FORM 10-K --- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from to
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.)
PO 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
Title of each class which registered
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. [ X ] Yes [ ] 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 6, 1997, the Registrant had 3,381,125 shares of common stock
outstanding with a par value of $1.25. Based on the closing bid price of
$33.50 on the same date, the aggregate market value of the voting stock held
by nonaffiliates of the Registrant was $97,846,733.00.
Portions of the 1996 Annual Report to Stockholders are incorporated by
reference in Parts I, II, and III hereof.
Portions of the 1997 Proxy Statement for the Annual Stockholders' Meeting to
be held on April 24, 1997 are incorporated by reference in Part III hereof.
The index to exhibits included in this filing appears on page 5.
<PAGE>
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 dis-
ability insurance company formed in 1993. SUN is a limited partner in two
partnerships for the purpose of building, owning and operating affordable
elderly apartment complexes in SUN's market area. 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, 1996, Sun Bank had total assets of $364,738,000 and total
stockholders' equity of $36,621,000. Net income for 1996 was $6,256,000.
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 and does not 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 Insurance Corporation (FDIC) in the amount allowed by law.
The Pennsylvania SUN Life Insurance Company provides credit life and
disability 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, 1996,
Pennsylvania SUN Life had total assets of $653,000 and total stockholders'
equity of $284,000. Net income for 1996 was $70,000.
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
Philadelphia and periodic on-site exams of SUN are done by the FRB. Regular
examinations 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, 1996, the Bank employed 113 persons. The Bank offers a
variety of benefit programs and feels its relationship with its employees is
good.
<PAGE>
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 Liverpool for the purpose of build-
ing a branch in the future. SUN also purchased an existing branch location
(Item 12) in Shamokin Dam formerly owned by Swineford National Bank. This
site will be replacing our current branch office (Item 2) in Shamokin Dam
in April 1997. All of the 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 Brick structure
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
<PAGE>
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 6, 1997, SUN had
approximately 1,583 holders of its common stock. SUN offers its shareholders
a Divided Reinvestment Plan whereby holders of stock may have their quarterly
cash dividends automatically invested in additional shares of common stock of
SUN.
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 40 of the 1996 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 26 of the 1996 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 28 through 39 of the 1996 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 6 through 25 of the 1996
Annual Report to Stockholders.
<PAGE>
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
Corporation's 1997 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 1997 Proxy
Statement.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to management remuneration and compensation is in-
corporated herein by reference to Executive Compensation and Other
Information on page 14 of the 1997 Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF 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 1997
Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to footnote 12 on page 19 of
the 1996 Annual Report to Stockholders and under the heading of Transactions
with Management on page 20 of the 1997 Proxy Statement.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements and report of
independent certified public accounts of SUN BANCORP, INC. and
subsidiaries included in the Annual Report to Stockholders for
the year ended December 31, 1996 are incorporated by reference
in Part II, Item 8:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(2) All schedules applicable to the Registrant are shown in the
respective 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 inapplicable.
(3) Exhibits
3(i) The Articles of Incorporation of the Corporation 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).
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, 1996 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 1997 Proxy
Statement of SUN BANCORP, INC.
(b) A report on Form 8-K was filed during the fourth quarter of 1996
announcing the signing of a definitive agreement on November 6, 1996
to acquire the Bucktail Bank and Trust Company located in Emporium,
Pennsylvania.
(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
information is not applicable or is included elsewhere herein.
<PAGE>
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.
Fred W. Kelly, Jr.
President & Chief Executive Officer
Date: 3/27/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on behalf of the Registrant and in the capacities and
on the dates indicated.
<PAGE>
Name Date
__________________________________________ 3/27/97
/s/ Fred W. Kelly, Jr., President, Chief Executive Officer
and Director
__________________________________________ 3/27/97
/s/ Jeffrey E. Hoyt, Executive Vice President,
Secretary, Principal Financial Officer,
and Chief Accounting Officer
__________________________________________ 3/27/97
/s/ Max E. Bingaman, Director
__________________________________________ 3/27/97
/s/ Raymond C. Bowen, Director
__________________________________________ 3/27/97
/s/ David R. Dieck, Director
__________________________________________ 3/27/97
/s/ Louis A. Eaton, Director
__________________________________________ 3/27/97
/s/ Dr. Robert E. Funk, Director
__________________________________________ 3/27/97
/s/ Robert A. Hormell, Director
__________________________________________ 3/27/97
/s/ George F. Keller, Director
__________________________________________ 3/27/97
/s/ Lehman B. Mengel, Director
__________________________________________ 3/27/97
/s/ Marlin T. Sierer, Director
__________________________________________ 3/27/97
/s/ Jerry A. Soper, Director
__________________________________________ 3/27/97
/s/ Dennis J. Van, Director
<TABLE>
Consolidated Balance Sheets
December 31, 1996 and 1995
<CAPTION>
(In Thousands, Except Share Data)
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 6,793 $ 6,055
Interest-bearing deposits in banks 706 416
Total cash and cash equivalents 7,499 6,471
Securities available for sale 136,538 107,125
Loans, net of unearned income and fees of $6,018 and
$5,542 in 1996 and 1995, respectively 215,715 201,635
Less: Allowance for possible loan losses (2,490) (2,191)
Net loans 213,225 199,444
Bank premises and equipment, net 5,078 4,247
Accrued interest and other assets 5,050 2,339
Total assets $367,390 $319,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 19,977 $ 20,247
Interest-bearing 185,642 176,345
Total deposits 205,619 196,592
Short-term borrowings 35,823 16,139
Other borrowed funds 83,625 68,000
Accrued interest and other liabilities 3,457 2,875
Total liabilities 328,524 283,606
Shareholders' equity:
Common stock, par value $1.25 per share; authorized
20,000,000 shares, issued 3,417,358 in 1996 and
3,241,757 in 1995 4,272 4,053
Additional paid-in capital 30,404 25,563
Retained Earnings 4,927 6,417
Unrealized appreciation on available-for-sale
securities, net of tax of $345 in 1996 and $719 in 1995 672 1,396
Less: Treasury stock at cost, 47,509 shares in
1996 and 1995 (1,409) (1,409)
Total shareholders' equity 38,866 36,020
Total liabilities and shareholders' equity $367,390 $319,626
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
(In Thousands, Except Net Income Per Share) 1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $19,488 $17,890 $14,724
Income from available-for-sale securities:
Taxable 5,306 4,689 4,556
Tax exempt 1,825 1,360 1,105
Dividends 545 378 276
Interest on deposits in banks and other
financial institutions 35 122 5
Total interest and dividend income 27,199 24,439 20,666
Interest expense:
Interest on deposits 8,193 7,376 5,709
Interest on short-term borrowings 1,779 978 1,060
Interest on other borrowed funds 3,717 3,733 2,198
Total interest expense 13,689 12,087 8,967
Net interest income 13,510 12,352 11,699
Provision for possible loan losses 650 360 360
Net interest income after provision
for possible loan losses 12,860 11,992 11,339
Other operating income:
Service charges on deposit accounts 524 515 467
Trust income 312 252 216
Other income 510 644 480
Net securities gains 358 130 65
Income from insurance subsidiary 260 255 341
Total other operating income 1,964 1,796 1,569
Other operating expenses:
Salaries and employee benefits 3,531 3,251 3,137
Net occupancy expenses 401 373 368
Furniture and equipment expenses 389 387 428
Other expenses 1,713 1,739 1,885
Expenses of insurance subsidiary 194 234 306
Total other operating expenses 6,228 5,984 6,124
Income before income tax provision 8,596 7,804 6,784
Income tax provision 2,197 2,154 1,870
Net income $ 6,399 $ 5,650 $ 4,914
Net income per share $ 1.89 $ 1.69 $ 1.47
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
(In Thousands, Except Per Share Data)
Unrealized
Additional Gains(Losses) Total
Common Stock Paid-In Retained on Investment Treasury Stockholders'
Shares Amount Capital Earnings Securities, Net Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,803 $ 2,254 $13,802 $13,477 $ 1,634 $(1,409) $29,758
Net income - - - 4,914 - - 4,914
Stock issued:
Stock dividend and split 1,008 1,260 1,407 (2,667) - - -
Employee benefit plans 1 1 3 - - - 4
Cash dividends declared,
$.53 per share - - - (1,792) - - (1,792)
Unrealized losses on
available-for-sale
securities, net of
taxes of $2,128 - - - (4,130) - - (4,130)
Balance, December 31, 1994 2,812 3,515 15,212 13,932 (2,496) (1,409) 28,754
Net income - - - 5,650 - - 5,650
Stock issued:
Stock dividends 428 535 10,313 (10,848) - - -
Employee benefit plans 2 3 38 - - - 41
Cash dividends declared,
$.69 per share - - - (2,317) - - (2,317)
Unrealized gains on
available-for-sale
securities, net of
taxes of $2,005 - - - 3,892 - - 3,892
Balance, December 31, 1995 3,242 4,053 25,563 6,417 1,396 (1,409) 36,020
Net Income - - - 6,399 - - 6,399
Stock issued:
Stock dividends 159 199 4,556 (4,755) - - -
Employee benefit plans 16 20 285 - - - 305
Cash dividends declared,
$.93 per share - - - (3,134) - - (3,134)
Unrealized losses on
available-for-sale
securities, net of
taxes of $374 - - - (724) - (724)
Balance, December 31, 1996 3,417 $ 4,272 $30,404 $ 4,927 $ 672 $(1,409) $38,866
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,399 $ 5,650 $ 4,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 650 360 360
Provision for depreciation 337 315 385
Deferred income taxes (119) (92) (188)
Net securities gains (358) (130) (65)
Gain on sale of bank premises and equipment - - (4)
(Increase) in accrued interest and other assets (2,218) (289) (636)
Increase in accrued interest and other liabilities 582 702 813
Net cash provided by operating activities 5,273 6,516 5,579
Cash flows from investing activities:
Proceeds from sales of investment securities 3,591 4,383 249
Proceeds from maturities of investment securities 16,502 18,925 27,307
Purchases of investment securities (50,246) (24,403) (22,441)
Net increase in loans (14,431) (14,847) (19,577)
Capital expenditures (1,168) (1,024) (89)
Proceeds from sales of bank premises and equipment - - 92
Net cash used in investing activities (45,752) (16,966) (14,459)
Cash flows from financing activities:
Net increase in deposit accounts 9,027 13,432 3,797
Net increase (decrease) in short-term borrowings 19,684 (18,563) 4,270
Proceeds from other borrowed funds 53,525 34,400 12,600
Repayments of other borrowed funds (37,900) (17,372) (8,534)
Cash dividends paid (3,134) (2,317) (1,792)
Proceeds from sale of stock for employee
benefits program 305 41 4
Net cash provided by financing activities 41,507 9,621 10,345
Net increase (decrease) in cash and cash equivalents 1,028 (829) 1,465
Cash and cash equivalents at beginning of year 6,471 7,300 5,835
Cash and cash equivalents at end of year $ 7,499 $ 6,471 $ 7,300
Supplemental disclosure of cash flow information:
Interest paid $13,446 $11,646 $ 8,671
Income taxes paid $ 2,550 $ 2,175 $ 2,110
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
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 bus-
inesses.
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 intercompany 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.
Securities Available for Sale
Available-for-sale securities includes debt, restricted and unrestricted
equity securities not classified as held-to-maturity securities nor as 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. The restricted equity securities consist
of Federal Home Loan Bank stock with a value of $8,320,000 and $3,923,000 at
December 31, 1996 and 1995, respectively.
The fair value of investments, except certain state and municipal
securities, 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
designated 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 costs of loan origination are deferred and recognized over
the life of the loan as a component of interest income using the interest
method.
<PAGE>
Notes to Consolidated Financial Statements
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, 1996, SUN has foreclosed assets held for sale totaling
$311,000, which are included with accrued interest and other assets in the
consolidated balance sheet. SUN did not have any foreclosed assets held for
sale at December 31, 1995.
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.
Benefit Plans
SUN maintains and funds a defined contribution benefit plan which covers
substantially all eligible employees. SUN has also established a nonqualified
Supplemental Retirement Plan for selected key employees. See Note 10. SUN
also maintains three common stock plans for employees and directors. See Note
9.
Income Taxes
Provision for deferred income taxes is made as a result of temporary
differences in financial reporting and income tax methods 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.
Net Income Per Share
Net income per 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 5% stock dividends paid in the second quarter
of 1996, 1995 and 1994 and the 10% stock dividend paid in the fourth quarter of
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, 1996, 1995 and 1994 were 3,382,252, 3,353,960 and 3,352,946,
respectively. All references in the accompanying consolidated 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
statements 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.
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>
Notes to Consolidated Financial Statements
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, 1996, 1995 and 1994 was
approximately $1,289,000, $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.
<TABLE>
3. Securities Available for Sale
The amortized cost and estimated fair value of available-for-sale securities
at December 31, 1996 and 1995 were as follows:
<CAPTION>
(In Thousands) December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt securities:
Obligations of U.S. government agencies $ 82,069 $ 227 $ (1,260) $ 81,036
Obligations of states and political subdivisions 42,229 811 (166) 42,874
Total debt securities 124,298 1,038 (1,426) 123,910
Equity securities 11,223 1,427 (22) 12,628
Total $135,521 $ 2,465 $ (1,448) $136,538
(In Thousands) December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt 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 $105,010 $ 2,766 $ (651) $107,125
</TABLE>
<TABLE>
The amortized cost and estimated fair value of SUN's securities at December 31,
1996 and 1995, 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, 1996 December 31, 1995
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Debt securities:
Due in one year or less $ 310 $ 313 $ 90 $ 90
Due after one year through five years 530 541 830 859
Due after five years through ten years 12,979 12,818 11,984 12,231
Due after ten years 49,310 49,652 24,118 25,478
63,129 63,324 37,022 38,658
Equity securities 11,223 12,628 6,230 7,002
Mortgage-backed securities 61,169 60,586 61,516 61,223
Corporate debt securities - - 242 242
Total $135,521 $136,538 $105,010 $107,125
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Securities with a carrying value of $61,000,000 and $26,000,000 were pledged
to secure public deposits, trust deposits, securities sold under agreements to
repurchase and other items required by law at December 31, 1996 and 1995,
respectively. There is no concentration of investments that exceed 10% of
shareholders' equity for any individual issuer, excluding those guaranteed by
the U.S. government or its agencies.
In 1996, gross realized gains from the sale of available-for-sale securities
were $358,000. In 1995, gross realized gains from the sale of available-for-
sale securities were $179,000, while gross realized losses amounted to $49,000.
In 1994, gross realized gains from the sale of available-for-sale securities
were $65,000.
<TABLE>
4. Loans
The composition of the loan portfolio at December 31, 1996 and 1995 were as
follows:
<CAPTION>
December 31
(In Thousands) 1996 1995
<S> <C> <C>
Real estate - Mortgages $158,310 $144,746
Real estate - Construction 5,107 4,729
Agricultural 769 724
Commercial and industrial 24,554 25,713
Individual 32,848 31,205
Other 145 60
Total 221,733 207,177
Less: Unearned income on loans (5,357) (5,074)
Deferred loan fees (661) (468)
Net $215,715 $201,635
</TABLE>
<TABLE>
Transactions in the allowance for possible loan losses were as follows:
<CAPTION>
Years Ended December 31
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year $2,191 $1,999 $1,732
Provision charged to expense 650 360 360
Recoveries 16 8 17
Loans charged off (367) (176) (110)
Balance, end of year $2,490 $2,191 $1,999
</TABLE>
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, 1996 and 1995, SUN had loans in the modular home industry in the amount of
$4,526,000 and $4,783,000, respectively. Loans in the automobile industry
amounted to $7,219,000 and $8,155,000 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 portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on the economic
conditions in its market area.
Nonaccrual and restructured loans amounted to $389,000 at December 31,
1996. At Devember 31, 1995, SUN had restructured loans in the amount of
$148,000. There were no nonaccrual loans in 1995. Interest income which would
have been recognized on all nonaccrual and restructured loans outstanding
in 1996 and 1994 was approximately $21,000 and $8,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
The following is a summary of the past due and nonaccrual loans as of December
31, 1996 and 1995:
<CAPTION>
(In Thousands) Past Due
Past Due 90 Days
December 31, 1996 30-89 Days or More Nonaccrual
<S> <C> <C> <C>
Real estate $ 2,982 $ 1,350 $ 236
Individual 1,203 443 -
Commercial and all other 528 70 -
Total $ 4,713 $ 1,863 $ 236
December 31, 1995
Real estate $ 3,880 $ 1,391 $ -
Individual 1,283 341 -
Commercial and all other 563 257 -
Total $ 5,726 $ 1,989 $ -
</TABLE>
<TABLE>
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1996 and 1995 consisted of the
following:
<CAPTION>
(In Thousands) December 31
1996 1995
<S> <C> <C>
Land $1,026 $1,000
Bank premises 4,581 4,262
Furniture and equipment 3,153 2,330
Total cost 8,760 7,592
Less: Accumulated depreciation (3,682) (3,345)
Bank premises and equipment, net $5,078 $4,247
Depreciation charged to income was $337,000, $315,000 and $385,000 for 1996,
1995 and 1994, respectively.
</TABLE>
<TABLE>
6. Deposits
The following table reflects time certificates of deposits included in total
deposits and their remaining maturities:
<CAPTION>
(In Thousands) At December 31, 1996
2002 and
1997 1998 1999 2000 2001 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposits $85,667 $16,645 $ 9,220 $ 4,445 $ 1,149 $ 88 $117,214
</TABLE>
<TABLE>
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
1996 1995
<S> <C> <C>
Three months or less $ 5,000 $ 3,486
Three through six months 3,383 1,259
Six through twelve months 4,732 3,533
Over twelve months 4,332 6,124
Total $17,447 $14,402
The interest paid on such deposits amounted to approximately $790,000 in 1996,
$691,000 in 1995 and $541,000 in 1994.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
7. Borrowed Funds
SUN's borrowed funds as of December 31, 1996 and 1995 include the following:
<CAPTION>
(In Thousands) December 31
1996 1995
<S> <C> <C>
Short-Term Borrowings:
Open Repo Plus (1) $ 22,570 $ -
Flexline (2) - 9,445
Securities sold under agreements
to repurchase (3) 8,405 6,081
Treasury Tax and Loan Note Option (4) 4,848 613
Total Short-term Borrowings $ 35,823 $ 16,139
Other Borrowed Funds:
Federal Home Loan
Bank of Pittsburgh advances (5) 83,625 68,000
Total Borrowed Funds $119,448 $ 84,139
</TABLE>
(1) In 1996, SUN began utilizing an "Open Repo Plus" program through the
Federal Home Loan Bank (FHLB) of Pittsburgh, as a source of funds. As of
December 31, 1996, the total commitment was $50,000 with a remaining available
credit of $27,430. The maximum month end amount of such borrowings in 1996
was $32,260,000. The average amount of such borrowing was $26,917,000 in 1996
and the weighted average interest rate was 5.48% in 1996.
(2) SUN utilized Flexline in 1995 and 1994, a line of credit with the Federal
Home Loan Bank (FHLB) of Pittsburgh, as a source of funds. The maximum month
end amounts of such borrowings in 1995 and 1994 was $30,840,000 and $28,144,000,
respectively. The average amount of such borrowings was $11,886,000 and
$18,654,000 in 1995 and 1994, respectively, and the weighted average interest
rates were 6.16% in 1995 and 4.58% in 1994.
(3) The maximum month end amount of securities sold under agreements to
repurchase in 1996, 1995 and 1994 was $11,923,000, $10,578,000 and $8,289,000,
respectively. The average amount of such borrowings was $7,698,000, $6,412,000
and $6,819,000 in 1996, 1995 and 1994, respectively, and the weighted average
interest rates were 3.95% in 1996, 4.29% in 1995 and 3.05% in 1994.
(4) 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 $10,000,000. The maximum
month end amounts of such borrowings in 1996, 1995 and 1994 was $10,000,000,
$3,500,000 and $2,305,000, respectively. The average amount of such borrowings
was $2,587,000, $1,213,000 and $1,142,000, respectively, and the weighted
average interest rates were 5.23% in 1996, 5.81% in 1995 and 3.84% in 1994.
(5) FHLB of Pittsburgh advances represent variable and fixed rate loans with
stated maturities as follows:
<TABLE>
(In Thousands) December 31
1996 1995
<CAPTION>
<S> <C> <C>
Variable rate at 5.53125%, maturity 1997 $ 2,000 $ -
Variable rate at 5.64375%, maturity 1998 5,600 -
Variable rates between 5.36% and 5.38%, maturity 1999 10,000 -
Variable rates between 4.97% and 6.06%, maturity 2001 35,000 -
Fixed rates between 5.50% and 7.20%, maturity 1997 13,000 16,000
Fixed rates between 5.14% and 5.91%, maturity 1998 11,525 -
Fixed rate of 5.15%, maturity 1999 2,500 -
Fixed rate of 6.40%, maturity 2000 2,000 2,000
Fixed rates between 7.80% and 7.88%, maturity 2002 2,000 2,000
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 5.23% and 5.46%, maturity 1998 - 5,500
Total $ 83,625 $ 68,000
</TABLE>
All FHLB advances are collateralized by SUN's investment in FHLB stock,
mortgage-backed securities and first mortgage loans.
<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 securities available-for-sale 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,
agricultural, commercial and industrial, individual and other.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect 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
discounted 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 a available market
information. The following table presents information for loans:
<TABLE>
December 31, 1996 December 31, 1995
<CAPTION>
Book Estimated Book Estimated
(In Thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Total loans $215,715 $212,406 $201,635 $202,701
</TABLE>
Deposits:
The fair value of deposits with no stated maturity, such as non-interest-
bearing demand deposits, NOW accounts, savings deposits, and Insured Money
Market Accounts, is equal to the amount payable on demand as of December 31,
1996 and 1995. 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.
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. The following table presents information for deposits:
<TABLE>
December 31, 1996 December 31, 1995
<CAPTION>
Book Estimated Book Estimated
(In Thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Total deposits $205,619 $205,454 $196,592 $194,395
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
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>
December 31, 1996 December 31, 1995
<CAPTION>
Book Estimated Book Estimated
(In Thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Total borrowed funds $119,448 $117,168 $ 84,139 $ 84,436
</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 $41,727,000 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 adoption of three
common stock plans for employees
and directors.
The Stock Incentive Plan, which is administered by a disinterested
committee of the Board of Directors, provides for 305,613 shares of common
stock for key officers and other management employees in the form of qualified
options, nonqualified options, stock appreciation rights or restrictive stock.
The Independent Directors Stock Option Plan allows for 28,651 shares of common
stock to be issued to non-employee directors. Options under the Stock
Incentive Plan and the Independent Directors Stock Option Plan expire ten years
after the date of grant. Also, 95,504 shares have been allocated for the
Employee Stock Purchase Plan, which permits all employees to purchase common
stock at an option price per share that is not less than 90% of the market
value per share on the date of exercise. Each option under the Employee Stock
Purchase Plan will expire no later than five years from the date of grant, and
this plan will terminate in 2004.
SUN applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for its common stock plans. Accordingly, no
compensation expense has been recognized for the plans. Had compensation cost
for the plans been determined based on the fair values at the grant dates for
awards, consistent with the method of SFAS No. 123, SUN's net income and
earnings per share for 1996 and 1995 would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
1996 1995
<S> <C> <C> <C>
Net income As reported $6,399,000 $5,650,000
Pro forma $6,188,000 $5,540,000
Earnings per share As reported $ 1.89 $ 1.68
Pro forma $ 1.83 $ 1.65
</TABLE>
For purposes of the pro forma calculations above, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
grants issued in 1996 and 1995:
<TABLE>
1996 1995
<S> <C> <C>
Dividend yield 3% 3%
Volatility 12% 12%
Risk-free interest rates:
Stock Incentive Plan 6.57% 6.30%
Independent Directors Plan 6.22% 6.75%
Expected option lives 4 years 4 years
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
A summary of the status of the common stock plans, adjusted retroactively
for the effects of stock dividends and stock splits, is presented below:
<CAPTION>
1996 1995 1994
Weighted- Weighted- Weighted-
average average average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 124,266 $21.16 75,388 $19.24 - $ -
Granted 58,288 31.34 51,967 24.50 75,668 19.28
Exercised (15,239) 19.57 (2,145) 30.60 (220) 30.60
Forfeited (1,366) 30.60 (944) 30.60 (60) 30.60
Outstanding, end of year 165,949 $24.80 124,266 $21.16 75,388 $19.24
Options exercisable at year-end 124,949 87,715 15,392
Fair value of options granted
during the year $4.63 $3.38 N/A
</TABLE>
<TABLE>
The following table summarizes information about fixed stock options
outstanding under the Stock Incentive Plan and the Independent Directors Plan
at December 31, 1996:
<CAPTION>
Exercise Number Outstanding Remaining Number Exercisable
Prices at December 31, 1996 Contractual Life at December 31, 1996
<C> <C> <C> <C>
$16.57 4,275 8 years 4,275
$17.87 50,693 8 years 50,693
$19.43 4,750 9 years 4,750
$23.81 36,551 9 years 36,551
$28.13 5,700 10 years 5,700
$32.00 41,500 10 years -
143,469 8.9 years 101,969
</TABLE>
10. Employee Benefit Plans
SUN provides a defined contribution pension plan that covers substantially
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, 1996, 1995 and 1994 were $209,000, $201,000 and $170,000,
respectively. Additionally, the amount charged to expense under the
supplemental payment agreement for the same periods was $39,000, $32,000 and
$40,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
11. Income Taxes
<TABLE>
The following temporary differences gave rise to a deferred tax asset at
December 31, 1996 and 1995:
<CAPTION>
(In Thousands) Years Ended December 31
1996 1995
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses $ 615 $ 513
Loan fees and costs 204 147
Depreciation 13 44
Supplemental compensation plan 60 54
Other 35 43
Total 927 801
Deferred tax liabilities:
Unrealized gains on investment securities $ 345 $ 719
Other 12 5
Total $ 357 $ 724
Deferred tax asset, net $ 570 $ 77
</TABLE>
<TABLE>
SUN's income tax provision for 1996, 1995 and 1994 consists of the following:
<CAPTION>
Years Ended December 31
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
Current payable $2,316 $2,246 $2,058
Deferred income tax benefit (119) (92) (188)
Income tax provision $2,197 $2,154 $1,870
</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
(In Thousands) 1996 1995 1994
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $2,983 34.0% $2,653 34.0% $2,307 34.0%
Tax-exempt income (705) (8.2) (471) (6.0) (407) (6.0)
Other items (21) (.2) (28) (.4) (30) (.4)
Income tax provision $2,197 25.6% $2,154 27.6% $1,870 27.6%
</TABLE>
12. Related Party Transactions
<TABLE>
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 executive officers, directors, significant
stockholders and associates of such persons is listed below:
<CAPITON>
(In Thousands) Beginning New Other Ending
Balance Loans Repayments Changes Balance
<S> <C> <C> <C> <C> <C>
9 Directors, 6 Executive Officers 1996 $10,692 $1,986 $(1,131) $(1,224) $10,323
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
</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.
<PAGE>
Notes to Consolidated Financial Statements
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
instruments. 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, 1996 and 1995, commitments to
extend credit totaled $40,449,000 and $33,784,000, 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
commercial 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, 1996 and 1995, standby letters of credit totaled
$1,278,000 and $1,366,000, respectively.
14. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the
table.
<TABLE>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<CAPTION>
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) 40,684 18.4% 17,689 8.0% 22,111 10.0%
Tier I Capital
(to Risk Weighted Assets) 38,194 17.3% 8,844 34.0% 13,267 6.0%
Tier I Capital
(to Average Assets) 38,194 11.1% 13,779 34.0% 17,224 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) 36,815 18.9% 15,603 38.0% 19,503 10.0%
Tier I Capital
(to Risk Weighted Assets) 34,624 17.8% 7,801 34.0% 11,702 6.0%
Tier I Capital
(to Average Assets) 34,624 11.2% 12,385 34.0% 15,481 5.0%
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
15. Pending Acquisition
On November 6, 1996, SUN signed a definitive agreement to acquire
Bucktail Bank and Trust Company ("Bucktail") located in Emporium, Pennsylvania.
Bucktail Bank is wholly-owned subsidiary of FNB Corporation, a multi-bank
holding company headquartered in Hermitage, Pennsylvania. The transaction is
subject to obtaining regulatory and, therefore, the final closing is not
expected until early to mid 1997. It is anticipated that Bucktail's banking
operations will be merged with Sun Bank.
Under the terms of the acquisition agreement, 538,461 shares of SUN common
stock will be exchanged for all of the outstanding shares of Bucktail. Based
on the market price of SUN's common stock as of December 31, 1996, the total
cost of the acquisition would be approximately $17,500,000. It is expected that
the acquisition will be accounted for as a purchase.
16. Condensed Financial Information - Parent Company Only
<TABLE>
SUN BANCORP, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
(In Thousands) 1996 1995
<S> <C> <C>
Assets:
Cash $ 4 $ 7
Securities available-for-sale 922 595
Note receivable - net - 6
Accounts receivable 4 7
Subsidiary investments:
Sun Bank 36,621 35,190
Pennsylvania SUN Life Insurance Company 284 214
Investment in limited partnerships 963 -
Prepaid taxes 43 -
Other assets 34 -
Total assets $ 38,875 $ 36,029
Liabilities:
Accounts payable $ 9 $ 4
Income tax payable - 5
Total liabilities 9 9
Shareholders' Equity:
Common stock 4,272 4,053
Surplus 30,404 25,563
Retained earnings 4,927 6,417
Net unrealized appreciation on
available-for-sale securities 672 1,396
Treasury stock (1,409) (1,409)
Total shareholders' equity 38,866 36,020
Total liabilities and shareholders' equity $38,875 $36,029
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
SUN BANCORP, INC.
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
Income:
Dividend income $3,997 $2,340 $1,814
Interest and other income 69 67 89
Total income 4,066 2,407 1,903
Expenses:
Stationery and printing 16 15 14
Professional fees 11 22 37
Other expenses 90 80 72
Total expenses 117 117 123
Income before income taxes and
equity in undistributed
earnings of subsidiaries 3,949 2,290 1,780
Income tax benefit (121) (13) (7)
Income before equity in undistributed
earnings of subsidiaries 4,070 2,303 1,787
Equity in undistributed earnings
of subsidiaries 2,329 3,347 3,127
Net income $6,399 $5,650 $4,914
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
SUN BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $6,399 $5,650 $4,914
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of subsidiaries (2,329) (3,347) (3,127)
Credit for possible loan losses (1) (1) (2)
Gain from insurance contract - - (60)
Deferred income taxes - (45) 21
Realized net security losses - - 1
(Increase) decrease in accounts receivable 13 (12) 6
(Increase) decrease in prepaid taxes (95) 31 (19)
Increase in other assets (34) - -
Increase (decrease) in liabilities - (4) 9
Net cash provided by operating activities 3,953 2,272 1,743
Cash flows from investing activities:
Proceeds from sales of investment securities - - 81
Proceeds from insurance contract - - 315
Principal collected on note receivable 7 6 10
Purchases of investment securities (171) - (365)
Purchases of investments in limited
partnerships (963) - -
Net cash provided by (used in) investing
activities (1,127) 6 41
Cash flows from financing activities:
Cash dividends (3,134) (2,317) (1,792)
Proceeds from sale of stock for employee
benefit program 305 41 4
Net cash used in financing activities (2,829) (2,276) (1,788)
Net increase (decrease) in cash and
cash equivalents (3) 2 (4)
Cash and cash equivalents at beginning of year 7 5 9
Cash and cash equivalents at end of year $ 4 $ 7 $ 5
</TABLE>
No interest or income taxes were paid by the parent company during the years
1996, 1995 or 1994.
<PAGE>
Notes to Consolidated Financial Statements
16. Consolidated Quarterly Financial Data (Unaudited)
<TABLE>
(Dollars in Thousands, Except Per Share Data)
<CAPTION>
1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
<S> <C> <C> <C> <C> <C>
Interest income $6,554 $6,740 $6,818 $7,087 $27,199
Interest expense 3,292 3,401 3,390 3,606 13,689
Net interest income 3,262 3,339 3,428 3,481 13,510
Provision for possible loan losses (75) (75) (425) (75) (650)
Other operating income 360 414 772 418 1,964
Other operating expenses (1,497) (1,569) (1,554) (1,608) (6,228)
Income before income taxes 2,050 2,109 2,221 2,216 8,596
Income tax provision (545) (566) (534) (552) (2,197)
Net income $1,505 $1,543 $1,687 $1,664 $ 6,399
Net income per share $ .45 $ .46 $ .49 $ .49 $ 1.89
1995
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 $ .38 $ .37 $ .47 $ .46 $ 1.68
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 $ .35 $ .35 $ .37 $ .40 $ 1.47
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders 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, 1996 and 1995, 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, 1996. 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
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1996 and 1995, and the
results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting
principles.
Williamsport, Pennsylvania
January 17, 1997
<PAGE>
<TABLE>
Five Year Financial Highlights
Five Year Financial Highlights
Selected Financial Data
<CAPTION>
1996 1995 1994 1993 1992
Balance Sheet Data (In Thousands)
<S> <C> <C> <C> <C> <C>
Assets $367,390 $319,626 $299,761 $288,662 $250,175
Deposits 205,619 196,592 183,160 179,363 181,947
Loans 213,225 199,444 184,957 165,740 146,956
Investment securities 136,538 107,125 100,002 111,311 89,531
Shareholders' equity 38,886 36,020 28,754 29,758 25,629
Average equity 36,886 32,025 29,697 27,004 24,706
Average assets 344,473 309,623 285,177 270,504 231,065
Earnings Data (In Thousands)
Interest income $ 27,199 $ 24,439 $ 20,666 $ 20,013 $ 18,737
Interest expense 13,689 12,087 8,967 8,970 9,070
Net interest income 13,510 12,352 11,699 11,043 9,667
Provision for possible loan losses 650 360 360 540 420
Net interest income after
provision for possible loan
losses 12,860 11,992 11,339 10,503 9,247
Other operating income 1,964 1,796 1,569 1,382 1,206
Other operating expenses 6,228 5,984 6,124 6,044 5,969
Income before income tax provision 8,596 7,804 6,784 5,841 4,484
Income tax provision 2,197 2,154 1,870 1,590 1,142
Net income 6,399 5,650 4,914 4,251 3,342
Dividends declared 3,134 2,317 1,792 1,360 1,005
Ratios
Return on average assets 1.86% 1.83% 1.72% 1.57% 1.45%
Return on average equity 17.35% 17.64% 16.55% 15.74% 13.53%
Equity to assets (year end) 10.58% 11.27% 9.59% 10.31% 10.24%
Loans to deposits (year end) 103.70% 101.45% 100.98% 92.40% 80.77%
Loans to assets (year end) 58.04% 62.40% 61.70% 57.42% 58.74%
Dividend payout (percentage
of net income) 48.98% 41.01% 36.47% 31.99% 30.07%
Per Share Data
Net income per share $ 1.89 $ 1.68 $ 1.47 $ 1.26 $ .98
Cash dividends per share $ .93 $ .69 $ .53 $ .40 $ .30
Book value per share $ 11.54 $ 10.74 $ 8.58 $ 8.87 $ 7.57
Average shares outstanding 3,382,252 3,353,960 3,352,946 3,374,170 3,418,933
Approximate number of
shareholders 1,518 1,337 1,163 1,089 1,027
</TABLE>
<PAGE>
Management's Discussion and Analysis
BACKGROUND
SUN BANCORP, INC. (SUN) is a bank holding company whose principal
subsidiary is Sun Bank. Sun Bank, trading as Snyder County Trust Company and
Watsontown Bank, operates six branch banking offices and one trust services
office in its principal market of Snyder, Union and Northumberland counties.
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. SUN is a limited partner in two partnerships which were formed for
the purpose of building, owning and operating an affordable elderly apartment
complexes SUN's market area. At December 31, 1996, SUN had 113 full time
equivalent employees.
ANALYSIS OF RESULTS OR OPERATIONS
Summary
SUN achieved record earnings for the year ending December 31, 1996. Net
income reached $6,399,000 in 1996, representing a $749,000 or 13.25% increase
over the $5,650,000 recorded in 1995. Earnings per share also reached record
levels at $1.89 compared to the $1.69 earned in 1995. This strong earnings
performance is further reflected through a solid 1.86% return on average assets
and a 17.35% return on average equity. At December 31, 1995, these ratios were
1.83% and 17.64%, respectively.
Net Interest Income
Profitability for banks 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 on average balance of earning assets rose
$1,384,000 or 10.49% in 1996 and increased $785,000 or 6.32% in 1995. This
rise was due primarily to an increase in average balance of interest-earning
assets in both years. Interest rates remained relatively unchanged through
1996. In 1995, the rate of return on average interest bearing assets grew by
64 points. The rate of return on average balance of loans accounted for most
of this increase. In 1996, interest income rose $2,986,000 or 11.81% as
interest expense increased $1,601,000 or 13.25%. Growth in the average balance
of loans and investments in both taxable and tax-exempt securities accounted
for most of the increase in interest income, while rates of return have
remained relatively the same in 1996. Growth in the average balance of time
deposits and short-term borrowings accounted for most of the increase in
interest expense in 1996.
Balance Sheet
Average assets grew $34,850,000 or 11.26% from $309,623,000 in 1995 to
$344,473,000 in 1996. Average loans grew $14,282,000 or 7.27% as loan demand
remained strong throughout 1996. Average investments increased $20,373,000 or
20.25% from $100,630,000 in 1995 to $121,003,000 in 1996. The increase in
investments occurred in both taxable and tax-exempt securities. The rate of
return on taxable securities remained stable, while the rate of return for tax-
exempt securities dropped by 35 basis points to 9.10%. The yield on total
earning assets rose 12 basis points to 8.51% in 1996 from 8.39% in 1995.
In 1995, SUN's average assets rose $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%.
Average investments remained virtually unchanged from $100,658,000 in 1994 to
$100,630,000 in 1995. However, the makeup of investments portfolio changed
slightly as principal reductions of mortgage-backed securities were used to
fund tax-exempt municipal bond purchases instead of being reinvested in
mortgage-backed securities. This was done to take advantage of the prevailing
higher rates on tax-exempt bonds in 1995.
In 1996 SUN's average interest-bearing liabilities rose $28,800,000 or
11.27% from $255,456,000 in 1995 to $284,256,000 in 1996. Total average
deposits grew $11,827,000 or 6.82%. NOWs, Super NOWs and Insured Money Market
Accounts grew $2,892,000 to $42,758,000 in 1996 from $39,866,000 in 1995.
Savings deposits remained relatively unchanged between 1996 and 1995. Time
deposits increased by $9,147,000 to $112,824,000 in 1996 from $103,677,000 in
1995. Short-term borrowings, consisting mostly of Federal Home Loan Bank (FHLB)
of Pittsburgh overnight borrowings, increased $16,280,000 or 88.97% to
$34,578,000 in 1996 from $18,298,000 in 1995. Other borrowed funds remained
relatively unchanged in 1996.
The interest paid on deposits in 1996 rose $817,000 or 11.08% as the
average rate paid on deposits rose by 17 basis points. This rise was mainly
attributable to the time deposits which generally pay higher rates of
interest. The average rate paid on short-term borrowings and other borrowed
funds fell 19 basis points to 5.55% in 1996 from 5.74% in 1995. The overall
rate on interest-bearing liabilities rose 9 basis points to 4.82% in 1996
from 4.73% in 1995.
In 1995, average interest-bearing deposits rose $20,974,000 or 8.94% from
$234,482,000 in 1994 to $255,456,000 in 1995. Short-term borrowing decreased
$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%.
<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>
1996 1995 1994
Average Average Average
(In Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 548 $ 35 6.39% $ 2,118 $ 122 5.76% $ 121 $ 5 4.13%
Loans (net of unearned
income) (1) (2) 210,820 19,620 9.18 196,538 18,037 9.18 175,149 14,863 8.49
Investments: Taxable 90,621 5,851 6.46 78,821 5,066 6.43 82,661 4,832 5.85
Tax-exempt (2) 30,382 2,765 9.10 21,809 2,060 9.45 17,997 1,680 9.33
Federal funds sold - - - - - - 3 - -
Total interest-earning assets 332,371 28,271 8.51 299,286 25,285 8.39 275,931 21,380 7.75
Noninterest-earning assets:
Cash and due from banks 6,196 5,789 5,754
Bank premises
& equipment 4,610 3,513 3,725
Accrued interest and
other assets 4,093 3,538 2,015
Less: Allowance for
loan losses (2,314) (2,145) (1,891)
Unamortized loan fees (483) (358) (357)
Total assets $344,473 $309,623 $285,177
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOWs and Super NOWs $ 32,390 652 2.01 $ 31,407 630 2.01 $ 32,554 661 2.03
Insured Money Market
Accounts 10,368 379 3.66 8,459 287 3.39 10,591 288 2.72
Savings deposits 29,617 661 2.23 29,829 670 2.25 31,796 729 2.29
Time deposits 112,824 6,501 5.76 103,677 5,789 5.58 90,171 4,031 4.47
Short-term borrowings 34,578 1,779 5.14 18,298 978 5.50 25,473 1,062 4.17
Other borrowed funds 64,479 3,717 5.76 63,786 3,733 5.81 43,897 2,196 5.00
Total interest-bearing
liabilities 284,256 13,689 4.82 255,456 12,087 4.73 234,482 8,967 3.82
Noninterest-bearing liabilities
and shareholders' equity:
Demand deposits 20,470 19,704 19,786
Accrued interest and
other liabilities 2,861 2,438 1,212
Shareholders' equity 36,886 32,025 29,697
Total liabilities and
shareholders' equity $344,473 $309,623 $285,177
Interest rate spread 3.69% 3.66% 3.93%
Net interest income/margin $14,582 4.39% $ 13,198 4.41% $12,413 4.50%
</TABLE>
(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%.
<PAGE>
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>
1996 Compared to 1995 1995 Compared to 1994
(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 $ (90) $ 3 $ (87) $ 82 $ 35 $ 117
Loans 1,310 273 1,583 1,816 1,358 3,174
Investments:
Taxable 758 27 785 (225) 459 234
Tax-exempt 811 (106) 705 356 24 380
Total interest-earning
assets 2,789 197 2,986 2,029 1,876 3,905
Interest paid on:
NOWs and Super NOWs 20 - 22 (23) (8) (31)
Insured Money Market
Accounts 65 28 92 (58) 57 (1)
Savings deposits (3) (6) (9) (45) (14) (59)
Time deposits 509 203 712 604 1,154 1,758
Short-term borrowings 910 (109) 801 (313) 229 (84)
Other borrowed funds 28 (44) (16) 1,007 530 1,537
Total interest-bearing
liabilities 1,530 75 1,602 1,172 1,948 3,120
Net interest income $1,259 $122 $1,384 $ 857 $ (72) $ 785
</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%.
The change in interest income and interest expense attributable to the
combined impact of both volume and rate has been allocated proportionately to
the change due to volume and the change due to rate.
<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 consolidated income statements for the periods
indicated. The table also reflects the changes in average volume of assets and
liabilities as it relates to income and expense. The tax-exempt income is not
shown on a tax-equivalent basis.
<CAPTION>
(In Thousands) 1996 Compared to 1995 1995 Compared to 1994
Average Volume Income/Expense Average Volume Income/Expense
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (net of
unearned income) $14,282 7.27% $1,598 8.93% $21,389 12.21% $3,166 21.50%
Investment securities 20,373 20.25 1,249 19.43 (28) (.03) 490 8.25
Interest-bearing
deposits (1,570) (74.13) (87) (71.31) 1,994 1,608.06 117 2,340.00
Total interest-
earning assets $33,085 11.05% $2,760 11.29% $23,355 8.46% $3,773 18.26%
NOWs and Super NOWs 983 3.13% 23 3.65% $(1,147) (3.52)% (31) (4.69)%
Insured Money Market
Accounts 1,909 22.57 92 32.06 (2,132) (20.13) (1) (.35)
Savings deposits (212) (.71) (9) (1.34) (1,967) (6.19) (59) (8.09)
Time deposits 9,147 8.82 712 12.28 13,506 14.98 1,758 43.61
Short-term borrowings 16,280 88.97 801 81.90 (7,175) (28.17) (84) (7.91)
Other borrowed funds 693 1.09 (16) (.43) 19,889 45.31 1,537 69.99
Total interest-bearing
liabilities $28,800 11.27% $1,602 13.25% $20,974 8.94% $3,120 34.79%
Net interest income $1,158 9.38 653 5.58
Provision for possible
loan losses 290 80.56 - -
Net interest income
after provision for
possible loan losses 868 7.24 653 5.76
Trust income 60 23.81 36 16.67
Service charges and
other income (125) (10.78) 212 22.39
Net securities gains 228 175.38 65 100.00
Income from insurance
subsidiary 5 1.96 (86) (25.22)
Total other operating income 168 9.35 227 14.47
Salaries and employee benefits 280 8.61 114 3.63
Net occupancy and equipment expenses 30 3.94 (36) (4.52)
Other expenses (26) (1.50) (146) (7.75)
Expenses of insurance subsidiary (40) (17.09) (72) (23.53)
Total other operating expenses 244 4.08 (140) (2.29)
Income before income tax provision 792 10.15 1,020 15.04
Income tax provision 43 2.00 284 15.19
Net income $ 749 13.26% $ 736 14.98%
</TABLE>
<PAGE>
Management's Discussion and Analysis
OTHER OPERATING INCOME
SUN's total other operating income rose $168,000 or 9.35% in 1996.
Service charges on deposit accounts remained relatively unchanged at $524,000
in 1996 compared to $515,000 in 1995. SUN's total deposits increased
49,027,000 with most of the growth occurring in non-transactional accounts
where fees are not normally assessed. Other income was $510,000 in 1996
reflecting a $134,000 or 20.81% decrease from the $644,000 recognized in 1995.
Other income is mainly comprised of non-yield related loan fees and other
miscellaneous income. In 1995, SUN recognized $89,000 in non-recurring income
from net gains on the sale of other real estate owned and proceeds from an
insurance contract relating to the termination of its defined benefit pension
plan in 1990. Net security gains amounted to $358,000 in 1996, up $228,000
from the gains realized in 1995. In 1996, SUN sold several municipal bonds
resulting in a gain of $234,000 and equity security sales amounted to $124,000
in security gains. Management 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. The income from insurance subsidiary remained steady at
$260,000 in 1996 compared to $255,000 in 1995.
In 1995, total other operating income rose $227,000 or 14.47%. 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 the number of accounts as well as the balances held in trust.
Other income increased $164,000 and net security gains rose $65,000.
<TABLE>
The table below illustrates the changes in other operating income for the
years ended December 31, 1996, 1995 and 1994.
<CAPTION>
(In Thousands) 1996 % Change 1995 % Change 1994
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $ 524 1.75% $ 515 10.28% $ 467
Trust income 312 23.81 252 16.67 216
Other income 510 (20.81) 644 34.17 480
Net securities gains 358 175.39 130 100.00 65
Income from insurance subsidiary 260 1.96 255 (25.22) 341
Total other operating income $1,964 9.35% $1,796 14.47% $1,569
</TABLE>
OTHER OPERATING EXPENSES
SUN has always been committed to controlling its operating expenses in an
effort to maximize profits. In 1996, SUN's total other operating expenses rose
$244,000 or 4.08%. Salaries and employee benefits increased $280,000 or 8.61%
due to increased staffing and normal wage and salary adjustments. Net
occupancy expense rose $28,000 or 7.51%. SUN is expanding its operations by
locating a new branch in Northumberland and relocating its Shamokin Dam branch
to a more accessible site. Furniture and equipment expenses remained
relatively unchanged. Other operating expenses showed a net decrease of
$26,000 or 1.50% in 1996. The expenses related to the computer software
conversion that occurred in late September 1996 were offset by a reduction in
the Federal Deposit Insurance (FDIC) insurance premiums. SUN's annual
assessment rate dropped to $2,000 in 1996 from $314,000 in 1995 as a result of
its well-capitalized status. The expenses of insurance subsidiary dropped
$40,000 from $234,000 in 1995 to $194,000 in 1996.
In 1995, SUN's total other operating expenses decreased $140,000 or 2.29%
with general declines or minimal increases in each of the expense categories.
Salaries and emp0loyee benefits increased $114,000 or 3.63%. Net occupancy
expenses rose $5,000 or 1.36% as furniture and equipment expenses dropped
$41,000 or 9.58%. In September 1995, SUN received a $117,000 refund from the
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%.
<TABLE>
The table below illustrates the changes in other operating expenses for the
years ended December 31, 1995, 1994 and 1993.
<CAPTION>
(In Thousands) 1996 % Change 1995 % Change 1994
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $3,531 8.61% $3,251 3.63% $3,137
Net occupancy expenses 401 7.51 373 1.36 368
Furniture and equipment expenses 389 .52 387 (9.58) 428
Other expenses 1,713 (1.50) 1,739 (7.75) 1,885
Expenses of insurance subsidiary 194 (17.09) 234 (23.53) 306
Total other operating expenses $6,228 4.08% $5,984 (2.29)% $6,124
</TABLE>
<PAGE>
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. SUN had
unrealized net gains on investment securities of $1,017,000 and $2,115,000 at
December 31, 1996 and 1995, respectively. 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 municipal securities.
<TABLE>
The following table shows the actual maturity distribution of investment
securities, including mortgage-backed securities at their contractual
maturities, at December 31, 1996.
<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 $ - - $ 721 6.08% $28,645 6.47% $52,703 6.76% $ 82,069 6.65%
Obligations of
states and political
subdivisions (1) 310 10.50% 530 10.86 60 13.64 41,329 8.77 42,229 8.82
Total $ 310 10.50% $1,251 8.11% $28,705 6.49% $94,032 7.64% $124,298 7.39%
Equity securities (2) 11,223
Total investment securities $135,521 6.78%
</TABLE>
(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>
The amortized cost, unrealized gains and losses, and estimated fair value
of investment securities at December 31, 1996 and 1995 were as follows:
<CAPTION>
(In Thousands)
1996 1995
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations
of U.S.
government
agencies $ 82,069 $ 227 $(1,260) $ 81,036 $73,425 $ 548 $(615) $ 73,358
Obligations
of states
and political
subdivisions 42,229 811 (166) 42,874 25,113 1,423 (13) 26,523
Corporate debt
securities - - - - 242 - - 242
Equity securities 11,223 1,427 (22) 12,628 6,230 795 (23) 7,002
Total $135,521 $2,465 $(1,448) $136,538 $105,010 $2,766 $(651) $107,125
</TABLE>
<PAGE>
Management's Discussion and Analysis
LOAN PORTFOLIO
Loan demand continued to be strong in 1996 as total loans increased
$14,080,000 or 6.98% from $201,635,000 in 1995 to $215,715,000 in 1996. Much
of this growth occurred in the real estate mortgage portfolio as these loans
rose $13,564,000 or 9.37%. SUN prides itself on its position as a residential
lender in the community. Commercial and industrial loans decreased $1,159,000
or 4.51% and individual loans rose $1,360,000 or 5.20% to $27,491,000 in 1996.
In 1995, SUN's total loans increased $14,679,000 or 7.85% with most of the
growth occurring in the real estate portfolio. Commercial and industrial loans
rose $5,010,000 or 24.20% and individual loans remained relatively unchanged at
$26,131,000.
The loan portfolio is carefully analyzed on a routine basis to ensure the
asset quality remains strong. Real estate loans account for 76% 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, 1996.
<CAPTION>
(In Thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Real estate-Construction $ 5,107 $ 4,729 $ 5,221 $ 5,341 $ 3,152
Real estate-Mortgage 158,310 144,746 135,120 118,798 106,779
Agricultural 769 724 665 740 1,128
Commercial and industrial 24,554 25,713 20,703 20,761 19,467
Individual 27,491 26,131 25,705 22,164 18,052
Other 145 60 42 36 33
Deferred loan fees (661) (468) (500) (368) (302)
Total loans $215,715 $201,635 $186,956 $167,472 $148,309
</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, 1996. 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 $16,850 $6,008 $2,610 $25,468
Real estate-Construction 5,107 - - 5,107
Total $21,957 $6,008 $2,610 $30,575
</TABLE>
<TABLE>
Interest Rate Sensitivity
<CAPTION>
Fixed Variable
Rate Rate Total
<S> <C> <C> <C>
Due within one year $ 6,411 $15,546 $21,957
Due after one year 8,203 415 8,618
Total $14,614 $15,961 $30,575
</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, 1996, total nonperforming loans amounted to $2,252,000 or
1.04% of total loans. Total loans grew $14,080,000 or 6.98% to $215,715,000 in
1996. However, this growth did not r5esult in a dramatic increase in
nonperforming loans. An integral part of our community bank philosophy is our
ability to meet our customers' needs while maintaining prudent yet flexible
lending practices.
<TABLE>
The following table presents information on nonaccrual, past due and
restructured loans for the five years ending December 31, 1996.
<CAPTION>
(In Thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 236 $ 0 $ 163 $ 28 $1,010
Loans past due 90 days
or more 1,863 1,989 488 286 567
Restructured loans 153 148 175 10 30
Total nonperforming loans $2,252 $2,137 $ 826 $ 324 $1,607
</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 previously
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, 1996, management deems the allowance to be
adequate; however, future additions may be necessary based on economic, market
or other unforeseeable conditions. Although management 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>
Management's Discussion and Analysis
<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, 1996.
<CAPTION>
(In Thousands) 1996 1995 1994 1993 1992
% of % of % of % of % of
Total Total Total Total Total
Allowance Loan Allowance Loan Allowance Loan Allowance Loan Allowance Loan
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $1,009 75.40% $ 631 73.87% $ 279 74.80% $ 208 73.91% $ 520 73.92%
Agricultural - .36 - .36 - .36 - .44 - .76
Commercial
and industrial 1,013 11.40 1,080 12.76 1,093 11.07 1,203 12.40 607 13.13
Individuals 468 12.77 480 12.99 627 13.74 321 13.23 226 12.17
Other - .07 - .02 - .03 - .02 - .02
Total
allowance
for possible
loan losses $2,490 100.00% $2,191 100.00% $1,999 100.00% $1,732 100.00% $1,353 100.00%
(In Thousands) 1996 1995 1994 1993 1992
Balance of allowance for
possible loan losses
at January 1 $2,191 $1,999 $1,732 $1,353 $1,164
Loans charged off:
Real estate 18 50 - 126 80
Commercial and industrial 113 37 37 64 14
Individuals 236 89 73 52 58
Total loans charged off 367 176 110 242 282
Recoveries of loans
previously charged off:
Real estate 1 2 - - -
Commercial and industrial 4 5 4 50 9
Individuals 11 1 13 31 42
Total recoveries of
loans charged off 16 8 17 81 51
Net loans charged off 351 168 93 161 231
Provision for possible
loan losses 650 360 360 540 420
Balance at December 31 $2,490 $2,191 $1,999 1,732 $1,353
Ratios:
Net charge-offs
to average loans .17% .09% .05% .10% .16%
Allowance for possible
loan losses to total
loans at December 31 1.15% 1.09% 1.07% 1.03% .91%
Allowance for possible
loan losses to total
nonperforming loans 110.57% 102.53% 242.01% 534.57% 84.19%
</TABLE>
<PAGE>
Management's Discussion and Analysis
DEPOSITS AND BORROWED FUNDS
At December 31, 1996, SUN's total deposits were $205,619,000 compared to
$196,592,000 at December 31, 1995, representing a 4.59% increase. Because of
one customer, Insured Money Market Accounts increased by $3,881,000 or 58.33%
to $10,534,000 at December 31, 1996. Time deposits grew $6,760,000 or 6.12%.
SUN continues to obtain and maintain deposits by offering new and attractive
deposit products while remaining interest rate competitive. In 1995, total
deposits increased $13,432,000 or 7.33%. At that time, consumers started to
switch from low-yielding checking and savings to longer-term higher yielding
certificates of deposit.
SUN continued to actively utilize the credit products of the FHLB of
Pittsburgh in 1996. At year-end, overnight borrowings on the "Open Repo Plus"
program amounted to $22,570,000. The $83,625,000 in term advances at year-end
included $52,600,000 in variable rate advances that reprice quarterly and
$31,025,000 in fixed rate advances with maturities ranging from April 11, 1997
to June 12, 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
1996 Total Prior Year
<S> <C> <C> <C>
Demand deposits $ 19,977 9.72% ( 1.33)%
NOW accounts 31,024 15.09 (.03)
Insured Money Market Accounts 10,534 5.12 58.33
Savings deposits 26,870 13.07 (4.50)
Time Certificates of Deposits
of $100,000 or more 17,447 8.48 26.91
Other time deposits 99,767 48.52 3.17
Total deposits $205,619 100.00% 4.59%
% of % Change from
(In Thousands) 1995 Total Prior Year
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 14,402 7.33 46.16
Other time deposits 96,052 48.86 16.58
Total deposits $196,592 100.00% 7.33%
</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 $6,000,000 in unused funds available through the Federal
Home Loan Bank. There are no known trends, demands, commitments or
uncertanties that will result in liquidity increasing or decreasing in any
material way.
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
0-90 91-180 181-365 But Within After
(In Thousands) Days Days Days Five Years Five Years Total
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits 706 - - - - $ 706
Investment securities 12,234 8,958 16,434 66,663 32,249 136,538
Loans 45,068 14,576 31,552 67,664 54,365 213,225
Other noninterest-earning
assets - - - - 16,921 16,921
Total assets 58,008 25,534 47,986 134,327 103,535 $367,390
Liabilities and Shareholders'
Equity:
Interest-bearing deposits 24,495 19,599 30,520 61,812 49,216 $185,642
Short-term borrowings 35,823 - - - - 35,823
Other borrowed funds 27,600 - 23,000 31,025 2,000 83,625
Other noninterest-bearing
liabilities - - - - 23,434 23,434
Shareholders' equity - - - - 38,866 38,866
Total liabilities and
Shareholders' equity 87,918 19,599 53,520 92,837 113,516 $367,390
Interest Sensitivity Gap:
By period $(29,910) $ 3,935 $ (5,534) $41,490 $ (9,981) -
Cumulative $(29,910) $(25,975) $(31,509) $ 9,981 - -
</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.
Shareholders' equity increased $2,846,000 or 7.90% in 1996. As previously
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, 1996, SUN had unrealized gains of $672,000 and a $1,396,000 in
1996 and 1995, respectively, which resulted in a $724,000 decrease in capital.
During 1996, SUN paid $3,134,000 in cash dividends as well as a 5% 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.
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 nonperforming
loans because of continued layoffs and other deteriorations of consumers'
financial conditions.
SUN's management and the Board of Directors are looking forward to taking
advantage of the many opportunities that 1997 is expected to present. In
1996, SUN made several announcements which demonstrate its intention to
continue the expansion of its market area. The opening of our seventh
community banking office in Northumberland and the relocation of our Shamokin
Dam office to a more customer friendly and convenient location are scheduled
for completion in the spring of 1997. The acquisition of Bucktail Bank and
Trust Company will enable SUN to serve a new and broader customer base with its
varied selection of financial products and services. 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. The management of SUN feels we are
positioned to offer the products and services demanded in today's rapidly
changing technology-based marketplace.
<PAGE>
<TABLE>
Stockholder Information
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 information
does not include retail mark-ups or mark-downs or any commission to the broker-
dealer.
<CAPION>
1996 1995
Quarter Ended Bid Information Cash Dividends Bid Information Cash Dividends
High Low Declared (1) High Low Declared (1)
<S> <C> <C> <C> <C> <C> <C>
March 31 $28.35 $23.35 $ .21 $18.45 $17.28 $.15
June 30 29.29 25.62 .23 19.38 17.47 .17
September 30 31.91 27.38 .24 19.38 18.55 .17
December 31 35.00 30.00 .25 25.62 18.76 .20
(1) Cash dividends declared are adjusted for the 5% stock dividend that
occurred in June of 1996.
</TABLE>
Subsidiaries of SUN BANCORP, INC.
The following table sets forth the subsidiaries of the Registrant at
December 31, 1996. 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 28, 1997
Dear Shareholder:
It is a pleasure to invite you to the 1997 Annual
Shareholders' Meeting of SUN BANCORP, INC. ("SUN") to be
held on April 24, 1997.
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 1997. At the meeting,
SUN's management will address other corporate matters which
will be of interest to you.
You are cordially invited to the shareholders' 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
11, 1997 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,
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 SHAREHOLDERS' 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 SHAREHOLDERS TO BE HELD ON APRIL 24, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
Shareholder of SUN BANCORP, INC. hereby constitutes and
appoints Arthur F. Bowen and Homer W. Wieder (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 Shareholders of SUN BANCORP, INC., to be
held at the Susquehanna Valley Country Club, Mill Road,
Hummels Wharf, Pennsylvania, on Thursday, April 24, 1997, 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 2000
ARE:
Jeffrey E. Hoyt
Paul R. John
Fred W. Kelly, Jr.
Jerry A. Soper
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, 1997.
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 SHAREHOLDER. IF
NO DIRECTIONS TO THE CONTRARY ARE GIVEN BY THE SHAREHOLDER
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., 1997.
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
Number of Shares Owned ___________ Signatures above will be determined to
as of March 6, 1997 have been signed for all matters in
this proxy whether appearing 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 SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 24, 1997
To the Shareholders of SUN BANCORP, INC. (the "Corporation"):
NOTICE is hereby given that the ANNUAL MEETING OF
SHAREHOLDERS OF SUN BANCORP, INC., will be held at the
Susquehanna Valley Country Club, Mill Road, Hummels Wharf,
Pennsylvania on Thursday, April 24, 1997 at 10:30 a.m.,
prevailing time, for the following purposes:
1. To elect four (4) 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, 1997; 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 shareholders of record on the Corporation's books
at the close of business on March 6, 1997 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.
Jeffrey E. Hoyt
Executive Vice President, Chief Operating Officer
and Secretary
March 28, 1997
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 shareholders 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 SHAREHOLDERS'
MEETING TO BE HELD ON APRIL 24, 1997
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 1997 Annual Meeting of Shareholders ("Annual Meeting").
The Annual Meeting is scheduled to be held on Thursday,
April 24, 1997 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.
Matters to be Submitted to the Shareholders 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 Shareholders. 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 shareholders is on or about
March 28, 1997. 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 shareholders in connection with the Annual
Meeting. Copies of solicitation material will be furnished
to brokerage houses, fiduciaries and custodians to forward
to their principals.
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 shareholders, 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.
Shareholders 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 6,
1997. Only holders of record of common stock on the
Corporation's books at the close of business on March 6,
1997 will be entitled to notice of and to vote at the Annual
Meeting. On that date, the Corporation had outstanding
3,381,125 shares of common stock. The shareholders 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 shareholder 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 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, 1997. 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 shareholders entitled to
cast at least a majority of the votes which all shareholders
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
<PAGE>
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.
Assuming the presence of a quorum, the four (4)
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 6, 1997, 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
fifteen (15) directors with (i) five (5) directors in the
class whose term expires at the annual meeting in 1997, (ii)
five (5) directors in a class whose term expires at the
annual meeting in 1998, and (iii) five (5) directors in the
class whose term expires at the annual meeting in 1999.
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
shareholder 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.
Mr. Raymond C. Bowen, whose term as a director expires
at the 1997 Annual Meeting, has decided not to seek re-
election.
General Information About the Board of Directors*
The Corporation's and Sun Bank's Boards of Directors
hold separate meetings.
There were six (6) meetings of the Corporation's Board
of Directors during 1996. Each incumbent director, other
than Mr. Eaton, 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. Eaton and Mr. Keller, 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.
The Committee held four (4) meetings in 1996. The members
of the Committee are: Raymond C. Bowen, Chairman; Max E.
Bingaman; Jeffrey E. Hoyt; George F. Keller; Fred W. Kelly,
Jr.; and Lehman B. Mengel.
Audit Committee. The Audit Committee recommends, for
ratification by the shareholders, the independent certified
public accountants that will be retained by the Corporation
and Sun Bank. The Audit Committee approves services to be
performed by the independent accountants. The Committee held
four (4) meetings in 1996. 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, an ex officio member and the
Corporation's Internal Auditor; and Robert C. Longenberger,
an ex officio member and 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. The Committee held three (3) meetings
during 1996. The members of the Committee are: Jeffrey E.
Hoyt, Chairman; Raymond C. Bowen; and Fred W. Kelly, Jr.
See Footnote Information Concerning Directors on Page 8.
<PAGE>
Long Range Planning/Merger & Acquisition Committee (the
"Long Range Planning/M&A"). The Long Range Planning/M&A
Committee develops and implements long range planning 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. The Committee held fifteen (15) meetings during
1996. The members of the Committee are: Fred W. Kelly,
Jr., Chairman; Raymond C. Bowen; Robert A. Hormell; Jeffrey
E. Hoyt; and George F. Keller.
Nominating Committee. The Nominating Committee meets
once a year, or more often if necessary, to consider or
nominate candidates for directorships. The Committee
considers director nominees recommended by the Board and
shareholders. 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
shareholder 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 1996. 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, to recommend appropriate changes in any of
their provisions and to recommend 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 determines who is eligible to participate
and to 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
three (3) meetings during 1996. A subcommittee of the
Personnel and Retirement Committee 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 one (1) meeting in 1996. The members of
the Personnel and Retirement Committee are: Raymond C.
Bowen, Chairman; Max E. Bingaman; Robert A. Hormell; Jeffrey
E. Hoyt; Paul R. John; George F. Keller; Fred W. Kelly, Jr.;
Jerry A. Soper; Dennis J. Van; and Carol A. Swineford, an ex
officio member and Sun Bank's Vice President of Human
Resources.
<PAGE>
Members of the Boards of Directors - Biographical Information
NOMINEES FOR ELECTION TO SERVE UNTIL 2000
JEFFREY E. HOYT, age 41, is Executive Vice President,
Chief Operating Officer and Secretary of the Corporation and
Sun Bank. Mr. Hoyt is a Certified Public Accountant (CPA)
and a Certified Financial Planner (CFP) and maintains
membership both on a national and state level with these
professional associations. He was appointed to Sun Bank's
and the Corporation's Boards on December 27, 1996 and he
serves on the Executive/ALCO, Investment, Long Range
Planning/M&A and Personnel and Retirement Committees. Mr.
Hoyt's term as a director expires in 1997 and if elected
will serve until 2000.
PAUL R. JOHN, age 59, is President and Director of
Ritz-Craft Corporation of PA, Inc., a housing manufacturer
located in Mifflinburg, PA, and 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 he serves on the Personnel and Retirement
Committee. Mr. John's term as a director expires in 1997
and if elected will serve until 2000.
FRED W. KELLY, JR., age 52, 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 Chairman of Selinsgrove Area Industrial
Development, Inc. He is a trustee and President of Sunbury
Community Hospital, Past Secretary of the Central
Susquehanna Valley Chamber of Commerce, Director of
Susquehanna University, and a member of the Degenstein
Foundation. 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 he serves
on all the Board Committees of the Corporation other than
the Audit Committee. Mr. Kelly's term as a director expires
in 1997 and if elected will serve until 2000.
JERRY A. SOPER, age 64, 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 he serves on the Audit, Nominating and
Personnel and Retirement Committees. Mr. Soper's term as a
director expires in 1997 and if elected will serve until
2000.
DIRECTOR NOT SEEKING RE-ELECTION
RAYMOND C. BOWEN, age 81, 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 he serves on the Executive/ALCO, Investment,
Long Range Planning/M&A and Personnel and Retirement
Committees. Mr. Bowen's term as a director expires in 1997
and he has chosen not to seek re-election.
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1999
DAVID R. DIECK, age 63, 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 his term as a director expires in
1999. He serves on the Audit Committee.
LOUIS A. EATON, age 75, 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 his term as a director
expires in 1999. He serves on the Audit and Nominating
Committees.
DR. ROBERT E. FUNK, age 66, 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 his term as a
director expires in 1999. He serves on the Audit and
Nominating Committees.
GEORGE F. KELLER, age 63, 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. In 1996, Mr. Keller received the Jim Barker
Memorial Award, a life time achievement award, "in grateful
recognition for his contribution of leadership and service
to the RV After Market Industry." 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 his term as a director
expires in 1999. He serves on the Executive/ALCO, Long
Range Planning/M & A and Personnel and Retirement
Committees.
DENNIS J. VAN, age 50, 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 his term as a
director expires in 1999. He serves on the Personnel and
Retirement Committee.
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
MAX E. BINGAMAN, age 61, 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 Manufacturers Association
of Penna. and Bethesda Treatment Center, a privately
operated program for troubled youth, located in Milton, and
he serves as a member of the Board of Associates of Messiah
College at Grantham, PA. 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 49, 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 Long Range
Planning/M & A and Personnel and Retirement Committees.
LEHMAN B. MENGEL, age 69, Chairman and Director of L/B
Water Service South, Inc. since 1984, which provides the
water and sewer works industry with materials and service
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 86, 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 74, 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.
* 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 6, 1997, 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 Officer 52
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 Executive Vice President, Chief Operating 41
Officer and Secretary of the Corporation
and 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. On December 27, 1996, he was appointed to
his new position of Executive Vice President, Chief
Operating Officer and Secretary. 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 Secretary 52
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.
<PAGE>
Name Title and Position Age
Jeffrey J. Kapsar Internal Auditor and Compliance Officer 30
of the Corporation and Assistant Vice
President, Internal Auditor and Compliance
Officer 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 6, 1997, 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>
The following table sets forth, as of March 6, 1997, and
from data supplied by the respective individual, information
concerning the amount and percentage of Common Stock
beneficially owned by each director, by each nominee for the
Board of Directors and by all directors and executive
officers as a group. Unless otherwise indicated in a
footnote, each director and officer has sole voting and
investment power over the shares listed as beneficially
owned.
Amount and Nature Percentage of
of Beneficial Outstanding
Ownership of Corporation
Common Stock as Common Stock
Name of March 6, 1997(1) Owned
<S>
NOMINEES FOR ELECTION AS DIRECTORS
FOR 3 YEAR TERMS EXPIRING IN 2000 <C> <C>
Jeffrey E. Hoyt (2) 260 .01
Paul R. John (3) 114,994 3.40
Fred W. Kelly, Jr. (4) 20,265 .60
Jerry A. Soper (5) 37,234 1.10
DIRECTOR NOT SEEKING RE-ELECTION IN 1997
Raymond C. Bowen (6) 21,950 .65
DIRECTORS WHOSE TERMS EXPIRE IN 1999
David R. Dieck (7) 7,236 .22
Louis A. Eaton (8) 9,276 .27
Dr. Robert E. Funk (9) 3,840 .11
George F. Keller (10) 115,691 3.42
Dennis J. Van (11) 15,461 .46
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Max E. Bingaman (12) 12,366 .37
Robert A. Hormell (13) 2,340 .07
Lehman B. Mengel (14) 53,433 1.58
Howard H. Schnure (15) 24,782 .73
Marlin T. Sierer (16) 16,839 .50
All directors and executive officers
as a group (17 persons) 460,367 13.62
</TABLE>
Footnote Information Concerning Security Ownership of
Directors and Executive Officers
(1) Securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in
the General Rules and Regulations of the Securities Exchange Commission
("SEC") and may include securities owned by or for the individual's spouse
and minor children and any other relative who has the same home, as well
as securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 6, 1997. Individuals may disclaim beneficial ownership as to
certain of the securities reported.
<PAGE>
(2) Includes 260 shares jointly held by Mr. Hoyt and Kathy J. Hoyt, his wife.
(3) Includes 104,731 shares jointly held by Mr. John and Mildred D. John,
his wife.
(4) Includes 15,749 shares held by Donnell W. Kelly, his wife, and 567 shares
jointly held by Mr. Kelly and Kyle D. Kelly, his son.
(5) Includes 13,214 shares held jointly by Mr. Soper and Craig A. Ott Soper,
his son; 13,219 shares jointly held by Mr. Soper and Kim Marie Soper,
his daughter; 4,025 shares jointly held by M. Corrine Soper, his wife,
and Craig A. Ott Soper, his son; 4,025 shares jointly held by M. Corrine
Soper, his wife, and Kim Marie Soper, his daughter, 2,491 shares held in
an Individual Retirement Account for Mr. Soper; and 260 shares held in a
personal Trust Account for Mr. Soper.
(6) Includes 529 shares held by Mary Jane Bowen, his wife; 19,568 shares held
by the Raymond C. Bowen Company; and 1,853 shares held in an Individual
Retirement Account for Mr. Bowen.
(7) Includes 7,236 shares jointly held by Mr. Dieck and Annetta M. Dieck,
his wife.
(8) Includes 9,276 shares jointly held by Mr. Eaton and Dorothy L. Eaton,
his wife.
(9) Includes 181 shares jointly held by Dr. Funk and Marvene Funk, his wife.
(10) Includes 28,648 shares jointly held by Mr. Keller and Margaret E. Keller,
his wife; 8,949 shares held by Margaret E. Keller, his wife; and
68,647 shares held by Keller Marine Service, Inc.
(11) Includes 6,021 shares jointly held by Mr. Van and Judy A. Van, his wife;
2,531 shares held in an Individual Retirement Account for Mr. Van;
2,887 shares held in an Individual Retirement Account for Judy A. Van,
his wife and 4,022 shares held by Colonial Furniture Company.
(12) Includes 10,494 jointly held by Mr. Bingaman and Martha Bingaman,
his wife and 1,872 shares held by Mr. Bingaman in a 401(k) account
through Bingaman & Son Lumber, Inc.
(13) Includes 1,421 shares jointly held by Mr. Hormell and Jean L. Hormell,
his wife and 463 shares held in an Individual Retirement Account for Mr.
Hormell.
(14) Includes 53,433 shares held by the L & R Mengel Company.
(15) Includes 3,759 shares jointly held by Mr. Schnure and his son, James
Purdy Schnure, and 2,678 shares jointly held by Mr. Schnure and his
daughter, Sarah J. Lindsay.
(16) Includes 10,000 shares held by H. Arlene Sierer, his wife.
<PAGE>
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") and Chief Operating Officer ("COO") 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 and COO'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.
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 and COO's compensation or the CEO's and
COO'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 and
COO'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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was an officer,
former officer or employee of SUN or any of its
subsidiaries.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
The remuneration table contains information with
respect to annual compensation for services in all
capacities to the Corporation for fiscal years ending
December 31, 1996, 1995 and 1994 of those persons who were,
at December 31, 1996, (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 $100,000:
Annual Compensation 1/ Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted All Other
Name and Salary Bonus Compensa- Stock Options/ LTIP Compensa-
Principal tion 2/ Award(s) SARs Payouts tion
Position Year ($) ($) ($) ($) (#) 3/ ($) ($) 4/5
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr.1996 143,653 32,459 4,517 0 8,000 0 22,409
President & CEO 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
Jeffrey E. Hoyt 1996 96,152 21,103 3,154 0 7,000 0 9,621
Exec. VP & COO 1995 84,157 15,434 4,416 0 6,063 0 9,263
1994 80,166 12,903 3,151 0 7,500 0 7,757
1/ Compensation deferred at election of executive includable in category
and year earned.
2/ Includes perquisites and other personal benefits (No Director or Officer
received in the aggregate more than $10,000 of personal benefits).
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, the 10% Stock Dividend granted December 1995 and the
5% Stock Dividend granted June 1996.
4/ Residual category for Mr. Kelly 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 ($10,409). The respective amounts disclosed
for 1995 were (a) $7,500; (b) $4,500; and (c) $9,634 and for 1994 were
(a) $7,502; (b) $3,001; and (c) $10,688.
5/ Residual category for Mr. Hoyt includes: (a) employer contributions to
defined contribution plan ($5,551); (b) employer contribution to a 401(k)
plan ($2,335); and (c) employer contributions to a non-qualified
supplemental retirement plan ($1,735). The respective amounts disclosed
for 1995 were (a) $4,830; (b) $2,898; and (c) $1,535 and for 1994 were
(a) $4,284; (b) $1,567; and (c) $1,906.
</TABLE>
Other than the compensation set forth in the above
table and under the several plan captions below, the other
compensation for services during 1996 aggregated less than
the disclosure thresholds established by the Securities and
Exchange Commission for other than the named executive
officer.
<PAGE>
<TABLE>
OPTION/SAR GRANTS TABLE
<CAPTION>
Option/SAR Grants In Last Fiscal Year
Individual Grants
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise Grant
Options/ to Employees or Base Date
SARs Granted in Fiscal Price Expiration Present
Name (#) 1/ Year ($/Sh) 2/ Date Value ($)
<S> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr. 8,000 19.28% $32.00 8/5/06 $256,000.00
President & CEO
Jeffrey E. Hoyt 7,000 16.87% $32.00 8/5/06 $224,000.00
Exec. Vice President,
COO & Secretary
1/ Reflects share adjustment based on 5% Stock Dividend granted June 1995,
the 10% Stock Dividend granted December 1995 and the 5% Stock Dividend
granted June 1996. The Options granted under the SUN BANCORP, INC. 1994
Stock Incentive Plan are not exercisable until January 5, 1998.
2/ Reflects price adjustment based on 5% Stock Dividend granted June 1995,
the 10% Stock Dividend granted December 1995 and the 5% Stock Dividend
granted June 1996.
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Neither Mr. Kelly nor Mr. Hoyt exercised options in fiscal year 1996.
<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, 1992 and ending December 31, 1996.
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
Index 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Sun Bancorp Inc. 100.00 144.05 267.35 329.20 451.83 616.52
NASDAQ Total Return 100.00 116.38 133.60 133.60 184.67 227.16
Banks (under $500M) 100.00 132.05 172.41 185.63 253.67 326.50
</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 $135,553 in
1996; (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, 1996, Mr. Kelly would have received an aggregate amount
of $677,765 for his services through January of 2001.
On May 6, 1994, Mr. Hoyt 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. Hoyt deliver notice of an intention
to terminate the Agreement, prior to September thirtieth of
that year. Mr. Hoyt's Agreement provides that he will
receive (i) a minimum annual base salary of $96,152 in 1996;
(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.
Hoyt 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. Hoyt's
employment was terminated by SUN, without cause, on December
31, 1996, Mr. Hoyt would have received an aggregate amount
of $456,722 for his services through September of 2001.
Future Remuneration
The officers included in the remuneration table on page
14, as named individuals, 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.
<PAGE>
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.
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 officers 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
$97,328.67 for Mr. Kelly and $99,721.14 for Mr. Hoyt. 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 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
1996, was nine thousand five hundred dollars ($9,500.00) and
the amount that can be contributed in 1997 is nine thousand
five hundred dollars ($9,500.00). All officers and
employees of Sun Bank, including the officers 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.
<PAGE>
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.
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.
Nine (9) 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 and
Mr. Hoyt in 1996 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 $161,900.03 were
awarded under the previously disclosed profit sharing plan
in 1996. During 1996, Mr. Kelly and Mr. Hoyt received
payment under the profit sharing plan, and the amount is
included in the "Bonus" column of the Summary Compensation
Table.
<PAGE>
Compensation of Directors
All directors were paid a fee of $350 per quarterly or
special meeting attended plus an annual retainer of $1,000,
paid on a quarterly basis. A $50 fee 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. The
Chairman was paid a fee of $200.00 per week for services
rendered to SUN and its management. The Board of Directors
also authorized the payment of a one-time bonus in the
amount of $20,000.00 in recognition of the Chairman's
wisdom, dedication and time commitment to SUN and Sun Bank.
Each outside director, the Chairman and Vice Chairman of the
Corporation were paid $200 for each Executive/Asset &
Liability Committee meeting attended. Each outside
director, the Chairman and the Vice Chairman of the
Corporation was paid a fee of $100 for all other Committee
meetings of the Board attended in 1996.
TRANSACTIONS WITH MANAGEMENT
There have been no material transactions, proposed or
consummated, among the Corporation, or Sun Bank and 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, 1996, 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 $10,323,722 or
approximately 26.56% 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.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
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 on its review of the copies of such forms
received by it, and/or written statements received from the
respective individuals, the Corporation believes that during
the period January 1, 1996 through December 31, 1996, 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 1997
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 2000 Annual Meeting:
Jeffrey E. Hoyt
Paul R. John
Fred W. Kelly, Jr.
Jerry A. Soper
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 determines 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 four (4)
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 shareholders 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 1997. This firm served as the
Corporation's independent auditors for the 1996 fiscal year.
The Board is herewith presenting the appointment to the
Corporation's shareholders 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 shareholders 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 shareholders 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 1997.
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 shareholders 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 1997.
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.
SHAREHOLDER PROPOSALS FOR 1998
The Corporation's Annual Meeting of Shareholders will
be held on or about April 23, 1998. Any shareholder
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 1, 1997.
<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, 1996,
containing, among other things, consolidated financial
statements certified by its independent public accountants,
was mailed with this Proxy Statement on or about March 28,
1997 to the shareholders of record as of the close of
business on March 6, 1997.
AVAILABILITY OF FORM 10-K
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF THE
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR
ENDED DECEMBER 31, 1996 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 EXECUTIVE
VICE PRESIDENT, CHIEF OPERATING OFFICER AND SECRETARY, 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.
Jeffrey E. Hoyt
Executive Vice President, Chief Operating Officer
and Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,793
<INT-BEARING-DEPOSITS> 706
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 136,538
<INVESTMENTS-MARKET> 0
<LOANS> 215,715
<ALLOWANCE> 2,490
<TOTAL-ASSETS> 367,390
<DEPOSITS> 205,619
<SHORT-TERM> 35,823
<LIABILITIES-OTHER> 3,457
<LONG-TERM> 83,625
<COMMON> 4,272
0
0
<OTHER-SE> 34,594
<TOTAL-LIABILITIES-AND-EQUITY> 367,390
<INTEREST-LOAN> 19,488
<INTEREST-INVEST> 7,676
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,199
<INTEREST-DEPOSIT> 8,193
<INTEREST-EXPENSE> 13,689
<INTEREST-INCOME-NET> 13,510
<LOAN-LOSSES> 650
<SECURITIES-GAINS> 358
<EXPENSE-OTHER> 6,228
<INCOME-PRETAX> 8,596
<INCOME-PRE-EXTRAORDINARY> 8,596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,399
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
<YIELD-ACTUAL> 4.39
<LOANS-NON> 0
<LOANS-PAST> 1,863
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,191
<CHARGE-OFFS> 367
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 2,490
<ALLOWANCE-DOMESTIC> 2,490
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,060
</TABLE>
