SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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, PA 17870
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 374-1131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered Title of each class
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $1.25 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 7, 1996, the Registrant had 3,194,422 shares of common stock
outstanding with a par value of $1.25. Based on the closing bid price of $30.00
on the same date, the aggregate market value of the voting stock held by non-
affiliates of the Registrant was $82,644,600.00.
Portions of the 1995 Annual Report to Stockholders are incorporated by reference
in Parts I, II, and III hereof.
Portions of the 1996 Proxy Statement for the Annual Stockholders' Meeting to be
held on April 25, 1996 are incorporated by reference in Part III hereof.
The index to exhibits included in this filing appears on page 5.
PART I
ITEM 1 - BUSINESS
SUN BANCORP, INC. (SUN) is a holding company incorporated under the laws of
Pennsylvania and registered under the Bank Holding Company Act of 1956, as
amended, on November 26, 1982. SUN acquired the Snyder County Trust Company in
June 1983 and The Watsontown National Bank in November 1987. On December 1,
1993, the two banks merged into one bank under the legal title of Sun Bank
(Bank). The banks continue to do business as Snyder County Trust Company,
Incorporated as Sun Bank and Watsontown Bank, Incorporated as Sun Bank. SUN
also owns the Pennsylvania SUN Life Insurance Company, a credit life and
disability insurance company formed in 1993. In 1995, SUN entered into a
limited partnership with the Susquehanna Valley Development Group, Inc. for the
purpose of building, owning and operating an affordable elderly apartment
complex in Mifflinburg, PA. As part of the agreement, SUN is able to recognize
tax credits from this economic development project.
Sun Bank, a state-chartered bank regulated by Pennsylvania Banking Law,
provides full service commercial and retail banking services primarily in
central Pennsylvania. Sun Bank operates six banking offices and one trust
services office serving Snyder, Union, Northumberland and Lycoming Counties. At
December 31, 1995, Sun Bank had total assets of $318,659,000 and total stock-
holders' equity of $35,190,000. Net income for 1995 was $5,629,000.
The Bank offers a wide range of services including demand deposit accounts,
savings accounts, Christmas and all-purpose clubs, time certificates of deposit,
and individual retirement accounts, as well as commercial loans, consumer
loans, mortgage loans, and safe deposit services. The Bank also operates a
trust department that provides full fiduciary services. Also, eight
Automated Teller Machines (ATMs) throughout the service area provide 24-hour
banking service. Sun Bank's activities are such that the loss of one single
customer or a few customers would not have a material adverse effect on its
operations. Additionally, the Bank's business is not seasonal in nature nor
does it engage in foreign transactions. The majority of the loan portfolio is
comprised of residential real estate loans and consumer loans which generally
are low-risk. The Bank's deposits are insured by the Federal Deposit In-
surance Corporation (FDIC) in the amount allowed by law.
The Pennsylvania SUN Life Insurance Company provides credit life and dis-
ability insurance to Sun Bank's credit customers. Pennsylvania SUN Life is
subject to supervision and regulation by the Arizona Department of Insurance,
the Insurance Department of the Commonwealth of Pennsylvania, and the Board
of Governors of the Federal Reserve Bank. At December 31, 1995, Pennsylvania
SUN Life had total assets of $446,000 and total stockholders' equity of
$213,000. Net income for 1995 was $23,000.
Competition continues to heighten in the financial services industry not only
among banks but with savings and loan associations, credit unions, discount
brokerage firms, insurance companies, and other nonbank financial service
providers. Changing regulatory and economic conditions affect SUN's ability to
compete effectively in its market area. Most of the competition is centered
around the setting of interest rates to be charged on loans and rates paid on
deposits, fees on deposit accounts and customer service. SUN's management feels
it competes effectively in its market area.
SUN is subject to regulation and supervision by the Board of Governors of the
Federal Reserve Bank and the Pennsylvania Department of Banking. SUN files
quarterly and annual reports with the Federal Reserve Bank (FRB) of Phila-
delphia and periodic on-site exams of SUN are done by the FRB. Regular exam-
inations of the Bank are conducted by the FDIC and the Pennsylvania
Department of Banking.
SUN and the Pennsylvania SUN Life Insurance Company do not have any employees.
At December 31, 1995, the Bank employed 113 persons. The Bank offers a variety
of benefit programs and feels its relationship with its employees is good.
ITEM 2 - PROPERTIES
SUN's corporate office is located in Sun Bank's main banking office. SUN owns
all of its properties with the exception of an off-site ATM, Item 8 listed
below, which is rented from Weis Markets, Inc., Sunbury, Pennsylvania. In 1995,
SUN purchased parcels of land in Northumberland and Liverpool for the purpose of
building branches on these sites in the future. The branch in Northumberland is
scheduled to be in operation in the fall of 1996. SUN also purchased an
existing branch location in Shamokin Dam formerly owned by Swineford National
Bank. This site will be replacing our current branch office in Shamokin Dam in
April 1997. All properties are in good condition and adequate for the bank's
purposes. The following is a list of the banking offices, the addresses, and a
brief description of each office.
Office Address Description
1. Main 2-16 South Market Street Brick structure
Selinsgrove, Pennsylvania 17870
2. Shamokin Dam Routes 11 & 15 Brick structure
Shamokin Dam, Pennsylvania 17876
3. New Berlin Market & Plum Streets Brick structure
New Berlin, Pennsylvania 17855
4. Sunbury 11 South Second Street Brick structure
Sunbury, Pennsylvania 17801
5. Middleburg Route 522 & Dock Hill Road Brick structure
Middleburg, Pennsylvania 17842
6. Trust Division 100 West Pine Street Brick structure
Selinsgrove, Pennsylvania 17870
7. Automated Teller 108 West Pine Street Brick structure
Machine Selinsgrove, Pennsylvania 17870
8. Automated Teller 700 North Broad Street Brick structure
Machine Selinsgrove, Pennsylvania 17870
9. Watsontown 300 Main Street Brick structure
Watsontown, Pennsylvania 17777
10. Northumberland 96 Duke Street Land
Northumberland, Pennsylvania 17857
11. Liverpool Rts. 11 & 15 South Land
Liverpool, Pennsylvania 17045
12. Shamokin Dam 200 S. Susquehanna Trail Brick structure
Shamokin Dam, Pennsylvania 17876
ITEM 3 - LEGAL PROCEEDINGS
Various legal actions arise against the Corporation in the normal course of
business. In the opinion of management and counsel, when such actions currently
pending or threatened have been resolved, they should not have a material
adverse effect on the business or financial condition of the Corporation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
On April 1993, the common stock of SUN BANCORP, INC. began trading publicly on
the NASDAQ national market system under the symbol SUBI. Prior to this date,
the stock was not traded on an established stock exchange; however, it was
traded on the over-the-counter market. As of March 7, 1996, SUN had approx-
imately 1,348 holders of its common stock.
The payment of dividends by SUN is at the discretion of the Board of Directors
and to the extent funds are legally available for that purpose. SUN may not pay
dividends in any year in excess of the total of the current year's net income
and the retained net income of the prior two years without the approval of the
Federal Reserve Bank. Additionally, bank regulations limit the amount of
dividends that may be paid to SUN by the subsidiary bank without prior approval
from the regulatory agencies.
Additional stock information is incorporated by reference to Stockholder
Information found on page 36 of the 1995 Annual Report to Stockholders.
ITEM 6 - SELECTED FINANCIAL DATA
This item is incorporated by reference to information under the heading Five
Year Financial Highlights on page 23 of the 1995 Annual Report to Stockholders.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This item is incorporated by reference to Management's Discussion and Analysis
on pages 24 through 35 of the 1995 Annual Report to Stockholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is incorporated by reference to the Consolidated Financial State-
ments, Notes to Consolidated Financial Statements and Report of Independent
Certified Public Accountants set forth on pages 4 through 22 of the 1995 Annual
Report to Stockholders.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information concerning directors and executive officers of the Registrant is
incorporated herein by reference to Board of Directors on page 6 of the Cor-
poration's 1996 Proxy Statement.
Information regarding disclosure of delinquent filers pursuant to Item 405 of
Regulation 5-K is incorporated herein by reference to Compliance with Securities
and Exchange Act on page 20 of the Corporation's 1996 Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to management remuneration and compensation is incor-
porated herein by reference to Executive Compensation and Other Information on
page 13 of the 1996 Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information is incorporated by reference to Security Ownership of
Directors and Executive Officers of the Corporation on page 11 of the 1996
Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to footnote 12 on page 17 of the
1995 Annual Report to Stockholders and under the heading of Transactions with
Management on page 20 of the 1996 Proxy Statement.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) The following consolidated financial statements and report of in-
dependent certified public accounts of SUN BANCORP, INC. and
subsidiaries included in the Annual Report to Stockholders for
the year ended December 31, 1995 are incorporated by
reference in Part II, Item 8:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(2) All schedules applicable to the Registrant are shown in the re-
spective financial statements or the notes thereto. Financial
statement schedules not included are omitted because the information
is not required under the related instructions or it is inappli-
cable.
(3) Exhibits
3(i) The Articles of Incorporation of the Corporation are in-
corporated herein by reference to Exhibit 3 to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File Number 0-14745).
3(ii) The By-Laws, as amended and restated, are incorporated
herein by reference to Exhibit 3 to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1993 (Commission File Number 0-14745).
13 Annual Report to Stockholders of SUN BANCORP, INC. for the
year ended December 31, 1995 is filed herewith. Such
report, except for those portions thereof which are
expressly incorporated by reference herein, is furnished
for information of the Securities and Exchange Commission
only and it is not considered "filed" as part of the Form
10-K filing.
22 Subsidiaries of the Registrant are filed herewith.
23 Published Report Regarding Matters Submitted To Vote Of
Security Holders is filed herewith, the 1996 Proxy Statement
of SUN BANCORP, INC.
(b) No reports on Form 8-K were required to be filed during the fourth
quarter of 1995.
(c) Exhibits - the required exhibits are included under Item 14(a) (3) of
the Form 10-K.
(d) Financial statement schedules are omitted because the required informa-
tion is not applicable or is included elsewhere herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, SUN BANCORP, INC. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUN BANCORP, INC.
(Registrant)
By: /s/ Fred W. Kelly, Jr.
President & Chief Executive Officer
Date: 3/25/96
<PAGE>
Name Date
/s/ Fred W. Kelly, Jr. 3/25/96
President, Chief Executive Officer
and Director
/s/ Jeffrey E. Hoyt 3/25/96
Vice President, Principal Financial Officer
and Chief Acccounting Officer
/s/ Max E. Bingaman 3/25/96
Director
/s/ Raymond C. Bowen 3/25/96
Director
/s/ David R. Dieck 3/25/96
Director
/s/ Louis A. Eaton 3/25/96
Director
/s/ Dr. Robert E. Funk 3/25/96
Director
/s/ Robert A. Hormell 3/25/96
Director
/s/ George F. Keller 3/25/96
Director
/s/ Lehman B. Mengel 3/25/96
Director
/s/ Marlin T. Sierer 3/25/96
Director
/s/ Jerry A. Soper 3/25/96
Director
/s/ Dennis J. Van 3/25/96
Director
<TABLE>
Consolidated Balance Sheets
December 31, 1995 and 1994
<CAPTION>
(In Thousands, Except Share Data)
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 6,055 $ 7,123
Interest-bearing deposits in banks 416 177
Total cash and cash equivalents 6,471 7,300
Investment securities:
Obligations of U.S. government agencies 73,358 72,882
Obligations of states and political subdivisions 26,523 19,340
0ther securities 7,244 7,780
Total investment securities 107,125 100,002
Loans (net of unearned income and fees of
$5,542 and $5,179 in 1995 and 1994,
respectively) 201,635 186,956
Less: Allowance for possible loan losses (2,191) (1,999)
Net loans 199,444 184,957
Bank premises and equipment, net 4,247 3,538
Accrued interest and other assets 2,339 3,964
Total assets $319,626 $299,761
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 20,247 $ 22,354
Interest-bearing 176,345 160,806
Total deposits 196,592 183,160
Short-term borrowings 15,526 34,702
Other borrowed funds 68,613 50,972
Accrued interest and other liabilities 2,875 2,173
Total liabilities 283,606 271,007
Stockholders' equity:
Common stock, par value $1.25 per share;
authorized 20,000,000 shares, issued 3,241,757
in 1995 and 2,811,858 in 1994 4,053 3,515
Additional paid-in capital 25,563 15,212
Retained earnings 6,417 13,932
Unrealized gains (losses) on investment
securities, net 1,396 (2,496)
Less: Treasury stock at cost, 47,509 shares
in 1995 and 1994 (1,409) (1,409)
Total stockholders' equity 36,020 28,754
Total liabilities and stockholders' equity $319,626 $299,761
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
Years Ended December 31, 1995, 1994, and 1993
<CAPTION>
(In Thousands, Except Net Income Per Share) 1995 1994 1993
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $17,890 $14,724 $13,655
Interest on federal funds sold - - 1
Interest and dividends on investments:
U.S. government and agency obligations 4,649 4,383 4,641
Obligations of states and political
subdivisions 1,360 1,105 1,062
Other securities 418 449 641
Interest on deposits in banks and
other financial institutions 122 5 13
Total interest income 24,439 20,666 20,013
Interest expense:
Interest on deposits 7,376 5,709 6,239
Interest on short-term borrowings 978 1,060 413
Interest on other borrowed funds 3,733 2,198 2,318
Total interest expense 12,087 8,967 8,970
Net interest income 12,352 11,699 11,043
Provision for possible loan losses 360 360 540
Net interest income after
provision for possible loan
losses 11,992 11,339 10,503
Other operating income:
Service charges on deposit accounts 515 467 418
Trust income 252 216 216
Other income 644 480 617
Net securities gains 130 65 131
Income from insurance subsidiary 255 341 -
Total other operating income 1,796 1,569 1,382
Other operating expenses:
Salaries and employee benefits 3,251 3,137 3,166
Net occupancy expenses 373 368 387
Furniture and equipment expenses 387 428 580
Other expenses 1,739 1,885 1,911
Expenses of insurance subsidiary 234 306 -
Total other operating expenses 5,984 6,124 6,044
Income before income tax provision 7,804 6,784 5,841
Income tax provision 2,154 1,870 1,590
Net income $ 5,650 $ 4,914 $ 4,251
Net income per share $ 1.77 $ 1.54 $ 1.32
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994, and 1993
<CAPTION>
(In Thousands, Except Per Share Data)
Unrealized
Gains
(Losses) on
Additional Investment Total
Common Paid-In Retained Securities, Treasury Stockholders'
Stock Capital Earnings Net Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,996 $ 8,080 $16,566 $ - $(1,013) $25,629
Net income - - 4,251 - - 4,251
Stock dividend issued 258 5,722 (5,980) - - -
Cash dividends declared,
$.42 per share - - (1,360) - (1,360)
Cumulative effect of accounting
for certain investments in
debt and equity securities - - - 1,634 - 1,634
Treasury stock acquired at cost - - - - (396) (396)
Balance, December 31, 1993 2,254 13,802 13,477 1,634 (1,409) 29,758
Net income - - 4,914 - - 4,914
Stock issued:
Stock dividend and split 1,260 1,407 (2,667) - - -
Employee benefit plans 1 3 - - - 4
Cash dividends declared,
$.55 per share - - (1,792) - - (1,792)
Unrealized losses on
investment securities, net - - - (4,130) - (4,130)
Balance, December 31, 1994 3,515 15,212 13,932 (2,496) (1,409) 28,754
Net income - - 5,650 - - 5,650
Stock issued:
Stock dividend 535 10,313 (10,848) - - -
Employee benefit plans 3 38 - - - 41
Cash dividends declared,
$.72 per share - - (2,317) - - (2,317)
Unrealized gains on
investment securities, net - - - 3,892 - 3,892
Balance, December 31, 1995 $4,053 $25,563 $6,417 $1,396 $(1,409) $36,020
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
<CAPTION>
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,650 $ 4,914 $ 4,251
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for possible loan losses 360 360 540
Provision for depreciation 315 385 504
Deferred income taxes (92) (188) (138)
Net securities gains (130) (65) (131)
Gain on sale of bank premises and
equipment - (4) -
(Increase) decrease in accrued
interest and other assets (289) (636) 1,166
Increase (decrease) in accrued
interest and other liabilities 702 813 (196)
Net cash provided by operating
activities 6,516 5,579 5,996
Cash flows from investing activities:
Proceeds from sales of investment
securities 4,383 249 692
Proceeds from maturities of
investment securities 18,925 27,307 40,602
Purchases of investment securities (24,403) (22,441) (60,466)
Loans sold 3,577 3,967 8,764
Net increase in loan originations
less principal repayments (18,424) (23,544) (28,088)
Capital expenditure (1,024) (89) (251)
Proceeds from sales of bank premises
and equipment - 92 -
Net cash used in investing
activities (16,966) (14,459) (38,747)
Cash flows from financing activities:
Net increase (decrease) in deposit
accounts 13,432 3,797 (2,584)
Net increase (decrease) in short-term
borrowings (19,176) 4,270 21,176
Proceeds from other borrowed funds 34,400 12,600 37,619
Repayments of other borrowed funds (16,759) (8,534) (22,500)
Cash dividends paid (2,317) (1,792) (1,360)
Treasury stock acquired - - (396)
Proceeds from sale of stock for
employee benefits program 41 4 -
Net cash provided by financing
activities 9,621 10,345 31,955
Net increase (decrease) in cash
and cash equivalents (829) 1,465 (796)
Cash and cash equivalents at beginning
of year 7,300 5,835 6,631
Cash and cash equivalents at end
of year $ 6,471 $ 7,300 $5,835
Supplemental disclosure of cash flow information:
Interest paid $11,646 $ 8,671 $ 8,884
Income taxes paid $ 2,175 $ 2,110 $ 1,636
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
The accounting and financial reporting policies of SUN BANCORP, INC. and
subsidiaries (SUN) conform with generally accepted accounting principles and
with general practice within the financial institution industry. Certain
prior year amounts have been reclassified to conform to current year
classifications. The following is a description of the more significant of
those policies:
Nature of Operations
SUN provides a full range of banking services to individual and corporate
customers through the six offices of its subsidiary in central Pennsylvania's
Snyder, Union, and Northumberland counties. These three counties have
diversified economies with an emphasis on manufacturing. SUN's primary
deposit products are interest-bearing checking and savings accounts, and
certificates of deposits. Its primary lending products are single family
residential loans, secured consumer loans, and secured loans to small
businesses.
Basis of Consolidation
The consolidated financial statements include the accounts of SUN
BANCORP, INC., the parent company, and its wholly-owned subsidiaries, Sun
Bank (Bank), doing business as Snyder County Trust Company and Watsontown
Bank, and Pennsylvania SUN Life Insurance Company. All significant inter-
company balances and transactions have been eliminated in consolidation.
Use of Estimates
In preparing the financial statements in accordance with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the
balance sheet and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for
possible loan losses. In connection with the determination of the allowance
for possible loan losses, management obtains independent appraisals for
significant properties.
A majority of SUN's loan portfolio consists of single-family residential
loans in the counties of Snyder, Union and Northumberland. The regional
economy depends heavily on the manufacturing industry, which is currently
stable. Real estate prices in the market are also stable. Accordingly,
the ultimate collectibility of a substantial portion of SUN's loan portfolio
is susceptible to changes in local market conditions.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review SUN's
allowance for possible loan losses. Such agencies may require SUN to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination. Because of
these factors, it is reasonably possible that the allowance for possible
loan losses may change materially in the near term.
<PAGE>
Investment Securities
On December 31, 1993, SUN adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investment in
Debt and Equity Securities," for accounting and reporting for investment
securities. In accordance with SFAS No. 115, such investments are accounted
for as follows:
Held-to-Maturity Securities-includes debt securities that SUN has the
positive intent and ability to hold to maturity and are reported at amortized
cost.
Trading Securities-includes debt and equity securities bought and held
principally for the purpose of selling them in the near term. Such securities
are reported at fair value.
Available-for-Sale Securities-includes debt and equity securities not
classified as either held-to-maturity securities or trading securities. Such
securities are reported at fair value, with unrealized gains and losses, net
of taxes, excluded from earnings and reported as a separate component of
stockholders' equity. All of SUN's securities are classified as available-
for-sale at December 31, 1995 and 1994.
The cumulative effect of the adoption of SFAS No. 115 as of December 15,
1993 resulted in an increase in stockholders' equity of $1,634,000 (unrealized
gain on available-for-sale securities of $2,477,000 less estimated income tax
effect of $843,000)
The fair value of instruments, except certain state and municipal securi-
ties, is estimated based on bid prices published in financial newspapers or
bid quotations received from securities dealers. The fair value of certain
state and municipal securities is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted
market prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
Realized gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted carrying value of each
security.
Loans
Interest income on loans is recognized on the accrual basis based upon the
principal amount outstanding. Interest income is not accrued when, in the
opinion of management, its collectibility is doubtful. When a loan is designat-
ed as nonaccrual, any accrued interest receivable is generally charged against
current earnings. The placement of a loan on the nonaccrual basis for revenue
recognition does not necessarily imply a potential charge-off of principal.
Loan fees and cost of loan origination are deferred and recognized over the
life of the loan as a component of interest income using the interest method.
Impaired Loans
On January 1, 1995, SUN adopted the provisions of Statment of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by Statement No. 118, "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures." The new standards require
certain impaired loans to be reported at the present value of expected future
cash flows using the loan's effective interest rate, or at the fair value of
the collateral if the loan is collateral dependent. The adoption of the
standards did not have a material impact on SUN's financial position or results
of operations for the year ended December 31, 1995.
<PAGE>
Allowance For Possible Loan Losses
The allowance for possible loan losses is established through a
provision for possible loan losses charged to expense. The allowance for
possible loan losses is based on management's judgment of an amount that
is adequate to absorb possible losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous
factors, including current economic conditions, prior loan loss experience,
the composition of the portfolio, off-balance sheet risk, and management's
estimate of anticipated loan losses.
Foreclosed Assets Held For Sale
Foreclosed assets, all of which are held for sale, are carried
at the lower of cost or fair value of the assets less estimated selling
costs.
At December 31, 1995 and 1994, SUN did not have any foreclosed assets
held for sale.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Repair and maintenance expenditures which extend the useful
life of an asset are capitalized and other repair expenditures are expensed
as incurred.
When premises or equipment are retired or sold, the remaining cost
and accumulated depreciation are removed from the accounts and any gain or
loss is credited or charged to income. Depreciation expense is computed
on the straight-line method.
Employee Benefit Plan
SUN maintains and funds a defined contribution benefit plan which covers
substantially all eligible employees. The cost of the plan is charged to
operating expense annually as benefit costs are incurred. SUN has also
established a nonqualified Supplemental Retirement Plan for selected key
employees.
<PAGE>
Income Taxes
Provision for deferred income taxes is made as a result of temporary
differences in financial reporting and income tax mehtods of accounting.
These differences relate primarily to depreciation of bank premises and
equipment, certain securities income, income for loan fees, allowance for
possible loan losses, and pension expense.
In 1993, SUN implemented Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an
asset and liability approach for accounting and reporting for income taxes.
The adoption of SFAS No. 109 as of January 1, 1993 did not have an impact
on either the financial condition or results of operation of SUN.
Net Income Per Share
Net income pr share is computed based on the weighted average number of
shares of stock outstanding during the year, adjusted in each reporting
period to give retroactive effect to the stock dividends paid in the second
quarter of 1993, 1994 and 1995 and the 10% stock dividend paid in the fourth
quarter of 1993 and 1995, as well as the three-for-two stock split in the
form of a 50% stock dividend in the fourth quarter of 1994. Such weighted
average share computations give effect to treasury stock transactions. The
weighted average number of shares used in the net income per share computations
for the years ended December 31, 1995, 1994, and 1993 were 3,194,248, 3,193,282
and 3,213,495 respectively. All references in the accompanying financial
statements to per share amounts for prior years have been restated to reflect
the above-mentioned stock dividends and stock split.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, SUN has entered into off-balance sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statments when they become payable.
Cash Flows
SUN utilizes the net reporting of cash receipts and cash payments for
certain deposit and lending activities. Cash equivalents include cash and
due from banks and interest-bearing deposits in banks. Generally, federal
funds are purchased and sold for one-day periods.
Derivative Financial Instruments
SUN has no derivative financial instruments requiring separate disclosure
under SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments".
Trust Assets and Income
Assets held by SUN in a fiduciary or agency capacity for its customers are
not included in the consolidated financial statements since such items are not
assets of SUN. Trust income is reported on a cash basis, which is not
materially different from the accrual basis.
<PAGE>
2. Restrictions on Cash and Due from Bank Accounts
SUN is required to maintain reserves in the form of cash and balances with
the Federal Reserve Bank against its deposit liabilities. The average of such
reserves for the periods which included December 31, 1995 and 1994 was approx-
imately $1,263,000 and $1,287,000 respectively.
Deposits with any one financial institution are insured up to $100,000.
SUN could maintain cash and cash equivalents with certain other financial
institutions in excess of the insured amount.
Notes to Consolidated Financial Statements
<TABLE>
3. Investment Securities
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994 were as follows:
<CAPTION>
(In Thousands) December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available-for-Sale securities:
Obligations of U.S. government
agencies $73,425 $ 548 $ (615) $73,358
Obligations of states and
political subdivisions 25,113 1,423 (13) 26,523
Corporate debt securities 242 - - 242
Total debt securities 98,780 1,971 (628) 100,123
Equity securities 6,230 795 (23) 7,002
Total investment securities $105,010 $2,766 $ (651) $107,125
December 31, 1994
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available-for-Sale securities:
Obligations of U. S. government
agencies $ 76,254 $ 18 $(3,390) $ 72,882
Obligations of states and
political subdivisions 19,851 245 (756) 19,340
Corporate debt securities 1,503 - (11) 1,492
Total debt securities 97,608 263 (4,157) 93,714
Equity securities 6,177 274 (163) 6,288
Total investment securities $103,785 $ 537 $(4,320) $100,002
</TABLE>
<TABLE>
The amortized cost and estimated fair value of SUN's securities at December
31, 1995 and 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.
<CAPTION>
(In Thousands) December 31, 1995 December 31, 1994
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Available-for-Sale securities:
Due in one year or less $ 90 $ 90 $ 562 $ 577
Due after one year through
five years 830 859 2,835 2,819
Due after five years through
ten years 11,984 12,231 75 91
Due after ten years 24,118 25,478 16,379 15,853
37,022 38,658 19,851 19,340
Equity securities 6,230 7,002 6,177 6,288
Mortgage-backed securities 61,516 61,223 76,254 72,882
Corporate debt securities 242 242 1,503 1,492
Total investment securities $105,010 $107,125 $103,785 $100,002
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
Proceeds from sales of investment securities were as follows:
<CAPTION>
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Debt securities $4,229 $ - $358
Equity securities 154 249 334
Total proceeds $4,383 $249 $692
</TABLE>
<TABLE>
Gains and losses from sales of investment securities were as follows:
<CAPTION>
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Debt securities:
Gross gains $ 119 $ - $ 8
Gross losses (49) - -
Total debt securities gains 70 - 8
Equity securities, net 60 65 123
Net securities gains $ 130 $ 65 $131
</TABLE>
Securities with a carrying value of $26,000,000 and $27,600,000 were pledged
to secure public deposits, trust deposits, securities sold under agreements
to repurchase and other items required by law at December 31, 1995 and 1994,
respectively.
There is no concentration of investments that exceed 10% of stockholders'
equity for any individual issuer, excluding those guaranteed by the U.S. govern-
ment or its agencies.
<TABLE>
4. Loans
The composition of the loan portfolio at December 31, 1995 and 1994 is
as follows:
<CAPTION>
December 31
(In Thousands) 1995 1994
<S> <C> <C>
Real estate loans $149,475 $140,341
Agricultural loans 724 665
Commercial and industrial loans 25,713 20,703
Loans to individuals 31,205 30,384
Other loans 60 42
Total loans 207,177 192,135
Less: Unearned income on loans (5,074) (4,679)
Deferred loan fees (468) (500)
Net $201,635 $186,956
</TABLE>
<TABLE>
Transactions in the allowance for possible loan losses were as follows:
<CAPTION>
Years Ended December 31
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $1,999 $1,732 $1,353
Loans charged off 176 110 242
Recoveries of loans previously charged off 8 17 81
Net loans charged off 168 93 161
Provision for possible loan losses 360 360 540
Balance, end of year $2,191 $1,999 $1,732
</TABLE>
<PAGE>
Most of SUN's business activity is with customers located within its
defined market area. The loan portfolio is well diversified. As of
December 31, 1995 and 1994, SUN had loans in the modular home industry
in the amount of $4,783,000 and $5,027,000, respectively. Loans in the
automobile industry amounted to $8,155,000 and $5,715,000 at the same times,
respectively. These loans are generally secured by assets and are expected
to be repaid from cash flow or proceeds from the sale of assets of the
borrower. SUN has not experienced any significant losses on loans to
borrowers in these industries. Although SUN has a diversified loan port-
folio, a substantial portion of its debtors' ability to honor their con-
tracts is dependent on the economic conditions in its market area.
At December 31, 1995, SUN did not have any materially impaired or nonaccrual
loans and it had $148,000 in restructured loans that yielded a current market
rate at the time of restructuring. Nonaccrual and restructured loans
amounted to $338,000 at December 31, 1994. Interest income which would have
been recognized on all nonaccrual and restructured loans outstanding in 1994
and 1993 was approximately $7,880 and $1,400, respectively.
Notes to Consolidated Financial Statements
<TABLE>
The following is a summary of the past due and nonaccrual loans as of
December 31, 1995 and 1994:
<CAPTION>
(In Thousands) Past Due
Past Due 90 Days
December 31, 1995 30-89 Days or More Nonaccrual
<S> <C> <C> <C>
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 $ -
December 31, 1994
Real estate loans $3,117 $ 394 $ 43
Loans to individuals 949 65 -
Commercial and all other loans 513 29 120
Total $4,579 $ 488 $163
</TABLE>
<TABLE>
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1995 and 1994 consisted of
the following:
<CAPTION>
December 31
(In Thousands) 1995 1994
<S> <C> <C>
Land $1,000 $ 515
Bank premises 4,262 3,904
Furniture and equipment 2,330 2,149
7,592 6,568
Less: Accumulated depreciation (3,345) (3,030)
Bank premises and equipment, net $4,247 $3,538
</TABLE>
Depreciation charged to income was $315,000, $385,000 and $504,000 for 1995,
1994 and 1993, respectively.
<TABLE>
6. Deposits
Included in interest-bearing deposits are certificates of deposit and other
time deposits issued in amounts of $100,000 or more. These deposits and
their remaining maturities are as follows:
<CAPTION>
(In Thousands) December 31
1995 1994
<S> <C> <C>
Three months or less $ 3,486 $ 4,588
Three through six months 1,259 1,773
Six through twelve months 3,533 1,742
Over twelve months 6,124 2,289
Total $14,402 $10,392
</TABLE>
The interest paid on such deposits amounted to approximately $691,000 in
1995, $541,000 in 1994 and $724,000 in 1993.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
7. Borrowed Funds
SUN's borrowed funds as of December 31, 1995 and 1994 include the following:
<CAPTION>
December 31, 1995
(In Thousands)
Maximum
Average Amount
Interest Outstanding Average Average
Rate At At Any Amount Interest
Balance Year End Month End Outstanding Rate
<S> <C> <C> <C> <C> <C>
Short-Term Borrowings:
Flexline (1) $ 9,445 6.05% $ 30,840 $11,886 6.16%
Securities sold under
agreements to repurchase 6,081 3.83% 10,578 6,412 4.29%
Other Borrowed Funds:
Federal Home Loan Bank of
Pittsburgh advances (2) 68,000 5.87% 70,600 62,573 5.81%
Treasury Tax and Loan Note
Option (3) 613 5.16% 3,500 1,213 5.81%
Total Borrowed Funds $84,139 5.74% $115,518 $82,084 5.74%
December 31, 1994
(In Thousands)
Short-Term Borrowings:
Flexline $28,144 6.61% $28,144 $18,654 4.58%
Securities sold under
agreementsto repurchase 6,558 4.22% 8,289 6,819 3.05%
Other Borrowed Funds:
Federal Home Loan Bank of
Pittsburgh advances 49,700 5.38% 50,000 42,755 5.04%
Treasury Tax and Loan Note
Option 1,272 5.21% 2,305 1,142 3.84%
Total Borrowed Funds $85,674 5.69% $88,738 $69,370 4.70%
(1) SUN utilizes Flexline, a line of credit with the Federal Home Loan Bank
(FHLB) of Pittsburgh, as a source of funds. At December 31, 1995, the
total amount available on this line was approximately 10% of assets or
$31,963,000, less $9,445,000 in current borrowings.
(2) FHLB of Pittsburgh advances represent variable and fixed rate loans with
stated maturities as follows:
(In Thousands)
Variable rate at 5.8872%, maturity 1996 $ 5,000
Variable rate at 5.9375%, maturity 1997 $ 2,000
Variable rate at 5.8625%, maturity 1998 $ 5,600
Fixed rates between 4.23% and 6.77%, maturity 1996 $29,900
Fixed rates between 5.50% and 7.20%, maturity 1997 $16,000
Fixed rates between 5.23% and 5.46%, maturity 1998 $ 5,500
Fixed rate of 6.40%, maturity 2000 $ 2,000
Fixed rates between 7.80% and 7.88%, maturity 2002 $ 2,000
Total $68,000
All FHLB advances are collateralized by SUN's investment in FHLB stock,
mortgage-backed securities and first mortgage loans.
(3) Borrowings on the Treasury Tax and Loan Note Option represent tax funds
deposited and held until the U.S. Treasury calls the balance. The
maximum amount available to borrow through the Note Option is $3,500,000.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
8. Estimated Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,"Disclosures
about Fair Value of Financial Instruments", requires that SUN disclose
estimated fair values for its financial instruments. Fair value estimates
are made at a specific point in time, based on relevant market information
and information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering for sale at
one time SUN's entire holdings of a particular financial instrument. Because
no market exists for a significant portion of SUN's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions can
significantly affect the estimates.
Estimated fair values have been determined by SUN using historical data
and an estimation methodology suitable for each category of financial
instruments. The estimated fair value of SUN's investment securities is
described in Note 3. The fair value estimates, methods and assumptions are
set forth below for SUN's other financial instruments.
Cash and due from banks:
The carrying amounts for cash and due from banks approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns.
Loans:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as real estate, agri-
cultural, commercial and industrial, loans to individuals and other loans.
The fair value of performing loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates
the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on SUN's historical experience with repayments for each
loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are dis-
counted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount
rates are judgmentally determined using available market information.
<TABLE>
The following table presents information for loans:
<CAPTION>
December 31, 1995 December 31, 1994
Book Estimated Book Estimated
(In Thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Real estate $148,938 $149,642 $139,815 $135,229
Agricultural 724 716 665 559
Commercial and industrial 25,729 25,763 20,725 21,075
Loans to individuals 26,184 26,520 25,709 23,750
Other 60 60 42 42
Total loans $201,635 $202,701 $186,956 $180,655
</TABLE>
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-
bearing demand deposits, NOW accounts, savings deposits, and Insured Money
Market Accounts, is equal to the amount payable on demand as of December 31,
1995 and 1994. The fair value of time deposits is based on the discounted
value of contractual cash flows. The discount rate is estimated using the
rates currently being offered for deposits of similar remaining maturities.
<TABLE>
December 31, 1995 December 31, 1994
Book Estimated Book Estimated
(In Thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 20,247 $ 20,247 $ 22,354 $ 22,354
Interest-bearing deposits:
NOW accounts 31,102 31,102 32,225 32,225
Savings deposits 28,136 28,136 29,974 29,974
Insured Money Market
Accounts 6,653 6,653 6,361 6,361
Time deposits 110,454 108,257 92,246 89,759
Total deposits $196,592 $194,395 $183,160 $180,673
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market, commonly referred to as the core deposit
intangible.
Borrowed funds:
Rates currently available to SUN for borrowed funds with similar terms and
remaining maturities are used to estimate the fair value of existing borrowed
funds.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Estimated Estimated
Book Fair Book Fair
(In Thousands) Value Value Value Value
<S> <C> <C> <C> <C>
Short-term borrowings $15,526 $15,526 $34,702 $34,702
Other borrowed funds 68,613 68,910 50,972 48,738
Total borrowed funds $84,139 $84,436 $85,674 $83,440
</TABLE>
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Written:
There is no material difference between the notional amount and the
estimated fair value of off-balance sheet items which total $35,150,000 and are
primarily comprised of unfunded loan commitments which are generally priced at
market at the time of funding.
9. Common Stock Plans
In 1994, the shareholders of SUN BANCORP, INC. approved the adoption of
three common stock plans for employees and directors. The 1994 Stock
Incentive Plan, which is administered by a disinterested committee of the
Board of Directors, has allocated 291,060 shares of common stock for key
officers and other management employees in the form of qualified options,
non-qualified options, stock appreciation rights and/or restrictive stock.
The number of shares granted under this plan was 34,816 in 1995 and 57,152
in 1994. In 1995, the purchase price per share at which the granted shares
are exercisable was $25.00. In 1994, the purchase prices per share were
$19.62 and $17.89.
The 1994 Independent Directors Stock Option Plan allows for 30,016
shares of common stock to be granted to non-employee directors. The number of
shares granted under this plan was 5,889 in 1995 and 6,342 in 1994. The
purchase price per share at which the granted shares are exercisable was $20.38
in 1995 and $17.38 in 1994. Options for the 1994 Stock Incentive Plan and the
1994 Independent Directors Stock Option Plan expire ten years after the date
of grant. During 1995 and 1994, no granted options for either plan were
exercised.
The 1994 Employee Stock Purchase Plan has allocated 90,956 shares of common
stock for all employees at an option price per share that is not less that 90%
of the fair market value per share on the date of exercise. Each option will
expire no later than five years from the date of grant. The Plan will termi-
nate on the tenth anniversary of teh effective date of the grant.
<TABLE>
The following table provides data related to the 1994 Employee Stock
Purchase Plan:
<CAPTION>
Shares Shares Expired Granted Shares Range of Price on
Year Granted Exercised Shares Outstanding Shares Exercised
<S> <C> <C> <C> <C> <C>
1995 9,972 1,970 780 14,654 $19.80 - $22.05
1994 7,876 220 224 7,432 $16.75 - $17.92
</TABLE>
SUN has an optional dividend reinvestment plan for all shareholders in
which additional shares of common stock may be purchased with reinvested
dividends and optional cash payments. The shares are purchased in the open
market with the price being equal to the fair market value of the common stock
on the date of purchase by SUN.
10. Employee Benefit Plans
SUN provides a defined contribution pension plan that covers sub-
stantially all employees. SUN's contributions to this plan are based on
employee contributions and compensation. In addition to the defined
contribution plan, SUN provides supplemental payments to certain key
employees upon retirement.
SUN's contributions to the defined contribution plan for the years
ended December 31, 1995, 1994 and 1993 were $201,000, $170,000 and $163,000,
respectively. Additionally, the amount charged to expense under the
supplemental payment agreement for the same periods was $32,000, $40,000 and
$56,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
11. Income Taxes
The following temporary differences gave rise to a deferred tax asset
at December 31, 1995 and 1994:
<CAPTION>
Years Ended December 31
(In Thousands)
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $513 $ 448
Loan fees and costs 147 148
Pension expense 54 43
Depreciation 44 45
Other 43 20
Unrealized losses on investment securities - 1,286
Total $801 $1,990
Deferred tax liabilities:
Unrealized gains on investment securities $ 719 $ -
Other 5 -
Total $ 724 $ -
Deferred tax asset, net $ 77 $1,990
</TABLE>
<TABLE>
SUN's income tax provision for 1995, 1994 and 1993 consists of the following:
<CAPTION>
Years Ended December 31
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Current payable $2,246 $2,058 $1,728
Deferred income tax benefit (92) (188) (138)
Income tax provision $2,154 $1,870 $1,590
</TABLE>
<TABLE>
The following is a reconciliation between the actual income tax expense
and the amount of income taxes which would have been recognized at the
federal statutory rate:
<CAPTION>
Years Ended December 31
1995 1994 1993
(In Thousands)
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $2,653 34.0% $2,307 34.0% $1,986 34.0%
Tax-exempt income (471) (6.0) (407) (6.0) (387) (6.6)
Other items (28) (.4) (30) (.4) (9) (.2)
Income tax provision $2,154 27.6% $1,870 27.6% $ 1,590 27.2%
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
12. Related Party Transactions
Certain executive officers, corporate directors or companies in which
they have 10 percent or more beneficial ownership were indebted to SUN.
A summary of loan activity with officers, directors, stockholders and
associates of such persons is listed below:
<CAPTION>
(In Thousands) Beginning New Other Ending
Balance Loans Repayments Changes Balance
<S> <C> <C> <C> <C> <C>
10 Directors, 7 Executive Officers 1995 $11,642 $4,925 $(6,364) $ 489 $10,692
10 Directors, 8 Executive Officers 1994 10,778 4,345 (3,879) 398 11,642
9 Directors, 5 Executive Officers 1993 7,019 3,792 (1,547) 1,514 10,778
</TABLE>
The above transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than normal risks of collectibility.
13. Off-Balance Sheet Risk
SUN is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
balance sheet.
Exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those in-
struments. SUN uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Evaluation of
each customer's creditworthiness is done on a case-by-case basis. The amount
of collateral obtained if deemed necessary upon extension of credit is based
on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties. At December 31, 1995 and 1994,
commitments to extend credit totaled $33,784,000 and $34,825,000, respectively.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including com-
mercial paper, bond financing, and similar transactions. The term of the
letters of credit varies from one month to 24 months and may have renewal
features. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. SUN holds collateral
supporting those commitments for which collateral is deemed necessary. At
December 31, 1995 and 1994, standby letters of credit totaled $1,366,000 and
$1,490,000, respectively.
<PAGE>
14. Regulatory Matters
Various regulatory agencies require banks and bank holding companies to
maintain a leverage ratio of core capital to total assets at a prescribed
level, currently 3.0% In addition, bank regulators have issued risk-based
capital guidelines. Under such guidelines, minimum ratios of core capital
and total qualifying capital as a percentage of risk-weighted assets and
certain off-balance sheet items of 4.0% and 8.0%, respectively, are required
at December 31, 1995.
At December 31, 1995, SUN met all capital requirements. Core capital was
$36,020,000 or 11.27% of total assets and 18.47% of total risk-weighted
assets, while total qualifying capital was approximately $38,211,000 or
19.59% of total risk-weighted assets.
Banking regulations limit the amount of dividends that may be paid to SUN
by the Bank without prior approval of the Bank regulatory agencies. Retained
earnings against which dividends may be paid without prior approval of the
banking regulators amounted to approximately $26,691,000 for Sun Bank at
December 31, 1995, subject to the minimum capital ratio requirements noted
above.
The Bank is subject to regulatory restrictions which limit its ability to
loan funds to SUN. At December 31, 1995, the maximum amount available to loan
approximated 10% of consolidated net assets.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
15. Condensed Financial Information - Parent Company Only
SUN BANCORP, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<CAPTION>
(In Thousands) 1995 1994
<S> <C> <C>
Assets:
Cash $ 7 $ 5
Investment securities 595 458
Note receivable - net 6 12
Accounts receivable 17 5
Investment in subsidiaries 35,404 28,256
Prepaid taxes - 31
Total assets $36,029 $28,767
Liabilities:
Accounts payable $ 4 $ 13
Income tax payable 5 -
Total liabilities 9 13
Stockholders' Equity:
Common stock 4,053 3,515
Surplus 25,563 15,212
Retained earnings 7,765 11,479
Unrealized gains (losses) on
investment securities, net 48 (43)
Treasury stock (1,409) (1,409)
Total stockholders' equity 36,020 28,754
Total liabilities and stockholders' equity $36,029 $28,767
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
SUN BANCORP, INC.
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Income:
Dividend income $2,340 $1,814 $2,063
Interest and other income 67 89 109
Total income 2,407 1,903 2,172
Expenses:
Stationery and printing 15 14 16
Professional fees 22 37 33
Other expenses 80 72 69
Total expenses 117 123 118
Income before income taxes and
equity in undistributed earnings
of subsidiaries 2,290 1,780 2,054
Income tax benefit (13) (7) -
Income before equity in undistributed
earnings of subsidiaries 2,303 1,787 2,054
Equity in undistributed earnings of
subsidiaries 3,347 3,127 2,197
Net income $5,650 $4,914 $4,251
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
SUN BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
(In Thousands)
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,650 $4,914 $4,251
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (3,347) (3,127) (2,197)
Gain from insurance contract - (60) -
Deferred income taxes (45) 21 -
Realized net security losses - 1 -
(Increase) decrease in accounts receivable (12) 6 (1)
(Increase) decrease in prepaid taxes 31 (19) (1)
Increase (decrease) in liabilities (4) 9 (6)
(Decrease) in provision for possible loan losses (1) (2) (1)
Net cash provided by operating activities 2,272 1,743 2,045
Cash flows from investing activities:
Proceeds from sales of investment securities - 81 -
Proceeds from insurance contract - 315 -
Principal collected on note receivable 6 10 4
Purchases of investment securities - (365) (303)
Net cash provided by (used in) investing
activities 6 41 (299)
Cash flows from financing activities:
Cash dividends (2,317) (1,792) (1,360)
Treasury stock acquired - - (396)
Proceeds from sale of stock for employee
benefit program 41 4 -
Net cash used in financing activities (2,276) (1,788) (1,756)
Net increase (decrease) in cash and cash
equivalents 2 (4) (10)
Cash and cash equivalents at beginning of year 5 9 19
Cash and cash equivalents at end of year $ 7 $ 5 $ 9
</TABLE>
No interest or income taxes were paid by the parent company during the years
1995, 1994 or 1993.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
16. Consolidated Quarterly Financial Data (Unaudited)
<CAPTION>
(Dollars in Thousands, Except Per Share Data)
1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
<S> <C> <C> <C> <C> <C>
Interest income $5,771 $6,117 $6,243 $6,308 $24,439
Interest expense 2,764 3,055 3,111 3,157 12,087
Net interest income 3,007 3,062 3,132 3,151 12,352
Provision for possible
loan losses (120) (120) (60) (60) (360)
Other operating income 413 404 442 537 1,796
Other operating expenses (1,526) (1,635) (1,339) (1,484) (5,984)
Income before income
taxes 1,774 1,711 2,175 2,144 7,804
Income tax provision (484) (458) (612) (600) (2,154)
Net income $1,290 $1,253 $1,563 $1,544 $ 5,650
Net income per share $ .40 $ .39 $ .50 $ .48 $ 1.77
1994
Interest income $4,983 $5,015 $5,126 $5,542 $20,666
Interest expense 2,127 2,123 2,217 2,500 8,967
Net interest income 2,856 2,892 2,909 3,042 11,699
Provision for possible
loan losses (90) (90) (90) (90) (360)
Other operating income 298 513 350 408 1,569
Other operating expenses (1,443) (1,666) (1,479) (1,536) (6,124)
Income before income taxes 1,621 1,649 1,690 1,824 6,784
Income tax provision (451) (469) (451) (499) (1,870)
Net income $1,170 $1,180 $1,239 $1,325 $ 4,914
Net income per share $ .36 $ .37 $ .39 $ .42 $ 1.54
1993
Interest income $4,841 $4,965 $5,029 $5,178 $20,013
Interest expense 2,207 2,212 2,218 2,333 8,970
Net interest income 2,634 2,753 2,811 2,845 11,043
Provision for possible
loan losses (105) (123) (153) (159) (540)
Other operating income 313 302 388 379 1,382
Other operating expenses (1,495) (1,572) (1,490) (1,487) (6,044)
Income before income taxes 1,347 1,360 1,556 1,578 5,841
Income tax provision (361) (368) (429) (432) (1,590)
Net income $ 986 $ 992 $1,127 $1,146 $ 4,251
Net income per share $ .31 $ .31 $ .35 $ .35 $ 1.32
</TABLE>
Report of Independent Certified Public Accountants
To the Stockholders and Board of Directors of SUN BANCORP, INC.
We have audited the accompanying consolidated balance sheets of SUN
BANCORP, INC. and subsidiaries ("SUN") as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility
of SUN's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signi-
ficant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SUN
BANCORP, INC. and subsidiaries as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
SUN changed its method of accounting for investment securities by adopting
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and changed its method of account-
ing for income taxes by adopting Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
/s/ PARENTE, RANDOLPH, OLANDO, CAREY & ASSOCIATES
Williamsport, Pennsylvania
January 19, 1996
<PAGE>
Five Year Financial Highlights
<TABLE>
Five Year Financial Highlights
Selected Financial Data
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (In Thousands)
Assets $319,626 $299,761 $288,662 $250,175 $211,518
Deposits 196,592 183,160 179,363 181,947 170,625
Loans 199,444 184,957 165,740 146,956 137,368
Investment securities 107,125 100,002 111,311 89,531 60,730
Stockholders' equity 36,020 28,754 29,758 25,629 23,661
Average equity 32,025 29,697 27,004 24,706 22,723
Average assets 309,623 285,177 270,504 231,065 202,824
Earnings Data (In Thousands)
Interest income $ 24,439 $ 20,666 $ 20,013 $ 18,737 $ 18,481
Interest expense 12,087 8,967 8,970 9,070 10,554
Net interest income 12,352 11,699 11,043 9,667 7,927
Provision for possible loan losses 360 360 540 420 228
Net interest income after provision
for possible loan losses 11,992 11,339 10,503 9,247 7,699
Other operating income 1,796 1,569 1,382 1,206 1,072
Other operating expenses 5,984 6,124 6,044 5,969 5,683
Income before income tax provision 7,804 6,784 5,841 4,484 3,088
Income tax provision 2,154 1,870 1,590 1,142 655
Net income 5,650 4,914 4,251 3,342 2,433
Dividends declared 2,317 1,792 1,360 1,005 816
Ratios
Return on average assets 1.83% 1.72% 1.57% 1.45% 1.20%
Return on average equity 17.64% 16.55% 15.74% 13.53% 10.71%
Equity to assets (year end) 11.27% 9.59% 10.31% 10.24% 11.19%
Loans to deposits (year end) 101.45% 100.98% 92.40% 80.77% 80.51%
Loans to assets (year end) 62.40% 61.70% 57.42% 58.74% 64.94%
Dividend payout (percentage
of net income) 41.01% 36.47% 31.99% 30.07% 33.54%
Per Share Data
Net income per share $ 1.77 $ 1.54 $ 1.32 $ 1.03 $ .74
Cash dividends per share $ .72 $ .55 $ .42 $ .31 $ .25
Book value per share $ 11.28 $ 9.00 $ 9.32 $ 7.95 $ 7.24
Average shares outstanding 3,194,248 3,193,282 3,213,495 3,256,126 3,270,468
Approximate number of
stockholders 1,337 1,163 1,089 1,027 1,047
</TABLE>
<PAGE>
Management's Discussion and Analysis
BACKGROUND
SUN BANCORP, INC. (SUN) is a one bank holding company whose principal
subsidiary is Sun Bank. In 1993, SUN's two subsidiary banks merged to create
one bank with the legal title Sun Bank; however, the banks retained their
trade nemes of Snyder County Trust Company and Watsontown Bank. SUN also owns
a captive insurance company, the Pennsylvania SUN Life Insurance Company, that
provides credit life and disability insurance to Sun Bank's credit customers.
In 1995, SUN entered into a limited partnership with the Susquehanna Valley
Development Group, Inc. The partnership was formed for the purpose of building
owning and operating an affordable elderly apartment complex in Union County
known as Mifflin Place Associates. SUN operates six branch banking offices and
one trust services office in its principal market area of Snyder, Union and
Northumberland Counties. At December 31, 1995, SUN had 101 full-time equiva-
lent employees.
ANALYSIS OF OPERATIONS
Summary
SUN achieved record earnings for the year ending December 31, 1995. Net
income reached $5,650,000 in 1995, representing a $736,000 or 15% increase
over the $4,914,000 recorded in 1994. Earnings per share also reached record
levels at $1.77 compared to the $1.54 earned in 1994. This strong earnings
performance is further reflected through a solid 1.83% return on average assets
and a 17.64% return on average equity. At December 31, 1994, these ratios were
1.72% and 16.55%, respectively.
Net Interest Income
A bank's profitability is primarily determined by its net interest income,
which is the difference between the income earned on earning assets and the
interest paid on interest-bearing liabilities such as deposits and borrowed
funds. Net interest income is also measured as a percentage of earning assets
known as the net interest margin.
SUN's net interest income rose $785,000 or 6.32% in 1995 and increased
$681,000 or 5.80% in 1994 due primarily to an increase in interest-earning
assets during both years. Interest rates started moving upward during the
second quarter of 1994 and steadily increased throughout the remainder of
the year into early 1995. Rates remained relatively stable throughout 1995 with
a slight decrease in the middle and end of the year. In 1995, interest income
rose $3,905,000 or 18.26% as interest expense increased $3,120,000 or 34.79%.
The effect of the upward movement in rates throughout 1994 is reflected in the
higher rates received on earning assets in 1995 as well as the increase in
rates paid on deposits and borrowed funds. SUN's management feels that
effective asset/liability management can absorb the effects of a changing
interest enviornment.
<PAGE>
Balance Sheet
Average assets grew $24,446,000 or 8.57% from $285,177,000 in 1994 to
$309,623,000 in 1995. Average loans grew $21,389,000 or 12.21% as loan demand
remained strong throughout 1995. Average investments remained basically un-
changed from $100,658,000 in 1994 to $100,630,000 in 1995. However, the
makeup of the investment portfolio changed slightly as principal paydowns
from mortgage-backed securitis were used to fund tax-free municipal bond
purchases instead on being reinvested into mortgage-backed securities. This
was done to take advantage of the prevailing higher rates on tax-free bonds.
The yield on total earning assets rose 64 basis points from 7.75% in 1994 to
8.39% in 1995. Yields in each of the earning asset categories showed in-
creases reflecting the effect of rising rates throughout 1994.
In 1994, SUN's average assets rose $14,673,000 or 5.42% from $270,504,000
in 1993 to $285,177,000 in 1994. Average loans grew $17,085,000 or 10.81% as
average investments showed a slight decrease of $954,000 or less than 1% The
yield on earning assets dropped 21 basis points in 1994 as a result of the
sharp increase in the volume of new mortgage loans going on the books at com-
petitive market rates coupled with the existing variable rate loan portfolio
repricing with prior period carryovers.
In 1995, SUN's average interest-bearing liabilities rose $20,974,000 or
8.94% from $234,482,000 in 1994 to $255,456,000 in 1995. Total average
deposits grew $8,260,000 or 5.00% as time deposits increased $13,506,000 or
14.98%. In 1995, SUN offered an attractive 20-month certificate of deposit
which accounted for much of the growth. The other deposit categories showed
decreases as some of those monies were transferred to time deposits as
consumers started seeking higher yielding deposits. Short-term borrowings,
mainly overnight borrowings from the Federal Home Loan Bank (FHLB) of Pitts-
burgh, dropped $7,175,000 or 28.17% as other borrowed funds, primarily term
advances from the FHLB, showed a sharp increase of $19,889,000 or 45.31%. Some
of the overnight borrowings were converted to term advances to control the
interest rate risk. The remaining increase in other borrowed funds was used
to fund loan growth. It is management's and the Board of Director's intent to
recognize the highest possible spread between its funding sources and earning
assets through prudent asset/liability management.
The interest paid on deposits in 1995 rose $1,667,000 or 29.20% as the
rates paid increased 79 basis points from 3.46% in 1994 to 4.25% in 1995. The
rates paid on short-term borrowings and other borrowed funds rose 104 basis
points from 4.70% in 1994 to 5.74% in 1995. This increase in the cost of funds
is a result of the prevailing interest rate enviornment.
In 1994, average interest-bearing deposits remained stable at $165,112,000
compared to $164,299,000 in 1993. Short-term borrowings increased $12,478,000
or 96.02% as other borrowed funds dropped $3,545,000 or 7.47%.
<PAGE>
Management's Discussion and Analysis
<TABLE>
AVERAGE BALANCE AND NET INTEREST INCOME ANALYSIS
The table below presents an analysis of the composition of average balances
and net interest income on a fully taxable equivalent basis.
<CAPTION>
1995 1994 1993
Average Average Averag
(In Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $ 2,118 $ 122 5.76% $ 121 $ 5 4.13% $ 428 $ 13 3.04%
Loans (net of unearned
income) (1) (2) 196,538 18,037 9.18 175,149 14,863 8.49 158,064 13,797 8.73
Investments:Taxable 78,821 5,066 6.43 82,661 4,832 5.85 85,390 5,282 6.19
Tax-exempt (2) 21,809 2,060 9.45 17,997 1,680 9.33 16,222 1,609 9.92
Federal funds sold - - - 3 - - 11 1 3.00
Total interest-earning assets 299,286 25,285 8.39 275,931 21,380 7.75 260,115 20,702 7.96
Noninterest-earning assets:
Cash and due from banks 5,789 5,754 5,503
Bank premises
& equipment 3,513 3,725 4,094
Accrued interest and
other assets 3,538 2,015 2,547
Less: Allowance for
loan losses (2,145) (1,891) (1,545)
Unamortized loan fees (358) (357) (210)
Total assets $309,623 $285,177 $270,504
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOWs and Super NOWs $ 31,407 630 2.01 $ 32,554 661 2.03 $ 30,725 749 2.44
Insured Money Market
Accounts 8,459 287 3.39 10,591 288 2.72 10,934 305 2.79
Savings deposits 29,829 670 2.25 31,796 729 2.29 29,338 810 2.76
Time deposits 103,677 5,789 5.58 90,171 4,031 4.47 93,302 4,375 4.69
Short-term borrowings 18,298 978 5.50 25,473 1,062 4.17 12,995 413 3.18
Other borrowed funds 63,786 3,733 5.81 43,897 2,196 5.00 47,442 2,318 4.89
Total interest-bearing
liabilities 255,456 12,087 4.73 234,482 8,967 3.82 224,736 8,970 3.99
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 19,704 19,786 17,115
Accrued interest and
other liabilities 2,438 1,212 1,649
Stockholders' equity 32,025 29,697 27,004
Total liabilities and
stockholders' equity $309,623 $285,177 $270,504
Interest rate spread 3.66% 3.93% 3.97%
Net interest income/margin $ 13,198 4.41% $12,413 4.50% $11,732 4.51%
(1) Average loan balances include non-accrual loans and interest income
includes fees on loans.
(2) Yields on tax-exempt loans and investments have been adjusted to a fully
taxable equivalent basis using the federal income tax rate of 34%.
</TABLE>
Management's Discussion and Analysis
<TABLE>
VOLUME AND RATE ANALYSIS
Changes in interest income and interest expense can result from variances
in both volume and rates. The following table shows an analysis of the
effect of volume and rate variances on taxable-equivalent interest income,
interest expense, and net interest income.
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
(In Thousands) Increase (Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 82 $ 35 $ 117 $ (9) $ 1 $ (8)
Loans 1,816 1,358 3,174 1,492 (426) 1,066
Investments:
Taxable (225) 459 234 (169) (281) (450)
Tax-exempt 356 24 380 176 (105) 71
Federal funds sold - - - (1) - (1)
Total interest-earning
assets 2,029 1,876 3,905 1,489 (811) 678
Interest paid on:
NOWs and Super NOWs (23) (8) (31) 45 (133) (88)
Insured Money Market Accounts (58) 57 (1) (10) (7) (17)
Savings deposits (45) (14) (59) 68 (149) (81)
Time deposits 604 1,154 1,758 (151) (193) (344)
Short-term borrowings (299) 244 (84) 397 252 649
Other borrowed funds 994 514 1,537 (173) 51 (122)
Total interest-bearing
liabilities 1,173 1,947 3,120 176 (179) (3)
Net interest income $ 856 $ (71) $ 785 $1,313 $(632) $681
</TABLE>
Income on tax-exempt loans and investments have been adjusted to a fully
taxable equivalent basis using the federal income tax rate of 34%.
<PAGE>
Management's Discussion and Analysis
<TABLE>
ANALYSIS OF CHANGES IN INCOME AND EXPENSE
The table below presents an analysis of the comparative changes in income
and expense relating to the consoldiated income statements for the period's
indicated. The table also reflects the changes in average volume of assets
and liablilites as it relates to income and expense. The tax-exempt income is
not shown on a tax-equivalent basis.
<CAPTION>
(In Thousands)
1995 Compared to 1994 1994 Compared to 1993
Average Volumes Income/Expense Average Volumes Income/Expense
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (net of unearned
income) $21,389 12.21% $3,166 21.50% $17,085 10.81% $ 1,069 7.83%
Investment securities (28) (.03) 490 8.25 (954) (.94) (407) (6.42)
Money market
investments 1,994 1,608.06 117 2,340.00 (315) (71.75) (9) (64.29)
Total interest-
earning assets $23,355 8.46% $3,773 18.26% $15,816 6.08% $ 653 3.26%
NOWs and
Super NOWs $(1,147) (3.52)% $ (31) (4.69)% $ 1,829 5.95% $ (88) (11.75)%
Insured Money Market
Accounts (2,132) (20.13) (1) (.35) (343) (3.14) (17) (5.57)
Savings deposits (1,967) (6.19) (59) (8.09) 2,458 8.38 (81) (.10)
Time deposits 13,506 14.98 1,758 43.61 (3,131) (3.36) (344) (7.86)
Short-term borrowings (7,175) (28.17) (84) (7.91) 12,478 96.02 649 157.14
Other borrowed funds 19,889 45.31 1,537 69.99 (3,545) (7.47) (122) (5.26)
Total interest-bearing
liabilities $20,974 8.94% $3,120 34.79% $ 9,746 4.34% $ (3) (.03)%
Net interest income 653 5.58 656 5.94
Provision for possible loan losses - - (180) (33.33)
Net interest income after provision for
possible loan losses 653 5.76 836 7.96
Trust income 36 16.67 - -
Service charges and other income 212 22.39 (88) (8.50)
Net securities gains 65 100.00 (66) (50.38)
Income from insurance subsidiary (86) (25.22) 341 100.00
Total other operating income 227 14.47 187 13.53
Salaries and employee benefits 114 3.63 (29) (.92)
Net occupancy and equipment expenses (36) (4.52) (171) (17.68)
Other expenses (146) (7.75) (26) (1.36)
Expenses of insurance subsidiary (72) (23.53) 306 100.00
Total other operating expenses (140) (2.29) 80 1.32
Income before income tax provision 1,020 15.04 943 16.14
Income tax provision 284 15.19 280 17.61
Net income $ 736 14.98% $663 15.60%
</TABLE>
<PAGE>
Management's Discussion and Analysis
OTHER OPERATING INCOME
SUN's total other operating income rose $227,000 or 14.47% in 1995.
Positive growth was recognized in each income category except the income
from the insurance subsidiary. Service charges on deposit accounts grew
$48,000 or 10.28% due to an increase in the number of accounts and general
increases in related account fees. Trust income rose $36,000 or 16.67% as
a result of an increase in number of accounts as well as the balances held
in trust. Other income increased $164,000 or 34.17% in 1995. SUN recog-
nized $27,000 in net gains from the sale of other real estate owned and
$62,000 in proceeds from an insurance contract relating to the termination
of its defined benefit pension plan in 1990. Net security gains amounted
to $130,000 in 1995, up $65,000 from the gains realized in 1994. In early
1995, SUN sold several state and municipal bonds with call dates within one
to two years and purchased like instruments with five year call dates to
take advantage of the interest rate cycle. These trades netted $70,000 in
gains with the other $60,000 coming from sales of equity securities. SUN
recognizes the need to find additional sources of income to enhance its profit
performance. However, sales from the investment portfolio are not used as a
strategy to increase income at the expense of liquidity.
In 1994, SUN's total other operating income increased $187,000 or 13.53%.
SUN's insurance subsidiary became fully operational in 1994 which contributed
to the increase. Service charges on deposit accounts rose $49,000 or 11.72%
as other income dropped $137,000 or 22.20% due to a sharp decline in fee
income generated from loan sales as loans granted in 1994 that would have
normally been sold were kept in-house. Security gains amounted to $65,000
from the sale of equity securities.
<TABLE>
The table below illustrates the changes in other operating income for the
years ended December 31, 1995, 1994, and 1993.
<CAPTION>
(In Thousands) 1995 % Change 1994 % Change 1993
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 515 10.28% $ 467 11.72% $ 418
Trust income 252 16.67 216 - 216
Other income 644 34.17 480 (22.20) 617
Net securities gains 130 100.00 65 (50.38) 131
Income from insurance subsidiary 255 (25.22) 341 100.00 -
Total other operating income $1,796 14.47% $1,569 13.53% $1,382
</TABLE>
OTHER OPERATING EXPENSES
SUN has always been committed to controlling its operating expenses in an
effort to maximize profits. In 1995, SUN's total other operating expenses de-
creased $140,000 or 2.29% with general declines or minimal increases in each of
the expense categories. Salaries and employee benefits increased $114,000 or
3.63% due to normal salary adjustments. Net occupancy expenses rose $5,000 or
1.36% as furniture and equipment expenses dropped $41,000 or 9.58%. In late
1995, SUN purchased three future branch locations. The effect of the costs to
prepare these sites for operation will be recognized in 1996. Additionally, SUN
will be purchasing and installing new computer hardware and software throughout
1996 in an effor to enhance our competitive position and to be prepared to offer
the products and services demanded in today's rapidly changing technology-based
marketplace.
In September 1995, SUN received a $117,000 refund from the Federal Deposit
Insurance Corporation (FDIC) representing an adjustment to its deposit insurance
premiums for the second and third quarters of 1995. The reduced FDIC premium
paid in the fourth quarter of 1995 along with the refund contributed to SUN's
other operating expenses falling $146,000 or 7.75%. Due to the restructuring
of the payment of FDIC premiums, SUN will pay the minimum annual assessment
rate of $2,000 in 1996 as a result of its well-capitalized status.
In 1994, total other operating expenses rose $80,000 or 1.32% which in-
cluded the expenses of the insurance subsidiary for the first time. Excluding
the expenses of the insurance subsidiary, total other operating expenses
actually decreased $226,000 or 3.74%. The consolidation of operations of the
Watsontown Bank with Snyder County Trust Company in late 1993 contributed to
the decrease in costs as economies of scale were recognized in several aspects
of operations.
<TABLE>
The table below illustrates the changes in other operating expenses for
the years ended December 31, 1995, 1994 and 1993.
<CAPTION>
(In Thousands) 1995 % Change 1994 % Change 1993
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $3,251 3.63% $3,137 (.92)% $3,166
Net occupancy expenses 373 1.36 368 (4.91) 387
Furniture and equipment expenses 387 (9.58) 428 (26.21) 580
Other expenses 1,739 (7.75) 1,885 (1.36) 1,911
Expenses of insurance subsidiary 234 (23.53) 306 100.00 -
Total other operating expenses $5,984 (2.29) $6,124 1.32% $6,044
</TABLE>
Management's Discussion and Analysis
INVESTMENT PORTFOLIO
SUN's total portfolio has always been classified as Available-for-Sale,
which means it is reported at fair value with unrealized gains or losses, net
of taxes, reported as a separate component of stockholders' equity. In 1995,
SUN had an unrealized net gain on investment securities of $2,115,000, com-
pared to an unrealized loss of $3,783,000 in 1994. The majority of SUN's
portfolio is comprised of fixed-rate mortgage-backed securities that have
monthly principal and interest paydowns. As these paydowns are received, the
funds are generally being reinvested into higher-yielding loans and other
securities. Management believes this sound strategy continues to reflect
positively on profits. There are no single-issuer concentrations in muni-
cipal securities. SUN does not have any derivataive financial instruments
that require separate disclosure as defined in Statement of Financial
Accounting Standards No. 119.
<TABLE>
The following table shows the actual maturity distribution of investment
securities at December 31, 1995.
<CAPTION>
(In Thousands)
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years Total
Amortized Amortized Amortized Amortized Amortized
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations
of U.S. government
agencies $ 38 4.66% $ 614 6.13% $28,811 6.64% $43,962 6.39% $73,425 6.49%
Obligations of
states and political
subdivisions (1) 90 7.91 830 10.70 75 13.64 24,118 9.27 25,113 9.33
Corporate debt
securities - - 242 5.71 - - - - 242 5.71
Total $128 6.95% $1,686 8.32% $28,886 6.66% $68,080 7.41% $98,780 7.21%
Equity securities (2) 6,230
Total investment securities $105,010 6.78%
(1) The federal income tax rate of 34% was used to adjust the income to a
taxable equivalent basis.
(2) Equity securities have no stated maturity and the related dividend
income has no stated rate.
</TABLE>
<TABLE>
The amortized cost, unrealized gains and losses, and estimated fair
value of investment securities at December 31, 1995 and 1994 were as follows:
<CAPTION>
(In Thousands)
1995
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of
U.S. government
agencies $73,425 $ 548 $(615) $ 73,358
Obligations of states
and political
subdivisions 25,113 1,423 (13) 26,523
Corporate debt
securities 242 - - 242
Equity securities 6,230 795 (23) 7,002
Total $105,010 $2,766 $(651) $107,125
1994
Obligations of
U.S. government
agencies $ 76,254 $ 18 $(3,390) $ 72,882
Obligations of states
and political
subdivisions 19,851 245 (756) 19,340
Corporate debt
securities 1,503 - (11) 1,492
Equity securities 6,177 274 (163) 6,288
Total $103,785 $ 537 $(4,320) $100,002
</TABLE>
<PAGE>
Management's Discussion and Analysis
LOAN PORTFOLIO
Loan demand continued to be strong in 1995 as total loans increased
$14,679,000 or 7.85% from $186,956,000 in 1994 to $201,635,000 in 1995.
Much of this growth occurred in the real estate mortgage portfolio as these
loans rose $9,626,000 or 7.12%. SUN prides itself on its position as a
residential lender in the community. Commercial and industrial loans grew
$5,010,000 or 24.20% and loans to individuals remained basically unchanged
at $26,131,000. In 1994, SUN's total loans increased $19,484,000 or 11.63%
with most of the growth occurring in the real estate portfolio. Loans to
individuals rose $3,541,000 or 15.98% and commercial and industrial loans
remained level at $20,703,000.
The loan portfolio is carefully analyzed on a routine basis to ensure
the asset quality remains strong. Real estate loans account for 74% of the
portfolio and these loans are generally well-secured with minimal credit risk.
Lending activities are concentrated within SUN's market area of Snyder, Union
and Northumberland counties; therefore, it does not have any foreign loans
nor does it engage in lease financing. Management believes the loan portfolio
is adequately diversified and there are no concentrations exceeding 10% of
total loans.
<TABLE>
The following table identifies the composition of the loan portfolio,
net of unearned income, for the five years ending December 31, 1995.
<CAPTION>
(In Thousands)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Real estate-Construction $ 4,729 $ 5,221 $ 5,341 $ 3,152 $ 2,411
Real estate-Mortgage 144,746 135,120 118,798 106,779 96,236
Agricultural loans 724 665 740 1,128 1,245
Commercial and industrial
loans 25,713 20,703 20,761 19,467 22,365
Loans to individuals 26,131 25,705 22,164 18,052 16,367
Other loans 60 42 36 33 164
Deferred loan fees (468) (500) (368) (302) (256)
Total loans $201,635 $186,956 $167,472 $148,309 $138,532
</TABLE>
<TABLE>
The following tables set forth the loan maturities and interest rate
sensitivity of commercial and industrial, agricultural and other loans,
and real estate-construction loans as of December 31, 1995. These tables
represent gross loan balances.
<CAPTION>
(In Thousands) Within After One But After
One Year Within Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial and industrial,
agricultural and other loans $20,193 $1,086 $5,218 $26,497
Real estate - construction 4,729 - - 4,729
Total $24,922 $1,086 $5,218 $31,226
</TABLE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Fixed Variable
Rate Rate Total
<S> <C> <C> <C>
Due within one year $ 7,604 $17,378 $24,982
Due after one year 6,244 - 6,244
Total $13,848 $17,378 $31,226
</TABLE>
<PAGE>
Management's Discussion and Analysis
NONPERFORMING LOANS
Nonperforming loans include nonaccrual, past due and restructured loans.
SUN's policy is to place a loan in a nonaccrual status when management
concludes the collection of interest income appears doubtful. Interest on
loans classified as nonaccrual is recognized as it is received. Past due
loans are loans contractually past due 90 days or more as to interest or
principal payments and are still accruing interest. Restructured loans are
those whose terms have been renegotiated to provide a reduction or deferral
of interest and/or principal because of a deterioration in the financial
position of the borrower.
Management continually reviews the loan portfolio to identify and
control the number of nonperforming loans. A detailed analysis of
significant size loans is done annually by the Compliance and Credit
Review Department which operates independently of the Loan Department.
This review is designed to identify any potential credit risk and to offer
suggestions on ways to avoid those credits becoming nonperforming loans in
the future.
At December 31, 1995, total nonperforming loans amounted to $2,137,000
or 1.06% of total loans. Although nonperforming loans are higher in 1995
in comparison to previous years, when compared to its peer groups, SUN's
asset quality is comparable. Much of this increase in nonperforming loans
is a direct result of the loan growth that has occurred in the last few
years. At December 31, 1995, management was not aware of any potential
credit problems of borrowers which would result in classifying such loans
as nonperforming.
<TABLE>
The following table presents information on nonaccrual, past due and
restructured loans for the five years ending December 31, 1995.
<CAPTION>
(In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 0 $163 $ 28 $1,010 $ 959
Loans past due 90 days or more 1,989 488 286 567 312
Restructured loans 148 175 10 30 146
Total nonperforming loans $2,137 $826 $324 $1,607 $1,417
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Losses on loans are charged against the allowance in the period in which
they have been determined to be uncollectible. Recoveries of loans pre-
viously charged off are credited to the allowance as they are received.
A quarterly review of the allowance for possible loan losses is done to
determine the collectibility of certain loans based on the Compliance and
Credit Review's analysis and management's assumptions as to the ability of
the borrower to service the loan. During this review, it is also decided
when certain loans would be charged off and if additions to the allowance
are necessary. At December 31, 1995, management deems the allowance to be
adequate; however, future additions may be necessary based on economic, market
or other unforeseeable conditions. Although managment makes its best estimate
as to the additions to the allowance, there can be no assurance that future
material additions may not be needed.
The allocation of the allowance for possible loan losses is also based
on historical data, the composition of the portfolio, possible future losses
and current economic conditions. The allocation is judgmental and is subject
to variations depending on economic market conditions affecting specific
loan categories.
<PAGE>
<TABLE>
The following tables present the allocation of the allowance for possible
loan losses and the changes in the allowance for the five years ending
December 31, 1995.
<CAPTION>
(In Thousands) 1995 1994 1993 1992 1991
% of % of % of % of % of
Allowance Total Allowance Total Allowance Total Allowance Total Allowance Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
loans $ 631 73.87% $ 279 74.80% $ 208 73.91% $ 520 73.92% $ 309 71.02%
Agricultural
loans - .36 - .36 - .44 - .76 - .92
Commercial
and industrial
loans 1,080 12.76 1,093 11.07 1,203 12.40 607 13.13 811 16.14
Loans to
individuals 480 12.99 627 13.74 321 13.23 226 12.17 44 11.81
Other loans - .02 - .03 - .02 - .02 - .11
Total allowance
for possible
loan losses $2,191 100.00% $1,999 100.00% $1,732 100.00% $1,353 100.00% $1,164 100.00%
</TABLE>
<TABLE>
Management's Discussion and Analysis
(In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible
loan losses at January 1 $1,999 $1,732 $1,353 $1,164 $1,285
Loans charged off:
Real estate loans 50 - 126 80 23
Commercial and industrial loans 37 37 64 144 311
Loans to individuals 89 73 52 58 37
Total loans charged off 176 110 242 282 371
Recoveries of loans previously
charged off:
Real estate loans 2 - - - 3
Commercial and industrial loans 5 4 50 9 14
Loans to individuals 1 13 31 42 5
Total recoveries of loans charged off 8 17 81 51 22
Net loans charged off 168 93 161 231 349
Provision for possible loan losses 360 360 540 420 228
Balance at December 31 $2,191 $1,999 $1,732 $1,353 $1,164
Ratios:
Net charge-offs to average loans .09% .05% .10% .16% .26%
Allowance for possible loan losses
to total loans at December 31 1.09% 1.07% 1.03% .91% .84%
Allowance for possible loan losses
to total nonperforming loans 102.53% 242.01% 534.57% 84.19% 82.15%
</TABLE>
<PAGE>
Management's Discussion and Analysis
DEPOSITS AND BORROWED FUNDS
At December 31, 1995, SUN's total deposits were $196,592,000 compared to
$183,160,000 at December 31, 1994, representing a 7.33% increase. Time
deposits grew $18,208,000 or 19.74% as consumers started to switch from low-
yielding checking and savings accounts to longer-term higher-yielding
certificates of deposit. Consequently, the balances held in checking and
savings accounts dropped. SUN continues to obtain and maintain deposits by
offering new and attractive deposit products while remaining interest rate
competitive. In 1994, total deposits increased $3,797,000 or 2.12% At that
time, depositors invested their funds in overnight checking and savings accounts
because of the uncertainty of interest rates.
SUN continued to actively utilize the credit products of the FHLB of
Pittsburgh in 1995. At year-end, overnight borrowings on the Flexline line
of credit amounted to $9,445,000. The $68,000,000 in term advances at year
- -end included $12,600,000 in variable rate advances that reprice quarterly
and $55,400,000 in fixed rate advances with maturities ranging from January
2, 1996 to May 29, 2002. All of these borrowings are collateralized by SUN's
investment in FHLB stock, mortgage-backed securities and first mortgage loans.
Other sources of funds include several business customers' cash management
accounts, classified as securities sold under agreements to repurchase, and
the Treasury Tax and Loan Note Option. The current market rates of both
deposits and borrowings are continually monitored and analyzed to determine
the best funding source.
<TABLE>
The following tables summarize the changes in deposit balances and
related information for the periods indicated.
<CAPTION>
(In Thousands)
% of % Change from
1995 Total Prior Year
<S> <C> <C> <C>
Demand deposits $ 20,247 10.30% (9.43)%
NOW accounts 31,102 15.82 (3.48)
Insured Money Market Accounts 6,653 3.38 4.59
Savings deposits 28,136 14.31 (6.13)
Time Certificates of Deposits of
$100,000 or more 13,748 6.99 39.52
Other time deposits 96,706 49.20 17.37
Total deposits $196,592 100.00% 7.33%
% of % Change from
(In Thousands) 1994 Total Prior Year
Demand deposits $ 22,354 12.20% 16.43%
NOW accounts 32,225 17.59 5.44
Insured Money Market Accounts 6,361 3.47 (30.53)
Savings deposits 29,974 16.36 2.30
Time Certificates of Deposits of
$100,000 or more 9,854 5.38 (32.49)
Other time deposits 82,392 45.00 7.64
Total deposits $183,160 100.00% 2.12%
</TABLE>
<PAGE>
Management's Discussion and Analysis
LIQUIDITY AND INTEREST RATE SENSITIVITY
SUN's liquidity is dependent upon its ability to convert assets to cash
or acquire alternative sources of funds to meet customers' cash withdrawal
needs and borrowers' credit needs. SUN's primary sources of liquidity are
cash and due from banks, monthly principal and interest payments on mortgage-
backed securities, and other short-term investment securities. Additional
sources of funds include the Flexline overnight line of credit through the
FHLB of Pittsburgh as well as term advances through the FHLB. At December 31,
1995, SUN had approximately $39,000,000 in unused funds available through
the Federal Home Loan Bank. Management believes its liquidity sources are
adequate to meet its daily operating needs.
Closely related to liquidity is monitoring the interest rate sensitivity
of SUN's assets and liabilities to achieve stability in the net interest
margin. Interest rate sensitivity analysis involves controlling the timing
of interest changes in order to maximize earnings. In an asset sensitive
gap position, assets will reprice faster than liabilities, which is conducive
to a rising interest rate environment. Conversely, in a declining interest
rate environment, it is more beneficial to be in a liability sensitive gap
position. SUN's objective in interest rate sensitivity analysis is to adjust
its gap position when needed to increase earnings.
<TABLE>
The following table presents SUN's interest rate sensitivity position at
December 31, 1995.
<CAPTION>
After One
181-365 But Within After
(In Thousands) 0-90 Days 91-180Days Days Five Years Five Years Total
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits 416 - - - - $ 416
Investment securities 9,125 14,036 11,980 54,590 17,394 107,125
Loans 43,700 22,737 34,526 63,680 34,801 199,444
Other noninterest-earning assets - - - - 12,641 12,641
Total assets 53,241 36,773 46,506 118,270 64,836 $319,626
Liabilities and Stockholders' Equity:
Interest-bearing deposits 31,341 24,217 28,932 43,295 48,560 $176,345
Short-term borrowings 15,526 - - - - 15,526
Other borrowed funds 24,213 10,700 8,200 23,500 2,000 68,613
Other noninterest-bearing liabilities - - - - 23,122 23,122
Stockholders' equity - - - - 36,020 36,020
Total liabilities and
stockholders' equity 71,080 34,917 37,132 66,795 109,702 $319,626
Interest Sensitivity Gap:
By period $(17,839) $ 1,856 $ 9,374 $51,475 $(44,866) -
Cumulative $(17,839) $(15,983) $(6,609) $44,866 - -
</TABLE>
<PAGE>
Management's Discussion and Analysis
CAPITAL ADEQUACY
SUN's management understands the importance of adequate capitalization
as it relates to stockholder confidence and regulatory compliance. Currently,
as well as in the past, SUN is a well-capitalized organization. This point
is further emphasized in the following table which illustrates SUN's capital
ratios significantly exceeding the regulatory minimum standards.
Stockholders' equity increased $7,266,000 or 25.27% in 1995. As pre-
viously discussed, unrealized gains or losses, net of taxes, on available-
for-sale securities are reflected as an adjustment to capital under SFAS No.
115. At December 31, 1995, SUN had an unrealized gain of $1,396,000 and a
$2,496,000 unrealized loss in 1994 which resulted in a $3,892,000 increase
in capital. During 1995, SUN paid $2,317,000 in cash dividends as well as a
5% and 10% stock dividend. SUN is committed to providing its shareholders
with the highest return on their investment while remaining a safe and sound
organization. Management is not aware of any events or regulatory restrictions
in the foreseeable future that, if implemented, would have a material effect
on the capital position or earnings.
<TABLE>
The following table compares SUN's capital ratios at December 31, 1995
and 1994 to the regulatory minimums.
<CAPTION>
Regulatory December 31
Minimum 1995 1994
<S> <C> <C> <C>
Core capital ratio (1) 4.00% 18.47% 15.64%
Risk-based capital ratio (2) 8.00% 19.59 16.73
Leverage ratio (3) 3.00% 11.27 9.59
(1) Core capital (stockholders' equity) divided by risk-weighted assets
(2) Total capital (stockholders' equity plus the allowance for possible
loan losses) divided by risk-weighted assets
(3) Core capital divided by total assets
</TABLE>
FORWARD OUTLOOK
The performance of a bank is affected more by changes in interest rates
than by inflation; therefore, the effect of inflation is normally not as
significant as it is on other businesses and industries. During periods of
high inflation, the money supply usually increases and banks normally
experience above average growth in assets, loans, and deposits. A bank's
operating expenses will usually increase during inflationary times as the
prices of goods and services increase.
A bank's performance is also affected during recessionary periods. In
times of recession, a bank usually experiences a tightening on its earning
assets and on its profits. A recession is usually an indicator of higher
unemployment rates, which could mean an increase in the number of non-
performing loans because of continued layoffs and other deteriorations of
consumers' financial conditions.
SUN's management and the Board of Directors are looking forward to
meeting the many challenges that 1996 is expected to bring. Our branch bank-
ing operations will be expanded and our internal data processing capabilities
will be enhanced with the purchase of new computer hardware and software. As
these changes are implemented throughout the year, the effect on operating
expenses in 1996 is estimated to be approximately $235,000. SUN feels these
efforts are necessary in order to enhance our competitive position and to be
prepared to offer the products and services demanded in today's rapidly
changing marketplace. A portion of these costs will be offset by the drastic
reduction in FDIC premiums a previously mentioned. In 1995, SUN paid $214,000
in FDIC premiums which will be reduced to $2,000 in 1996 with the restructuring
of the insurance fund.
SUN is committed to remaining a community-based organization and intends
to recognize continued growth in its consumer, mortgage and commercial loan
portfolios while obtaining and maintaining a strong core deposit base.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights," was issued in May 1995 applicable to fiscal years
beginning after December 15, 1995. The Statement requires recognition as
separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. In October 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was
issued. This pronouncement requires the disclosure of compensation cost based
on the estimated fair value of stock options at grant date using a pricing
model. The provisions of this statement must be adopted for fiscal years
beginning after December 15, 1995 applicable to all awards granted during the
fiscal year the provisions are first applied. The adoption of both of these
statements in 1996 will not have a material effect on SUN's financial state-
ments. At the time of this writing, SUN was not aware of any pending pro-
nouncements that would have a material impact on the results of operations.
A routine examination of the Bank in 1995 by the Pennsylvania Department of
Banking resulted in no significant findings and no impact is anticipated on
current or future operations.
<PAGE>
Stockholder Information
<TABLE>
Common Stock Market Prices and Dividends Per Share
The common stock of SUN BANCORP, INC. is traded publicly on the NASDAQ
national market system under the symbol SUBI. The high and low bid informa-
tion does not include retail mark-ups or mark-downs or any commission to the
broker-dealer.
<CAPTION>
1995 1994
Bid Information Cash Dividends Bid Information Cash Dividends
High Low Declared (1) High Low Declared (1)
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31 $20.09 $18.81 $.156 $19.75 $18.41 $.126
June 30 21.15 19.02 .173 20.67 18.09 .138
September 30 21.15 20.25 .182 21.67 19.33 .143
December 31 28.25 20.48 .21 22.50 21.50 .147
(1) Cash dividends declared are adjusted for the 5% stock dividend that
occurred in June of 1995 and the 10% stock dividend in December 1995.
</TABLE>
Subsidiaries of SUN BANCORP, INC.
The following table sets forth the subsidiaries of the Registrant at December
31, 1995. Each subsidiary is wholly-owned by the Registrant.
Name Organized Under the Laws of
Sun Bank The State of Pennsylvania
Selinsgrove, PA
SUN Life Insurance Company The State of Arizona
Phoenix, AZ
March 29, 1996
Dear Stockholder:
It is a pleasure to invite you to the 1996 Annual
Stockholders' Meeting of SUN BANCORP, INC. ("SUN") to be
held on April 25, 1996.
The notice of the meeting and the proxy statement
address the formal business of the meeting, which includes
the election of directors and the ratification of the
appointment of SUN's auditors for 1996. At the meeting,
SUN's management will address other corporate matters which
will be of interest to you.
You are cordially invited to the stockholders' luncheon
which will be served promptly after the close of the annual
meeting. Should you desire to stay for lunch, please
complete and return the accompanying RSVP postcard by April
12, 1996 to SUN at 2-16 South Market Street, P.O. Box 57,
Selinsgrove, Pennsylvania 17870. The reverse side of the
RSVP card has been designated for questions you would like
addressed at the annual meeting.
We strongly encourage you to vote your shares, whether
or not you plan to attend the meeting. It is very important
that you sign, date and return the accompanying proxy in the
postage prepaid envelope as soon as possible. If you do
attend the meeting and wish to vote in person, you must give
written notice thereof to the Secretary of the Corporation
so that your proxy will be superseded by any ballot that you
submit at the meeting.
Sincerely,
/s/ Raymond C. Bowen /s/ Fred W. Kelly, Jr.
Raymond C. Bowen Fred W. Kelly, Jr.
Chairman of the Board President and CEO
Enclosures - Notice of Meeting
Proxy Statement
Proxy
Luncheon Reply Card
Return Envelope for Proxy
<PAGE>
PROXY
FOR
ANNUAL STOCKHOLDERS' MEETING
OF
SUN BANCORP, INC.
2-16 SOUTH MARKET STREET
P.O. BOX 57
SELINSGROVE, PENNSYLVANIA 17870
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SUN BANCORP, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 1996
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
Stockholder of SUN BANCORP, INC. hereby constitutes and
appoints Eleanor R. Springman and Walter C. VanNuys III
(neither of whom is a Director, Officer or Employee of SUN
BANCORP, INC.) and each or any of them, proxies, with the
powers the undersigned would possess if personally present,
and with full power of substitution to attend and vote the
shares of common stock of the undersigned of SUN BANCORP,
INC. at the Annual Meeting of Stockholders of SUN BANCORP,
INC., to be held at the Susquehanna Valley Country Club,
Mill Road, Hummels Wharf, Pennsylvania, on Thursday, April
25, 1996, at 10:30 a.m., prevailing time, and at any
adjournment or postponement thereof, upon all subjects that
properly come before the meeting, including the matters
described in the accompanying proxy statement, and
especially:
PLEASE MARK ALL VOTES AS FOLLOWS
1. ELECTION OF DIRECTORS.
THE NOMINEES FOR THE BOARD OF DIRECTORS TO SERVE
FOR A THREE YEAR TERM EXPIRING AT THE ANNUAL MEETING IN 1999
ARE:
David R. Dieck
Louis A. Eaton
Dr. Robert E. Funk
George F. Keller
Dennis J. Van
and until their successors are duly elected, qualified and
take office.
PLEASE CHECK ONLY ONE OF THE BOXES BELOW. IF BOX
(c) IS CHECKED, PLEASE CROSS OUT THE NAME OF EACH NOMINEE FROM THE LIST ABOVE
FOR WHOM YOU WISH YOUR PROXIES NOT TO VOTE FOR IN THE ELECTION OF
DIRECTORS.
(a) TO VOTE FOR all nominees listed above;
(b) NOT TO VOTE FOR any of the nominees listed above;
(c) TO VOTE FOR all the nominees listed above
except those whose names are crossed out.
2. TO RATIFY THE APPOINTMENT OF PARENTE, RANDOLPH,
ORLANDO, CAREY & ASSOCIATES, CERTIFIED PUBLIC ACCOUNTANTS,
AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR SUN
BANCORP, INC. FOR THE YEAR ENDING DECEMBER 31, 1996.
FOR AGAINST ABSTAIN
The Board of Directors recommends a vote FOR this
proposal.
<PAGE>
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The undersigned hereby ratifies and confirms all that said
proxies and each of them or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF
NO DIRECTIONS ARE GIVEN BY THE STOCKHOLDER IN THIS PROXY,
THE PROXYHOLDERS WILL VOTE FOR ALL NOMINEES LISTED ABOVE AND
FOR PROPOSAL 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF SUN BANCORP, INC. AND MAY BE REVOKED PRIOR TO
ITS EXERCISE UPON WRITTEN NOTICE THEREOF TO THE SECRETARY OF
THE CORPORATION.
WITNESS the hand and seal of the undersigned, this
______ day of _____________ _________, A.D., 1996.
________________________________
(SEAL)
Signature
________________________________
(SEAL)
Signature
________________________________
(SEAL)
Signature
Number of Shares Owned _____________ Signatures above will be
as of March 7, 1996 determined to have been
signed for all matters in
this proxy whether appear-
ing on the face or the
reverse side of this proxy.
IMPORTANT NOTICE
All joint owners should sign this proxy. Please sign
this proxy as your stock is registered. When signing as
attorney, executor, administrator, trustee, guardian, or
other fiduciary, please give full title. If there is more
than one fiduciary, all should sign, for a corporation the
person signing this proxy should show the full corporate
title and be an authorized officer.
Please sign where indicated and promptly return this
proxy to SUN BANCORP, INC. in the enclosed self-addressed
postage prepaid envelope. If you do not sign and return
this proxy, or attend the meeting and vote, your shares will
not be voted.
<PAGE>
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 25, 1996
To the Stockholders of SUN BANCORP, INC. (the "Corporation"):
NOTICE is hereby given that the ANNUAL MEETING OF
STOCKHOLDERS OF SUN BANCORP, INC., will be held at the
Susquehanna Valley Country Club, Mill Road, Hummels Wharf,
Pennsylvania on Thursday, April 25, 1996 at 10:30 a.m.,
prevailing time, for the following purposes:
1. To elect five (5) directors to serve for a three (3)
year term and until their successors are elected, qualified
and take office;
2. To ratify the appointment of Parente, Randolph,
Orlando, Carey & Associates, Certified Public Accountants,
as the independent certified public accountants for SUN BANCORP,
INC. for the year ending December 31, 1996; and
3. To transact such other business as may properly come
before the meeting and any adjournment or postponement
thereof.
Reference is hereby made to the accompanying proxy
statement for details with regard to the above matters. The
Board of Directors of the Corporation does not know of any
matters, other than those listed above, which are likely to
come before the meeting.
Only stockholders of record on the Corporation's books
at the close of business on March 7, 1996 will be entitled
to vote at the meeting and any adjournment or postponement
thereof.
By Order of the Board of
Directors of SUN BANCORP, INC.
/s/ Robert C. Longenberger
Robert C. Longenberger
Secretary
March 29, 1996
Selinsgrove, Pennsylvania
Important Notice
To assure your representation at the meeting, please
complete, date, sign and promptly mail the accompanying
proxy in the return envelope which has been provided. No
postage is necessary if mailed in the United States. Any
person giving a proxy has the power to revoke it prior to
its exercise and stockholders who are present at the meeting
may then revoke their proxy and vote in person after giving
written notice thereof to the Secretary of the Corporation.
<PAGE>
PROXY STATEMENT FOR ANNUAL STOCKHOLDERS'
MEETING TO BE HELD ON APRIL 25, 1996
GENERAL
Introduction, Date, Time and Place of Annual Meeting
This proxy statement is furnished in connection with
the solicitation by the Board of Directors of SUN BANCORP,
INC. ("SUN" or the "Corporation") of proxies to be voted at
the 1996 Annual Meeting of Stockholders ("Annual Meeting").
The Annual Meeting is scheduled to be held on Thursday,
April 25, 1996 at 10:30 a.m., prevailing time, at the
Susquehanna Valley Country Club, Mill Road, Hummels Wharf,
Pennsylvania and at any adjournment or postponement of the
Annual Meeting in accordance with the Annual Meeting notice
and By-Laws of SUN. The address of the principal executive
office of the Corporation is 2-16 South Market Street, P.O.
Box 57, Selinsgrove, Pennsylvania 17870, telephone number
(717) 374-1131. All inquiries should be directed to Fred W.
Kelly, Jr., President and CEO of SUN. The Corporation
currently has two (2) wholly-owned subsidiaries, Sun Bank
and Pennsylvania Sun Life Insurance Company. On December 1,
1993, Snyder County Trust Company ("Snyder County") and The
Watsontown Bank ("Watsontown") were merged together under a
common charter and with the name, Sun Bank.
Matters to be Submitted to the Stockholders at the Annual Meeting
The Board of Directors does not know of any matters
which are likely to be brought before the Annual Meeting
other than the matters set forth in the accompanying notice
of Annual Meeting of Stockholders. If any other matters are
properly presented to the Annual Meeting for action, the
persons named in the accompanying proxy and acting
thereunder will vote on such matters in accordance with
their best judgment.
Solicitation of Proxies for the Annual Meeting
This proxy statement is furnished in connection with
the solicitation by the Board of Directors of the
Corporation for use at the Annual Meeting. The approximate
date upon which this proxy statement and the accompanying
proxy and notice of the Annual Meeting will first be made
available and first sent to the stockholders is on or about
March 29, 1996. In addition to using the mails, proxies may
be solicited by personal interview, telephone calls or
telecopiers by the directors, officers and regular employees
of the Corporation and its wholly-owned banking subsidiary,
Sun Bank.
Cost of Solicitation of Proxies will be Paid by Corporation
The Corporation will bear the entire cost of preparing,
assembling, printing and mailing this proxy statement, the
proxies, and any additional material which the Corporation
may furnish to stockholders in connection with the Annual
Meeting. Copies of solicitation material will be furnished
to brokerage houses, fiduciaries and custodians to forward
to their principals.
<PAGE>
Discretionary Authority of Proxy - Right of Revocation of Proxy
The accompanying proxy vests discretionary authority in
the proxyholders to vote with respect to any and all of the
following matters that come before the Annual Meeting: (i)
matters about which the Corporation has no knowledge, a
reasonable time before the proxy solicitation, that may be
presented to the meeting, (ii) approval of the minutes of
the most recent prior meeting of the stockholders, if such
an action does not amount to ratification of the action
taken at that meeting, (iii) the election of any person to
any office for which a bona fide nominee is unable to serve
or for good cause will not serve and (iv) matters incident
to the conduct of the meeting. In connection with such
matters, the persons named in the accompanying proxy will
vote in accordance with their best judgment.
Stockholders giving a proxy have a right to revoke it
by a written instrument, including a later dated proxy,
signed in the same manner as the prior proxy and received by
the Secretary of the Corporation prior to the commencement
of the Annual Meeting.
Record Date - Voting Securities - Quorum
The record date for the Annual Meeting is March 7,
1996. Only holders of record of common stock on the
Corporation's books at the close of business on March 7,
1996 will be entitled to notice of and to vote at the Annual
Meeting. On that date, the Corporation had outstanding
3,194,422 shares of common stock. The stockholders are
entitled to one vote per share on any business which may
properly come before the meeting. There is no cumulative
voting with respect to the election of directors.
If the accompanying proxy is appropriately marked,
signed and returned in time to be voted at the Annual
Meeting, the shares represented by the proxy will be voted
in accordance with the instructions marked on the proxy.
Any stockholder who wishes to withhold authority from the
proxyholders to vote for the election of all the director
nominees or to withhold authority to vote for any individual
nominee as a director, may do so by marking the proxy to
that effect and crossing out the name of the director on the
proxy. No proxy may be voted for a greater number of
persons than the number of nominees named. Signed proxies
not marked to the contrary will be voted "FOR" the election
of the nominees named below as directors of the Board of
Directors and "FOR" the ratification of the appointment of
the independent certified public accountants for the year
ending December 31, 1996. Signed proxies will be voted
"FOR" or "AGAINST" any other matter which lawfully comes
before the Annual Meeting and any adjournment or
postponement thereof, in accordance with the best judgment
of the person acting by authorization of the proxy.
Under Pennsylvania law and the By-Laws of the
Corporation, the presence of a quorum is required for each
matter to be acted upon at the Annual Meeting. The
presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes which all stockholders
are entitled to cast, will constitute a quorum for the
transaction of business at the Annual Meeting. Votes
withheld and abstentions will be counted in determining the
presence of a quorum for the particular matter. Broker non-
votes will not be counted in determining the presence of a
quorum for the particular matter as to which the broker
withheld authority.
<PAGE>
Assuming the presence of a quorum, the five (5)
nominees for director receiving the highest number of votes
cast by shareholders entitled to vote for the election of
directors shall be elected. Votes withheld from a nominee
and broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote
of a majority of all votes cast by shareholders on such
matter is required for the ratification of the appointment
of independent certified public accountants. Abstentions
and broker non-votes are not deemed to constitute "votes
cast" and therefore do not count either for or against such
ratification. Abstentions and broker non-votes, however,
have the practical effect of reducing the number of
affirmative votes required to achieve a majority for each
such matter by reducing the total number of shares voted
from which the required majority is calculated.
The Corporation has no present reason to believe that
any of the Board's nominees will be unable to serve as a
director, if elected. The Board of Directors does not know
whether any nominations will be made at the Annual Meeting
other than those specified in this proxy statement. If any
such nominations are made, or if votes are cast for any
candidates other than those nominated by the Board of
Directors, the persons named as proxyholders will vote for
those persons nominated by the Board and identified in this
proxy statement.
Security Ownership of Certain Beneficial Owners
As of March 7, 1996, no person was known by the
Corporation to hold beneficially or of record, directly or
indirectly, five percent (5%) or more of the outstanding
common stock of the Corporation.
BOARD OF DIRECTORS
General
The By-Laws of the Corporation provide that the
Corporation's business shall be managed by a Board of
Directors of not less than six (6) and not more than twenty
five (25) directors. The Corporation's Board, as provided
in the By-Laws, is divided into three (3) classes of
directors, with each class being as nearly equal in number
as possible. The Board of Directors consists currently of
fourteen (14) directors with (i) five (5) directors in the
class whose term expires at the annual meeting in 1996, (ii)
four (4) directors in a class whose term expires at the
annual meeting in 1997, and (iii) five (5) directors in the
class whose term expires at the annual meeting in 1998.
Under the Corporation's By-Laws, persons elected by the
Board of Directors to fill a vacancy on the Board serve as
directors for a term expiring with the next annual meeting,
unless the directors are appointed by the Board after the
stockholder record date for that meeting, in which case the
<PAGE>
person serves as a director until the annual meeting following
that meeting. The directors in each class normally serve terms
of three (3) years each and until their successors are elected,
qualified and take office. All of the nominees are current
directors of the Corporation.
General Information About the Board of Directors*
The Corporation's and Sun Bank's Boards of Directors
hold separate meetings.
There were five (5) meetings of the Corporation's Board
of Directors during 1995. Each incumbent director, other
than Mr. John, Mr. Keller and Mr. Schnure, attended at least
seventy five percent (75%) of the aggregate of the total
number of meetings of the Corporation's Board of Directors
held during the period for which such incumbent was a
director and each incumbent director, other than Mr.
Bingaman, Mr. Hormell, Mr. John, Mr. Keller and Mr. Schnure,
attended at least seventy five percent (75%) of the total
number of meetings held by all committees of the Board on
which such incumbent served.
The Committees of the Corporation's Boards
Executive/Asset & Liability Management Committee (the
"Executive/ALCO"). The Executive/ALCO Committee of the
Corporation's Board may exercise the full authority of the
Board of Directors in the management of the business and
affairs of the Corporation between meetings of the Board and
coordinate and control the Corporation's asset/liability
management procedures. The Committee reviews and makes
recommendations to the Board of Directors on all matters
relating to the programs of the Corporation that will
accomplish its long and short range objectives and goals.
During 1995, the Committee meetings were scheduled once per
quarter. The Committee held four (4) meetings in 1995. The
members of the Committee are: Raymond C. Bowen, Chairman;
Max E. Bingaman; George F. Keller; Fred W. Kelly, Jr.;
Lehman B. Mengel; and Jeffrey E. Hoyt, ex officio member as
the Corporation's Vice President and Chief Financial
Officer.
Audit Committee. The Audit Committee recommends, for
ratification by the stockholders, the independent certified
public accountants which will be retained by the Corporation
and Sun Bank. The Audit Committee approves services to be
performed by the independent accountants. During 1995, the
Committee meetings were scheduled at least once per quarter.
The Committee held four (4) meetings in 1995. The members
of the Committee are: Max E. Bingaman, Chairman; David R.
Dieck; Louis A. Eaton; Dr. Robert E. Funk; Marlin T. Sierer;
Jerry A. Soper; Jeffrey J. Kapsar, ex officio member as the
Corporation's Internal Auditor; and Robert C. Longenberger,
ex officio member as the Corporation's Secretary and
Compliance/Loan Review Officer.
Investment Committee. The Investment Committee, a
subcommittee of the Executive/ALCO Committee, develops and
implements a portfolio investment policy for the
Corporation. The Committee meets at the call of any member
of the Committee. During 1995, the Committee meetings were
scheduled at least once per quarter. The Committee held
three (3) meetings during 1995. The members of the
Committee are: Jeffrey E. Hoyt, Chairman and ex officio member
________________
See Footnote Information Concerning Directors on Page 8.
<PAGE>
as the Corporation's Vice President and Chief Financial
Officer; Raymond C. Bowen and Fred W. Kelly, Jr.
Long Range Planning/Merger & Acquisition Committee (the
"Long Range Planning/M&A"). The Long Range Planning/M&A
Committee develops and implements the long range planning
process for the Corporation and develops and implements the
Corporation's policy concerning mergers and acquisitions.
The Committee meets at the call of the Chairman of the
Committee. During 1995, the Committee meetings were
scheduled at least once per quarter. The Committee held
seven (7) meetings during 1995. The members of the
Committee are: Fred W. Kelly, Jr., Chairman; Raymond C.
Bowen; Robert A. Hormell; George F. Keller; and Jeffrey E.
Hoyt, ex officio member as the Corporation's Vice President
and Chief Financial Officer.
Nominating Committee. The Nominating Committee meets
once a year, or more often if necessary, to consider or
nominate candidates for directorships. The Committee will
consider director nominees recommended by the Board and
stockholders. Pursuant to Article II, Section 2 of the By-
Laws, a shareholder wishing to nominate a candidate must
file a written notice of the nomination or candidacy with
the Secretary of the Corporation not less than one hundred
twenty (120) days prior to the election of directors. When
submitting a recommendation to the Secretary, the
stockholder must send biographical information about the
candidate, together with a statement of the candidate's
qualifications and any other data supporting the
recommendation. If it is determined that the candidate has
no conflicts of interest or directorships with other
companies that would disqualify the candidate from serving
as a director of the Corporation, the candidate's name will
be presented to the Nominating Committee for consideration.
The Committee held two (2) meetings during 1995. The
members of the Committee are: Jerry A. Soper, Chairman;
Louis A. Eaton; Dr. Robert E. Funk; Fred W. Kelly, Jr.;
Howard H. Schnure; and Marlin T. Sierer.
Personnel and Retirement Committee. The Personnel and
Retirement Committee meets to review the provisions of SUN's
Pension Plan, 401(k) Plan and the Non-Qualified Supplemental
Income Plan and recommends appropriate changes in any of
their provisions and recommends to the Board, contributions
to be made to the plans. In addition, the Committee
determines the eligibility requirements for SUN's Pension
Plan, 401(k) Plan and the Non-Qualified Supplemental Income
Plan and those eligible to participate and obtain benefits
pursuant to those plans. The Committee meets at the call of
the Chairman of the Committee or the President of the
Corporation. The Committee held eight (8) meetings during
1995. A subcommittee called the Compensation Committee,
which is comprised of four (4) outside Directors (Mr. Bowen,
Mr. Bingaman, Mr. Hormell and Mr. Soper), determines the
executive compensation policy of SUN and administers SUN's
Stock Incentive Plan and SUN's Employee Stock Purchase Plan.
The Committee meets at the call of its Chairman and held two
(2) meetings in 1995. The members of the Personnel and
Retirement Committee are: Raymond C. Bowen, Chairman; Max
E. Bingaman; Robert A. Hormell; Paul R. John; George F.
Keller; Fred W. Kelly, Jr.; Jerry A. Soper; Dennis J. Van;
Jeffrey E. Hoyt, ex officio member as the Corporation's Vice
President and Chief Financial Officer; and Carol A.
Swineford, ex officio member as Sun Bank's Vice President of
Human Resources.
<PAGE>
Members of the Boards of Directors - Biographical Information
NOMINEES FOR ELECTION TO SERVE UNTIL 1999
DAVID R. DIECK, age 62, President and co-owner of
Lancaster Laundry, Inc., Lancaster, Pennsylvania, since July
1, 1990. He is a former Vice President and co-owner of
Valley Glass Company of Sunbury, Pennsylvania, and a former
partner in Valley Realty Company having sold his interest in
both businesses as of June 30, 1990. Mr. Dieck was employed
by Brush Industries in Sunbury, Pennsylvania, for thirty
four (34) years serving in various capacities including
Treasurer and General Manager and left that company in 1985.
He has served on the Boards of the Corporation and Sun Bank
since April of 1987 and he serves on the Audit Committee.
Mr. Dieck's term as a director expires in 1996 and if
elected as director will serve until 1999.
LOUIS A. EATON, age 74, was a Sales Engineer since 1981
for Dorsey Trailers, Inc., a manufacturer and distributor of
truck trailers and retired on December 31, 1986. He has
served in various capacities with Dorsey Trailers, Inc.
(formerly Trailco Manufacturing and Sales Co., Inc.) since
1947. He has served on Sun Bank's Board since 1979 and the
Corporation's Board since 1982 and he serves on the Audit
and Nominating Committees. Mr. Eaton's term as a director
expires in 1996 and if elected as director will serve until
1999.
DR. ROBERT E. FUNK, age 65, a practicing dentist in
Watsontown having started his general dentistry office in
1957. He was elected to the Corporation's Board in 1993 and
served on Sun Bank's Board since 1977 and he serves on the
Audit and Nominating Committees. Dr. Funk's term as a
director expires in 1996 and if elected as director will
serve until 1999.
GEORGE F. KELLER, age 62, Vice Chairman of the
Corporation, Retired President of Keller Marine Service,
Inc., a wholesale distributor of marine products. He is a
past President of the National Marine Distributors
Association. He has served on Sun Bank's Board since 1967
and the Corporation's Board since 1982, was appointed Vice
Chairman of Sun Bank's and the Corporation's Board in 1990
and he serves on the Executive/ALCO, Long Range Planning/M &
A and Personnel and Retirement Committees. Mr. Keller's
term as a director expires in 1996 and if elected as
director will serve until 1999.
DENNIS J. VAN, age 49, is President and owner of The
Colonial Furniture Company, a manufacturer of quality home
furniture located in Freeburg, PA. He has served on Sun
Bank's Board since 1990 and was appointed to the
Corporation's Board on August 1, 1994, and he serves on the
Personnel and Retirement Committee. Mr. Van's term as a
director expires in 1995 and if elected as director will
serve until 1999.
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
MAX E. BINGAMAN, age 60, President since 1969 of
Bingaman and Son Lumber Company, Inc., supplier of hardwood
lumber to the furniture and cabinet industry, President
since 1975 of Tru-Wood Corporation, engaged in the lumber
dimensions business and Secretary/Treasurer since 1978 of
Pine Creek Lumber, Inc., a saw mill. Mr. Bingaman serves as
a director of the Hardwood Lumber Manufacturing of Penna.
and Bethesda Treatment Center, a privately operated program
for troubled youth, located in Milton. He has served on the
Boards of Sun Bank and the Corporation since 1983 and his
term as a director expires in 1998. He serves on the Audit,
Executive/ALCO and Personnel and Retirement Committees.
ROBERT A. HORMELL, age 48, is Assistant Director of the
Susquehanna Economic Development Association - Council of
Governments (SEDA-COG) which provides management of economic
and community development for an eleven (11) county
organization in central Pennsylvania. Mr. Hormell is a
director of the Warrior Run Community Corporation. He has
served on Sun Bank's Board since 1991 and was appointed to
the Corporation's Board on August 1, 1994, and his term as a
director expires in 1998. He serves on the Personnel and
Retirement Committee.
LEHMAN B. MENGEL, age 68, Chairman of L/B Water Service
South, Inc. since 1984, which provides the water and sewer
works industry with materials and service, a Director for
Agtek Development Corp. and Director and Treasurer of the
Sunbury Grouse Club. He has served on the Board of Sun Bank
since 1974 and the Corporation's Board since 1982, and his
term as a director expires in 1998. He serves on the
Executive/ALCO Committee.
HOWARD H. SCHNURE, age 85, owner from 1936 to 1984 and
since 1984 part owner of Central Penn Wilbert Vault Company,
manufacturer of burial vaults. He has served on Sun Bank's
Board since 1967 and the Corporation's Board since 1982, and
his term as a director expires in 1998. He serves on the
Nominating Committee.
MARLIN T. SIERER, age 73, prior owner for 32 years of
the Sierer Brothers Fruit Farm, Inc. Mr. Sierer sold the
business in 1974 and retired in 1985 from that company. He
has served on the Boards of Sun Bank and the Corporation
since 1982, and his term as a director expires in 1998. He
serves on the Audit and Nominating Committees.
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1997
RAYMOND C. BOWEN, age 80, Chairman of the Board of
Directors, retired Sales Representative for Cleveland
Brothers Equipment Company, engaged with that company in
retail sales of heavy earth moving equipment from 1947
through 1982. He has served on Sun Bank's Board since 1967
and the Corporation's Board since 1982, having served as
Vice Chairman of the Board from 1981 to 1985 and Chairman
since 1986, and his term as a director expires in 1997. He
serves on the Executive/ALCO, Investment, Long Range
Planning/M&A and Personnel and Retirement Committees.
PAUL R. JOHN, age 58, is President of Ritz-Craft
Corporation of PA, Inc., a housing manufacturer located in
Mifflinburg, PA; director of Lafayette Homes, a retail
housing center in Lafayette, NJ; a director of Inter
Industry Reinsurance Co., LTD, an offshore foreign
independent insurance company; and a director of the John
Family Foundation. He has served on Sun Bank's Board since
1990 and was appointed to the Corporation's Board on August
1, 1994, and his term as a director expires in 1997. He
serves on the Personnel and Retirement Committee.
FRED W. KELLY, JR., age 51, President and Chief
Executive Officer of the Corporation and Sun Bank. Mr.
Kelly is Vice President and a director of Wm. F. Groce,
Inc., a silk and fabric processing company in Selinsgrove,
Pennsylvania, and Vice Chairman of Selinsgrove Area
Industrial Development, Inc. He is a trustee and 1st Vice
President of Sunbury Community Hospital, Secretary of the
Central Susquehanna Valley Chamber of Commerce, Director of
Susquehanna University, a member of the Degenstein
Foundation and served as Chairman of the Government
Relations Policy Committee of the Pennsylvania Bankers
Association in Harrisburg. During 1993 and 1994, he has
served as President and Chief Executive Officer of the
Corporation since its formation in 1982 and as President of
Sun Bank since 1975 and its Chief Executive Officer since
1981 and has served on Sun Bank's Board since 1975 and the
Corporation's Board since 1982, and his term as a director
expires in 1997. He serves on all the Board Committees of
the Corporation other than the Audit Committee.
JERRY A. SOPER, age 63, former Vice President of Ott
Packagings, Inc., Selinsgrove, Pennsylvania, a manufacturer
of paper box products having retired in February 1992. He
has served on the Boards of the Corporation and Sun Bank
since 1982, and his term as a director expires in 1997. He
serves on the Audit, Nominating and Personnel and Retirement
Committees.
* Footnote Information Concerning Directors
(1) References to service on the Board of Directors refers
to Snyder County or Watsontown only prior to 1982 and to
Snyder County, Watsontown and Corporation since 1982, unless
specifically otherwise stated. Effective December 1, 1993,
the Board of Directors of Snyder County and Watsontown were
consolidated under a common charter with the title of Sun Bank,
which has a 14 member Board. All ages of the directors are as
of March 7, 1996, the record date for the Annual Meeting.
(2) The Corporation is not aware of any arrangement or
understanding between a nominee or director pursuant to
which he or any other person or persons were to be selected
as a director or nominee.
<PAGE>
Information Concerning Executive Officers of the Corporation*
Name Title and Position Age
Fred W. Kelly, Jr. President and Chief Executive 51
Officer of the Corporation and Sun Bank
Mr. Kelly has served as President of Snyder County,
incorporated as Sun Bank, since July 1975, having advanced
from Vice President, and was appointed Chief Executive
Officer of Snyder County in 1981. Mr. Kelly has served as
President and Chief Executive Officer of the Corporation
since its establishment in 1982.
Name Title and Position Age
Jeffrey E. Hoyt Vice President and Chief Financial 40
Officer of the Corporation and Senior
Vice President and Chief Financial
Officer of Sun Bank
Mr. Hoyt has served as Vice President and Chief Financial
Officer of Snyder County, now Sun Bank, since October 1988
and was appointed Senior Vice President and Chief Financial
Officer on October 26, 1995. Mr. Hoyt has also served as
Chief Financial Officer of the Corporation since that date
and was appointed as Vice President and Chief Financial
Officer in 1993. Prior to joining Snyder County, now Sun
Bank, and the Corporation, Mr. Hoyt, a CPA and CFP, was
employed in public accounting, and from 1981 until October
1988, was employed at the Williamsport National Bank,
initially as its auditor and later as its controller.
Name Title and Position Age
Byron M. Mertz III Vice President and Assistant 51
Secretary of the Corporation,
Vice President of Sun Bank and
President of the Watsontown
Bank, Incorporated as Sun Bank
Mr. Mertz has served as President of Watsontown, now Sun
Bank, since March 1991. Mr. Mertz joined Watsontown as Vice
President in August 1988 after having been employed by other
financial/lending organizations for more than 20 years. Mr.
Mertz was appointed as Vice President and Assistant
Secretary of the Corporation on August 2, 1993. On December
1, 1993, Mr. Mertz was appointed a Vice President of Sun
Bank.
Name Title and Position Age
Robert C. Longenberger Secretary and Compliance/Loan 61
Review Officer of the Corporation
and Vice President, Compliance/Loan
Review Officer and Secretary of Sun
Bank
<PAGE>
Mr. Longenberger served as Treasurer of Snyder County, now
Sun Bank, from 1970 through April 1978. From October 1975
to December 31, 1989, Mr. Longenberger had been in charge of
Snyder County's, now Sun Bank's, Installment Loan
Department. On January 1, 1990 and February 4, 1991, he was
appointed Compliance/Loan Review Officer for Snyder County
and the Corporation, respectively, with responsibility to
develop and implement compliance and loan review programs.
Mr. Longenberger was appointed Vice President of Snyder
County in 1978 and Secretary of the Corporation and Snyder
County in 1985.
Name Title and Position Age
Jeffrey J. Kapsar Internal Auditor of the Corporation 29
and Assistant Vice President and Internal
Auditor of Sun Bank
Mr. Kapsar began his banking career with Watsontown Bank in
August 1990 and served as Assistant Vice President at
Watsontown until December 1, 1993. He worked in the Audit
Department and was appointed as Internal Auditor of Snyder
County, now Sun Bank, and the Corporation in April 1995.
* Footnote Information Concerning Executive Officers
(1) Each executive officer of the Corporation serves at the
pleasure of the Board of Directors. All ages of the executive
officers are as of March 7, 1996, the record date for the Annual
Meeting.
(2) The Corporation is not aware of any arrangement or understanding
between any executive officer and any other person or persons
pursuant to which any executive officer was or is to be selected
as an officer of the Corporation.
(3) None of the above executive officers has any family relationship
with any other executive officer or with any director of the
Corporation.
<PAGE>
<TABLE>
Security Ownership of Nominees, Directors and Executive Officers
of the Corporation
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding
Ownership of Corporation
Common Stock as Common Stock
Name of March 7, 1996(1) Owned
<S>
NOMINEES FOR ELECTION AS DIRECTORS
FOR 3 YEAR TERMS EXPIRING IN 1999 <C> <C>
David R. Dieck (2 ) 6,892 .22
Louis A. Eaton (3) 8,129 .25
Dr. Robert E. Funk (4) 3,550 .11
George F. Keller (5) 109,761 3.44
Dennis J. Van (6) 14,145 .44
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Max E. Bingaman (7) 11,249 .35
Robert A. Hormell (8) 2,158 .07
Lehman B. Mengel (9) 50,889 1.59
Howard H. Schnure (10) 25,156 .79
Marlin T. Sierer (11) 15,585 .49
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Raymond C. Bowen (12) 20,882 .65
Paul R. John (13) 104,516 3.27
Fred W. Kelly, Jr. (14) 19,081 .60
Jerry A. Soper (15) 37,968 1.19
All directors and executive officers
as a group (18 persons) 439,602 13.76
Footnote Information Concerning Security Ownership of Directors
and Executive Officers
(1) Unless otherwise indicated, the shares listed in the above table are
owned directly by the individual, his wife, or both, or by others for
the director's benefit or as custodian for the benefit of minor
children, and the individual has sole voting and investment power with
respect to the shares or such power is shared with his wife. The table
lists those shares beneficially owned as of March 7, 1996. The
Corporation does not know of any person who has or shares voting power
and/or investment power with respect to more than 5% of the Corpora-
tion's common stock.
(2) This includes 6,892 shares reported as owned beneficially by Mr. Dieck
which are owned in the joint names of Mr. Dieck and Annetta M. Dieck,
his wife.
<PAGE>
(3) This includes 8,129 shares reported as owned beneficially by Mr. Eaton
which are owned in the joint names of Mr. Eaton and Dorothy L. Eaton,
his wife.
(4) This includes 167 shares reported as owned beneficially by Dr. Funk
which are owned in the joint names of Dr. Funk and Marvene Funk, his
wife.
(5) This includes 27,284 shares reported as owned beneficially by Mr. Keller
which are owned in the joint names of Mr. Keller and Margaret E. Keller,
his wife, 8,523 shares reported as owned by Mr. Keller which are owned
by Margaret E. Keller, his wife, and 65,379 shares which are owned by
Keller Marine Service, Inc.
(6) This includes 5,566 shares reported as owned beneficially by Mr. Van
which are owned in the joint names of Mr. Van and Judith A. Van, his
wife; 2,266 shares which are held in an Individual Retirement Account
for Mr. Van; 2,595 shares which are held in an Individual Retirement
Account for Judith A. Van, his wife and 3,718 shares which are owned
by the Colonial Furniture Company.
(7) This includes 9,519 shares reported as owned beneficially by Mr.
Bingaman which are owned in the joint names of Mr. Bingaman and Martha
Bingaman, his wife and 1,730 shares reported as owned by Mr. Bingaman
held in a 401(k) account through Bingaman & Son Lumber, Inc.
(8) This includes 1,736 shares reported as owned beneficially by Mr. Hormell
which are owned in the joint names of Mr. Hormell and Jean L. Hormell,
his wife and 422 shares which are held in an Individual Retirement
Account for Mr. Hormell.
(9) This includes 42,705 shares reported as owned beneficially and main-
tained by Mr. Mengel in a revocable Trust and 8,184 shares reported as
owned by Mr. Mengel which are owned by Rose L. Mengel, his wife and
registered in the name of L & R Mengel Co.
(10) This includes 3,580 shares reported as owned beneficially by Mr.
Schnure which are owned in the joint names of Mr. Schnure and his son,
James Purdy Schnure, and 2,495 shares which are in the joint names of
Mr. Schnure and his daughter, Sarah J. Lindsay.
(11) This includes 15,585 shares reported as owned beneficially by Mr. Sierer
which are owned in the joint names of Mr. Sierer and H. Arlene Sierer,
his wife.
(12) This includes 489 shares reported as owned beneficially by Mr. Bowen
which are owned by Mary Jane Bowen, his wife, 1,351 shares which are
owned in the joint names of Mr. Bowen and his wife and 1,738 shares
which are held in an Individual Retirement Account for Mr. Bowen.
(13) This includes 101,744 shares reported as owned beneficially by Mr.
John which are owned in the joint names of Mr. John and Mildred D.
John, his wife and 2,772 shares reported as owned by Mr. John which
are held by Merrill Lynch, Pierce, Fenner and Smith.
<PAGE>
(14) This includes 14,558 shares reported as owned beneficially by Mr.
Kelly which are owned by Donnell W. Kelly, his wife, 524 shares
which are owned in the joint names of Mr. Kelly and Kyle D. Kelly,
his son, and 524 shares which are owned in the joint names of Mr.
Kelly and Matthew E. Kelly, his son.
(15) This includes 13,211 shares reported as owned beneficially by Mr.
Soper which are owned in the joint names of Mr. Soper and Craig A.
Ott Soper, his son; 13,216 shares reported as owned beneficially by
Mr. Soper which are owned in the joint names of Mr. Soper and Kim
Marie Soper, his daughter; 4,460 shares reported as owned beneficially
by Mr. Soper which are owned in the joint names of M. Corrine Soper,
his wife, and Craig A. Ott Soper, his son; 4,460 shares reported as
owned beneficially by Mr. Soper which are owned in the joint names of
M. Corrine Soper, his wife, and Kim Marie Soper, his daughter; and 2,373
shares which are held in an Individual Retirement Account for Mr. Soper
and 248 shares which are held in a personal Trust Account of Mr. Soper.
</TABLE>
Executive Compensation and Other Information
COMPENSATION COMMITTEE REPORT
The Board of Directors has designated a Compensation
Committee ("Committee"), a subcommittee of the Personnel and
Retirement Committee, which consists of four (4) outside
Directors. To accomplish the strategic goals and objectives
of the Corporation, SUN and Sun Bank engage competent
persons who undertake to accomplish these objectives with
integrity and in a cost-effective manner. The fundamental
philosophy of SUN's and Sun Bank's compensation program is
to offer competitive compensation opportunities based on
individual contribution and personal performance. The
objectives of the Committee are to establish a fair
compensation policy to govern executive salaries and
incentive plans to attract and motivate competent, dedicated
and ambitious executives whose efforts will enhance the
products and services of SUN and its subsidiaries, the
results of which should be improved profitability, increased
dividends to our shareholders and subsequent appreciation in
the market value of SUN's shares.
The Compensation Committee does not deem Section 162(m)
of the Internal Revenue Code (the "IRC") to be applicable to
the Corporation at this time. The Compensation Committee
intends to monitor the future application of Section 162(m)
of the IRC to the compensation paid to its executive
officers and in the event that this section becomes
applicable, it is the intent of the Compensation Committee
to amend the Corporation's compensation plans to preserve
the deductibility of the compensation payable to executive
officers under such plans.
The compensation of SUN's Chief Executive Officer
("CEO") is determined by the Committee and is reviewed and
approved annually by the Board of Directors. As a guideline
for review in determining the CEO's base salary, the
Committee uses information found in various surveys based on
asset size within Pennsylvania and SUN's market region.
Pennsylvania peer group banks are utilized because of common
industry issues and competition for the same Executive
talent.
<PAGE>
SUN's performance accomplishments using return on
average assets ("ROA") and return on average equity ("ROE")
are reviewed; however, there is no direct correlation
between the CEO's compensation or the CEO's increase in
compensation and any of the noted criteria nor is there any
weight given by the Committee to any specific individual
criteria. Increases in the CEO's compensation are based on
the Committee's subjective determination after review of all
information, including the above, that it deems relevant.
Members of the Compensation Committee
Raymond C. Bowen, Chairman
Max E. Bingaman
Robert A. Hormell
Jerry A. Soper
SUMMARY COMPENSATION TABLE
The remuneration table contains information with
respect to annual compensation for services in all
capacities to the Corporation for fiscal years ending
December 31, 1995, 1994 and 1993 of those persons who were,
at December 31, 1995, (i) the Chief Executive Officer and
(ii) the four (4) other most highly compensated executive
officers of the Corporation to the extent such person's
total annual salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation 1/ Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted All Other
Name and Salary Bonus Compensa- Stock Options/ LTIP Compensa-
Principal tion 2/ Award(s) SARs Payouts tion
Position Year ($) ($) ($) ($) (#) 3/ ($) ($) 4/
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred W.
Kelly, Jr. 1995 140,300 27,382 11,612 0 8,662 0 21,634
1994 132,741 25,008 11,750 0 9,000 0 21,191
1993 129,037 23,187 11,963 0 0 0 21,524
__________________________
1/ Compensation deferred at election of executive includable in category and
year earned.
2/ Includes (a) perquisites (No Director or Officer received in the
aggregate more than $10,000 of personal benefits) and (b) the annual
annuity payment credited to the insurance policy transferred in 1992.
3/ Options granted pursuant to SUN's Stock Incentive Plan and adjusted for
3 for 2 Stock Split effective December 1994, the 5% Stock Dividend
granted June 1995 and the 10% Stock Dividend granted December 1995.
4/ Residual category includes: (a) employer contributions to defined
contribution plan ($7,500); (b) employer contributions to a 401(k) plan
($4,500); and (c) employer contributions to a non-qualified supplemental
retirement plan ($ 9,634). The respective amounts disclosed for 1994
were (a) $7,502; (b) $3,001; and (c) $10,688 and for 1993 were
(a) $7,261; (b) $2,904; and (c) $11,359.
</TABLE>
Other than the compensation set forth in the above table and under the
several plan captions below, the other compensation for services during 1995
aggregated less than the disclosure thresholds established by the Securities
and Exchange Commission for other than the named executive officer.
<PAGE>
OPTION/SAR GRANTS TABLE
<TABLE>
Option/SAR Grants In Last Fiscal Year
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise Grant
Options/ to Employees or Base Date
SARs Granted in Fiscal Price Expiration Present
Name (#) 1/ Year ($/Sh) 2/ Date Value ($)
<S> <C> <C> <C> <C> <C>
Fred W.
Kelly, Jr. 8,662 24.88% $25.00 7/17/05 $216,550.00
President
& CEO
________________________
1/ Reflects share adjustment based on 5% Stock Dividend granted June 1995
and the 10% Stock Dividend granted December 1995. The Options granted
under the SUN BANCORP, INC. 1994 Stock Incentive Plan are not exercisable
until January 20, 1997.
2/ Reflects price adjustment based on 5% Stock Dividend granted June 1995
and the 10% Stock Dividend granted December 1995.
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
FY-End (#) FY-End ($)
Shares Value
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)1/ Unexercisable Unexercisable 1/
<S> <C> <C> <C> <C>
Fred W.
Kelly, Jr . 0 0 0/8,662 $0/$17,324
President & CEO
________________________
1/ Market value of underlying securities at exercise or year-end, minus the
exercise or base price and does not include any tax reimbursement pay-
ments by registrant which are reportable under the "Other Annual
Compensation Column" in the Summary Compensation Table.
</TABLE>
<PAGE>
Shareholder Return Performance Graph
Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return
on the Corporation's common stock against the cumulative
total return of all NASDAQ stocks, SNL less than $500
Million Bank Index for the period of five fiscal years
commencing January 1, 1991 and ending December 31, 1995.
The shareholder return shown on the graph below is not
necessarily indicative of future performance.
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
SUN BANCORP, INC. Common, All NASDAQ Stocks,
And SNL Less Than $500 Million Bank Index
<CAPTION>
PERIOD ENDING
DECEMBER 31,
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
SNL<$500M BANK INDEX 100.00 138.00 194.18 226.91 230.34 297.62
NASDAQ TOTAL RETURN 100.00 160.56 186.86 214.51 209.68 296.30
SUN BANCORP-PA 100.00 102.77 148.04 274.70 338.20 464.19
</TABLE>
<PAGE>
Employment Contracts of SUN Executives
On July 14, 1987, Mr. Kelly entered into a written five
(5) year employment agreement (the "Agreement") with SUN.
The Agreement automatically renews for an additional year,
unless either SUN or Mr. Kelly deliver notice of an
intention to terminate the Agreement, prior to January
thirtieth of that year. Mr. Kelly's Agreement was amended
on December 19, 1988 and provides that Mr. Kelly will
receive (i) a minimum annual base salary of $132,550 in
1995; (ii) a profit sharing pursuant to Sun Bank's Executive
Incentive Plan; (iii) benefits under and the right to
participate in any future or revised compensation and
benefit plan or arrangements offered by SUN or Sun Bank
during the term of the Agreement including SUN's Stock
Incentive Plan and Employee Stock Purchase Plan; (iv) upon
termination of his employment other than for cause, a
benefit equal to that which would have been payable to Mr.
Kelly pursuant to the defined contribution plan had he been
employed for the full term of the Agreement; (v) upon his
disability, benefits equal to his then current salary during
the disability period until termination of his employment,
subject to adjustments for payments made to him under any
applicable disability plan; and (vi) his stated salary and
profit sharing until the termination of the Agreement should
his employment with SUN and/or Sun Bank be terminated for
other than "cause" as defined in the Agreement which
includes willful violation of the Agreement. If Mr. Kelly's
employment was terminated by SUN, without cause, on December
31, 1995, Mr. Kelly would have received an aggregate amount
of $662,750 for his services through January of 2000.
Future Remuneration
The officer included in the remuneration table on page
14, as a named individual, may in the future receive
benefits under one or more of the following ongoing plans.
SUN Defined Contribution Plan
On August 6, 1990, SUN's Board adopted a Defined
Contribution Plan (the "Contribution Plan") and made it
available to all eligible employees of Sun Bank.
Under the Contribution Plan, a minimum of five percent
(5%) of the employee's wages will be paid by Sun Bank and
deposited in the Contribution Plan for the eligible employee
at the end of each calendar year. No contribution on the
part of the employee is required or permitted. The employee
may choose to invest SUN's contribution in any of the
investment options available under SUN's 401(k) Plan
discussed below. After completion of five (5) years of
active service, the employee will be vested in SUN's
contributions made to the Contribution Plan on his/her
behalf.
To be eligible to participate in the Contribution Plan,
an employee must be twenty-one (21) years of age and must
work one (1) continuous year in which the employee has
worked one thousand (1,000) hours. After completing the
eligibility requirements, the employee will enter the
Contribution Plan on January 1, or July 1, whichever date
comes first. Non-employee directors, of SUN and its
subsidiaries, are not eligible to participate in the Defined
Contribution Plan.
<PAGE>
Normal retirement is age sixty-five (65) but early
retirement may be elected by an employee who has reached age
fifty-five (55) and has completed five (5) years of service.
After becoming vested, the employee may choose to take a
lump sum distribution or an annuity at retirement,
disability, termination or death. Payment of benefits upon
termination will be made after the year-end valuation which
follows the employee's termination date. No loans or
withdrawals are permitted from the Contribution Plan. Each
employee's benefit is solely determined by the number of
years that the employer has contributed to the Contribution
Plan and the results of the employee's investment choices.
For the executive officer named in the cash
remuneration table reported on page 14, the estimated annual
pension benefit upon retirement at age sixty-five (65)
pursuant to the benefits from the Contribution Plan is
$61,663.68 for Mr. Kelly. This estimated benefit does not
take into consideration any future increases in the
officer's base compensation rate, or the return on the
employee's investment in the Contribution Plan, and is a
life income ten (10) year certain benefit and would be
actuarially reduced for a fifty percent (50%) joint and
survivor annuity to the officer and his spouse.
SUN 401(k) Plan
Effective January 1, 1990, SUN adopted and made
available to eligible employees of Sun Bank, a profit
sharing-savings plan (the "401(k) Plan") for which Snyder
County, incorporated as Sun Bank, is the trustee. The
401(k) Plan is intended to comply with the requirements of
Section 401(k) of the Internal Revenue Code and is subject
to the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA"). Employees of SUN's subsidiary, Sun
Bank, become eligible to participate in the 401(k) Plan on
January 1st following their employment and eighteenth (18th)
birthday. The participating employees (the "participants")
may elect to have from two percent (2%) to fifteen percent
(15%) of their compensation, as defined in the 401(k) Plan,
contributed to the 401(k) Plan. SUN's Board will make a
determination at the end of each year, subject to
profitability, if a match will be approved. Under the Tax
Reform Act, the maximum amount of elective contributions
that could be made by a participant, during 1995, was nine
thousand two hundred and forty dollars ($9,240.00) and the
amount that can be contributed in 1996 is nine thousand five
hundred dollars ($9,500.00). All officers and employees of
Sun Bank, including the officer named in the Summary
Compensation Table set forth herein, are eligible to
participate in the 401(k) Plan. Non-employee directors, of
SUN and its subsidiaries, are not eligible to participate in
the 401(k) Plan.
All elective contributions are immediately one hundred
percent (100%) vested, however, matching contributions by
the participant's employer are vested only after the
employee has completed five (5) years of active service for
the employer. Participants may direct the investment of
elective contribution into a money market fund, bond fund,
growth fund, an intermediate government trust fund, as well
as the purchase of SUN common stock. All benefits payable
under the 401(k) Plan may be paid in a lump sum or an
annuity upon a participant's retirement, disability,
termination of employment or death. A participant may also
elect to receive benefits at the age of fifty-five (55) upon
early retirement and withdrawal from the 401(k) Plan is
permitted in case of immediate financial hardship.
<PAGE>
Supplemental Income Plan
In December 1992, SUN's Board approved a non-qualified
Supplemental Income Plan retroactive to January 1, 1990. It
was designed for the purpose of retaining talented
executives and to promote in these executives a strong
interest in the long term, successful operation of the
Corporation.
Ten (10) executives from Sun Bank participate in this
plan. Each annual contribution is carried on Sun Bank's
records in the participant's name and credited on December
31st of each calendar year. Interest is based on the prior
year's average rate received on federal funds sold. No
contribution on the part of the employee is required or
permitted. Contributions cease at termination, death,
retirement or disability. The Plan is an unfunded plan and
is subject to the general creditors of the Corporation.
Normal retirement is age sixty-five (65) but early
retirement may be elected by an employee who has reached age
fifty-five (55) and completed five (5) years of service. At
retirement, termination, disability or death, the
participant will receive an annual benefit for ten (10)
years. Any portion of the year will be pro-rated. The
Corporation reserves the right to accelerate the payment.
The future estimated benefit does not take compensation
into consideration and the amount credited to Mr. Kelly in
1995 is included in the "All Other Compensation" column of
the Summary Compensation Table.
Executive Incentive Plan of Sun Bank
During 1994, the Board of Directors of Sun Bank
established an executive incentive profit sharing plan based
on Sun Bank's profitability and the quality of the
performance during the year of key Sun Bank officers
designated by the President of Sun Bank. The plan is
maintained for certain members of Sun Bank's management to
promote a superior level of performance relating to Sun
Bank's financial goals. The Personnel and Retirement
Committee, with the approval of the Board of Directors, has
established payment criteria based on achieving a stated
earnings per share. Payments aggregating $134,799.09 were
awarded under the previously disclosed profit sharing plan
in 1995. During 1995, Mr. Kelly received payment under the
profit sharing plan, and the amount is included in the
"Bonus" column of the Summary Compensation Table.
Compensation of Directors
All directors were paid a fee of $350 per quarterly or
special meeting plus an annual retainer of $1,000, which was
paid on a quarterly basis. A fee of $50 is paid for
telephone conference calls and payment is made in the
quarter in which the call occurred. Attendance is required
for payment of the Board fee but not for the annual
retainer. The Chairman, Vice Chairman and all other
directors, who are not officers of the Corporation or any
subsidiary, are paid for attending the Corporation's
Committee meetings. Each outside director, the Chairman and
Vice Chairman of the Corporation were paid $200 for each
Executive/Asset & Liability Committee meeting which he
attended. A fee of $100 for all other Committee meetings of
the Board attended was paid for 1995 to each outside
director, the Chairman and the Vice Chairman of the
Corporation.
<PAGE>
TRANSACTIONS WITH MANAGEMENT
There have been no material transactions, proposed or
consummated, among the Corporation, or Sun Bank with any
director, executive officer of those entities, or any
associate of the foregoing persons. The Corporation, and
Sun Bank have had and intend to continue to have banking and
financial transactions in the ordinary course of business
with their directors and officers and their associates on
comparable terms and with similar interest rates as those
prevailing from time to time for other customers.
Total loans outstanding from the Corporation and Sun
Bank at December 31, 1995 to the Corporation's and the
Banks' officers and directors as a group and members of
their immediate families and companies in which they had an
ownership interest of 10% or more was $10,692,370 or
approximately 29.68% of the total equity capital of the
Corporation. Loans to such persons were made in the
ordinary course of business, were made on substantially the
same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions
with other persons, and did not involve more than the normal
risk of collectibility or present other unfavorable
features.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934,
as amended, requires the Corporation's Officers and
Directors, and persons who own more than ten percent (10%)
of the registered class of the Corporation's equity
securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.
Officers, Directors and greater than ten percent (10%)
shareholders are required by SEC regulation to furnish the
Corporation with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms
received by it, the Corporation believes that during the
period January 1, 1995 through December 31, 1995, its
Officers and Directors were in compliance with all filing
requirements applicable to them.
<PAGE>
PROPOSAL 1 ELECTION OF DIRECTORS
(Item 1 on the Proxy)
Nominees for Directors
The following directors, whose terms expire at the 1996
Annual Meeting, have been nominated by the Corporation's
Board of Directors for election:
To serve for a three (3) year term of office which
expires at the 1999 Annual Meeting:
David R. Dieck
Louis A. Eaton
Dr. Robert E. Funk
George F. Keller
Dennis J. Van
If one or more of the nominees should at the time of
the Annual Meeting be unavailable or unable to serve as a
director, proxies may vote in favor of a substitute nominee
as the Board of Directors shall determine or the number of
nominees to be elected will be reduced accordingly and
shares represented by the proxies will be voted to elect the
remaining nominees. The Board of Directors knows of no
reason why any of the nominees will be unavailable or unable
to serve as directors.
____________________
Assuming the presence of a quorum, the five (5)
nominees for director receiving the highest number of votes
cast by shareholders entitled to vote for the election of
directors shall be elected. Proxies solicited by the Board
of Directors will be voted for nominees listed above unless
the stockholders specify a contrary choice in their proxies.
The Board of Directors recommends a vote FOR the
nominees listed above.
PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
(Item 2 on the Proxy)
The Board of Directors has selected the firm of
Parente, Randolph, Orlando, Carey & Associates, Certified
Public Accountants, as its independent certified public
accountants to audit the books, records and accounts of the
Corporation for the year 1996. This firm served as the
Corporation's independent auditors for the 1995 fiscal year.
The Board is herewith presenting the appointment to the
Corporation's stockholders for ratification at the Annual
Meeting. This firm has an outstanding reputation in the
accounting profession and is considered to be well
qualified. The Corporation has been advised by Parente,
Randolph, Orlando, Carey & Associates that none
<PAGE>
of its members has any financial interest in the
Corporation. If the stockholders do not ratify this
selection, the Board of Directors may consider the
appointment of another firm. A representative of Parente,
Randolph, Orlando, Carey & Associates will be at the Annual
Meeting to answer any questions and will have an opportunity
to make a statement if he so desires.
The resolution being voted upon is as follows:
RESOLVED, that the stockholders of the Corporation
ratify and confirm the appointment of Parente, Randolph,
Orlando, Carey & Associates, as the Corporation's,
independent certified public accountants for the year 1996.
The ratification of the selection of the independent
certified public accountants requires the affirmative vote
of at least a majority of the shares of common stock present
in person or by proxy and entitled to vote at the meeting.
Proxies solicited by the Board of Directors will be voted
for the foregoing resolution unless stockholders specify a
contrary choice in their proxies.
The Board of Directors recommends a vote FOR the
resolution ratifying the appointment of Parente, Randolph,
Orlando, Carey & Associates, Certified Public Accountants,
as the Corporation's independent certified public
accountants for the year 1996.
PROPOSAL 3 OTHER BUSINESS
(Item 3 on the Proxy)
Management does not know at this time of any other
matters which will be presented for action at the Annual
Meeting. If any unanticipated business is properly brought
before the meeting, the proxies will vote in accordance with
the best judgment of the person acting by authorization of
the proxies.
STOCKHOLDER PROPOSALS FOR 1997
The Corporation's Annual Meeting of Stockholders will
be held on or about April 24, 1997. Any stockholder
desiring to submit a proposal to the Corporation for
inclusion in the proxy and proxy statement relating to that
meeting must submit such proposal or proposals in writing to
the President of SUN BANCORP, INC. at its principal
executive offices at 2-16 South Market Street, P.O. Box 57,
Selinsgrove, Pennsylvania 17870, not later than Monday,
December 2, 1996.
<PAGE>
ADDITIONAL INFORMATION
A copy of the Annual Report of the Corporation and its
subsidiaries, Sun Bank and Pennsylvania Sun Life Insurance
Company, for the fiscal year ended December 31, 1995,
containing, among other things, consolidated financial
statements certified by its independent public accountants,
was mailed with this Proxy Statement on or about March 29,
1996 to the stockholders of record as of the close of
business on March 7, 1996.
AVAILABILITY OF FORM 10-K
UPON WRITTEN REQUEST OF ANY STOCKHOLDER, A COPY OF THE
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR
ENDED DECEMBER 31, 1995 INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES THERETO REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13A-1
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY
BE OBTAINED WITHOUT CHARGE FROM THE CORPORATION'S VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, MR. JEFFREY E. HOYT,
AT 2-16 SOUTH MARKET STREET, P.O. BOX 57, SELINSGROVE,
PENNSYLVANIA 17870.
By Order of the Board of
Directors of SUN BANCORP, INC.
/s/ Robert C. Longenberger
Robert C. Longenberger
Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,055
<INT-BEARING-DEPOSITS> 416
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 107,125
<INVESTMENTS-MARKET> 0
<LOANS> 201,635
<ALLOWANCE> 2,191
<TOTAL-ASSETS> 319,626
<DEPOSITS> 196,592
<SHORT-TERM> 15,526
<LIABILITIES-OTHER> 2,875
<LONG-TERM> 68,613
<COMMON> 4,053
0
0
<OTHER-SE> 31,967
<TOTAL-LIABILITIES-AND-EQUITY> 319,626
<INTEREST-LOAN> 17,890
<INTEREST-INVEST> 6,549
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 24,439
<INTEREST-DEPOSIT> 7,376
<INTEREST-EXPENSE> 12,087
<INTEREST-INCOME-NET> 12,352
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 130
<EXPENSE-OTHER> 5,984
<INCOME-PRETAX> 7,804
<INCOME-PRE-EXTRAORDINARY> 7,804
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,650
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.41
<LOANS-NON> 0
<LOANS-PAST> 1,989
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,999
<CHARGE-OFFS> 176
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 2191
<ALLOWANCE-DOMESTIC> 2191
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 706
</TABLE>
