SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1996 Commission File Number: 0-14745
SUN BANCORP, INC. (SUN)
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2233584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 57, Selinsgrove, Pennsylvania 17870
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code _________(717) 374-1131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $1.25 Par Value 3,365,435
Class Outstanding Shares At September 30, 1996
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
(In Thousands)
September 30, 1996 December 31, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,034 $ 6,055
Interest-bearing deposits in banks 627 416
Investment securities (Note 2) 125,808 107,125
Loans (net of unearned income of $5,288
and $5,074) (Notes 3 & 4) 214,429 202,103
Less: Deferred loan fees (591) (468)
Allowance for possible loan
losses (2,478) (2,191)
Net loans 211,360 199,444
Bank premises and equipment 4,670 4,247
Other real estate owned - -
Accrued interest and other assets 5,035 2,339
Total assets $355,534 $319,626
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<caption
(In Thousands)
September 30, 1996 December 31, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits: (Note 5)
Noninterest-bearing $ 24,737 $ 20,247
Interest-bearing 184,240 176,345
Total deposits $208,977 $196,592
Short-term borrowings: (Note 6)
Federal funds purchased and
securities sold under agreements
to repurchase $ 50,127 $ 15,526
Other borrowed funds 55,825 68,613
Accrued interest and other liabilities 3,402 2,875
Total liabilities $318,331 $283,606
Stockholders' Equity
Common Stock, Par value $1.25 $ 4,253 $ 4,053
Authorized 20,000,000 shares
Issued 3,412,944 shares in 1996
2,951,400 shares in 1995
Surplus 30,018 25,563
Retained earnings 4,419 6,417
Unrealized gains (losses) on available-for-sale
securities, net (78) 1,396
Less Treasury stock, At cost
47,509 Shares in 1996 and 1995 (1,409) (1,409)
Total stockholders' equity $ 37,203 $ 36,020
Total liabilities and
stockholders' equity $355,534 $319,626
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(In Thousands)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
(Unaudited) (Unaudited)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $4,943 $4,537 $14,486 $13,252
Interest on deposits in banks 8 105 26 115
Interest and dividends on
investments:
U.S. Government and agency
obligations 1,271 1,161 3,914 3,455
Obligations of states and
political subdivisions 450 340 1,318 985
Other securities 146 100 368 324
Total interest income $6,818 $6,243 $20,112 $18,131
Interest Expense:
Interest on deposits $2,088 $1,960 $ 6,157 $ 5,363
Interest on short-term borrowings 559 107 1,184 760
Interest on other borrowed funds 743 1,044 2,742 2,807
Total interest expense $3,390 $3,111 $10,083 $ 8,930
Net interest income $3,428 $3,132 $10,029 $ 9,201
Provision for possible loan losses 425 60 575 300
Net interest income,
after provision for
possible loan losses $3,003 $3,072 $ 9,454 $ 8,901
</TABLE>
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Continued)
<CAPTION>
(In Thousands)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
(Unaudited) (Unaudited)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Other Operating Income:
Trust income $ 83 $ 60 $ 222 $ 180
Service charges on deposit
accounts 130 131 378 383
Other income 133 171 404 434
Net security gains 358 56 358 130
Income from insurance subsidiary 68 24 184 132
Total other operating income $ 772 $ 442 $1,546 1,259
Other Operating Expense:
Salaries and employee benefits $ 897 $ 799 $2,599 $2,439
Net occupancy expense 91 93 309 275
Furniture and equipment expenses 85 107 293 295
Other expenses 444 340 1,317 1,372
Expenses of insurance subsidiary 37 - 102 119
Total other operating expense $1,554 $1,339 $4,620 $4,500
Income before income taxes $2,221 $2,175 $6,380 $5,660
Income taxes 534 612 1,645 1,554
Net income $1,687 $1,563 $4,735 $4,106
PER SHARE DATA
Net Income $ .49 $ .47 $ 1.40 $ 1.22
Dividends Paid $ .24 $ .173 $ .68 $ .49
Weighted average number of
shares outstanding 3,407,968 3,353,994 3,372,496 3,353,994
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(In Thousands) Nine Months Ended
September 30
(Unaudited)
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $4,735 $4,106
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 575 300
Provision for depreciation 258 243
Net security gains 358 (130)
(Increase) in accrued interest and
other assets (2,696) (315)
Increase (decrease) in accrued interest and
other liabilities 527 529
Net cash provided by operating activities 3,041 4,733
Cash flows from investing activities:
Proceeds from sales of available-for-sale
securities 3,760 4,383
Proceeds from maturities of available-for-sale
securities 15,115 17,952
Purchases of available-for-sale securities (38,674) (20,410)
Loans sold 3,066 2,396
Net increase in loan originations less principal
repayments (15,557) (12,126)
Capital expenditures (681) (309)
Net cash used in investing activities (32,971) (8,114)
Cash flows from financing activities:
Net increase in deposit accounts 12,385 13,384
Net (decrease) in short-term borrowings 24,601 (21,163)
Proceeds from other borrowed funds 18,525 30,400
Repayments of other borrowed funds (21,313) (16,480)
Cash dividends paid (2,292) (1,639)
Proceeds from sale of stock for employee
benefits program 214 36
Net cash provided by (used in) financing activities 32,120 4,538
Net increase (decrease) in cash and cash equivalents 2,190 1,157
Cash and cash equivalents at beginning of period 6,471 7,300
Cash and cash equivalents at end of period $ 8,661 $ 8,457
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $10,002 $ 8,652
Income taxes paid 1,875 1,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Basis of Presentation
The consolidated financial statements include the accounts of SUN BANCORP,
INC. and subsidiaries, Sun Bank and the Pennsylvania SUN Life Insurance
Company. All material intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited consolidated financial statements for the
interim periods do not include all of the information and footnotes required
by generally accepted accounting principles. However, in the opinion of
management, all adjustments necessary for a fair presentation of the results
of the interim period have been included. Operating results for the nine
month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
The accounting policies followed in the presentation of interim financial
results are the same as those followed on an annual basis. These policies are
presented on page 8 of the 1995 Annual Report to Stockholders.
<PAGE>
SUN BANCORP, INC.
FOR 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Note 2 -- Investment Securities
(In Thousands)
September 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(Unaudited) (Unaudited)
<S>
Available-for-sale securities:
Other obligations of U.S. <C> <C> <C> <C>
Government agencies $ 85,354 $ 83,694 $ 73,425 $ 73,358
Obligations of states and
political subdivisions 30,842 31,325 25,113 26,523
Corporate debt securities 23 23 242 242
Total debt securities 116,219 115,042 98,780 100,123
Equity securities 9,707 10,766 6,230 7,002
Total investment securities $125,926 $125,808 $105,010 $107,125
</TABLE>
Securities with a carrying value of $36,913,000 and $26,000,000 were pledged
to secure public deposits, trust deposits, securities sold under agreements
to repurchase, and other items required by law at September 30, 1996 and
December 31, 1995, respectively.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Note 3 -- Loans
Major classifications of loans are as follows:
(In Thousands)
September 30, 1996 December 31, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Real estate loans $163,944 $149,475
Agricultural loans 992 724
Commercial and industrial loans 22,815 25,713
Loans to individuals 31,711 31,205
Other loans 255 60
Total Loans $219,717 $207,177
Less: Unearned income on loans (5,288) (5,074)
Deferred loan fees (591) (468)
Allowance for possible loan
losses (2,478) (2,191)
Net Loans $211,360 $199,444
</TABLE>
The following is a summary of the past due and nonaccrual loans:
<TABLE>
(In Thousands)
Past Due Past Due
September 30, 1996 30-89 Days 90 Days or More Nonaccrual
<S> <C> <C> <C>
Real estate loans $2,417 $1,272 $283
Loans to individuals 1,034 305 19
Commercial and all other loans 604 83 99
Total $4,055 $1,660 $401
December 31, 1995
Real estate loans $3,880 $1,391 $ -
Loans to individuals 1,283 341 -
Commercial and all other loans 563 257 -
Total $5,726 $1,989 $ -
</TABLE>
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 -- Allowance for Possible Loan Losses
<CAPTION>
(In Thousands)
September 30, 1996 December 31, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Beginning balance $2,191 $1,999
Loans charged off 296 176
Recoveries of loans previously
charged off 8 8
Provision for possible loan losses 575 360
Ending balance $2,478 $2,191
</TABLE>
Note 5 -- Deposits
<TABLE>
<CAPTION>
(In Thousands)
September 30, 1996 December 31, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Demand deposits $ 24,737 $ 20,247
NOW Accounts 31,603 31,102
Insured Money Market Accounts 11,681 6,653
Savings deposits 27,031 28,136
Time Certificates of Deposit
of $100,000 or more 15,465 14,402
Other time deposits 98,460 96,052
Total deposits $208,977 $196,592
</TABLE>
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
<TABLE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Note 6 -- Borrowed Funds
(In Thousands)
September 30,1996 December 31, 1995
(Unaudited) (Unaudited)
Daily Daily
Actual At Average Actual At Average
September 30 Outstanding December 31 Outstanding
<S> <C> <C> <C> <C>
Short-term borrowings $ 50,127 $32,848 $15,526 $18,298
Other borrowed funds 55,825 64,011 68,613 63,786
Total borrowed funds $105,952 $96,859 $84,139 $82,084
</TABLE>
Note 7 -- Standby Letters of Credit and Loan Commitments
Outstanding letters of credit amounted to $1,361,000 and $1,366,000 at
September 30, 1996 and December 31, 1995, respectively.
Commitments to extend credit totaled $38,352,000 at September 30, 1996 and
$33,784,000 as of December 31, 1995.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
SUN BANCORP, INC. (SUN) continued its record earnings performance through
September 30, 1996 as net income reached $4,735,000 compared to the $4,106,000
earned through September 30, 1995, representing a 15% increase. Earnings per
share also rose 15% for the nine months to $1.40 per share in 1996 compared to
$1.22 earned during the same period of 1995. SUN's strong earnings performance
is further reflected through a 1.86% return on average assets and a 17.35%
return on average equity. These ratios were 1.78% and 17.50% at September 30,
1995.
During the third quarter of 1996, SUN achieved net income of $1,687,000
compared to the $1,563,000 earned in the same period of 1995, an 8% increase.
Earnings per share for the three months ending September 30, 1996 and 1995 were
$.49 and $.47, respectively. Much of the increase in net income for the quarter
is due to the rise in net interest income of $296,000 or 9% from $3,111,000 in
1995 to $3,428,000 in 1996.
SUN increased the provision for possible loan losses by $350,000 in the
third quarter as a result of our continued loan growth and associated
delinquencies. This increase was funded by $358,000 in net gains from the sale
of a few municipal bonds and equity securities. Therefore, the increase in the
loan reserve had no impact on core earnings. The proceeds from the sales of
the securities were reinvested in the investment portfolio.
OTHER OPERATING INCOME
Total other operating income, excluding net security gains, rose $59,000
or 5%. Trust income increased $42,000 or 23% from $180,000 at September 30,
1995 to $222,000 at September 30, 1996 due to an increase in the number of
trust accounts and related account balances.
OTHER OPERATING EXPENSES
Total other operating expenses rose $120,000 or 3%. This slight increase
was due primarily to occupancy expense rising $34,000 or 12% as a result of
preparing our new branch locations for operation. Our Northumberland office
will be fully operational in early 1997 and the new Shamokin Dam location will
open in the second quarter of 1997. Salaries and employee benefits rose
$160,000 or 7% due to increased staffing and normal salary adjustments. The
reduction in the Federal Deposit Insurance Corporation insurance premiums con-
tributed to the decrease in other operating expenses. Management is committed
to controlling overhead expenses.
STATEMENT OF CONDITION
Total assets were $355,534,000 at September 30, 1996 compared to
$311,507,000 in 1995, a $44,027,000 or 14% increase. This increase was the
result of strong deposit growth and additional borrowed funds through the
Federal Home Loan Bank of Pittsburgh. These deposits and borrowings were
used to fund the loan growth fo $16,973,000 and the $23,703,000 increase in
investment securities. The investment portfolio is mainly comprised of
mortgage-backed securities and state and municipal bonds. Deposits rose
$12,433,000 with much of the growth occurring in time deposits. Total
borrowed funds increased $27,521,000 as a result of the increased loan demand.
Stockholders' equity remains strong at $37,203,000, resulting in a capital to
asset ratio in excess of 10% and book value of $11.05 per share. SUN is
committed to providing its shareholders with the highest possible return on
their investment.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAPITAL ADEQUACY
Management believes capital is being maintained at adequate levels.
SUN's stock is traded publicly on the NASDAQ national market system under the
symbol SUBI. SUN's strong capital position is evidenced by the following
capital ratios which are well above the regulatory minimum levels.
<TABLE>
<CAPTION>
Regulatory Standards September 30, 1996 December 31, 1995
<S> <C> <C> <C>
Core capital ratio 4.00% 17.16% 18.47%
Risk-based capital ratio 8.00 18.30 19.59
Leverage ratio 3.00 10.46 11.27
</TABLE>
SUBSEQUENT MATERIAL EVENTS
On November 6, 1996, SUN BANCORP, INC. (SUN) signed a definitive agreement
to acquire Bucktail Bank and Trust Company (Bucktail) located in Emporium,
Pennsylvania. Bucktail Bank is a wholly-owned subsidiary of F.N.B. Corporation,
a multi-bank holding company headquartered in Hermitage, Pennsylvania. The
transaction is subject to obtaining regulatory and shareholder approval and
therefore, the final closing is not expected until early to mid 1997.
Under the terms of the acquisition, the aggregate number of shares of SUN
common stock exchanged for all outstanding shares of Bucktail common stock
will be 538,461 shares of SUN common stock. Based on the number of shares of
SUN common stock to be issued to F.N.B. Corporation, as the sole shareholder of
Bucktail, the value of the acquisition is approximately $17,500,000.
Upon completion of the acquisition, Bucktail's banking operations will be
merged with and into those of Sun Bank headquartered in Selinsgrove, Pennsyl-
vania, a wholly-owned subsidiary of SUN. Sun Bank trades and conducts business
under the names Snyder County Trust Company and Watsontown Bank.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART II
Items 1, 2, 3 and 4 -- Omitted pursuant to instructions to Part II
Item 5 -- Other information
On November 4, 1996, the Board of Directors authorized the 19th consecutive
increase in the quarterly dividend to $.25 per share payable December 13, 1996
to stockholders of record November 29, 1996.
Item 6 -- Exhibits and Reports on Form 8-K
b. A report on Form 8-K was filed on November 8, 1996 announcing the
signing of a definitive agreement to acquire Bucktail Bank and Trust Company
located in Emporium, Pennslyvania.
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART II
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN BANCORP, INC.
Date 11/14/96 /s/ Fred W. Kelly, Jr.
Chief Executive Officer
(Principal Executive Officer)
/s/ Jeffrey E. Hoyt
Sr. Vice President & Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUN BANCORP, INC.
P.O. Box 57
Selinsgrove, PA 17870
(717)374-1131
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8034
<INT-BEARING-DEPOSITS> 627
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125808
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 214429
<ALLOWANCE> 2478
<TOTAL-ASSETS> 355534
<DEPOSITS> 208977
<SHORT-TERM> 50127
<LIABILITIES-OTHER> 3402
<LONG-TERM> 55825
<COMMON> 4253
0
0
<OTHER-SE> 32950
<TOTAL-LIABILITIES-AND-EQUITY> 318331
<INTEREST-LOAN> 14486
<INTEREST-INVEST> 5600
<INTEREST-OTHER> 26
<INTEREST-TOTAL> 20112
<INTEREST-DEPOSIT> 6157
<INTEREST-EXPENSE> 10083
<INTEREST-INCOME-NET> 10029
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 358
<EXPENSE-OTHER> 4620
<INCOME-PRETAX> 6380
<INCOME-PRE-EXTRAORDINARY> 4735
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4735
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 3.98
<LOANS-NON> 401
<LOANS-PAST> 1660
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2191
<CHARGE-OFFS> 296
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 2478
<ALLOWANCE-DOMESTIC> 2478
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 867
</TABLE>
