by a new national
bank subsidiary to be named "Sun National Bank, Delaware" ("Sun Delaware"), of
approximately $179 million in deposits (including eight branch locations), and
the purchase of $139 million in loans, from Household Bank, fsb, the successor
to Beneficial National Bank, Wilmington, Delaware (the "Beneficial
Acquisition"). The Beneficial Acquisition is expected to be consummated in the
fourth quarter of 1998. See "Beneficial Acquisition." In July 1998, the Company
also acquired its first non-bank operating subsidiary, Allegiance Mortgage
Company, a retail mortgage banking operation, in exchange for 28,302 shares of
common stock, and subsequently renamed it "Sun Mortgage Company." Sun Mortgage
Company has one office located in Cherry Hill, New Jersey. The Company intends
to offer residential mortgage products and services to its customers through Sun
Mortgage Company.
Through its acquisition and expansion program, the Company has
significantly increased its asset size as well as the Company's retail network.
At December 31, 1993, the Company's total consolidated assets were $112 million
as compared to $1,154 million at June 30, 1998.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Company provides community banking services through 42 branches
located in southern and central New Jersey. Sun Delaware will conduct a similar
business through eight branches in contiguous markets in Delaware. The Company
offers a wide variety of consumer and commercial lending, as well as deposit
services. The loans offered by the Company include commercial and industrial
loans, commercial real estate loans, home equity loans, mortgage loans and
installment loans. The Company's deposit and personal banking services include
checking, regular savings, money market deposits, certificates of deposit and
individual retirement accounts. Through a third party arrangement, the Company
also offers mutual funds, securities brokerage and investment advisory services.
The Company considers its primary market area to be southern and central New
Jersey and intends to expand its primary market area to contiguous markets in
Delaware upon completion of the Beneficial Acquisition. The Company's market
area contains a diverse base of customers, including agricultural,
manufacturing, transportation, hospitality and retail consumer businesses.
In recent years, the Company has experienced a significant level of
loan growth. The Company's loan portfolio increased from $83.4 million at
December 31, 1993, to $486.1 million at June 30, 1998. Much of this loan growth
is attributable to the Company's hiring of a number of experienced loan officers
previously employed by larger banking organizations. In most cases, these loan
officers brought with them established contacts and relationships with
individuals or entities throughout the Company's primary market area and thus
have been able to increase the Company's customer base and the number of loan
originations. The Company also has established a number of regional advisory
boards, comprised of prominent local business and community representatives, who
refer significant business opportunities to the Company. In addition, the
Company has made significant efforts to increase its lending to businesses along
the central and southern New Jersey seashore that are primarily operational
during certain times of each year (i.e. seasonal lending), which has contributed
to the Company's loan growth.
To support and manage the expanded operations of the Company and to
provide adequate management resources to support further expansion and growth,
the Company has recruited and hired, in addition to experienced commercial loan
officers, credit, compliance, loan review, internal audit, operations personnel
and senior level executives. Additionally, the Company has enhanced and expanded
its operational and management information systems and taken steps to enhance
its oversight of third-party vendors. While the Company continues to monitor its
rapid growth, as well as the adequacy of management and resources available to
support such growth, there can be no assurance that the Company will be
successful in managing all elements relating to this 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 corresponding increase in net interest
income, non-interest income and non-interest expenses.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Offering
<S> <C>
Common Shares Offered....................................... 700,000 shares of Common Stock.
Common Shares Outstanding prior to the Offering............. 6,383,005 shares.
Common Shares Outstanding after the Offering................ 7,083,005 shares. Assumes no exercise of the
Underwriters' over-allotment option to purchase up to
105,000 Common Shares. See "Underwriting."
Estimated Net Proceeds to the Company....................... Approximately $13.5 million. Assumes no exercise of the
Underwriters' over-allotment option to purchase up to
105,000 Common Shares. See "Underwriting."
Dividends on Common Shares.................................. 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. The Company in the past has
paid stock dividends. 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 Offering
will be used primarily to contribute capital to Sun Delaware
in connection with the Beneficial Acquisition and for the
Company's other corporate purposes. Sun Delaware intends
to use the capital for general corporate purposes, primarily
to support the Beneficial Acquisition. See "Use of
Proceeds."
Nasdaq National Market Symbol............................... The Common Shares are quoted on the Nasdaq National
Market under the symbol "SNBC."
Purchases by Directors and Officers of the
Company................................................... The Underwriters have reserved 150,000 Common Shares
offered in the Offering (21.4% of the Common Shares to be
offered) for sale at the public offering price to directors,
officers and employees of the Company and the Bank and
their affiliates. See "Underwriting."
</TABLE>
Risk Factors
Prospective investors should carefully consider the matters set forth
under "Risk Factors," beginning on page 10.
- --------------------------------------------------------------------------------
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 thereto included in the Company's 1997 Annual Report to Stockholders
which is incorporated herein by reference as part of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, and included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 1998, incorporated herein by reference. See "Incorporation of Certain
Documents by Reference" and "Management's Discussion and Analysis of Financial
Condition and Recent Results of Operations." Consolidated historical financial
and other data regarding the Company at or for the six months ended June 30,
1998 and 1997, have been prepared by the Company, are unaudited, and may not be
indicative of results on an annualized basis or for 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, At or For the Years Ended December 31,
----------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- --------- ----------- ------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Results of Operations
Interest income .......................... $ 39,222 $ 18,145 $ 47,185 $ 29,270 $ 20,850 $ 12,194 $ 8,164
Net interest income ...................... 18,247 9,454 22,778 16,736 13,163 8,256 5,327
Provision for loan losses ................ 1,010 825 1,665 900 808 383 2
Net interest income after
provision for loan losses ............. 17,237 8,629 21,113 15,836 12,355 7,873 5,325
Other income ............................. 2,705 776 2,236 1,746 1,651 732 472
Other expenses ........................... 14,550 7,332 17,445 13,207 10,047 5,991 4,198
Net income ............................... 3,807 1,482 4,171 3,013 2,819 1,840 1,128
Net income excluding goodwill amortization 5,712 1,951 5,676 3,840 3,162 1,974 1,226
Per Share Data
Net income
Basic ................................. 0.60 0.32 0.86 0.68 0.66 0.57 0.41
Diluted ............................... 0.53 0.30 0.78 0.63 0.61 0.57 0.41
Book value ............................... 9.32 6.33 8.64 5.98 5.74 5.07 4.64
Selected Balance Sheet Data
Assets ................................... 1,153,562 585,219 1,099,973 436,795 369,895 217,351 112,015
Cash and investments ..................... 604,613 188,418 610,339 117,388 164,251 70,809 24,134
Loans receivable (net) ................... 486,059 363,705 427,761 295,501 183,634 134,861 83,387
Deposits ................................. 753,508 467,394 695,388 385,987 335,248 196,019 99,099
Borrowings and securities sold
under agreements to repurchase ......... 307,500 57,426 316,314 21,253 8,000 -- --
Shareholders' equity ..................... 59,124 29,071 54,632 27,415 24,671 20,571 12,306
Performance Ratios(1)
Return on average assets ................. 0.70% 0.62% 0.66% 0.74% 1.03% 1.09% 1.04%
Return on average equity ................. 13.49% 10.69% 12.89% 11.99% 12.42% 11.74% 9.61%
Net yield on interest-earning assets ..... 3.68% 4.33% 3.89% 4.57% 5.30% 5.39% 5.29%
Asset Quality Ratios
Nonperforming loans to total loans ....... 0.50% 0.72% 0.51% 0.81% 1.72% 1.82% 1.84%
Nonperforming assets to total loans
and other real estate owned ............ 0.50% 0.90% 0.57% 1.06% 2.19% 2.56% 2.26%
Net charge-offs to average total loans ... 0.02% 0.02% 0.02% 0.16% 0.23% 0.29% 0.02%
Total allowance for loan losses to
total nonperforming loans .............. 209.73% 127.32% 189.77% 107.26% 64.47% 64.74% 69.10%
Capital Ratios
Equity to assets ......................... 5.13% 4.97% 4.97% 6.28% 6.67% 9.46% 10.99%
Tier 1 risk-based capital ratio .......... 8.60% 7.52% 8.17% 7.44% 8.67% 14.01% 15.59%
Total risk-based capital ratio ........... 10.91% 12.99% 10.75% 8.28% 9.64% 15.22% 16.84%
Leverage ratio ........................... 4.96% 5.68% 6.42% 5.43% 5.74% 8.44% 10.74%
</TABLE>
- --------------------
(1) Ratios are annualized for the six months ended June 30, 1998 and 1997.
6
<PAGE>
RECENT DEVELOPMENTS
Selected Financial and Other Data
The following tables set forth historical financial and other data at
the dates and for the periods indicated. Financial data as of September 30,
1998, and for the three and nine months ended September 30, 1998 and 1997, are
unaudited. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation have been included.
The data for the three and nine months ended September 30, 1998, are not
necessarily indicative of the results of operations for the year ending December
31, 1998, or any other period.
Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents ....................... $ 43,234 $ 34,061
Investment securities available for sale ........ 617,239 576,278
Loans, net of allowance for loan losses ......... 517,047 427,761
Bank properties and equipment ................... 25,272 24,480
Real estate owned, net .......................... 254 270
Excess of cost over fair value of assets acquired 24,104 26,174
Other assets .................................... 32,787 10,949
---------- ----------
Total assets ................................. $1,259,937 $1,099,973
========== ==========
Deposits ........................................ $ 806,231 $ 695,388
Federal Home Loan Bank advances ................. 11,200 75,000
Federal funds purchased and securities sold under
agreements to repurchase ...................... 326,081 241,314
Other liabilities ............................... 23,868 4,889
Guaranteed preferred beneficial interest in
subordinated debt ............................. 28,750 28,750
Shareholders' equity ............................ 63,807 54,632
---------- ----------
Total liabilities and shareholders' equity .... $1,259,937 $1,099,973
========== ==========
</TABLE>
7
<PAGE>
Consolidated Condensed Statement of Income
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------------- --------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income....................... $23,035 $12,751 $62,257 $30,897
Interest expense...................... 11,870 6,817 32,845 15,509
------ ------ ------ ------
Net interest income................. 11,165 5,934 29,412 15,388
Provision for loan losses............. 577 420 1,587 1,245
------- ------- ------ ------
Net interest income after
provision for loan losses.......... 10,588 5,514 27,825 14,143
Other income.......................... 1,420 597 4,125 1,372
Other expense:
Salaries and employee benefits...... 4,246 2,048 10,956 5,645
Occupancy expense................... 901 463 2,434 1,171
Equipment expense................... 586 356 1,644 888
Data processing expense............. 534 359 1,616 1,052
Amortization of excess cost over
fair value of assets acquired..... 961 425 2,866 893
Other............................... 1,399 776 3,661 2,109
------ ------- ------ ------
Total other expense............... 8,627 4,427 23,177 11,758
------ ------ ------ ------
Income before income taxes............ 3,381 1,684 8,773 3,757
Income taxes.......................... 1,029 489 2,614 1,079
------ ------- ------ ------
Net income............................ $ 2,352 $ 1,195 $ 6,159 $ 2,678
====== ====== ====== ======
Basic earnings per share.............. $ 0.37 $ 0.26 $ 0.97 $ 0.58
====== ====== ====== ======
Diluted earnings per share............ $ 0.33 $ 0.23 $ 0.86 $ 0.53
====== ====== ====== ======
</TABLE>
Selected Ratios (1)
<TABLE>
<CAPTION>
At or For the Three Months At or For the Nine Months
Ended September 30, Ended September 30,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets.............. 0.78% 0.71% 0.73% 0.66%
Return on average equity.............. 15.68% 16.08% 14.25% 12.55%
Net yield on interest-earning
assets.............................. 4.02% 3.50% 3.81% 3.77%
Equity to assets ratio................ 5.06% 4.22% 5.06% 4.22%
Non-performing assets to
total loans and other real
estate owned........................ 0.45% 0.52% 0.45% 0.52%
</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.
8
<PAGE>
Management's Discussion and Analysis of Recent Developments
Results of Operations
Net income for the three months ended September 30, 1998 was $2.4
million, or $0.33 per share, compared to $1.2 million, or $0.23 per share, for
the three months ended September 30, 1997. This 97% increase in net income was
primarily the result of the acquisition of twelve branches in two separate
transactions and internal growth.
On a cash earnings basis (computed excluding the amortization of
goodwill) the return on average assets and return on average equity for the
three months ended September 30, 1998 and 1997, would have been 1.10%, 22.08%,
and 1.10%, 21.79%, respectively.
For the three month period ended September 30, 1998, net interest
income increased $5.2 million compared to the same period in 1997. The change
was due to a significant increase in the amount of interest-earning assets and
interest-bearing liabilities. The net interest margin for the three months ended
September 30, 1998 was 4.02% as compared to 3.50% for the same period in 1997.
Excluding the effect of structured investment portfolio transactions, the
Company's net interest margin would have been 4.79% for the three months ended
September 30, 1998. Other income increased $823,000 primarily from increased
service charges on deposit accounts of $442,000 and gains on sale of investment
securities of $217,000. Non-interest expense increased $4.2 million due to the
growth of the Company through the acquisition of branch offices. Significant
increases included: salaries and benefits of $2.2 million, occupancy of $429,000
and the amortization of excess of cost over fair value of assets acquired
(goodwill) of $536,000.
For the nine month period ended September 30, 1998, net income was $6.2
million, an increase of 130% over the $2.7 million earned for the same period in
1997. On a diluted earnings per share basis, the Company earned $0.86 compared
to $0.53 for the first nine months of 1998 and 1997, respectively. The
significant increase was the result of internal growth and the acquisition of
branch offices since September 30, 1997.
Financial Condition
Total assets at September 30, 1998 were $1,260 million, an increase of
$160 million, or 14.5%, from total assets at December 31, 1997. Investment
securities increased $41 million and net loans increased $89 million resulting
mostly from internal growth. Other assets increased $22 million due to the sale
of investment securities during the quarter that settled after September 30,
1998.
Deposits increased $111 million, from $695 million at December 31,
1997, to $806 million at September 30, 1998. The increase was almost entirely
the result of internal growth. Federal Home Loan Bank advances decreased $64
million as a result of the increased deposit levels. Federal funds purchased and
securities sold under agreements to repurchase increased $85 million, due mostly
to increases in repurchase agreements with customers and with the Federal Home
Loan Bank. Other liabilities increased almost $19 million, primarily as a result
of purchases of investment securities during the quarter that settled after
September 30, 1998. Shareholders' equity increased $9.2 million as a result of
earnings, sales of stock through employee benefit programs and an increase in
the unrealized gain on securities available for sale, net of income taxes.
On October 30, 1998, Sun Capital Trust II, a Delaware business trust
("Trust II"), issued $29,900,000 of 8.875% Preferred Securities in a public
offering co-managed by the Underwriters. Trust II invested the proceeds of such
issuance in 8.875% Junior Subordinated Deferrable Interest Debentures of the
Company (the "Debentures"). The net proceeds from the issuance of the Debentures
of the Company will be used to provide capital to Sun Delaware for the
Beneficial Acquisition and for the Company's other general corporate purposes.
9
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors which address those risks material to the 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 of 1933, as
amended (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, and Sun Delaware will be, subject to restrictions under
federal law which limit the transfer of funds by the Bank or Sun Delaware to the
Company, whether in the form of loans, extensions of credit, investments, asset
purchases or otherwise. Such transfers by the Bank or Sun Delaware to the
Company or any nonbank subsidiary are limited in amount to 10% of such bank's
capital and surplus and, with respect to the Company and all its nonbank
subsidiaries, to an aggregate of 20% of such bank's capital and surplus.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts. Federal law also prohibits banks from purchasing "low
quality" assets from affiliates.
Ability of the Company to Maintain and Manage Growth
During the last five years, the Company has experienced rapid and
significant growth. The total assets of the Company have increased from $112.0
million at December 31, 1993, to $1,154 million at June 30, 1998. Although the
Company believes that it has adequately managed its growth in the past, there
can be no assurance that the Company will continue to experience such rapid
growth, or any growth, in the future and, to the extent that it does experience
continued growth, it will be able to adequately and profitably manage such
growth.
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 is necessary to provide sufficient capital to support the Beneficial
Acquisition. No assurance can be given that this rapid growth will continue,
and, if it does, there is no assurance that the earnings of the Company, the
Bank and Sun Delaware can adequately provide the necessary capital for the Bank,
Sun Delaware and the Company to maintain required regulatory capital levels
commensurate with continued rapid growth. The Company expects that its leverage
ratio will be in excess of 4%, and that it will be "adequately capitalized" for
federal bank regulatory purposes, at the time of the consummation of the
Beneficial Acquisition and as of December 31, 1998. The combination of an
increase in retained earnings and the amortization of goodwill will increase the
Company's regulatory capital ratios above the June 30, 1998 pro forma ratios
presented herein. After giving effect to the sale of the Common Shares and the
Beneficial Acquisition, Sun
10
<PAGE>
Delaware will be "well capitalized" and the Company will be "adequately
capitalized" for federal bank regulatory purposes. The Bank will also continue
to be "well capitalized" for federal bank regulatory purposes. The level of
future earnings of the Company also will depend on the ability of the Company
and its subsidiaries to profitably deploy and manage the increased assets.
The rapid growth of the Company in asset size and the rapid increase in
its volume of total loans during the past five years have increased the possible
risks inherent in an investment in the Company. In addition, the Beneficial
Acquisition will result in the acquisition of a significant amount of deposits.
The deposits to be assumed pursuant to the Beneficial Acquisition 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 Beneficial
Acquisition may have an adverse impact on the Company's financial condition,
results of operations and cash flows. The Beneficial Acquisition will also
result in the acquisition by the Company of approximately $139 million of loans,
approximately $87 million of which are commercial and industrial loans. 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 loans
or residential real estate loans. See "Beneficial Acquisition."
Growth in Loan Portfolio; Concentration of Credit
During the past five years, the Company has experienced significant
growth in its loan portfolio. Net loans increased to $486.1 million at June 30,
1998, from $83.4 million at December 31, 1993. While many components of the loan
portfolio have contributed to this increase over the past five years, much of
this loan growth has occurred in the portfolio of commercial and industrial
loans. Commercial and industrial loans increased by 55.3% or $123.4 million
during 1997 as compared to 1996 and comprised 80.2% of total loans as of
December 31, 1997. As of June 30, 1998, commercial and industrial loans
comprised 81.6% of total loans. As a result of this recent growth, a significant
portion of the Company's total loan portfolio may be considered unseasoned.
Accordingly, specific payment and loss experience for this portion of the
portfolio has not yet been fully established and the potential for additional
loan losses does exist. Furthermore, 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. In
addition, a significant portion of the Company's commercial and industrial loans
are concentrated in the hospitality, entertainment and leisure industries. Many
of these industries are dependent upon seasonal business and other factors
beyond the control of such industries, such as weather and beach conditions
along the New Jersey seashore. Any significant or prolonged adverse weather or
beach conditions along the New Jersey seashore could have an adverse impact on
the borrowers' ability to repay such loans. Additionally, because these loans
are concentrated in southern and central New Jersey, a decline in the general
economic conditions of southern or central New Jersey could have a material
adverse effect on the Company's financial condition, results of operations and
cash flows.
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 loan losses based upon a percentage of the outstanding balances
and for specific loans when their ultimate collectibility is considered
questionable. If management's assumptions and
11
<PAGE>
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 and/or Sun Delaware to increase the allowance for loan losses, the
Company's earnings could be significantly and adversely affected.
As of June 30, 1998, the allowance for loan losses was $5.1 million,
which represented 1.05% of total loans. The allowance for loan losses as a
percentage of nonperforming loans was 209.73% as of June 30, 1998. 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 Company has increased its
allowance for loan losses. However, future additions to the allowance in the
form of provisions for loan losses may be necessary due to changes in economic
conditions and growth of the Company's loan portfolio.
High Degree of Competition
The banking business is highly competitive. In its primary market
areas, the Company competes, and in Delaware will compete, 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 Company's primary competitors have
substantially greater resources and lending limits than the Bank has or than Sun
Delaware will have. The profitability of the Company depends upon the ability of
its subsidiaries to compete in the Company's primary market areas.
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, 1998, the
Company had a one year cumulative positive gap of 0.56%.
Control by Management
A total of 3,573,861 Common Shares of the Company will be beneficially
owned by the directors and executive officers of the Company, or 43.34% of the
Common Shares outstanding, following the Offering, assuming directors and
executive officers purchase 150,000 shares in the Offering and that the
Underwriters do not exercise the over-allotment option. See "Underwriting." As
of November 10, 1998, Bernard A. Brown, Chairman of the Board of the Company,
beneficially owned 2,547,331 shares, or 35.22% of the Company's outstanding
Common Shares. In addition, the Underwriters have reserved 150,000 Common Shares
offered in the Offering for sale to directors, officers and employees of the
Company and their affiliates. Therefore, to the extent they vote together, the
directors and executive
12
<PAGE>
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.
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, and Sun Delaware will be, subject to
regulation and supervision by the Office of the Comptroller of the Currency (the
"OCC") and the FDIC. The Bank is, and Sun Delaware will also be, a member of the
Federal Home Loan Bank of New York (the "FHLB") and 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 and, in the future, Sun
Delaware, including permissible types, amounts and terms of loans and
investments, the amount of reserves maintained 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 its bank
subsidiaries 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 and Sun Delaware to attract deposits
and make loans.
Limitations on Payment of Dividends
Historically, the Company has not paid cash dividends on its Common
Shares. The Bank is, and Sun Delaware will become, a wholly owned subsidiary of
the Company and its principal income-producing entities. Accordingly, dividends
payable by the Company are subject to the financial condition of the Bank, Sun
Delaware and the Company, as well as other business considerations. In addition,
because the Bank is, and Sun Delaware will be, a depository institution insured
by the FDIC, they may not pay dividends or distribute any capital assets if
either bank is in default on any assessment due the FDIC. Payment of dividends
by the Bank and Sun Delaware is restricted by statutory limitations. OCC
regulations also impose certain minimum capital requirements that affect the
amount of cash available for the payment of dividends by the Bank and Sun
Delaware. At June 30, 1998, $15.0 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 and Sun Delaware are able to generate sufficient earnings to pay
dividends, there is no assurance that their respective Boards of Directors might
not decide or be required to retain a greater portion of the Bank's or Sun
Delaware'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 or Sun Delaware, (iii) a significant
decrease in the Bank's or Sun Delaware's income, (iv) a significant
deterioration of the quality of the Bank's or Sun Delaware'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
regulations. The occurrence of any of these events would decrease the amount of
funds potentially available for the payment of dividends by the Company or for
debt service of outstanding indebtedness. 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 Sun Delaware
and to commit resources to support both the Bank and Sun Delaware in
circumstances where it might not do so
13
<PAGE>
absent such a policy. This policy could have the effect of reducing the amount
of dividends declarable by the Company or funds available for debt service.
As of the date hereof, subsidiaries of the Company had an aggregate
Liquidation Amount of $58.7 million of Preferred Securities outstanding. The
proceeds from the sale of such Preferred Securities were invested by such
subsidiaries in a like amount of junior subordinated deferrable interest
debentures (collectively, the "Debentures") of the Company. 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 applicable Debentures. If interest
payments on the Debentures are so deferred, the Company will be prohibited,
subject to certain exceptions, from declaring or paying cash dividends with
respect to its capital stock, including the Common Shares, or debt securities
that rank pari passu with or junior to the Debentures, until such time as the
payment of all amounts due on the Debentures are paid and the Extension Period
is terminated.
Cross Guarantee Liability of the Bank and Sun Delaware
Federal law contains a "cross-guarantee" provision which could result
in an insured depository institution which is owned by the Company, such as the
Bank or Sun Delaware, being liable for losses incurred by the FDIC in connection
with assistance provided to, or the failure of, another depository institution
"commonly controlled" by the Company. As the Bank and Sun Delaware will be
"commonly controlled" by the Company, losses incurred by the FDIC in connection
with assistance provided to, or failure of, one such bank could result in an
assessment against the other bank and such assessment could have a material
adverse effect on the financial condition of such bank and the Company.
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Company's amended and restated certificate of
incorporation and amended and restated bylaws, the general corporation code of
New Jersey, and certain federal regulations may make it difficult for someone to
pursue a tender offer, change in control or takeover attempt which is opposed by
the Company's management and board of directors. These provisions include:
certain provisions relating to meetings of stockholders; denial of cumulative
voting to stockholders in the election of directors; the ability to issue
preferred stock and additional shares of common stock without shareholder
approval; and super majority provisions for the approval of certain business
combinations. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. The effect of these
provisions could be to limit the trading price potential 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.
14
<PAGE>
Year 2000
The Year 2000 issue is created by the potential inability of computer
systems to use more than two digits in the data field for the year, thus making
them unable to identify years after 1999 with accuracy. If a bank does not
resolve problems related to the Year 2000 issue, computer systems may
incorrectly compute payment, interest or delinquency information. In addition,
because payment and other important data systems are linked by computer, if the
banks with which the Company or its subsidiaries conduct ongoing operations do
not resolve this potential problem in time, the Company or its subsidiaries may
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures may have a significant adverse impact on the
financial condition, results of operations and cash flows of the Company.
The Company processes much of its data processing using licensed
software from a third party including all of its deposit and loan accounting and
general ledger functions. The third party has advised the Company that it has
made all the necessary programming changes to its systems for the Year 2000. The
Company has tested its systems for Year 2000 compliance and will continue
testing such systems until fully completed. To date, the Company is satisfied
with the results of such testing. The Company does not expect to incur
significant incremental direct expenses related to the Year 2000. Failure of
third party computer systems relative to the Year 2000 would have a material
adverse impact on the Company's ability to conduct its business. Costs
associated with the Year 2000 problem are expected to be expensed as incurred in
compliance with generally accepted accounting principles. In addition, the
Company cannot guarantee that the inability of loan customers to adequately
correct the Year 2000 issue will not have an adverse effect on the Company.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RECENT 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 primarily 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. Set forth below is an analysis of the financial condition and
recent operating results of the Company. In July 1998, the Company entered into
an agreement regarding the Beneficial Acquisition which is expected to result in
significant incremental growth in loans, deposits, intangible assets, interest
income, interest expense and noninterest expense. See "- Financial Condition,"
"Beneficial Acquisition" and "Pro Forma Consolidated Statement of Financial
Condition."
Financial Condition
Total assets at June 30, 1998 increased $53.6 million to $1,154 million
from $1,100 million at December 31, 1997. The growth was primarily due to an
increase in net loans of $58.3 million, an increase in federal funds sold of
$9.5 million and offset by a decrease in the investment securities portfolio of
$18.9 million.
Investment securities available for sale at June 30, 1998 decreased
$18.9 million to $557.4 million from $576.3 million at December 31, 1997. The
decrease was primarily a result of net sales of investment securities, the
proceeds of which funded loan growth and repayment of short-term borrowings.
Net loans at June 30, 1998 increased $58.3 million to $486.1 million
from $427.8 million at December 31, 1997. The increase was primarily from
increased originations of commercial and industrial loans. The ratio of
non-performing assets to total loans and real estate owned was 0.50% at June 30,
1998 compared to 0.51% at December 31, 1997. The ratio of allowance for loan
losses to total non-performing loans was 209.73% at June 30, 1998 compared to
189.77% at December 31, 1997. The increase in this ratio was the result of a
higher allowance for loan losses at June 30, 1998. The ratio of allowance for
loan losses to total loans was 1.05% at June 30, 1998 compared to 0.97% at
December 31, 1997.
Excess of cost over fair value of assets acquired (goodwill) at June
30, 1998 decreased $1.1 million to $25.1 million from $26.2 million at December
31, 1997. The decrease was a result of related amortization and a $289,000
refund of the purchase premium from the purchase of The Bank of New York
branches, substantially offset by the addition of a $1.1 million premium paid
for the acquisition of the Eatontown office of First Savings.
16
<PAGE>
Total liabilities at June 30, 1998 increased $49.1 million to $1,066
million from $1,017 million at December 31, 1997.
Total deposits at June 30, 1998 increased $58.1 million to $753.5
million from $695.4 million at December 31, 1997. The increase was the result of
approximately $25.1 million in deposits acquired from First Savings Bank, as
well as from internal deposit growth of 4.74%.
There were $35.7 million in advances from the Federal Home Loan Bank
and $15 million in federal funds purchased at June 30, 1998 compared to $75.0
million and $5.5 million, respectively, at December 31, 1997. The combined net
decrease in these liabilities was due to the availability of funds from
increased deposit levels combined with the proceeds from sales of investment
securities.
Total shareholders' equity grew by $4.5 million, from $54.6 million at
December 31, 1997, to $59.1 million at June 30, 1998. The increase was a result
of net earnings of $3.8 million for the six months ended June 30, 1998 augmented
by the earnings on the proceeds received from the issuance of common stock in
November 1997 and an improvement in the net unrealized gains on securities
available for sale, net of income taxes, of $283,000.
Beginning in 1997, to more fully leverage its capital, the Company
entered into certain structured transactions in which the Bank borrows funds
from the FHLB at a rate similar to the London Inter-Bank Offered Rate ("LIBOR").
It invests the borrowed funds in mortgage-backed securities that are priced to
yield a spread over LIBOR. The securities are pledged as collateral for FHLB
borrowings. For the six months ended June 30, 1998, net interest income related
to structured transactions amounted to $2.3 million, or a 1.03% weighted average
net spread. Partly as a result of the implementation of this strategy, the net
interest margin of the Company has narrowed to 3.68% for the six months ended
June 30, 1998. Excluding the effect of the structured transactions, the
Company's net interest margin would have been 4.15% for that period.
Additionally, for the six months ended June 30, 1998, the Company
reported a return on average assets, a return on average equity and an
efficiency ratio of 0.70%, 13.49% and 69.44%, respectively. On a cash earnings
basis (computed excluding the amortization of goodwill) the return on average
assets, the return on average equity and the efficiency ratio for the same
period would have been 1.06%, 20.24% and 60.35%, respectively. Amortization of
goodwill resulting from the Beneficial Acquisition is expected to further reduce
the Company's profitability ratios, while the transaction is expected to be
accretive to earnings.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997.
General. Net income increased by $2.3 million for the six months ended
June 30, 1998 to $3.8 million from $1.5 million for the six months ended June
30, 1997. Net interest income increased $8.8 million and the provision for loan
losses increased $185,000 for the six months ended June 30, 1998 compared to the
same period in 1997. Other income increased by $1.9 million to $2.7 million for
the six months ended June 30, 1998 as compared to $776,000 for the six months
ended June 30, 1997. Other expenses increased by $7.2 million to $14.5 million
for the six months ended June 30, 1998 as compared to $7.3 million for the six
months ended June 30, 1997. The return on average assets for the six months
ended June 30, 1998 and 1997 were 0.70% and 0.62%, respectively. The return on
average equity for the six months ended June 30, 1998 and 1997 were 13.49% and
10.69%, respectively.
Net Interest Income. The increase in net interest income was due to a
$21.1 million increase in interest income partially offset by a $12.3 million
increase in interest expense.
17
<PAGE>
Interest Income. Interest income for the six months ended June 30, 1998
increased approximately $21.1 million, or 116.2%, from $18.1 million for the
same period in 1997 to $39.2 million in 1998. The increase was primarily the
result of an increase of $6.7 million in interest and fees on loans resulting
from acquisitions and internal growth and $14.3 million in interest on
investment securities resulting from the deployment of cash received from
financing transactions, branch acquisitions and deposit growth into the
Company's investment portfolio. The Beneficial Acquisition, the Offering and the
recently completed offering of Preferred Securities are expected to generate
additional net cash that can be deployed into loan growth and investments that
will create interest income.
Interest Expense. Interest expense for the six months ended June 30,
1998 increased approximately $12.3 million, from $8.7 million for the same
period in 1997 to $21.0 million in 1998. This increase was primarily due to a
$5.3 million increase in interest on deposit accounts resulting from
significantly higher deposit balances due to acquisitions and internal growth, a
$6.3 million increase in interest on short-term borrowed funds resulting from
higher levels of borrowings from correspondent banks and securities sold under
agreements to repurchase and a $615,000 increase in interest on guaranteed
preferred beneficial interest in subordinated debt. The Beneficial Acquisition
and the recently completed offering of Preferred Securities will result in
increased interest expense in future periods.
Provision for Loan Losses. For the six months ended June 30, 1998, the
provision for loan losses amounted to $1.01 million, an increase of $185,000,
compared to $825,000 for the same period in 1997. The increase in the provision
for loan losses was due to higher levels of loans outstanding. Management
continually reviews the adequacy of the loan loss reserve based upon internal
review of loans and using guidelines promulgated by the Bank's primary
regulator.
Other Income. Other income increased approximately $1.9 million to $2.7
million for the six-month period ended June 30, 1998 compared to $776,000 for
the six-month period ended June 30, 1997. The increase was a result of
approximately $978,000 in fees generated by a larger base due to deposit
acquisitions and internal growth, augmented by $110,000 in gains from the sale
of loans and an increase of $573,000 in gains on the sale of investment
securities and $250,000 in other income.
Other Expenses. Other expenses increased approximately $7.2 million to
$14.5 million for the six months ended June 30, 1998 as compared to $7.3 million
for the same period in 1997. Of the increase, $3.1 million was in salaries and
employee benefits, $824,000 was in occupancy expense, $525,000 was in equipment
expense, $116,000 was in professional fees and services, $389,000 was in data
processing expense, $174,000 was in postage and supplies, $1.4 million was in
amortization of excess of cost over fair value of assets acquired (amortization
of goodwill) and $644,000 was in Other Expenses. The increase in other expenses
reflects the Company's strategy to support planned expansion. Salaries and
benefits increased due to additional staff positions in financial service
centers, lending, loan review, compliance and audit departments. The increase in
occupancy, equipment, professional fees and services and data processing
expenses were the result of internal growth and the effect of the Company's
acquisitions. The Company has entered into two purchase and assumption
agreements which, when completed, will result in the acquisition of a total of
ten branch locations, including the eight branch locations in connection with
the Beneficial Acquisition. As a result, the Company expects the level of
amortization of excess of cost over fair value of assets acquired to increase in
periods subsequent to the completion of the transactions.
Income Taxes. Applicable income taxes increased $995,000 for the six
months ended June 30, 1998 as compared to the same period in 1997. The increase
resulted from higher pre-tax earnings.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 700,000 Common
Shares (after giving effect to the payment of estimated offering expenses) are
estimated to be approximately $13.5 million ($15.6 million if the Underwriters'
over-allotment option is exercised in full). Such proceeds from the Offering
will qualify under the capital adequacy guidelines of the Federal Reserve as
Tier 1 capital for the Company. The net proceeds from the Offering will be used
by the Company for the purpose of providing sufficient capital to Sun Delaware
to consummate the Beneficial Acquisition and for the Company's other corporate
purposes.
BENEFICIAL ACQUISITION
The Company has entered into an agreement to acquire certain loans, and
assume certain deposits, of Beneficial National Bank ("Beneficial"). As part of
the Beneficial Acquisition, the Company will acquire eight leased branch
offices, all located in New Castle County, Delaware. It is anticipated that the
current senior management of Beneficial, comprised of the president, senior
credit officer and senior business development/operations officer, will continue
in similar positions at Sun Delaware. The State of Delaware is a contiguous
extension of the Company's existing marketplace, with the Company's closest New
Jersey branch being located only a few miles from the closest Beneficial branch.
The agreement with Beneficial includes the purchase by the Company of
performing loans and loans that are not thirty days or more past due in the
payment of principal or interest or not adversely classified. While the Company
did not originate or underwrite such loans, the Company has performed a loan
review on a significant portion of the commercial and industrial loans it is
acquiring from Beneficial and will not acquire any loans that are more than 30
days delinquent in the payment of interest or principal or that are adversely
classified at the time of consummation of the Beneficial Acquisition.
At the time the Company entered into the agreement for the Beneficial
Acquisition, Mr. Bernard A. Brown, Chairman of the Board of the Company, entered
into an Unconditional and Irrevocable Guaranty (the "Guaranty") with Household
Bank, fsb ("Household"). Under the Guaranty, Mr. Brown agreed to pay such funds
to Household as may be required for the Company to consummate the Beneficial
Acquisition. In return for the Guaranty and the subsequent agreement by Mr.
Brown with the Company to provide sufficient capital to the Company and Sun
Delaware in order to consummate the Beneficial Acquisition, the Company awarded
Mr. Brown stock options covering 250,000 Common Shares at the then market price
of the Common Shares. Such options were granted to Mr. Brown with a reload
feature that is subject to shareholder ratification.
At June 30, 1998, loans to be purchased under the agreement with
Beneficial were as follows:
Weighted
Average
Amount Yield
------ -----
(In thousands)
Commercial and industrial.............. $ 87,158 10.32%
Home equity............................ 21,700 9.96%
Residential real estate................ 11,519 7.91%
Installment............................ 18,674 11.14%
------- ------
Gross Loans.......................... 139,051 10.18%
Reserve for loan losses................ (1,000)
--------
Net loans............................ $138,051
=======
19
<PAGE>
At June 30, 1998, deposits to be assumed under the agreement with
Beneficial were as follows:
Weighted
Average
Amount Interest Cost
------ -------------
(In thousands)
Demand deposits........................ $ 58,110 1.50%
Savings deposits....................... 43,441 3.01%
Time deposits.......................... 77,062 4.99%
------- -----
Total deposits....................... $178,613 3.38%
=======
The closing of the Beneficial Acquisition is subject to pending
regulatory approvals and certain other conditions and is expected to occur in
the fourth quarter of 1998.
20
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 1998
The following table sets forth the unaudited pro forma consolidated
statement of financial condition of the Company assuming the branch purchases
are consummated as of June 30, 1998. The pro forma consolidated statement of
financial condition should be read in conjunction with the consolidated
financial statements of the Company and notes thereto included in the Company's
1997 Annual Report to Stockholders which is incorporated herein by reference as
part of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and included in the Company's Quarterly Reports on Form 10-Q
for the quarters ended March 31, and June 30, 1998, incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." The pro forma
consolidated statement of financial condition has been prepared by the Company,
is unaudited, and may not be indicative of results on an annualized basis or for
any other period.
<TABLE>
<CAPTION>
Pro Forma
Consolidated Pro Forma
Company Consolidated
Beneficial Summit Before Company After
Branch Branch Securities Securities Securities
Company Purchase Purchase Offerings Offerings(5) Offerings
------- -------- -------- --------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and amounts due from banks......... $ 37,721 $ 1,400 (1) $ $ 39,121 $ -- $ 39,121
Federal funds sold...................... 9,500 38,700 (1) 14,596 (1) 44,348
(4,100) (2) (660)(4) (2,168)
(19,900) (3) 38,136 80,306
Investment securities available-for-
sale.................................. 557,392 557,392 557,392
Loans receivable (net).................. 486,059 138,000 (1)
4,100 (2) 628,159 628,159
Bank properties and equipment, net...... 25,342 500 (1) 178 (1) 26,020 26,020
Real estate owned....................... 396 396 396
Accrued interest receivable............. 8,234 8,234 8,234
Excess of cost over fair value
of net assets acquired................ 25,065 19,900 (3) 660 (4) 45,625 45,625
Deferred taxes.......................... 1,511 1,511 1,511
Other assets............................ 2,342 -- -- 2,342 1,247 3,589
---------- ------- ------- --------- ------- ----------
Total................................ $1,153,562 $178,600 $14,774 $1,346,936 $43,417 $1,390,353
========= ======= ====== ========= ====== =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits................................ $753,507 $178,600 (1) $14,774 (1) $946,981 $ -- $946,881
Advances from the Federal Home Loan
Bank.................................. 35,700 35,700 35,700
Federal funds purchased................. 15,000 15,000 15,000
Securities sold under agreements
to repurchase......................... 256,800 256,800 256,800
Other liabilities....................... 4,681 -- -- 4,681 -- 4,681
--------- ------- ------ --------- ------ ---------
Total liabilities..................... 1,065,688 178,600 14,774 1,259,062 -- 1,259,062
--------- ------- ------ --------- ------ ---------
Guaranteed preferred beneficial interest
in subordinated debt.................. 28,750 28,750 29,900 58,650
Shareholders' equity:
Preferred stock.........................
Common stock............................ 6,341 6,341 700 7,041
Surplus................................. 38,935 38,935 12,817 51,752
Retained earnings....................... 13,412 13,412 13,412
Net unrealized gain on securities
available-for-sale, net
of income taxes....................... 436 -- -- 436 -- 436
------ ------ ------ --------- ------ ---------
Total shareholders' equity............ 59,124 -- -- 59,124 13,517 72,641
--------- ------ ------ --------- ------ ---------
Total................................. $1,153,562 $178,600 $14,774 $1,346,936 $43,417 $1,390,353
========= ======= ====== ========= ====== =========
</TABLE>
- --------------
(1) To record branch purchase.
(2) To record premium paid on the purchase of loans ($4.1 million). The premium
will be amortized over a five year period.
(3) To record premium paid on the assumption of the deposit liabilities ($19.9
million). The excess of cost over fair value of assets acquired will be
amortized over a seven year period.
(4) To record premium paid on the assumption of deposit liabilities ($660,000).
The excess of cost over fair value of assets acquired will be amortized
over a seven year period.
(5) To record the net proceeds from the sale of the Common Shares and the
recently completed offering of Preferred Securities.
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of
the Company at June 30, 1998, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Common Shares assuming the
Underwriters' over-allotment option was not exercised and the completion of the
Preferred Securities offering, (iii) the pro forma effect of branch purchases
from Summit and Beneficial, and (iv) the actual and pro forma capital ratios of
the Company. The Bank is "well capitalized" and Sun Delaware will be "well
capitalized" on a pro forma basis for federal bank regulatory purposes. The
Company expects that its leverage ratio will be in excess of 4%, and that it
will be "adequately capitalized" for federal bank regulatory purposes, at the
time of the consummation of the Beneficial Acquisition and as of December 31,
1998. The combination of an increase in retained earnings and the amortization
of goodwill will increase the Company's regulatory capital ratios above the June
30, 1998 pro forma ratios presented herein.
<TABLE>
<CAPTION>
As Adjusted
------------------------------------------
Sale of
Sale of Securities and
Actual Securities(2) Branch Purchases(2)
------ ------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Guaranteed preferred beneficial interest in
subordinated debt................................ $ 28,750 $ 58,650 $ 58,650
SHAREHOLDERS' EQUITY:
Preferred stock $1 par value, 1,000,000
shares authorized, none issued................. -- -- --
Common stock $1 par value - 25,000,000(1)
shares authorized; 7,040,811 outstanding........ 6,341 7,041 7,041
Surplus.......................................... 38,935 51,752 51,752
Retained earnings................................ 13,412 13,412 13,412
Net unrealized gain on securities
available-for-sale, net of income taxes........ 436 436 436
------- ------ -------
Total shareholders' equity................... 59,124 72,641 72,641
------- ------- -------
Total capitalization........................... $ 87,874 $131,291 $131,291
======= ======= =======
COMPANY CAPITAL RATIOS(3):
Tier 1 risk-based capital ratio.................. 8.60% 11.35% 6.56%
Total risk-based capital ratio................... 10.91% 17.69% 11.83%
Leverage ratio................................... 4.96% 6.38% 3.93%
SUN DELAWARE CAPITAL RATIOS (4)
Tier 1 risk-based capital ratio.................. 10.67%
Total risk-based capital ratio................... 11.34%
Leverage ratio................................... 8.19%
</TABLE>
- -------------------
(1) As adjusted for the increase in authorized Common Shares approved by
shareholders of the Company on August 25, 1998.
(2) Assumes the sale of $14.4 million of Common Shares in the Offering and
reflects the completion of the Preferred Securities offering.
(3) 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.
(4) Assumes that the Company will contribute $35.7 million of proceeds from
the sale of the securities to Sun Delaware. The capital ratios, as
adjusted, are computed in a manner consistent with OCC guidelines.
22
<PAGE>
PRICE RANGE OF COMMON SHARES; DIVIDENDS
The Company's Common Shares have been quoted on the Nasdaq National
Market under the symbol "SNBC" since November 1997. From August 29, 1996, until
November 1997, the Company's Common Shares were quoted on the Nasdaq SmallCap
Market, with limited and infrequent trading in the Common Shares during this
period. The following table sets forth the high and low closing sale prices
(adjusted for stock splits and dividends) for the Common Shares for the calendar
quarters indicated, as published by the Nasdaq SmallCap and National Markets.
High Low
---- ---
1996
Third quarter (from August 29, 1996)............. $8.64 $8.06
Fourth quarter................................... 8.97 8.06
1997
First quarter.................................... $9.37 $8.26
Second quarter................................... 9.95 8.67
Third quarter.................................... 13.97 9.42
Fourth quarter................................... 21.59 13.65
1998
First quarter.................................... $30.71 $19.68
Second quarter................................... 30.63 25.25
Third quarter ................................... 29.50 19.25
Fourth quarter (through November 10, 1998) ...... 21.63 16.50
The last reported sale price of the Common Shares on the Nasdaq
National Market as of November 10, 1998, was $21.625. There were 328 holders of
record of the Company's Common Shares as of November 10, 1998.
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 5% stock dividends on October 30, 1996, June 25, 1997 and May 26, 1998. The
Company declared three for two Common Share stock splits effected by means of
50% stock dividends paid in September 1997 and March 1998. Future declarations
of dividends by the Board of Directors will depend upon a number of factors,
including the Company's, the Bank's and Sun Delaware's financial condition and
results of operations, investment opportunities available to the Company, the
Bank or Sun Delaware, 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 upon the
ability of the Bank and Sun Delaware to pay dividends to the Company. Because
the Bank is, and Sun Delaware will be, a depository institution insured by the
FDIC, they may not pay dividends or distribute capital assets if either one 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 and Sun Delaware. 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 both the
Bank and Sun Delaware and to commit resources to support the Bank and Sun
Delaware 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.
23
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated November 10, 1998, among the Company and Advest,
Inc. and Janney Montgomery Scott Inc. (the "Underwriters"), the Company has
agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase from the Company, the following amounts 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.............................. 420,000
Janney Montgomery Scott Inc.............. 280,000
-------
Total.................................... 700,000
=======
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 Underwriters that they propose to
offer the Common Shares (including the shares to be purchased by directors,
officers and employees, and their affiliates, of the Company) 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 $0.74 per
Common Share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per Common Share to certain other dealers.
After the Offering, the public offering price, concession and reallowance to
dealers may be changed by the Underwriters. 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 to Advest, Inc. of $75,000 in connection with the Offering.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the Underwriting Agreement, to purchase up
to an additional 105,000 Common Shares at the public offering price. To the
extent that the Underwriters exercise 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 700,000 Common Shares are being offered.
The Underwriters have reserved 150,000 Common Shares offered in the
Offering for sale at the public offering price to directors, officers and
employees (and their affiliates) of the Company. The Underwriters will not
receive any discounts or commissions on Common Shares purchased by such
officers, directors or employees (and their affiliates) of the Company. 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 Securities and Exchange Commission (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
24
<PAGE>
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.
In connection with the Offering, certain Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot the 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 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. Advest, Inc. also served as
managing underwriter in the Company's public offerings of Common Shares and
trust preferred securities in 1997, and advised the Company in certain of its
branch purchases. The Underwriters also served as managing underwriters for the
Company's Preferred Securities offering completed on October 30, 1998.
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 for the
Underwriters by Arnold & Porter, Washington, D.C. and New York, New York.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
25
<PAGE>
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. Additionally,
such material may be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
The Company has filed a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act in connection with the Offering. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement, including any
amendments, schedules and exhibits thereto, is available for inspection and
copying as set forth above. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein include all
material terms of such contracts or other documents but are not necessarily
complete, and in each instance reference is made to the copy of any such
contract or other document which may have been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Common Shares are traded on the Nasdaq National Market under the
symbol "SNBC." Documents filed by the Company with the Commission also can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission are hereby incorporated into this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998 and June 30, 1998;
(c) The Company's Current Reports on Form 8-K filed with the
Commission on July 27, 1998, March 6, 1998, and February 26,
1998; and
(d) The Company's Registration Statement on Form 10 declared
effective by the Commission in August 1996 and any amendment or
report filed for the purpose of updating such description.
In addition, all subsequent documents filed with the Commission by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing such
26
<PAGE>
documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein or therein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or therein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modified or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (excluding exhibits
unless specifically incorporated therein) are available without charge upon
written or oral request from the Secretary, Sun Bancorp, Inc., 226 Landis
Avenue, Vineland, New Jersey 08360, telephone (609) 691-7700.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus (including information included or incorporated by
reference herein) contains or may contain forward-looking statements with
respect to the financial condition, results of operations, plans, objectives,
future performance and business of the Company, including statements preceded
by, followed by or that include the words, "believes," "expects," "anticipates"
or similar expressions. These forward-looking statements involve certain risks
and uncertainties and may relate to future operating results of the Company.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities in addition to those described in "Risk Factors": (1)
expected cost savings from the acquisitions not being fully realized or realized
within the expected time frame; (2) earnings following the acquisitions being
lower than expected; (3) a significant increase in competitive pressures among
depository and other financial institutions; (4) costs or difficulties related
to the integration of the acquired business being greater than expected; (5)
changes in the interest rate environment resulting in reduced margins; (6)
general economic or business conditions, either nationally or in the states in
which the Company will be doing business, being less favorable than expected,
resulting in, among other things, a deterioration in credit quality or a reduced
demand for credit; (7) legislative or regulatory changes adversely affecting the
businesses in which the Company will be engaged; (8) changes in the securities
markets; and (9) changes in the banking industry including the effects of
consolidation resulting from possible mergers of financial institutions.
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ ===============================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such 700,000
information or representation 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 Shares in any [Logo]
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 in the affairs of the Company since the date hereof. SUN BANCORP, INC.
--------------------
Common Stock
TABLE OF CONTENTS
Page
Prospectus Summary............................................................3
Selected Consolidated Financial Data..........................................6
Recent Developments...........................................................7 --------------------
Risk Factors.................................................................10
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Recent Results of
Operations..................................................................16 --------------------
Use of Proceeds..............................................................19
Beneficial Acquisition.......................................................19
Pro Forma Consolidated Statement of
Financial Condition.........................................................21
Capitalization...............................................................22
Price Range of Common Shares;
Dividends..................................................................23
Underwriting.................................................................24 Advest, Inc.
Validity of Securities.......................................................25
Experts......................................................................25 Janney Montgomery Scott Inc.
Available Information........................................................26
Incorporation of Certain Documents by
Reference..................................................................26
Cautionary Statement Concerning
Forward-Looking Information................................................27 November 10, 1998
================================================================================ ===============================================
</TABLE>
