PROSPECTUS
2,150,000 Shares
[LOGO]
Sun Bancorp, Inc.
Common Stock
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Sun Bancorp, Inc. is offering for sale 2,150,000 shares of its common
stock, $1.00 par value per share, at a price of $17.25 per share. The common
stock is currently quoted on the Nasdaq National Market under the symbol "SNBC."
The last reported sale price of the common stock on the Nasdaq National Market
as of July 21, 1999 was $17.75. See "Price Range of Our Common Stock and
Dividends."
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You should carefully read the factors set forth in "Risk Factors" beginning on
page 9.
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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.
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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.
Per Share Total
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Public Offering Price.................... $17.25 $ 37,087,500
Underwriting Discounts and Commissions... $ 0.99 $ 2,128,500
Proceeds to Sun Bancorp before expenses.. $16.26 $ 34,959,000
We have granted the underwriters an option to purchase up to 322,500 additional
shares of common stock at the same price and on the same terms, solely to cover
over-allotments, if any.
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It is expected that the certificates representing the shares of common
stock will be delivered to the underwriters on or about July 27, 1999.
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Advest, Inc. Wheat First Securities
The date of this Prospectus is July 22, 1999.
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SUMMARY
The following is a summary of information contained elsewhere in this
prospectus and in the documents incorporated by reference. To understand the
stock offering fully, you should read this entire prospectus carefully along
with the documents incorporated by reference.
We use the terms "we", "us" and "our" to refer to Sun Bancorp, Inc. We
use the term "Sun New Jersey" to refer to Sun National Bank, headquartered in
Vineland, New Jersey, and "Sun Delaware" to refer to Sun National Bank,
Delaware, headquartered in Wilmington, Delaware. We use the term "banks" to
refer to Sun New Jersey and Sun Delaware together. In some cases, a reference to
"we" will include the banks as they are both subsidiaries of Sun Bancorp.
On May 20, 1999, our Board of Directors declared a 5% stock dividend on
our common stock, paid on June 21, 1999. Where appropriate, amounts throughout
this prospectus have been adjusted to reflect the stock dividend.
Sun Bancorp, Inc.
Overview
We are a multi-bank holding company headquartered in Vineland, New
Jersey. Our principal subsidiaries are Sun New Jersey and Sun Delaware. At March
31, 1999, we had total assets of $1.522 billion, total deposits of $1.007
billion and total shareholders' equity of $77 million. We provide community
banking services through 63 financial service centers in southern and central
New Jersey and in the contiguous New Castle County market in Delaware. In
addition, we have a commercial loan production office in Philadelphia,
Pennsylvania. We offer comprehensive lending, depository and financial services
to our customers and our marketplace. Our lending services to businesses include
commercial and industrial loans and commercial real estate loans. Our commercial
deposit services include checking accounts and cash management products such as
electronic banking, sweep accounts, lockbox services, PC banking and controlled
disbursement services. Our lending services to consumers include residential
mortgage loans, home equity loans and installment loans. Our consumer services
include checking accounts, savings accounts, money market deposits, certificates
of deposit and individual retirement accounts. Through a third party
arrangement, we also offer mutual funds, securities brokerage, annuities and
investment advisory services.
Expansion Strategy
Our Board of Directors and management recognize the demand for a
locally based and managed community bank that can provide comprehensive,
competitive and responsive commercial and retail banking services to meet the
borrowing, depository and other financial services needs of the small and medium
sized business and consumers in the communities we serve. Beginning in 1993, we
embarked upon an expansion of our operations and retail market share in central
and southern New Jersey through mergers, acquisitions and expansion of
facilities and financial services.
Through our acquisition and expansion program, we have successfully
completed the acquisition of two commercial banks with a total of $119 million
in assets, as well as eight branch purchase transactions in which we acquired a
total of 37 branches, $590 million of deposits and $146 million of loans in
southern and central New Jersey and New Castle County, Delaware.
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Our expansion in southern and central New Jersey has also included the
opening of seven de novo financial service centers, including our first
supermarket office. In 1999, we opened twelve new financial service centers in
locations previously occupied by regional competitors. These new financial
service centers have significantly enhanced our market presence in the New
Jersey counties of Camden, Mercer, Monmouth and Ocean.
In December 1998, we expanded into contiguous portions of Delaware
through Sun Delaware's assumption of eight branches in New Castle County with
$169 million of deposits and $125 million of loans. The demographics of this
market and the opportunities for Sun Delaware are similar to the markets and
communities we currently serve in southern and central New Jersey. We believe
that there are significant opportunities for a community bank to be highly
competitive in this market.
Asset and Deposit Growth and Geographic Expansion
In executing our expansion strategy, we have significantly increased
our assets and deposits as well as our geographic market, market share and the
penetration of our financial service center network. Our consolidated assets
have grown from $112 million at year-end 1993 to $1.522 billion at March 31,
1999 and our consolidated deposits have increased from $99 million to $1.007
billion during this period.
We also have experienced a significant level of loan growth. Our loan
portfolio increased from $83.4 million at December 31, 1993 to $730.3 million at
March 31, 1999. Much of our loan growth is attributable to the 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 our primary
market area and thus were able to increase our customer base and the number of
loan originations. An additional reason for our loan growth is that our lending
officers live in the communities in which they work. They understand the local
business environment and the economic conditions and trends in their market. We
also have established a number of regional advisory boards, consisting of
prominent local business and community representatives who refer significant
business opportunities to us. Our efforts to increase our lending to businesses
along the central and southern New Jersey seashore that operate primarily during
certain periods of the year (i.e., seasonal lending) have contributed to our
loan growth.
Concurrent with our franchise growth, our earnings have grown from $1.1
million in 1993 to $8.8 million in 1998, a compound annual growth rate of 50.7%.
On a per share basis, earnings have increased from $0.39 per share on a diluted
basis in 1993 to $1.14 per share on a diluted basis in 1998, a compounded annual
growth rate of 23.9%. We have reached these levels of earnings despite non-cash
intangible amortization expense amounting to $3.9 million in 1998.
Operational Enhancements and Expanded Services
To support and manage our expanded operations and to provide management
resources to support further expansion and growth, we have recruited and hired
experienced commercial loan officers, and also credit, compliance, loan review,
internal audit, and operations personnel and senior level executives.
Additionally, we have enhanced and expanded our operational and management
information systems.
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We provide competitive and comprehensive commercial and consumer
financial services to our customers and our marketplace. We have significantly
expanded our telecommunications, computer and technology based systems to
provide our customers with enhanced services that include telephone banking,
personal computer home banking and sophisticated cash management for commercial
customers.
We have expanded our financial services to include residential lending
as a result of the acquisition of two mortgage origination companies. We
acquired Allegiance Mortgage Company located in Cherry Hill, New Jersey in July
1998, and Eastern Financial, Inc. located in Northfield, New Jersey in February
1999. Both were merged into Sun Mortgage Company, a subsidiary of Sun New
Jersey. Sun Mortgage Company originates fixed-rate and adjustable rate mortgage
loans for sale into the secondary market. We expect to expand the operations of
Sun Mortgage Company to become a full service mortgage banking company. During
the first quarter of 1999, Sun Mortgage Company originated $17.9 million of
residential mortgages.
Future Strategy
It continues to be our strategy to take advantage of strategic
opportunities in our marketplace. We expect that the continuing consolidation of
the banking industry and the customer service disruption caused by larger
regional bank mergers will continue to provide opportunities to expand our
operations and increase our market share. In May 1999, we entered into an
agreement to acquire 14 branch locations, assume approximately $250 million in
deposits and purchase account loans from First Union National Bank ("First
Union"). The First Union acquisition is expected to be consummated during the
third quarter of 1999. This is an in-market acquisition, principally in
Cumberland and Cape May counties in New Jersey, which we expect will enhance our
market share. Due to the overlap with our existing financial service center
locations, we plan to consolidate six of the facilities and reduce the
associated operating expenses. Based on deposit information provided by the
Federal Deposit Insurance Corporation as of June 30, 1998, as result of the
acquisition, our market share in Cumberland County will increase from 10.3% to
22.1% and our market share in Cape May County will increase from 8.4% to 16.8%.
Our executive offices are located at 226 Landis Avenue, Vineland, New
Jersey 08360, and our telephone number is (609) 691-7700.
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<TABLE>
<CAPTION>
The Offering
<S> <C>
Shares of common stock offered............................... 2,150,000 shares of common stock.
Shares of common stock outstanding before this offering...... 7,569,462 shares.
Shares of common stock outstanding after this offering....... 9,719,462 shares. Assumes no exercise of the underwriters'
over-allotment option to purchase up to 322,500 shares of
common stock. See "Underwriting."
Estimated net proceeds to us................................. Approximately $34.6 million. Assumes no exercise of the
underwriters' over-allotment option to purchase up to
322,500 shares of common stock. See "Underwriting."
Dividends on common stock. .................................. Historically, we have not paid cash dividends on our
common stock. Our Board of Directors does not currently
intend to pay cash dividends, but it may consider such a
policy in the future. We have in the past paid stock
dividends. See "Price Range of Our Common Stock and
Dividends," and "Risk Factors -- Limitations on Payment of
Dividends."
Use of proceeds.............................................. The proceeds we receive from this offering will be used
primarily to contribute capital to Sun New Jersey in
connection with the First Union acquisition and for our other
corporate purposes. Sun New Jersey intends to use the
capital for general corporate purposes, primarily to support
the First Union acquisition. See "Use of Proceeds."
Nasdaq National Market symbol................................ The common stock is quoted on the Nasdaq National Market
under the symbol "SNBC."
Activities that may maintain or stabilize the market price In connection with this offering and in compliance with
of the common stock . . . . . . . . . . . . . . . . . . . . . applicable law and industry practice, the underwriters may
overallot or effect transactions which stabilize, maintain or
otherwise affect the market price of the common stock
at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, purchasing
common stock to cover syndicate short positions and
imposing penalty bids. These stablizing transactions, if
commenced by the underwriters, may be discontinued at any
time. See "Underwriting."
Over-allotment option . . . . . . . . . . . . . . . . . . . . The underwriters have been granted an option to purchase up
to 322,500 additional shares of common stock at the same
price and on the same terms as this offering, solely to cover
over-allotments.
</TABLE>
Risk Factors
Before investing, you should carefully consider the matters set forth
under "Risk Factors," beginning on page 9.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following is our selected consolidated information. You should read
it together with our consolidated financial statements and the notes thereto
included in (1) our 1998 Annual Report to Stockholders, which is incorporated by
reference into this prospectus as part of our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and (2) our Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, which is incorporated by reference into
this prospectus. See "Incorporation of Certain Documents by Reference" and
"Recent Operating Results." The consolidated historical financial and other data
at or for the three months ended March 31, 1999 and 1998, is 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 Three
Months Ended
March 31, At or For the Years Ended December 31,
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1999 1998 1998 1997 1996 1995 1994
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(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Results of Operations
Interest income................................ $ 25,268 $ 19,059 $ 84,673 $ 46,699 $ 28,981 $ 20,698 $ 12,194
Net interest income............................ 11,799 8,737 39,579 22,291 16,447 13,011 8,256
Provision for loan losses...................... 667 483 2,213 1,665 900 808 383
Net interest income after
provision for loan losses................... 11,132 8,254 37,365 20,626 15,547 12,203 7,873
Other income................................... 2,326 1,271 5,517 2,236 1,746 1,651 732
Other expenses................................. 10,097 6,974 30,368 16,958 12,918 9,895 5,991
Net income..................................... 2,396 1,805 8,784 4,171 3,013 2,819 1,840
Net income excluding goodwill amortization..... 3,864 2,749 12,693 5,676 3,839 3,162 1,974
Per Share Data
Net income
Basic....................................... 0.32 0.27 1.30 0.82 0.64 0.63 0.55
Diluted..................................... 0.29 0.24 1.14 0.74 0.60 0.59 0.55
Book value..................................... 10.22 8.52 10.43 8.23 5.69 5.46 4.83
Selected Balance Sheet Data
Assets......................................... 1,521,510 1,057,266 1,515,403 1,099,973 436,795 369,895 217,351
Cash and investments........................... 701,066 506,200 739,274 610,339 117,388 164,251 70,809
Loans receivable (net) ........................ 730,264 456,010 689,852 427,761 295,501 183,634 134,861
Deposits....................................... 1,006,904 731,436 1,025,398 695,388 385,987 335,248 196,019
Borrowings and securities sold
under agreements to repurchase............... 369,866 235,494 337,665 316,314 21,253 8,000 --
Shareholders' equity........................... 77,264 56,649 78,333 54,632 27,415 24,671 20,571
Performance Ratios(1)
Return on average assets....................... 0.64% 0.68% 0.75% 0.66% 0.74% 1.03% 1.09%
Return on average equity....................... 12.32% 12.97% 14.29% 12.89% 11.99% 12.42% 11.74%
Return on average assets, excluding goodwill
amortization................................. 1.03% 1.03% 1.08% 0.89% 0.94% 1.16% 1.17%
Return on average equity, excluding goodwill
amortization................................. 19.87% 19.75% 20.65% 17.54% 15.28% 13.93% 12.60%
Net yield on interest-earning assets........... 3.42% 3.58% 3.76% 3.89% 4.57% 5.30% 5.39%
Asset Quality Ratios
Nonperforming loans to total loans............. 0.39% 0.55% 0.36% 0.51% 0.81% 1.72% 1.82%
Nonperforming assets to total loans
and other real estate owned.................. 0.44% 0.61% 0.40% 0.57% 1.06% 2.19% 2.56%
Net charge-offs to average total loans......... 0.02% 0.01% 0.05% 0.02% 0.16% 0.23% 0.29%
Total allowance for loan losses to
total nonperforming loans.................... 262.94% 181.84% 286.41% 189.77% 107.26% 64.47% 64.74%
Capital Ratios
Leverage ratio................................. 4.52% 4.77% 4.83% 5.38% 5.43% 5.74% 8.44%
Tier 1 risk-based capital ratio................ 7.37% 8.10% 7.08% 8.17% 7.44% 8.67% 14.01%
Total risk-based capital ratio................. 11.75% 10.48% 11.45% 10.75% 8.28% 9.64% 15.22%
</TABLE>
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(1) Ratios are annualized for the three months ended March 31, 1999 and 1998.
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SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including information included or incorporated by
reference into this prospectus) contains forward-looking statements with respect
to our financial condition, results of operations and cash flows, plans,
objectives, future performance and business. The words "believes," "expects,"
"anticipates" or similar words are intended to identify forward-looking
statements. The forward-looking statements are based on our management's
beliefs, assumptions and expectations of our future economic performance, taking
into account the information currently available to them. Forward-looking
statements involve risks and uncertainties that may cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements.
Factors that may cause our actual results to differ materially from our
expectations include the following possibilities in addition to those described
in "Risk Factors":
o expected cost savings from past and/or future acquisitions not being fully
realized or not being realized within the expected time frame;
o earnings following the First Union acquisition being lower than expected;
o a significant increase in competitive pressures among depository and other
financial institutions;
o costs or difficulties related to the integration of the First Union
branches being greater than expected;
o changes in the interest rate environment resulting in reduced margins;
o general economic or business conditions, either nationally or in New Jersey
or Delaware, being less favorable than expected, which would result in,
among other things, a deterioration in credit quality and/or a reduced
demand for credit;
o legislative or regulatory changes adversely affecting the businesses in
which we and our subsidiaries engage;
o changes in the securities markets; and
o changes in the banking industry including the effects of consolidation
resulting from possible mergers of financial institutions.
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RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following risk factors in deciding whether to invest in
our common stock.
We may not continue to experience the same rate of growth that we have
in the past and may not be able to manage our current growth rate.
During the last five years, we have experienced rapid and significant
growth. Our total assets have increased from $112.0 million at December 31,
1993, to $1.522 billion at March 31, 1999. Although we believe that we have
adequately managed our growth in the past, there can be no assurance that we
will continue to experience such rapid growth, or any growth, in the future. If
we do experience continued growth, we can not assure you that we will be able to
adequately and profitably manage such growth or that our earnings will
adequately provide the necessary capital to maintain required regulatory capital
levels.
If we are unable to maintain a low cost of funds on the deposits
acquired in the First Union acquisition, our financial condition, results of
operation and cash flows could be negatively affected.
Our future earnings will be affected by how well we deploy and manage
the assets that we acquire with the First Union branches. The acquisition of the
First Union branches will result in the acquisition of a significant amount of
deposits. These deposits are predominantly core deposits. If we are unable to
maintain the current low cost of funds on these deposits or if we are unable to
retain a substantial portion of these deposits, the First Union acquisition
could have a negative effect on our financial condition, results of operations
and cash flows. See "First Union Acquisition."
We will pay a premium of $24.6 million for the deposits acquired in the
First Union acquisition. This premium must be accounted for on our balance sheet
as goodwill, which will be amortized over a period of ten years. Our past
acquisitions have resulted in additions to the amount of goodwill on our balance
sheet, and we now carry a significant amount of goodwill. This will affect our
earnings because the accounting procedure by which goodwill is amortized
requires that an equal amount be taken out of our earnings each year.
Most of the growth in our loan portfolio over the past five years has
come from commercial and industrial loans and commercial real estate loans. The
risk related to these types of loans is greater than the risk related to
residential loans.
Our loan portfolio increased to $730.3 million at March 31, 1999, from
$83.4 million at December 31, 1993. Much of this loan growth has occurred in the
portfolio of commercial and industrial loans. Our commercial and industrial loan
portfolio was $586.6 million at March 31, 1999, comprising 79.5% of total loans.
Commercial and industrial loans generally involve a greater degree of
risk of nonpayment or late payment than home equity loans or residential
mortgage loans and carry larger loan balances. Any failure to pay or late
payments by our customers would hurt our earnings. The increased credit risk
associated with these types of loans is a result of several factors, including
the concentration of
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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 our
commercial real estate and commercial and industrial loan portfolios includes a
balloon payment feature. A number of factors may affect a borrower's ability to
make or refinance a balloon payment, including the financial condition of the
borrower, the prevailing local economic conditions, and the prevailing interest
rate environment.
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, we 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 to a greater
extent than residential loans be subject to adverse conditions in the real
estate market or economy.
The concentration of our commercial and industrial loans in specific
business sectors and geographic areas exposes us to the risk of a possible
economic downturn affecting those sectors and areas.
A significant portion of our 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 the 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 loans. In addition, 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 our financial condition, results of operations and cash flows.
If we have failed to provide an adequate allowance for loan losses,
there could be a significant negative impact on our earnings.
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. Based upon factors such as historical
experience, an evaluation of economic conditions and a regular review of
delinquencies and loan portfolio quality, our management makes various
assumptions and judgments about the ultimate collectibility of the loan
portfolio and provides an allowance for loan losses. If our management's
assumptions 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 banks to increase their allowance for loan losses, our
earnings could be significantly and adversely affected.
As our loan portfolio has increased, we have increased our allowance
for loan losses. Future additions to the allowance in the form of provisions for
loan losses may be necessary due to changes in economic conditions or growth of
our loan portfolio. As a result of the recent growth in our lending practices, a
significant portion of our 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 there is the potential for
additional loan losses.
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If we do not compete successfully against other financial institutions
in our market area, our profitability may be hurt.
The banking business is highly competitive. In our primary market
areas, we 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
our competitors have greater resources and lending limits than we do. Our
profitability depends upon our ability to compete in our primary market areas.
Our profitability could also be hurt by the introduction and growth of new
investment instruments and transaction accounts by non-bank financial
competitors.
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o the interest income we earn on interest-earning assets, such as mortgage
loans and investment securities; and
o the interest expense we pay on our interest-bearing liabilities, such as
deposits and amounts we borrow.
If more interest-earning assets than interest-bearing liabilities
reprice or mature during a time when interest rates are declining, then our net
interest income may be reduced. If more interest-bearing liabilities than
interest-earning assets reprice or mature during a time when interest rates are
rising, then our net interest income may be reduced. At March 31, 1999, our
interest-bearing liabilities maturing or repricing within one year exceeded our
interest-earning assets maturing or repricing within one year by $164.4 million.
As a result, the yield on our interest-earning assets should adjust to changes
in interest rates at a slower rate than the cost of our interest-bearing
liabilities and our net interest income may be reduced when interest rates
increase significantly for long periods of time.
Fluctuations in interest rates are not predictable or controllable. We
have attempted to structure our asset and liability management strategies to
mitigate the impact of changes in market interest rates on our net interest
income. However, there can be no assurance that we will be able to manage
interest rate risk so as to avoid significant adverse effects in our net
interest income.
The amount of common stock held by our executive officers and directors
gives them significant influence over the election of our Board of Directors and
other matters that require stockholder approval.
A total of 3,774,210 shares of our common stock, or 35.00% of the
common stock outstanding, will be beneficially owned by our directors and
executive officers following this offering, assuming that the underwriters do
not exercise the over-allotment option. Therefore, if they vote together, our
directors and executive officers have the ability to exert significant influence
over the election of our Board of Directors and other corporate actions
requiring stockholder approval, including the adoption of proposals made by
stockholders. As of July 21, 1999, Bernard A. Brown, Chairman of our Board of
Directors, beneficially owned 2,515,137 shares, or 30.35% of our common stock.
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A downturn in the health of the economy or changes in the Federal
Reserve's monetary policy could affect our net interest income and reduce our
profitability.
A downturn in the economy could affect us in the following ways, among
others:
o the amount of funds available for deposit could be reduced;
o the ability of borrowers to repay their loans could be hurt; and
o the strength of credit demands by customers could decline.
In addition, the banking business is affected not only by general
economic conditions, but also by the monetary policies of the Federal Reserve.
These monetary policies have significant effects on the operating results of
banks. Changes in monetary policies may affect the ability of the banks to
attract deposits, make loans and manage interest rate risk.
Changes in laws or regulations could hurt our profitability.
We operate in a highly regulated industry and are subject to the
supervision and examination by several federal regulatory agencies, including
the Federal Reserve, the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and the Federal Home Loan Bank of New York. The
federal and state banking laws and regulations limit the manner in which we and
the banks may conduct business and obtain financing. Changes in the laws and
regulations that govern us could restrict our operations or impose burdensome
requirements upon us. This could reduce our profitability.
Our ability to make cash dividend payments to our stockholders is
limited by the federal laws and regulations that restrict the payment of
dividends by the banks to us.
We have not in the past paid cash dividends on our common stock. Any
decision by our Board of Directors to do so in the future would be subject to
limitations imposed by federal laws and regulations. As dividend payments to us
from the banks are our principal source of income, our ability to pay dividends
would also be limited by the financial condition of the banks. Because the banks
are depository institutions insured by the Federal Deposit Insurance
Corporation, they may not pay dividends or distribute any capital assets if
either bank is in default on any assessment due the Federal Deposit Insurance
Corporation. Regulations of the Office of the Comptroller of the Currency also
impose certain minimum capital requirements that affect the amount of cash
available for the payment of dividends by the banks. See "Price Range of Our
Common Stock and Dividends."
Even if the banks 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 their earnings in order
to maintain existing capital or achieve additional capital necessary because of:
o an increase in the capital requirements established by the Office of the
Comptroller of the Currency;
o a significant increase in the total of risk-weighted assets held by the
banks;
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o a significant decrease in the banks' income;
o a significant deterioration of the quality of the banks' loan portfolios;
o a determination by the Office of the Comptroller of the Currency that the
payment of a dividend would (under the circumstances) constitute an "unsafe
or unsound" banking practice; or
o new regulations.
The occurrence of any of these events would decrease the amount of
funds potentially available for the payment of dividends to us from the banks,
and thus, indirectly, to our stockholders. In addition, under Federal Reserve
policy, we are required to maintain adequate regulatory capital and are expected
to act as a source of financial strength to the banks and to commit resources to
support them in circumstances where we might not otherwise do so. This policy
could have the effect of reducing the amount of dividends declarable by us.
If we deferred payment of the interest that we owe on our debt
obligations, we would be prohibited from paying cash dividends.
Although we have not in the past paid cash dividends on our common
stock, our ability to do so is subject to our continued payment of interest that
we owe on junior subordinated debentures. As of the date of this prospectus, we
have $58.6 million of junior subordinated debentures outstanding. We have the
right to defer payment of interest on the junior subordinated debentures for a
period not exceeding 20 consecutive quarters. If we defer interest payments on
the junior subordinated debentures, we will be prohibited, subject to certain
exceptions, from paying cash dividends on our common stock until we pay all
deferred interest and resume interest payments on the junior subordinated
debentures.
If the Federal Deposit Insurance Corporation were to incur losses in
connection with one of the banks, the other bank could be held liable for that
loss, which could have a material adverse affect on our financial condition.
Federal law contains a "cross-guarantee" provision which allows an
insured depository institution owned by us, such as Sun New Jersey or Sun
Delaware, to be held liable for losses incurred by the FDIC in connection with
assistance provided to, or the failure of, another depository institution
"commonly controlled" by us. As the banks are "commonly controlled" by us,
losses incurred by the FDIC in connection with assistance provided to, or
failure of, one bank could result in an assessment against the other bank. That
assessment could have a material adverse effect on our financial condition.
Provisions in our certificate of incorporation and bylaws and the laws
of New Jersey discourage takeover attempts and may make it difficult to remove
current management.
Provisions in our certificate of incorporation and bylaws, the laws of
New Jersey, and federal regulations may make it difficult for someone to pursue
a tender offer, change in control or takeover attempt which is opposed by our
management and Board of Directors. These provisions include:
13
<PAGE>
o requirements relating to meetings of stockholders;
o denial of cumulative voting to stockholders in the election of directors,
which ensures that the holders of a majority of the shares will be able to
elect all of the directors;
o the ability to issue preferred stock and additional shares of common stock
without shareholder approval; and
o super majority provisions for the approval of certain business
combinations.
As a result, stockholders who might desire to participate in a takeover
transaction may not have an opportunity to do so. The effect of these provisions
could be to limit the trading price potential of our common stock.
Our operations may be adversely affected if we, or certain persons with
whom we do business, fail to resolve Year 2000 issues.
Rapid and accurate data processing is essential to our operations. Many
computer programs that can only distinguish the final two digits of the year
entered are expected to read entries for the year 2000 as the year 1900 and
compute payment, interest or delinquency based on the wrong date or are expected
to be unable to compute payment, interest, or delinquency.
Failure to resolve year 2000 issues presents the following risks to us:
(1) the banks could lose customers to other financial
institutions, resulting in a loss of revenue, if our data
processing operation is unable to process properly customer
transactions;
(2) the Federal Home Loan Bank, the Federal Reserve System, and
correspondent banks could fail to provide funds to the banks
which could materially impair their liquidity and affect their
ability to fund loans and deposit withdrawals;
(3) concern on the part of depositors that year 2000 issues could
impair access to their deposit account balances could result
in the banks experiencing deposit outflows prior to December
31, 1999;
(4) the failure of our commercial and industrial borrowers to
adequately resolve their own year 2000 issues could render
them unable to continue to make timely loan payments; and
(5) we could incur increased personnel costs if additional staff
is required to perform functions that inoperative systems
would have otherwise performed.
14
<PAGE>
Our primary system software is licensed from a third party, Kirchman
Corporation, which has advised us that it has made all the necessary programming
changes to its systems and is year 2000 compliant. We have received the results
of an independent testing group that verified the compliance of Kirchman
Corporation. If, however, Kirchman Corporation software malfunctions, we would
likely experience significant data processing delays, mistakes or failures.
These delays, mistakes or failures could have a significant adverse impact on
our financial condition and profitability.
15
<PAGE>
RECENT OPERATING RESULTS
Financial Condition
Total assets at March 31, 1999 increased $6.1 million, or less than 1%,
to $1.522 billion as compared to $1.515 billion at December 31, 1998. During the
quarter ended March 31, 1999, we used cash that we received from the acquisition
in December 1998 of the Household Bank, fsb branches to originate primarily
commercial and industrial loans and purchase investment securities, both of
which provide higher yields than cash. As a result, net loans increased $40.4
million to $730.3 million at March 31, 1999, and investment securities increased
$9.5 million to $630.9 million at March 31, 1999. These increases were offset by
decreases in cash and cash equivalents of $47.7 million, from $89.5 million at
December 31, 1998, to $41.8 million at March 31, 1999. Federal funds sold
decreased $34.7 million and cash and due from banks decreased $13.0 million at
March 31, 1999, from December 31, 1998.
The ratio of non-performing assets to total loans and real estate owned
at March 31, 1999 was 0.44% compared to 0.40% at December 31, 1998. The ratio of
allowance for loan losses to total non-performing loans was 262.94% at March 31,
1999 compared to 286.41% at December 31, 1998. The decreases in these two ratios
were the result of a slightly higher amount of accruing loans contractually past
due 90 days or more at March 31, 1999. The ratio of allowance for loan losses to
total loans was 1.03% at March 31, 1999 compared to 1.02% at December 31, 1998.
For the three-month period ended March 31, 1999, we had net charge-offs
of $174,000 compared to $56,000 for the same period in 1998. The percentage of
net charge-offs to average loans outstanding was 0.02% at March 31, 1999
compared to 0.01% at March 31, 1998.
Excess of cost over fair value of assets acquired decreased $808,000,
from $43.0 million at December 31, 1998 to $42.2 million at March 31, 1999. The
decrease was a result of scheduled amortization of $1.5 million offset by the
addition of a $660,000 premium paid for the acquisition of the two branches in
southern and central New Jersey from Summit Bank in January, 1999.
Total deposits amounted to $1.007 billion at March 31, 1999 an $18.5
million decrease from December 31, 1998 deposits of $1.025 billion. The decrease
was the result of a decrease of approximately $34.3 million in deposits
partially offset by $15.8 million in deposits acquired in connection with the
Summit branch transaction. The decrease in deposits is primarily attributable to
the nonrenewal of a special rate program on deposits acquired in the Household
Bank, fsb branch acquisition.
Advances from the Federal Home Loan Bank amounted to $29.3 million at
March 31, 1999 compared to $4.4 million at December 31, 1998, an increase of
$24.9 million. Federal funds purchased at March 31, 1999 amounted to $13.4
million. There were no federal funds purchased at December 31, 1998. These
liabilities were increased, in part, to fund new loans and deposit withdrawals.
Total shareholders' equity decreased by $1.0 million, from $78.3
million at December 31, 1998, to $77.3 million at March 31, 1999. The net
decrease was a result of a $3.4 million increase in the unrealized loss on
securities available for sale, net of taxes, partially offset by earnings of
$2.4 million for the three months ended March 31, 1999.
16
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General. The growth in our balance sheet, as a result of our
acquisition and expansion program, has significantly affected our operating
results. Net income increased by $591,000 for the three months ended March 31,
1999 to $2.4 million from $1.8 million for the three months ended March 31,
1998. Net interest income increased $3.1 million and the provision for loan
losses increased $184,000 for the three months ended March 31, 1999 compared to
the same period in 1998. Other income increased by $1.0 million to $2.3 million
for the three months ended March 31, 1999 as compared to $1.3 million for the
three months ended March 31, 1998. Other expenses increased by $3.1 million to
$10.1 million for the three months ended March 31, 1999 as compared to $7.0
million for the three months ended March 31, 1998.
For the three months ended March 31, 1999, we reported a return on
average assets, a return on average equity and an efficiency ratio of 0.64%,
12.32% and 71.48%, 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 were 1.03%, 19.87%
and 61.08%, respectively. Amortization of goodwill resulting from the First
Union acquisition is expected to further reduce our profitability ratios, while
the transaction is expected to be accretive to our earnings.
Net Interest Income. The increase in net interest income was due to a
$6.2 million increase in interest income partially offset by a $3.1 million
increase in interest expense. In addition, beginning in 1997, to more fully
leverage our capital, we entered into certain structured transactions in which
the banks borrow funds from the Federal Home Loan Bank at a rate similar to the
London Inter-Bank Offered Rate ("LIBOR"). The borrowed funds are invested in
mortgage-backed securities that are priced to yield a spread over LIBOR. The
securities are pledged as collateral for Federal Home Loan Bank borrowings. For
the three months ended March 31, 1999, net interest income related to structured
transactions amounted to $782,775, or a 1.08% weighted average net spread.
Partly as a result of the implementation of this strategy, our net interest
margin has narrowed to 3.42% for the three months ended March 31, 1999 as
compared to 3.58% for the three months ended March 31, 1998. Excluding the
effect of the structured transactions, our net interest margin would have been
4.04% for current period and 4.32% for the same period in 1998.
Interest Income. Interest income for the three months ended March 31,
1999 increased approximately $6.2 million, or 32.6%, from $19.1 million for the
same period in 1998 to $25.3 million in 1999. The increase was primarily the
result of an increase of $5.0 million in interest and fees on loans resulting
from acquisitions and internal growth and $1.2 million in interest on investment
securities resulting from the deployment of cash received from branch
acquisitions and growth of our investment portfolio.
Interest Expense. Interest expense for the three months ended March 31,
1999 increased approximately $3.1 million, from $10.3 million for the same
period in 1998 to $13.4 million in 1999. This increase was primarily due to a
$2.4 million increase in interest on deposit accounts resulting from
significantly higher deposit balances due to acquisitions and internal growth, a
$121,000 increase in interest on short-term borrowed funds resulting from higher
levels of securities sold under agreements to repurchase and a $670,000 increase
in interest on guaranteed preferred beneficial interest in subordinated debt,
resulting from the issuance of additional trust preferred securities during the
fourth quarter of 1998.
17
<PAGE>
Provision for Loan Losses. For the three months ended March 31, 1999,
the provision for loan losses amounted to $667,000, an increase of $184,000,
compared to $483,000 for the same period in 1998.
Other Income. Other income increased $1.0 million for the three-month
period ended March 31, 1999 compared to the three-month period ended March 31,
1998. In most part, the increase was a result of $484,000 in additional service
charges generated by a larger deposit base due to acquisitions and internal
growth, augmented by $695,000 in loan fees, slightly offset by lower gains from
the sale of loans of $67,000 and a decrease of $282,000 in gains on the sale of
investment securities from the first quarter of 1998.
Other Expenses. Other expenses increased approximately $3.1 million, to
$10.1 million for the three months ended March 31, 1999 as compared to $7.0
million for the same period in 1998. Of the increase, $1.4 million was in
salaries and employee benefits, $438,000 was in occupancy expense, $189,000 was
in equipment expense, $225,000 was in data processing expense, $132,000 was in
postage and supplies, and $524,000 was in amortization of excess of cost over
fair value of assets acquired. The increase in other expenses reflects our
strategy to support planned expansion. Salaries and benefits increased due to
additional staff positions in financial service centers, and lending, loan
review and audit departments. The increase in occupancy, equipment, data
processing expenses and postage and supplies were the result of internal growth
and the effect of our acquisitions.
Income Taxes. Applicable income taxes increased $219,000 for the three
months ended March 31, 1999 as compared to the same period in 1998. The increase
resulted from higher pre-tax earnings.
USE OF PROCEEDS
The net proceeds that we will receive from the sale of 2,150,000 shares
of our common stock (after giving effect to the payment of estimated offering
expenses) are estimated to be approximately $34.6 million ($39.8 million if the
underwriters' over-allotment option is exercised in full). The proceeds from
this offering will qualify under the capital adequacy guidelines of the Federal
Reserve as Tier 1 capital for us. We will use substantially all of the net
proceeds from this offering to provide sufficient capital to Sun New Jersey to
consummate the First Union acquisition and any remaining proceeds will be used
for our general corporate purposes.
FIRST UNION ACQUISITION
We have entered into an agreement to assume certain deposits and
acquire certain account loans of First Union. As part of the First Union
acquisition, we will acquire fourteen branch offices, located in Burlington,
Cape May, Cumberland, Hunterdon and Mercer Counties in New Jersey. These branch
locations will enhance Sun New Jersey's financial service center network in
these counties.
This is an in-market acquisition of eight branches and approximately
$188 million of deposits in Cumberland and Cape May Counties in New Jersey. Our
market share, as measured by deposits, will increase from 10.3% to 22.1% in
Cumberland County and from 8.4% to 16.8% in Cape May County. In addition, two
branches and $35 million of deposits will be acquired in Burlington County, one
branch and $14 million of deposits will be acquired in Mercer County and one
branch and $16 million of deposits will be acquired in Hunterdon County.
18
<PAGE>
Due to the overlap with our existing financial service center
locations, we plan to consolidate six of the acquired branches with our existing
financial service centers and thereby reduce the associated operating expenses.
We expect that the acquired branches, deposits and operations will be profitable
within the first year and will contribute to our future net income.
At March 31, 1999, deposits to be assumed under the agreement with
First Union were as follows:
Weighted
Average
Amount Interest Cost
------ -------------
(In thousands)
Demand deposits................ $ 79,000 0.71%
Savings deposits............... 54,000 2.10%
Time deposits.................. 120,000 5.06%
-------
Total deposits............... $253,000 3.12%
=======
The closing of the First Union acquisition is subject to pending
regulatory approvals and certain other conditions and is expected to occur in
the third quarter of 1999.
19
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
March 31, 1999
The following table sets forth the unaudited pro forma consolidated
statement of our financial condition as if the First Union acquisition had been
consummated as of March 31, 1999. You should read the pro forma consolidated
statement of financial condition together with our consolidated financial
statements and the notes thereto included in (1) our 1998 Annual Report to
Stockholders, which is incorporated by reference into this prospectus as part of
our Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
(2) our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
which is incorporated by reference into this prospectus. See "Incorporation of
Certain Documents by Reference." The unaudited pro forma consolidated statement
of financial condition may not necessarily be indicative of the financial
position and the results that would have been achieved if the transactions
reflected herein had occurred prior to such date.
<TABLE>
<CAPTION>
Pro Forma
Consolidated Pro Forma
Sun Bancorp Consolidated
First Union Before This Sun Bancorp After
Sun Bancorp Acquisition(1) this Offering Offering(3) This Offering
----------- ---------------------------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and amounts due from banks........ $ 41,827 $ 2,400 $ 44,227 $ -- $ 44,227
Federal funds sold..................... -- 207,650
(24,640) 183,010 34,601 217,611
Investment securities
available-for-sale................... 130,902 630,902 630,902
Loans receivable (net)................. 730,264 730,264 730,264
Restricted equity investments.......... 28,337 28,337 28,337
Bank properties and equipment, net..... 26,754 4,550 31,304 31,304
Real estate owned...................... 373 373 373
Accrued interest receivable............ 11,598 11,598 11,598
Excess of cost over fair value
of net assets acquired............... 42,153 24,640(2) 66,793 66,793
Deferred taxes......................... 4,496 4,496 4,496
Other assets........................... 4,806 -- 4,806 -- 4,806
---------- ---------- ---------- ------- ----------
Total assets........................ $ 1,521,510 $ 214,600 $1,736,110 $34,601 $1,770,711
========== ========== ========== ======= ==========
Liabilities and Shareholders' Equity
Liabilities:
Deposits............................... $ 1,006,904 $253,000 $1,259,904 $ -- $1,259,904
Advances from the Federal Home Loan
Bank................................. 29,256 (25,000) 4,256 4,256
Loans payable.......................... 1,160 1,160 1,160
Federal funds purchased................ 13,400 (13,400) -- --
Securities sold under agreements
to repurchase........................ 326,050 326,050 326,050
Other liabilities...................... 8,881 -- 8,881 -- 8,881
---------- ---------- ---------- ------- ----------
Total liabilities.................... 1,385,651 214,600 1,600,251 -- 1,600,251
---------- ---------- ---------- ------- ----------
Guaranteed preferred beneficial interest
in subordinated debt................. 58,595 58,595 58,595
Shareholders' equity:
Preferred stock........................
Common stock........................... 7,590 7,590 2,150 9,740
Surplus................................ 62,433 62,433 32,451 94,884
Retained earnings...................... 11,590 11,590 11,590
Accumulated other comprehensive
income.............................. (3,870) (3,870) (3,870)
Treasury stock at cost, 27,440 shares.. (479) -- (479) -- (479)
---------- ---------- ---------- ------- ----------
Total shareholders' equity.......... 77,264 -- 77,264 34,601 111,865
---------- ---------- ---------- ------- ----------
Total liabilities & shareholders' equity $1,521,510 $ 214,600 $1,736,110 $34,601 $1,770,711
========== ========== ========== ======= =========
</TABLE>
- -------------------------
(1) To record branch purchase.
(2) To record premium paid on the assumption of the deposit liabilities ($24.6
million). The excess of cost over fair value of assets acquired will be
amortized over a ten-year period.
(3) To record the net proceeds from this offering.
20
<PAGE>
CAPITALIZATION
The following table sets forth (1) our consolidated capitalization at
March 31, 1999, (2) our consolidated capitalization giving effect to the
issuance of the shares of common stock in this offering, assuming the
underwriters' over-allotment option is not exercised, (3) the pro forma effect
of branch purchases from First Union, (4) our actual and pro forma capital
ratios, and (5) Sun New Jersey's actual and pro forma capital ratios. For this
table we have assumed that our net proceeds will be approximately $34.6 million
after expenses and that all of the net proceeds will be contributed to Sun New
Jersey. Sun New Jersey will reduce overnight borrowings and invest the remaining
proceeds in 20% risk weighted assets for regulatory capital purposes. Sun New
Jersey will be "well capitalized" on a pro forma basis for federal bank
regulatory purposes. We expect that our leverage ratio will be in excess of 4%,
and that we will be "adequately capitalized" for federal bank regulatory
purposes, at the time of the consummation of the First Union acquisition and as
of September 30, 1999.
<TABLE>
<CAPTION>
As Adjusted
---------------------------------------
Sale of Shares of
Sale of Common Stock and
Shares of the First Union
Actual Common Stock Branch Purchase
------ ------------ ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Guaranteed preferred beneficial interest in
subordinated debt................................ $ 58,595 $ 58,595 $ 58,595
SHAREHOLDERS' EQUITY:
Preferred stock $1 par value, 1,000,000
shares authorized, none issued................... -- -- --
Common stock $1 par value - 25,000,000
shares authorized; 7,590,206 outstanding
and 9,740,206 as adjusted........................ 7,590 9,740 9,740
Surplus............................................ 62,433 94,884 94,884
Retained earnings.................................. 11,590 11,590 11,590
Accumulated other comprehensive income............. (3,870) (3,870) (3,870)
Treasury stock at cost, 27,440 shares.............. (479) (479) (479)
------- ------- -------
Total shareholders' equity...................... 77,264 111,865 111,865
------- ------- -------
Total capitalization............................ $135,859 $170,460 $170,460
======= ======= =======
SUN BANCORP CAPITAL RATIOS:
Tier 1 risk-based capital ratio.................... 7.37% 11.15% 8.05%
Total risk-based capital ratio..................... 11.75% 15.50% 12.21%
Leverage ratio..................................... 4.52% 6.74% 5.18%
SUN NEW JERSEY CAPITAL RATIOS:
Tier 1 risk-based capital ratio.................... 9.08% 13.45% 9.77%
Total risk-based capital ratio..................... 9.93% 14.29% 10.58%
Leverage ratio..................................... 5.57% 7.97% 5.34%
</TABLE>
21
<PAGE>
PRICE RANGE OF OUR COMMON STOCK AND DIVIDENDS
Our common stock has been quoted on the Nasdaq National Market under
the symbol "SNBC" since November 1997. From August 29, 1996, until November
1997, our common stock was quoted on the Nasdaq SmallCap Market, with limited
and infrequent trading in the common stock during this period. The following
table sets forth the high and low closing sale prices (adjusted for stock splits
and stock dividends) for our common stock for the calendar quarters indicated,
as published by the Nasdaq SmallCap and National Markets.
High Low
-------- --------
1997
First quarter............................. $ 8.92 $ 7.87
Second quarter............................ 9.58 8.26
Third quarter............................. 13.30 8.97
Fourth quarter............................ 20.56 13.00
1998
First quarter............................. $29.25 $18.74
Second quarter............................ 29.52 24.05
Third quarter............................. 28.10 18.33
Fourth quarter ........................... 20.60 15.71
1999
First quarter............................. $19.05 $16.31
Second quarter .......................... 20.12 17.02
Third quarter (through July 21, 1999) .... 17.75 17.00
The last reported sale price of our common stock on the Nasdaq National
Market as of July 21, 1999 was $17.75. There were approximately 350 holders of
record of our common stock as of July 21, 1999.
Historically, we have not paid cash dividends on our common stock.
Currently, our Board of Directors does not intend to pay cash dividends, but it
may consider such a policy in the future. No decision, however, has been made as
to the amount or timing if cash dividends were to be paid. We paid 5% stock
dividends on October 30, 1996, June 25, 1997, May 26, 1998 and June 21, 1999. We
declared three for two common 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 following:
o our financial condition;
o our results of operations;
o investment opportunities available to us;
o capital requirements;
o regulatory limitations;
o tax considerations;
o the amount of net proceeds retained by us; and
o general economic conditions.
22
<PAGE>
We make no assurances, however, that any dividends will be paid or, if
payment is made, that dividends will continue to be paid.
Our ability to pay dividends is dependent upon the ability of Sun New
Jersey and Sun Delaware to pay dividends to us. Because the banks are depository
institutions 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, regulations of the Office of the Comptroller of the Currency impose
certain minimum capital requirements that affect the amount of cash available
for the payment of dividends by the banks. Under Federal Reserve policy, we are
required to maintain adequate regulatory capital and are expected to act as a
source of financial strength to the banks and to commit resources to support the
banks in circumstances where we might not do so absent such a policy. This
policy could have the effect of reducing the amount of dividends we are allowed
to declare.
Although we have not in the past paid cash dividends on our common
stock, our ability to do so is subject to our continued payment of interest that
we owe on our junior subordinated debentures. As of the date of this prospectus,
we have $58.6 million of junior subordinated debentures outstanding. We have the
right to defer payment of interest on the junior subordinated debentures for a
period not exceeding 20 consecutive quarters. If we defer interest payments on
the junior subordinated debentures, we will be prohibited, subject to certain
exceptions, from paying cash dividends on our common stock until we pay all
deferred interest and resume interest payments on the junior subordinated
debentures.
At March 31, 1999, under applicable regulations, the amount available
to be paid as dividends from the banks to Sun Bancorp without prior regulatory
approval was $15.4 million.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting
agreement dated July 22, 1999 among Advest, Inc. and Wheat First Securities, a
division of First Union Capital Markets Corp. (a subsidiary of First Union
Corporation, which is also the parent of First Union), as representatives of the
underwriters named below, the underwriters have agreed to purchase, and we have
agreed to sell to the underwriters, the number of shares of common stock set
forth opposite the name of the underwriters. If one underwriter is not able to
sell all of the shares that it has agreed to buy from us, no other underwriter
is responsible for those unsold shares.
Underwriter: Number of Shares:
- ------------ -----------------
Advest, Inc........................................ 1,086,600
Wheat First Securities............................. 724,400
Deutsche Bank Securities Inc....................... 56,500
Everen Securities, Inc............................. 56,500
Friedman Billings Ramsey........................... 56,500
Janney Montgomery Scott Inc........................ 56,500
McDonald Investment Inc., A Keycorp Company 56,500
Tucker Anthony Cleary Gull......................... 56,500
----------
Total 2,150,000
==========
23
<PAGE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares of common stock that are being offered are
subject to approval of legal matters by counsel and to other conditions. Each
underwriter is obligated to purchase all of the shares being offered (other than
those covered by the over-allotment option described below) if it purchases any
of the shares.
The underwriters propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $0.59 per share. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $0.10 per
share on sales to other dealers. After the public offering, the offering price
and other selling terms may be changed by the underwriters. In addition, we have
agreed to pay a financial advisory fee to Advest, Inc. of $100,000 in connection
with the offering.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of the underwriting agreement, to purchase up to an
additional 322,500 shares of common stock at the public offering price set forth
on the cover page less underwriting discounts and commissions. To the extent
that the underwriters exercise this option, we will be obligated to sell that
amount of shares of common stock to the underwriters. The underwriters may
exercise this option only to cover over-allotments made in connection with this
offering. If purchased, the underwriters will offer the additional shares of
common stock on the same terms as those on which the 2,150,000 shares of common
stock are being offered.
In connection with the offering the underwriters may purchase and sell
shares of our common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of shares of common stock in excess of
the number of shares of common stock to be purchased by the underwriters in the
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of shares of common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Stabilizing transactions consist of bids or purchases of shares of
common stock made for the purpose of preventing or retarding a decline in the
market price of the common stock while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
shares of common stock originally sold by that syndicate member are purchased in
a stabilizing transaction or syndicate covering transaction to cover syndicate
short positions. The imposition of a penalty bid may have an effect on the price
of the common stock to the extent that it may discourage resales of the common
stock.
Any of these transactions may cause the price of the common stock to be
higher than it would otherwise be in the absence of the transactions. These
transactions, if commenced, may be discontinued at any time.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The underwriters have in the past, and may in the future, perform various
services for us, including investment banking services, for which they have or
may receive customary fees. Advest,
24
<PAGE>
Inc. also served as managing underwriter in our public offerings of shares of
common stock and trust preferred securities in 1997 and 1998, and advised us in
some of our branch purchases.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Malizia Spidi & Fisch, P.C., Washington, D.C. 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 Sun Bancorp's Annual Report on Form 10-K for the year ended
December 31, 1998, 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 expert in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. Accordingly, we file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
You may inspect or copy these materials at the Public Reference Room at the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC 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. For a fee, you may also obtain copies
of these materials by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Our filings are also
available to the public on the SEC's website on the Internet at
http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement. For further information about us and the shares of
common stock offered by this prospectus, please refer to the registration
statement and its exhibits and to the documents incorporated by reference into
the registration statement. You may obtain a copy of the registration statement
through the public reference facilities of the SEC described above. You may also
access a copy of the registration statement by means of the SEC's website at
http://www.sec.gov.
Our common stock is traded on the Nasdaq National Market under the
symbol "SNBC." Documents that we have filed with the SEC can also be inspected
at the offices of the National Association of Securities Dealers, Inc., at 1735
K Street, N.W., Washington, D.C. 20006.
25
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference documents that we have
filed with the SEC. This means that we can disclose important information to you
by referring to those documents, and the information in those documents is
considered to be part of this prospectus. Documents that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below:
(1) Sun Bancorp's Annual Report on Form 10-K for the year ended December
31, 1998;
(2) Sun Bancorp's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
(3) Sun Bancorp's Current Reports on Form 8-K filed with the Commission on
May 21, 1999, May 17, 1999 and January 15, 1999;
(4) Sun Bancorp's Registration Statement on Form 10 declared effective by
the SEC in August 1996 and any amendment or report filed for the
purpose of updating such description; and
(5) All reports and other documents Sun Bancorp files with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, after the date of this prospectus and prior to the
termination of this offering.
You may request from the Secretary of Sun Bancorp a copy of any
document incorporated by reference, excluding exhibits unless they are
specifically incorporated into this prospectus, at no cost, by writing or
calling us at:
Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Telephone: (609) 691-7700.
26
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You should rely only on the information
contained in this prospectus. We have not
authorized anyone to provide you with
information that is different. This prospectus 2,150,000 Shares
does not constitute an offer to sell, or the
solicitation of an offer to buy, any of the
securities offered hereby to any person in any [Logo]
jurisdiction in which the offer or solicitation
would be unlawful. You should not assume
that the information provided by this SUN BANCORP, INC.
prospectus is accurate as of any date after the
date of this prospectus.
--------------------
TABLE OF CONTENTS Common Stock
Page
---- ---------------
Summary.........................................3
The Offering....................................6 PROSPECTUS
Selected Consolidated Financial Data............7 ---------------
Special Note of Caution Regarding
Forward-Looking Statements....................8
Risk Factors....................................9
Recent Operating Results.......................16
Use of Proceeds................................18
First Union Acquisition........................18
Pro Forma Consolidated Statement of
Financial Condition..........................20
Capitalization.................................21
Price Range of Our Common Stock and
Dividends....................................22
Underwriting...................................23
Legal Matters..................................25 Advest, Inc.
Experts........................................25
Available Information..........................25 Wheat First Securities
Incorporation of Certain Documents by
Reference....................................26
July 22, 1999
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