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, DC 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, 1998
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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
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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 570-374-1131
-----------------------------
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, No 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 (Section 229.405 of this Chapter) 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 4, 1999, the Registrant had 6,516,691 shares of common stock
outstanding with a no par value. Based on the closing bid price of $26.00 on
the same date, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was $169,433,966.
Portions of the 1998 Annual Report to Shareholders are incorporated by reference
in Parts I, II, and III hereof.
Portions of the 1999 Proxy Statement for the Annual Shareholders' Meeting to be
held on April 22, 1999 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
disability insurance company formed in 1993. SUN is a limited partner in two
partnerships for the purpose of building, owning, and operating an affordable
elderly apartment complex in SUN's market area. As part of the agreement, SUN
is able to recognize tax credits from this economic development project. On
June 30, 1997, SUN acquired Bucktail Bank and Trust Company (Bucktail) from FNB
Corporation. Concurrently, Bucktail was merged into Sun Bank. Five branches of
Bucktail located in Lycoming County were renamed and doing business under the
name Central Pennsylvania Bank, Incorporated as Sun Bank. The remaining
branches in Elk and Cameron Counties continue under the name Bucktail Bank and
Trust Company, Incorporated as Sun Bank.
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 fourteen banking offices and one trust
services office serving Snyder, Union, Northumberland, Lycoming, Cameron, and
Elk Counties. At December 31, 1998, Sun Bank had total assets of $623,577,000
and total shareholders' equity of $67,801,000. Net income for 1998 was
$8,726,000.
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, 26 Automated Teller
Machines (ATMs) and cash dispensing units 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 (predominately
automobiles). 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 (SUN Life) provides credit life
and disability insurance to Sun Bank's credit customers. 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, 1998, Pennsylvania SUN Life had total
assets of $711,000 and total shareholders' equity of $308,000. Net income for
1998 was $15,000.
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.
<PAGE>
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, 1998, the Bank employed 218 persons. The Bank offers a variety
of benefit programs and feels its relationship with its employees is good.
ITEM 2 - PROPERTIES
SUN's corporate office is located in Sun Bank's main banking office. SUN owns
all of its properties with the exception of an off-site ATM, (Item 8),
Johnsonburg (Item 13), Pine Street (Item 16) and the Operations Center (Item 19)
which are leased. In 1995, SUN purchased parcels of land in Liverpool for the
purpose of building a branch in the future. On June 30, 1997, SUN completed its
acquisition of Bucktail Bank and Trust Company. This acquisition added eight
additional locations. In 1998, property was acquired in Williamsport for the
purpose of constructing a financial services center. Construction is scheduled
to begin in 1999. All properties are in good condition and adequate for the
bank's purposes. The following is a list of the banking offices, the addresses,
and a brief description of each office.
Office Address Description
------ ------- -----------
1. Main 2-16 South Market Street Brick structure
Selinsgrove, Pennsylvania 17870
2. Shamokin Dam 200 S. Susquehanna Trail 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
<PAGE>
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. Emporium 2 East Fourth Street Brick structure
Emporium, PA 15834
13. Johnsonburg RR 2 Box 1A Brick structure
Johnsonburg, PA 15845
14. Hughesville 2 South Main Street Brick structure
Hughesville, PA 17737
15. Newberry 2131 W. Fourth Street Brick structure
Williamsport, PA 17701
16. Pine Street 330 Pine Street Brick structure
Williamsport, PA 17701
17. Montoursville 301 Broad Street Brick structure
Montoursville, PA 17754
18. Squire Hays 3155 Lycoming Creek Road Stone and frame
Williamsport, PA 17701 structure
19. Operations Center 210 Market Street Brick structure
Williamsport, PA 17701
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 SHAREHOLDERS
Not applicable
<PAGE>
PART II
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
In 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 4, 1999, SUN had
approximately 1,976 holders of its common stock. SUN offers its shareholders a
Dividend 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 Shareholder
Information found on page 44 of the 1998 Annual Report to Shareholders.
ITEM 6 - SELECTED FINANCIAL DATA
This item is incorporated by reference to information under the heading Five
Year Financial Highlights on page 25 of the 1998 Annual Report to Shareholders.
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 26 through 43 of the 1998 Annual Report to Shareholders.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is incorporated by reference to Management's Discussion and Analysis
on pages 37 through 40 of the 1998 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is incorporated by reference to the Consolidated Financial
Statements, Notes to Consolidated Financial Statements and Independent Auditors'
Report set forth on pages 4 through 24 of the 1998 Annual Report to
Shareholders.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
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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 1999 Proxy Statement.
Information regarding disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is incorporated herein by reference to Compliance with Securities
and Exchange Act on page 19 of the Corporation's 1999 Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to management remuneration and compensation is
incorporated herein by reference to Executive Compensation and Other Information
on page 13 of the 1999 Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to Security Ownership of
Directors and Executive Officers of the Corporation on page 10 of the 1999 Proxy
Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to footnote 15 on page 19 of
the 1998 Annual Report to Shareholders and under the heading of Transactions
with Management on page 19 of the 1999 Proxy Statement.
PART IV
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ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements and independent
auditors' report of SUN BANCORP, INC. and subsidiaries included in the
Annual Report to Shareholders for the year ended December 31, 1998 are
incorporated by reference in Part II, Item 8:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended December 31, 1998,
1997, and 1996
Consolidated Statements of Changes in Shareholders' Equity - Years
Ended December 31, 1998, 1997, and 1996
<PAGE>
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
(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 Shareholders of SUN BANCORP, INC. for the year
ended December 31, 1998 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.
21 Subsidiaries of the Registrant are filed herewith.
22 Published Report Regarding Matters Submitted To Vote Of
Shareholders is filed herewith, the 1999 Proxy Statement of SUN
BANCORP, INC.
22 Consent of Independent Auditors is filed herewith.
(b) No reports on Form 8-K were required to be filed during the fourth
quarter of 1998.
(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)
Date: 3/25/99 By: /s/ Fred W. Kelly, Jr.
--------------- -----------------------------------
Fred W. Kelly, Jr.
President & Chief Executive Officer
Date: 3/25/99 By: /s/ Jeffrey E. Hoyt
--------------- ------------------------------------
Jeffrey E. Hoyt
Executive Vice President, Chief
Operating Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
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
---- -------
/s/ Fred W. Kelly, Jr. 3/25/99
- ----------------------------------------------- -------
Fred W. Kelly, Jr.
President, Chief Executive Officer and Director
/s/ Jeffrey E. Hoyt 3/25/99
- ----------------------------------------------- -------
Jeffrey E. Hoyt
Executive Vice President, Secretary and
Chief Operating Officer
/s/ Max E. Bingaman 3/25/99
- ----------------------------------------------- -------
Max E. Bingaman, Director
/s/ David R. Dieck 3/25/99
- ----------------------------------------------- -------
David R. Dieck, Director
/s/ Louis A. Eaton 3/25/99
- ----------------------------------------------- -------
Louis A. Eaton, Director
/s/ Dr. Robert E. Funk 3/25/99
- ----------------------------------------------- -------
Dr. Robert E. Funk, Director
3/25/99
- ----------------------------------------------- -------
Stephen J. Gurgovits, Director
/s/ Thomas B. Hebble 3/25/99
- ----------------------------------------------- -------
Thomas B. Hebble, Director
/s/ Robert A. Hormell 3/25/99
- ----------------------------------------------- -------
Robert A. Hormell, Director
3/25/99
- ----------------------------------------------- -------
Paul R. John, Director
/s/ George F. Keller 3/25/99
- ----------------------------------------------- -------
George F. Keller, Director
/s/ Lehman B. Mengel 3/25/99
- ----------------------------------------------- -------
Lehman B. Mengel, Director
/s/ Howard H. Schnure 3/25/99
- ----------------------------------------------- -------
Howard H. Schnure, Director
/s/ Marlin T. Sierer 3/25/99
- ----------------------------------------------- -------
Marlin T. Sierer, Director
/s/ Jerry A. Soper 3/25/99
- ----------------------------------------------- -------
Jerry A. Soper, Director
/s/ Dennis J. Van 3/25/99
- ----------------------------------------------- -------
Dennis J. Van, Director
<PAGE>
Consolidated Balance Sheets
December 31, 1998 and 1997
(In Thousands, Except Share Data) 1998 1997
--------- ---------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,350 $ 8,173
Interest-bearing deposits in banks 880 786
--------- ---------
Total cash and cash equivalents 14,230 8,959
Securities available for sale 254,780 165,284
Loans, net 329,123 310,300
Bank premises and equipment, net 9,139 8,964
Intangible asset, goodwill - net 10,191 10,946
Accrued interest and other assets 6,114 6,275
--------- ---------
Total assets $623,577 $510,728
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 36,429 $ 30,563
Interest-bearing 327,457 296,455
--------- ---------
Total deposits 363,886 327,018
Short-term borrowings 25,750 20,259
Other borrowed funds 161,500 93,025
Accrued interest and other liabilities 4,640 4,813
Total liabilities 555,776 445,115
--------- ---------
Shareholders' equity:
Common stock, no par value per share in 1998 and $.83
in 1997; 20,000,000 authorized shares, issued
6,627,139 in 1998 and 6,271,944 in 1997 72,913 5,206
Additional paid-in capital - 56,155
Retained earnings (deficit) (4,949) 2,485
Accumulated other comprehensive income 2,016 3,176
Less: Treasury stock at cost, 97,263 shares in 1998
and 71,263 shares in 1997 (2,179) (1,409)
--------- ---------
Total shareholders' equity 67,801 65,613
--------- ---------
Total liabilities and shareholders' equity $623,577 $510,728
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years Ended December 31, 1998, 1997, and 1996
(In Thousands, Except Net Income Per Share) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $28,826 $24,312 $19,488
Income from available for sale securities:
Taxable 9,870 5,701 5,306
Tax exempt 2,685 2,669 1,825
Dividends 679 700 545
Interest on deposits in banks and other
financial institutions 617 271 35
------- ------- -------
Total interest and dividend income 42,677 33,653 27,199
------- ------- -------
Interest expense:
Interest on deposits 13,905 10,180 8,193
Interest on short-term borrowings 707 907 1,779
Interest on other borrowed funds 7,855 5,532 3,717
------- ------- -------
Total interest expense 22,467 16,619 13,689
------- ------- -------
Net interest income 20,210 17,034 13,510
Provision for possible loan losses 1,200 1,175 650
------- ------- -------
Net interest income after provision
for possible loan losses 19,010 15,859 12,860
------- ------- -------
Other operating income:
Service charges on deposit accounts 1,151 936 524
Trust income 617 432 312
Net securities gains 1,403 1,779 358
Income from insurance subsidiary 170 151 260
Other income 749 527 510
------- ------- -------
Total other operating income 4,090 3,825 1,964
------- ------- -------
Other operating expenses:
Salaries and employee benefits 5,686 4,783 3,531
Net occupancy expenses 709 570 401
Furniture and equipment expenses 872 648 389
Pennsylvania shares tax 485 380 310
Amortization of goodwill 755 378 -
Expenses of insurance subsidiary 186 163 194
Other expenses 2,602 2,451 1,403
------- ------- -------
Total other operating expenses 11,295 9,373 6,228
------- ------- -------
Income before income tax provision 11,805 10,311 8,596
Income tax provision 3,079 2,510 2,197
------- ------- -------
Net income $ 8,726 $ 7,801 $ 6,399
======= ======= =======
Net income per share - Basic $ 1.34 $ 1.29 $ 1.14
======= ======= =======
Net income per share - Diluted $ 1.32 $ 1.28 $ 1.13
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996
(In Thousands, Except Per Share Data)
<CAPTION>
Accumulated
Additional Retained Other Total
Common Stock Paid-In Earnings Comprehensive Treasury Shareholders'
---------------
Shares Amount Capital (Deficit) Income Stock Equity
------ ------ ---------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,242 $4,053 $25,563 $6,417 $1,396 $(1,409) $36,020
Comprehensive income:
Net income - - - 6,399 - - 6,399
Unrealized losses on securities
available for sale, net of
reclassification adjustments
and tax effects - - - - (724) - (724)
--------
Total comprehensive income 5,675
--------
Stock issued:
Stock dividends 159 199 4,556 (4,755) - - -
Employee benefit plans 16 20 285 - - - 305
Cash dividends declared,
$.56 per share - - - (3,134) - - (3,134)
----- ------- -------- -------- ------- -------- --------
Balance, December 31, 1996 3,417 4,272 30,404 4,927 672 (1,409) 38,866
--------
Comprehensive income:
Net income - - - 7,801 - - 7,801
Unrealized gains on securities
available for sale, net of
reclassification adjustments
and tax effects - - - - 2,504 - 2,504
--------
Total comprehensive income 10,305
--------
Stock issued:
Stock dividends 169 211 5,815 (6,026) - - -
Employee benefit plans 31 16 580 - - - 596
Acquisition of Bucktail
Bank and Trust Company 565 707 19,356 - - - 20,063
Stock split, three-for-two 2,090 - - - - - -
Cash dividends declared,
$.685 per share - - - (4,217) - - (4,217)
----- ------- -------- -------- ------- -------- --------
Balance, December 31, 1997 6,272 5,206 56,155 2,485 3,176 (1,409) 65,613
--------
Comprehensive income:
Net income - - - 8,726 - - 8,726
Unrealized losses on securities
available for sale, net of
reclassification adjustments
and tax effects - - - - (1,160) - (1,160)
--------
Total comprehensive income 7,566
--------
Stock issued:
Stock dividends 311 10,791 - (10,791) - - -
Employee benefit plans 44 627 - - - - 627
Reclassification of capital
accounts to reflect no
par value - 56,155 (56,155) - - - -
Purchase of treasury stock
(26,000 shares) - - - - - (770) (770)
Cash dividends declared,
$.82 per share - - - (5,369) - - (5,369)
Tax benefit of exercised
stock options - 134 - - - - 134
----- ------- ------- -------- ------- -------- --------
Balance, December 31, 1998 6,627 $72,913 $ - $(4,949) $2,016 $(2,179) $67,801
===== ======= ======= ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996
<CAPTION>
(In Thousands) 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,726 $ 7,801 $ 6,399
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,200 1,175 650
Provision for depreciation 683 607 337
Amortization of goodwill 755 378 -
Amortization and accretion of securities, net 356 211 304
Deferred income tax 254 316 (119)
Net securities gains (1,403) (1,779) (358)
Gain on sale of bank premises and equipment - (83) -
Net change in other assets and liabilities 689 (463) (1,636)
--------- -------- --------
Net cash provided by operating activities 11,260 8,163 5,577
--------- -------- --------
Cash flows from investing activities:
Proceeds from sales of available for sale securities 48,194 26,386 3,591
Proceeds from maturities of available for sale securities 53,587 18,281 16,502
Purchases of available for sale securities (191,987) (52,266) (50,550)
Net increase in loans (20,247) (382) (14,431)
Proceeds from sales of bank premises and equipment - 266 -
Capital expenditures (858) (1,330) (1,168)
--------- -------- --------
Net cash used in investing activities (111,311) (9,045) (46,056)
--------- -------- --------
Cash flows from financing activities:
Net increase in deposits 36,868 7,365 9,027
Net increase (decrease) in short-term borrowings 5,491 (16,664) 19,684
Proceeds from other borrowed funds 80,000 55,000 53,525
Repayments of other borrowed funds (11,525) (45,681) (37,900)
Cash dividends paid (5,369) (4,217) (3,134)
Proceeds from sale of stock for employee benefits program 627 596 305
Purchase of treasury stock (770) - -
Cash and cash equivalents received from issuance of stock
related to acquisition of Bucktail Bank and Trust Company - 6,093 -
Offering costs paid - (150) -
--------- -------- ---------
Net cash provided by financing activities 105,322 2,342 41,507
--------- -------- ---------
Net increase in cash and cash equivalents 5,271 1,460 1,028
Cash and cash equivalents at beginning of year 8,959 7,499 6,471
--------- -------- ---------
Cash and cash equivalents at end of year $ 14,230 $ 8,959 $ 7,499
========= ======== =========
Supplemental disclosure of cash flow information:
Interest paid $ 21,706 $16,131 $13,446
========= ======== =========
Income taxes paid $ 2,360 $ 2,030 $ 2,550
========= ======== =========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In 1998 and 1997, loans with an estimated value of $224,000 and $327,000,
respectively, were reclassified to foreclosed assets held for sale. In 1998,
SUN eliminated the par value of common stock. As a result, $56,155,000 was
reclassified from additional paid-in capital to common stock. In 1998, the tax
benefit of exercised stock options, in the amount of $134,000, was credited to
common stock.
On June 30, 1997, SUN acquired all of the capital stock of Bucktail Bank and
Trust Company in exchange for shares of SUN's common stock valued at
$20,213,000. In conjunction with the acquisition, liabilities were assumed as
follows (in thousands):
1997
---------
Cash and cash equivalents acquired $ 6,093
Fair value of other assets acquired 118,706
Excess of cost over fair value of assets acquired (goodwill) 11,324
---------
136,123
Value of stock issued by SUN, net of offering costs (20,063)
---------
Liabilities assumed $116,060
=========
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
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:
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, Central Pennsylvania Bank,
Bucktail Bank and Trust Company (Bucktail), and Watsontown Bank, and
Pennsylvania SUN Life Insurance Company (SUN Life). The transactions of SUN
Life are not material to the consolidated financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
Nature of Operations
SUN provides a full range of banking services to individual and corporate
customers through the fourteen offices of its subsidiary in central
Pennsylvania. The offices are located in Snyder, Union, Northumberland,
Lycoming, Cameron and Elk counties. All six 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 (predominately automobiles), and secured loans to small businesses.
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.
A material estimate that is particularly susceptible to significant change in
the near term is 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, Northumberland, and Lycoming. With the
acquisition of Bucktail, SUN's indirect consumer loans have increased. 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 include debt and both restricted and
unrestricted equity securities. Such securities, except for restricted equity
securities, are reported at fair value, with unrealized gains and losses, net of
taxes, excluded from earnings and reported as a component of accumulated other
comprehensive income within shareholders' equity. The restricted equity
securities consist primarily of Federal Home Loan Bank of Pittsburgh (FHLB)
stock, which are carried at cost and evaluated for impairment.
The fair value of available for sale securities, 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.
Amortization of premiums and accretion of discounts on available for sale
securities are recorded using the level yield method over the remaining
contractual life of the securities, adjusted for actual prepayments.
Realized gains and losses on the sale of available for sale securities are
computed on the basis of specific identification of the adjusted carrying value
of each security.
<PAGE>
Notes to Consolidated Financial Statements
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.
Interest income is generally not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on
impaired loans are generally applied as a reduction of the loan principal
balance.
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.
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. SUN had
foreclosed assets held for sale, which are included with accrued interest and
other assets in the consolidated balance sheet, in the amount of $273,000 and
$338,000 at December 31, 1998 and 1997, respectively.
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.
Goodwill
Goodwill represents the excess of the cost over the fair value of the Bucktail
assets acquired in 1997 (Note 4) and is amortized using the straight-line method
over a period of 15 years. Amortization of goodwill amounted to $755,000 and
$378,000 in 1998 and 1997, respectively. The carrying value of goodwill is
periodically reviewed by SUN based on fair values or undiscounted operating cash
flows. Based upon its most recent analysis, SUN believes no material impairment
of goodwill exists at December 31, 1998.
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 loan losses, depreciation, the excess of
historical cost over fair value of loans acquired from Bucktail, and income from
loan fees.
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. Net Income Per Share
Net income per share is computed based on the weighted average number of
shares of stock outstanding for each year presented. Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," requires
presentation of two amounts, basic and diluted net income per share.
The number of shares used in calculating net income per share and dividends
per share reflect the retroactive effect of 5% stock dividends in the second
quarters of 1998, 1997, and 1996 and a three-for-two stock split in the fourth
quarter of 1997. The following data shows the amounts used in computing net
income per share and the weighted average number of shares of dilutive stock
options:
<TABLE>
<CAPTION>
Common Net
Income Shares Income Per
Numerator Denominator Share
---------- ----------- ----------
<S> <C> <C> <C>
1998
- ----
Net income per share - Basic $8,726,000 6,530,433 $1.34
Dilutive effect of potential common stock
Stock options:
Exercise of options outstanding 235,064
Hypothetical share repurchase at $27.75 (171,815)
---------- ---------- -----
Net income per share - Diluted $8,726,000 6,593,682 $1.32
========== ========== =====
1997
- ----
Net income per share - Basic $7,801,000 6,046,075 $1.29
Dilutive effect of potential common stock
Stock options:
Exercise of options outstanding 254,600
Hypothetical share repurchase at $23.30 (190,583)
---------- ---------- -----
Net income per share - Diluted $7,801,000 6,110,092 $1.28
========== ========== =====
1996
- ----
Net income per share - Basic $6,399,000 5,593,399 $1.14
Dilutive effect of potential common stock
Stock options:
Exercise of options outstanding 223,330
Hypothetical share repurchase at $18.23 (168,819)
---------- ---------- -----
Net income per share - Diluted $6,399,000 5,647,910 $1.13
========== ========== =====
</TABLE>
3. Comprehensive Income
SUN adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require recognized revenue,
expenses, gains, and losses be included in net income. Although certain changes
in assets and liabilities, such as unrealized gains and losses on available for
sale securities, are reported as a separate component in the equity section of
the balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 has no effect on SUN's net
income or shareholders' equity.
The components of other comprehensive income and related tax effects are as
follows:
<TABLE>
(In Thousands) Years Ended December 31
-------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Unrealized holding gains (losses) on
available-for-sale securities $ (355) $5,573 $ (740)
Less: Reclassification adjustment for
gains realized in income (1,403) (1,779) (358)
Net unrealized gains (losses) (1,758) 3,794 (1,098)
Income tax benefit (expense) 598 (1,290) 374
-------- ------- -------
Net $(1,160) $2,504 $ (724)
======== ======= =======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
4. Purchase of Bucktail Bank and Trust Company
On June 30, 1997, SUN acquired Bucktail from FNB Corporation, a multi-bank
holding company headquartered in Hermitage, Pennsylvania. Concurrently,
Bucktail was merged into Sun Bank and the results of Bucktail's operations have
been included herein from the consummation date of June 30, 1997. The
acquisition, which has been accounted for as a purchase, resulted in the
issuance of 890,480 shares of SUN common stock, adjusted for subsequent stock
splits and dividends, in exchange for all of the outstanding shares of Bucktail.
Based on the market price of SUN's common stock as of June 30, 1997, the total
cost of the acquisition was $20,063,000.
5. 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 of Philadelphia primarily based on its deposit liabilities.
The average of such reserves was $4,459,000, $1,924,000, and $1,312,000 for
1998, 1997, and 1996, respectively. These reserves were $5,038,000 and
$2,610,000 at December 31, 1998 and 1997, 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.
6. Securities Available for Sale
The amortized cost and fair value of investment securities at December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1998
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Debt securities:
Obligations of U.S. government agencies $188,948 $ 740 $(485) $189,203
Obligations of states and political subdivisions 44,343 1,901 (22) 46,222
Other corporate 500 - - 500
-------- ------ ------ --------
Total debt securities 233,791 2,641 (507) 235,925
-------- ------ ------ --------
Equity securities:
Marketable equity securities 8,871 1,078 (156) 9,793
Restricted equity securities 9,062 - - 9,062
-------- ------ ------ --------
Total equity securities 17,933 1,078 (156) 18,855
-------- ------ ------ --------
Total $251,724 $3,719 $(663) $254,780
======== ====== ====== ========
December 31, 1997
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
Debt securities:
Obligations of U.S. government agencies $107,830 $1,423 $(396) $108,857
Obligations of states and political subdivisions 43,928 1,560 - 45,488
-------- ------ ------ --------
Total debt securities 151,758 2,983 (396) 154,345
-------- ------ ------ --------
Equity securities:
Marketable equity securities 3,648 2,225 - 5,873
Restricted equity securities 5,066 - - 5,066
-------- ------ ------ --------
Total equity securities 8,714 2,225 - 10,939
-------- ------ ------ --------
Total $160,472 $5,208 $(396) $165,284
======== ====== ====== ========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of SUN's securities at
December 31, 1998 and 1997, 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.
<TABLE>
<CAPTION>
(In Thousands) December 31, 1998 December 31, 1997
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Debt securities:
Due in one year or less $ 579 $ 597 $ 115 $ 116
Due after one year through five years 14,749 15,472 619 635
Due after five years through ten years 23,532 23,575 11,973 11,987
Due after ten years 29,983 31,034 51,625 53,106
Mortgage-backed securities 164,948 165,247 87,426 88,501
-------- -------- -------- --------
Total debt securities 233,791 235,925 151,758 154,345
Equity securities 17,933 18,855 8,714 10,939
-------- -------- -------- --------
Total $251,724 $254,780 $160,472 $165,284
======== ======== ======== ========
</TABLE>
Securities with a carrying value of $171,000,000 and $80,000,000 were pledged
to secure public deposits, trust deposits, securities sold under agreements to
repurchase, FHLB borrowings, and other items required by law at December 31,
1998 and 1997, 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 1998, gross realized gains from the sale of available for sale securities
were $1,550,000, while gross realized losses amounted to $147,000. In 1997,
gross realized gains totaled $1,942,000, while gross realized losses totaled
$163,000. In 1996, gross realized gains from the sale of available-for-sale
securities were $358,000.
7. Loans
The composition of the loan portfolio at December 31, 1998 and 1997 was as
follows:
(In Thousands) December 31
-------------------
1998 1997
--------- --------
Real estate - Mortgages $191,389 $202,882
Real estate - Construction 3,353 3,632
Agricultural 971 1,157
Commercial and industrial 52,823 34,560
Individual 85,471 75,396
Other 383 90
--------- ---------
Total 334,390 317,717
Less: Unearned income on loans (396) (1,961)
Unamortized discount on purchased loans (1,270) (1,793)
Deferred loan fees (274) (533)
Allowance for possible loan losses (3,327) (3,130)
--------- ---------
Net $329,123 $310,300
========= =========
Transactions in the allowance for possible loan losses were as follows:
(In Thousands) Years Ended December 31
---------------------------
1998 1997 1996
------- ------- -------
Balance, beginning of year $3,130 $2,490 $2,191
Provision for possible loan losses 1,200 1,175 650
Allowance for possible loan losses assumed
upon acquisition of Bucktail Bank and
Trust Company - 1,292 -
Recoveries 248 175 16
Loans charged off (1,251) (2,002) (367)
------- ------- -------
Balance, end of year $3,327 $3,130 $2,490
======= ======= =======
<PAGE>
Notes to Consolidated Financial Statements
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, 1998
and 1997, SUN had loans to automobile dealers of $9,253,000 and $8,711,000,
respectively. Loans in the modular home manufacturing industry amounted to
$3,442,000 and $4,460,000, 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 $878,000 and $1,436,000 as of
December 31, 1998 and 1997, respectively. Interest income which would have been
recognized on all nonaccrual and restructured loans outstanding in 1998 and 1997
was approximately $82,000 and $147,000, respectively.
The following is a summary of the past due and nonaccrual loans as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands) Past Due
Past Due 90 Days
December 31, 1998 30-89 Days or More Nonaccrual
- ----------------- ---------- -------- ----------
<S> <C> <C> <C>
Real estate $4,956 $2,071 $ 486
Individual 3,194 535 7
Commercial and all other 396 261 142
------ ------ ------
Total $8,546 $2,867 $ 635
====== ====== =====
December 31, 1997
- -----------------
Real estate $5,680 $2,551 $ 849
Individual 2,176 277 10
Commercial and all other 357 160 251
------ ------ ------
Total $8,213 $2,988 $1,110
====== ====== ======
</TABLE>
At December 31, 1998 and 1997, SUN had loans amounting to $2,523,000 and
$2,805,000, respectively, that were specifically classified as impaired. The
average balance of impaired loans amounted to $3,661,000 and $4,277,000 in
1998 and 1997, respectively. The allowance for loan losses related to impaired
loans as of December 31, 1998 and 1997 was $277,000 and $518,000, respectively.
The following is a summary of cash receipts on these loans during the period
they were classified as impaired in 1998 and 1997:
(In Thousands) 1998 1997
------ ----
Cash receipts applied to reduce principal balance $1,959 $212
Cash receipts recognized as interest income 496 267
------ ----
Total $2,455 $479
====== ====
<PAGE>
Notes to Consolidated Financial Statements
8. Bank Premises and Equipment
Bank premises and equipment at December 31, 1998 and 1997 consisted of the
following:
(In Thousands) December 31
-------------------------
1998 1997
------- -------
Land $1,542 $1,320
Bank premises 7,739 7,588
Furniture and equipment 4,391 4,060
------- -------
Total cost 13,672 12,968
Less: Accumulated depreciation (4,533) (4,004)
------- -------
Bank premises and equipment, net $9,139 $8,964
======= =======
Depreciation expense was $683,000, $607,000, and $337,000 for 1998, 1997, and
1996, respectively.
9. Deposits
The following table reflects certificates of deposit and other time deposits
and their remaining maturities as of December 31, 1998:
(In Thousands)
Year Ending December 31:
- ------------------------
1999 $130,187
2000 56,398
2001 8,374
2002 2,866
2003 1,477
Thereafter 201
--------
Total $199,503
========
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, as of December 31, 1998, are as follows:
(In Thousands)
Three months or less $11,094
Three through six months 6,097
Six through twelve months 6,262
Over twelve months 11,053
-------
Total $34,506
=======
Interest on deposits of $100,000 or more amounted to approximately $1,842,000
in 1998, $1,309,000 in 1997, and $790,000 in 1996.
<PAGE>
Notes to Consolidated Financial Statements
10. Borrowed Funds
SUN's borrowed funds as of December 31, 1998 and 1997 included the following:
(In Thousands) December 31
--------------------
1998 1997
-------- --------
Short-term Borrowings:
Open Repo Plus (1) $ 11,599 $ 2,070
Securities sold under agreements to repurchase (2) 13,628 11,154
Treasury Tax and Loan Note Option (3) 523 7,035
-------- --------
Total Short-term Borrowings 25,750 20,259
Other Borrowed Funds,
Federal Home Loan
Bank of Pittsburgh advances (4) 161,500 93,025
-------- -------
Total Borrowed Funds $187,250 $113,284
======== ========
(1) In 1996, SUN began utilizing an "Open Repo Plus" program through the FHLB as
an overnight source of funds. As of December 31, 1998, the total
commitment was $50,000,000. The maximum month end amount of such borrowings
in 1998, 1997, and 1996 was $11,605,000, $19,836,000 and $32,260,000,
respectively. The daily average amount of such borrowings was $1,365,000 in
1998, $6,017,000 in 1997, and $26,917,000 in 1996, and the weighted average
interest rate was 5.37% in 1998, 5.54% in 1997, and 5.48% in 1996.
(2) Securities sold under agreements to repurchase represent deposit customers'
cash management accounts. These repurchase agreements are collateralized
by a blanket agreement with the Federal Reserve Bank of Philadelphia in
which the actual ownership of the securities is not transferred. The
maximum month end amount of securities sold under agreements to repurchase
in 1998, 1997, and 1996 was $20,190,000, $12,149,000, and $11,923,000,
respectively. The average daily amount of such borrowings was $13,611,000,
$9,737,000, and $7,698,000 in 1998, 1997, and 1996, respectively, and the
weighted average interest rates were 3.50% in 1998, 3.89% in 1997, and
3.95% in 1996.
(3) Borrowings on the Treasury Tax and Loan Note Option represent tax funds
deposited and held until the U.S. Treasury calls the balance. The maximum
amount available to borrow through the Note Option is $10,000,000. The
maximum month end amount of such borrowings was $10,000,000 in 1998, 1997,
and 1996. The average daily amount of such borrowings was $3,030,000,
$3,925,000, and $2,587,000, respectively, and the weighted average interest
rates were 5.21% in 1998, 4.96% in 1997, and 5.23% in 1996.
(4) FHLB advances represent variable and fixed rate loans with stated maturities
as follows:
(In Thousands) December 31
--------------------
1998 1997
-------- -------
Variable rate between 5.48% and 6.06%, maturity 2001 $ 20,000 $20,000
Variable rate between 5.52% and 6.38%, maturity 2002 55,000 55,000
Variable rate between 4.94% and 5.41%, maturity 2008 80,000 -
Fixed rate of 5.15%, maturity 1999 2,500 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
Fixed rates between 5.14% and 5.91%, maturity 1998 - 11,525
-------- -------
Total $161,500 $93,025
======== =======
All FHLB advances are collateralized by SUN's investment in mortgage-backed
securities and first mortgage loans.
<PAGE>
Notes to Consolidated Financial Statements
11. Estimated Fair Value of Financial Instruments
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 6. 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.
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 available market information. The following
table presents information for loans:
(In Thousands) December 31, 1998 December 31, 1997
---------------------- ----------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Total loans $329,123 $333,187 $310,300 $313,886
======== ======== ======== ========
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-
bearing demand deposits, NOW accounts, savings deposits, and Insured Money
Market Accounts, is equal to the amount payable on demand as of December 31,
1998 and 1997. 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:
(In Thousands) December 31, 1998 December 31, 1997
----------------------- -----------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Total deposits $363,886 $363,138 $327,018 $325,025
======== ======== ======== ========
<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.
(In Thousands) December 31, 1998 December 31, 1997
----------------------- -----------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Total borrowed funds $187,250 $185,210 $113,284 $113,241
======== ======== ======== ========
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 $65,406,000 and $35,008,000 as
of December 31, 1998 and 1997, respectively, and are primarily comprised of
unfunded loan commitments which are generally priced at market at the time of
funding.
12. Common Stock Plans
SUN has 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 682,500 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 110,250 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, 236,250 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 85% of the market value per share on the date of
exercise. Each option under the Employee Stock Purchase Plan will expire no
later than 5 years from the date of grant, and this plan will terminate in 2008.
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
1998, 1997, and 1996 would have been adjusted to the pro forma amounts indicated
below:
1998 1997 1996
---------- ---------- ----------
Net income As reported $8,726,000 $7,801,000 $6,399,000
Pro forma $8,313,000 $7,441,000 $6,188,000
Earnings per share - Basic As reported $ 1.34 $ 1.29 $ 1.14
Pro forma $ 1.27 $ 1.23 $ 1.10
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 1998, 1997, and 1996:
1998 1997 1996
------- ------- -------
Dividend yield 3% 3% 3%
Volatility 25% 24% 12%
Risk-free interest rates:
Stock Incentive Plan 5.57% 6.73% 6.57%
Independent Directors Plan 5.63% 6.80% 6.22%
Expected option lives 4 years 4 years 4 years
<PAGE>
Notes to Consolidated Financial Statements
A summary of the status of the common stock plans, adjusted retroactively for
the effects of stock dividends and stock splits, is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted-average Weighted-average Weighted-average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- ---------------- -------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 280,914 $19.49 274,439 $15.00 205,505 $12.79
Granted 121,790 34.70 91,764 24.11 96,394 18.95
Exercised (46,142) 16.61 (51,699) 13.46 (25,201) 11.83
Forfeited (16,437) 27.65 (33,590) 16.83 (2,259) 18.50
-------- ------ -------- ------ -------- ------
Outstanding, end of year 340,125 $24.53 280,914 $19.49 274,439 $15.00
======== ====== ======== ====== ======== ======
Options exercisable at year end 249,625 217,246 205,807
======== ======== ========
Fair value of options granted
during the year $7.60 $5.21 $2.80
======== ======== ========
</TABLE>
The following table summarizes information about fixed stock options
outstanding under the Stock Incentive Plan and the Independent Directors Plan at
December 31, 1998:
Exercise Number Outstanding Remaining Number Exercisable
Prices at December 31, 1998 Contractual Life at December 31, 1998
$10.04 2,352 6 years 2,352
$10.90 19,039 6 years 19,039
$11.78 3,920 7 years 3,920
$14.40 38,469 7 years 38,469
$17.05 7,840 8 years 7,840
$19.35 48,544 8 years 48,544
$20.15 8,624 9 years 8,624
$22.98 57,876 9 years 57,876
$33.70 11,522 10 years 11,522
$36.00 90,500 10 years -
------- --------- -------
288,686 8.6 years 198,186
======= ========= =======
13. 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, 1998, 1997, and 1996 were $328,000, $263,000, and $209,000,
respectively. Additionally, the amount charged to expense under the
supplemental payment agreement for the same periods was $35,000, $34,000, and
$39,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
14. Income Taxes
The following temporary differences gave rise to a deferred tax liability at
December 31, 1998 and 1997:
(In Thousands) December 31
--------------
1998 1997
------ ------
Deferred tax assets:
Loan losses $ 992 $ 833
Discount on loans acquired from Bucktail 432 609
Loan fees and costs 84 214
Premium on deposits assumed from Bucktail 43 77
Nonaccrual interest 28 50
Supplemental compensation plan 79 67
Other 55 56
------ ------
Total 1,713 1,906
------ ------
Deferred tax liabilities:
Unrealized gains on investment securities 1,039 1,636
Depreciation 749 690
Other 37 35
------ ------
Total 1,825 2,361
------ ------
Deferred tax liability, net $ 112 $ 455
====== ======
SUN recorded a deferred tax asset of approximately $580,000 related to the
purchase of Bucktail in 1997.
SUN's income tax provision for 1998, 1997, and 1996 consists of the following:
(In Thousands) Years Ended December 31
------------------------
1998 1997 1996
------ ------ -------
Current provision $2,691 $2,194 $2,316
Deferred income tax provision (benefit) 254 316 (119)
Tax expense from allocation of stock option
tax benefits directly to equity 134 - -
------ ------ -------
Income tax provision $3,079 $2,510 $2,197
====== ====== =======
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:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Amount Rate Amount Rate Amount Rate
Federal income tax at statutory rate $4,132 35.0% $3,609 35.0% $2,923 34.0%
Tax-exempt income (1,017) (8.6) (1,016) (9.9) (705) (8.2)
Amortization of goodwill 264 2.2 132 1.3 - -
Tax credits from limited partnerships (225) (1.9) (114) (1.1) - -
Other items (75) (.6) (177) (1.0) ( 21) (.2)
------- ----- ------- ----- ------- -----
Income tax provision $3,079 26.1% $2,510 24.3% $2,197 25.6%
======= ===== ======= ===== ======= =====
</TABLE>
15. Related Party Transactions
Certain executive officers, corporate directors, or companies in which they
have 10 percent or more beneficial ownership were indebted to SUN. A summary of
loan activity with officers, directors, significant shareholders, and associates
of such persons is listed below:
<TABLE>
<CAPTION>
(In Thousands) Beginning New Other Ending
Balance Loans Repayments Changes Balance
--------- ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C>
11 Directors, 6 Executive Officers 1998 $ 8,844 $1,708 $(3,385) $ - $ 7,167
10 Directors, 6 Executive Officers 1997 10,323 559 (1,088) (950) 8,844
9 Directors, 6 Executive Officers 1996 10,692 1,986 (1,131) (1,224) 10,323
</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
16. 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, and equipment, and income-producing
commercial properties. At December 31, 1998 and 1997, commitments to extend
credit totaled $63,225,000 and $33,731,000, 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, 1998 and 1997, standby letters of credit totaled $2,181,000 and
$1,277,000, respectively.
17. 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, 1998, 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>
<CAPTION>
(In Thousands) To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 1998:
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $59,336 17.0% $27,920 8.0% $34,900 10.0%
Tier I Capital
(to Risk Weighted Assets) $55,594 15.9% $13,960 4.0% $20,940 6.0%
Tier I Capital
(to Average Assets) $55,594 9.7% $23,032 4.0% $28,790 5.0%
As of December 31, 1997:
- ------------------------
Total Capital
(to Risk Weighted Assets) $54,621 17.8% $24,532 8.0% $30,665 10.0%
Tier I Capital
(to Risk Weighted Assets) $51,491 16.8% $12,266 4.0% $18,399 6.0%
Tier I Capital
(to Average Assets) $51,491 11.7% $17,607 4.0% $22,009 5.0%
</TABLE>
Notes to Consolidated Financial Statements
18. Condensed Financial Information - Parent Company Only
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In Thousands) 1998 1997
-------- --------
Assets:
Cash $ 124 $ 111
Securities available for sale 1,513 1,113
Subsidiary investments:
Sun Bank 63,644 61,985
Pennsylvania SUN Life Insurance Company 308 293
Investment in limited partnerships 1,506 1,673
Other assets 713 447
-------- --------
Total assets $67,808 $65,622
======== ========
Liabilities,
Accounts payable $ 7 $ 9
-------- --------
Shareholders' Equity:
Common stock 72,913 5,206
Additional paid-in capital - 56,155
Retained earnings (deficit) (4,949) 2,485
Accumulated other comprehensive income 2,016 3,176
Treasury stock (2,179) (1,409)
-------- --------
Total shareholders' equity 67,801 65,613
-------- --------
Total liabilities and shareholders' equity $67,808 $65,622
======== ========
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1998, 1997, and 1996
(In Thousands) 1998 1997 1996
------- ------- -------
Income:
Dividends from Sun Bank $5,545 $4,772 $3,997
Net security gains 226 226 -
Interest and other income 49 90 69
------- ------- -------
Total income 5,820 5,088 4,066
------- ------- -------
Expenses:
Stationery and printing 20 18 16
Professional fees 46 101 11
Other expenses 104 104 80
Loss from investment in limited partnerships 171 134 10
------- ------- -------
Total expenses 341 357 117
------- ------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries 5,479 4,731 3,949
Income tax benefit (294) (256) (121)
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries 5,773 4,987 4,070
Equity in undistributed earnings of subsidiaries 2,953 2,814 2,329
------- ------- -------
Net income $8,726 $7,801 $6,399
======= ======= =======
<PAGE>
Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $8,726 $7,801 $6,399
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (2,953) (2,814) (2,329)
Loss from investment in limited partnerships 171 134 10
Credit for possible loan losses - - (1)
Realized net security gains (226) (226) -
Increase in other assets (87) (370) (116)
Decrease in liabilities (2) - -
------- ------- -------
Net cash provided by operating activities 5,629 4,525 3,963
------- ------- -------
Cash flows from investing activities:
Purchases of available-for-sale securities (908) (340) (171)
Proceeds from sales of securities 804 387 -
Purchases of investment in limited partnerships - (844) (973)
Principal collected on note receivable - - 7
------- ------- -------
Net cash used in investing activities (104) (797) (1,137)
------- ------- -------
Cash flows from financing activities:
Cash dividends (5,369) (4,217) (3,134)
Purchase of treasury stock (770) - -
Proceeds from sale of stock for employee benefit program 627 596 305
------- ------- -------
Net cash used in financing activities (5,512) (3,621) (2,829)
Net increase (decrease) in cash and cash equivalents 13 107 (3)
Cash and cash equivalents at beginning of year 111 4 7
------- ------- ------
Cash and cash equivalents at end of year $ 124 $ 111 $ 4
======= ======= =======
</TABLE>
No interest or income taxes were paid by the parent company during 1998,
1997, or 1996.
Noncash investing and financing activities:
In 1998, SUN eliminated the par value of common stock. As a result,
$56,155,000 was reclassified from additional paid-in capital to common stock.
In 1998, the tax benefit of exercised stock options, in the amount of $134,000,
was credited to common stock.
In 1997, SUN issued shares of common stock in exchange for all of the
outstanding stock of Bucktail Bank and Trust Company. This transaction was
recorded as an increase in the investment in Sun Bank and an increase in
shareholders' equity of $20,063,000.
<PAGE>
Notes to Consolidated Financial Statements
19. Consolidated Quarterly Financial Data (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $9,959 $10,613 $10,870 $11,235 $42,677
Interest expense 4,961 5,616 5,833 6,057 22,467
------- -------- -------- -------- --------
Net interest income 4,998 4,997 5,037 5,178 20,210
Provision for possible loan losses (300) (300) (300) (300) (1,200)
Net security gains 310 419 256 418 1,403
Other operating income 569 574 675 869 2,687
Other operating expenses (2,845) (2,801) (2,800) (2,849) (11,295)
------- -------- -------- -------- --------
Income before income taxes 2,732 2,889 2,868 3,316 11,805
Income tax provision (689) (750) (744) (896) (3,079)
------- -------- -------- -------- --------
Net income $2,043 $ 2,139 $ 2,124 $ 2,420 $ 8,726
======= ======== ======== ======== ========
Net income per share - Basic $ .31 $ .33 $ .33 $ .37 $ 1.34
======= ======== ======== ======== ========
Net income per share - Diluted $ .31 $ .32 $ .33 $ .36 $ 1.32
======= ======== ======== ======== ========
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
---- -------- -------- -------- -------- --------
Interest income $7,038 $7,088 $9,724 $9,803 $33,653
Interest expense 3,628 3,616 4,621 4,754 16,619
------- ------- ------- ------- --------
Net interest income 3,410 3,472 5,103 5,049 17,034
Provision for possible loan losses (150) (425) (300) (300) (1,175)
Net security gains 209 659 433 478 1,779
Other operating income 371 471 610 594 2,046
Other operating expenses (1,559) (1,757) (3,157) (2,900) (9,373)
------- ------- ------- ------- --------
Income before income taxes 2,281 2,420 2,689 2,921 10,311
Income tax provision (478) (585) (612) (835) (2,510)
------- ------- ------- ------- --------
Net income $1,803 $1,835 $2,077 $2,086 $7,801
======= ======= ======= ======= ========
Net income per share - Basic $ .32 $ .33 $ .32 $ .32 $ 1.29
======= ======= ======= ======= ========
Net income per share - Diluted $ .32 $ .33 $ .32 $ .31 $ 1.28
======= ======= ======= ======= ========
</TABLE>
<PAGE>
Independent Auditors' Report
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, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/S/ Parente, Randolph, Orlando, Care & Associates
Williamsport, Pennsylvania
February 16, 1999
<PAGE>
Five Year Financial Highlights
Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Balance Sheet Data (In Thousands)
- ---------------------------------
<S> <C> <C> <C> <C> <C>
Assets $623,577 $510,728 $367,390 $319,626 $299,761
Deposits 363,886 327,018 205,619 196,592 183,160
Loans 329,123 310,300 213,225 199,444 184,957
Securities available for sale 254,780 165,284 136,538 107,125 100,002
Shareholders' equity 67,801 65,613 38,866 36,020 28,754
Average equity 67,063 51,470 36,886 32,025 29,697
Average assets 575,797 440,181 344,473 309,623 285,177
Earnings Data (In Thousands)
- ----------------------------
Interest income $ 42,677 $ 33,653 $ 27,199 $ 24,439 $ 20,666
Interest expense 22,467 16,619 13,689 12,087 8,967
Net interest income 20,210 17,034 13,510 12,352 11,699
Provision for possible loan losses 1,200 1,175 650 360 360
Net interest income after provision for
possible loan losses 19,010 15,859 12,860 11,992 11,339
Net security gains 1,403 1,779 358 130 65
Other operating income 2,687 2,046 1,606 1,666 1,504
Other operating expenses 11,295 9,373 6,228 5,984 6,124
Income before income tax provision 11,805 10,311 8,596 7,804 6,784
Income tax provision 3,079 2,510 2,197 2,154 1,870
Net income 8,726 7,801 6,399 5,650 4,914
Dividends paid 5,369 4,217 3,134 2,317 1,792
Ratios
- ------
Return on average assets 1.51% 1.77% 1.86% 1.83% 1.72%
Return on average assets
(excluding goodwill) 1.68% 1.92% 1.86% 1.83% 1.72%
Return on average equity 13.01% 15.16% 17.35% 17.64% 16.55%
Return on average equity
(excluding goodwill) 16.78% 17.77% 17.35% 17.64% 16.55%
Equity to assets (year end) 10.87% 12.85% 10.58% 11.27% 9.59%
Loans to deposits (year end) 90.45% 94.89% 103.70% 101.45% 100.98%
Loans to assets (year end) 52.78% 60.76% 58.04% 62.40% 61.70%
Dividend payout (percentage of net income) 61.53% 54.06% 48.98% 41.01% 36.47%
Per Share Data
- --------------
Net income per share - Basic $ 1.34 $ 1.29 $ 1.14 $ 1.02 $ .89
Net income per share - Dilute $ 1.32 $ 1.28 $ 1.13 $ 1.02 $ .89
Net income per share - Basic
(exclusive of goodwill amortization) $ 1.45 $ 1.35 $ 1.14 $ 1.02 $ .89
Cash dividends per share $ .82 $ .685 $ .56 $ .44 $ .33
Book value per share $ 10.38 $ 10.07 $ 6.97 $ 6.48 $ 5.17
Book value per share
(excluding goodwill) $ 8.82 $ 8.40 $ 6.97 $ 6.48 $ 5.17
Average shares outstanding - Basic 6,530,433 6,046,075 5,593,399 5,546,612 5,544,933
Average shares outstanding - Diluted 6,593,682 6,110,092 5,647,910 5,557,958 5,552,042
Approximate number of shareholders 1,977 1,757 1,518 1,337 1,163
</TABLE>
<PAGE>
Management's Discussion and Analysis
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources, and liquidity presented
in its accompanying consolidated financial statements for SUN BANCORP, INC.
(SUN), a bank holding company, and its wholly-owned subsidiary, Sun Bank. SUN's
consolidated financial condition and results of operations consist almost
entirely of the bank's financial condition and results of operations. Current
performance does not guarantee or assure similar performance in the future, and
may not be indicative of future results.
BACKGROUND
SUN BANCORP, INC. is a bank holding company whose principal subsidiary is Sun
Bank. Sun Bank, trading as Snyder County Trust Company, Central Pennsylvania
Bank, Bucktail Bank and Trust Company, and Watsontown Bank, operates fourteen
branch banking offices and one trust services office in its principal market of
Snyder, Union, Northumberland, Lycoming, Cameron, and Elk counties. SUN also
owns a captive insurance company, Pennsylvania SUN Life Insurance Company, which
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 affordable elderly apartment complexes in
SUN's market area. At December 31, 1998, SUN had 188 full time equivalent
employees.
ANALYSIS OF RESULTS OF OPERATIONS
Summary
SUN achieved record earnings for the year ended December 31, 1998. Net income
reached $8,726,000 in 1998, representing a $925,000 or 11.86% increase over the
$7,801,000 recorded in 1997. Basic earnings per share also reached record
levels at $1.34 compared to the $1.29 earned in 1997. This strong earnings
performance is further reflected through a solid 1.51% return on average assets
and a 13.01% return on average equity. In 1997, these ratios were 1.77% and
15.16%, 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 for 1998 increased $3,176,000 or 18.65% to
$20,210,000 from $17,034,000 in 1997. The increase in net interest income was
principally due to increased volumes in the first and second quarters of 1998
resulting from the Bucktail acquisition. On a tax equivalent basis, the net
interest margin spread decreased from 4.44% in 1997 to 4.01% in 1998. Interest
income increased $9,024,000 or 26.81% from $33,653,000 in 1997. Interest
expense increased $5,848,000 or 35.19% from $16,619,000 in 1997. Interest on
deposits and interest on borrowed funds represented an increase of $6,011,000,
while interest on short-term borrowings decreased $163,000. In 1997, interest
income rose $6,454,000 or 23.73% as interest expense increased $2,930,000 or
21.40%. Increases in average balance of loans and investments in both taxable
and tax-exempt securities accounted for most of the increase in interest income.
Growth in average balance of time deposits and other borrowed funds accounted
for most of the increase in interest expense in 1997.
Interest on deposits in 1998 rose $3,725,000 or 36.59% as the average rate on
deposits increased by 20 basis points while average deposits increased
30.63%. This increase was mainly attributable to the higher rates being paid
on time deposits. The average rate on short-term borrowings decreased as the
rate on other borrowed funds decreased slightly from 1997 to 1998. The overall
rate on interest-bearing liabilities increased 10 basis points to 4.80% in 1998
from 4.70% in 1997.
Interest on deposits in 1997 rose $1,987,000 or 24.25% as the average rate on
deposits decreased. This decrease in average rate was mainly attributable to
the lower rates on time deposits. The average rate on short-term borrowings
fell in 1997 from 1996. The lower rate environment attributed to the decrease.
The overall rate on interest-bearing liabilities decreased 12 basis points to
4.70% in 1997 from 4.82% in 1996.
<PAGE>
Management's Discussion and Analysis
Balance Sheet
Average assets grew $135,616,000 or 30.81% from $440,181,000 in 1997 to
$575,797,000 in 1998. Average loans grew $50,709,000 or 19.02%, with the rate
earned on loans remaining constant from 9.17% in 1997 to 9.14% in 1998. Average
taxable investments increased $70,192,000 or 71.05% from $98,795,000 in 1997
with the rate earned dropping 24 basis points to 6.24% in 1998. Tax-exempt
investments remained stable in 1998 with an average balance of $45,295,000 and
rate of 8.98%. The yield on total earning assets decreased 28 basis points to
8.14% in 1998 from 8.42% in 1997. Total noninterest-earning assets rose
$9,896,000 due primarily to a 55.4% increase in cash and due from banks and a
54.99% increase in accrued interest and other assets from 1997.
In 1997, average assets grew $95,708,000 or 27.78% from $344,473,000 in 1996
to $440,181,000 in 1997 with Bucktail consisting of 71.11% of the increase.
Average loans grew $55,756,000 or 26.45% as Bucktail provided 88.06% of this
growth. The rate earned on loans decreased from 9.31% in 1996 to 9.17% in 1997.
Average investments increased $23,639,000 or 19.54% from $121,003,000 in 1996 to
$144,642,000 in 1997. The acquisition of Bucktail provided 33.39% of the growth
in investments. Taxable securities increased $8,174,000 or 9.02% as tax exempt
securities rose $15,465,000 or 50.90%. Consequently, the rate of return on
taxable securities remained stable, while the rate of return for tax-exempt
securities dropped slightly by 28 basis points to 8.82%. The yield on total
earning assets decreased 9 basis points to 8.42% in 1997 from 8.51% in 1996.
Total noninterest-earning assets rose $10,579,000 due primarily to the
acquisition of Bucktail under the purchase accounting method. Under this
method, bank premises and equipment were restated to fair market value and
goodwill was recorded as an intangible asset.
In 1998, SUN's average interest-bearing liabilities rose $114,869,000 or
32.48% from $353,676,000 in 1997 to $468,545,000 in 1998. Total average
deposits grew $72,870,000 or 30.63%. NOW's and Insured Money Market Accounts
grew $22,822,000 to $73,008,000 in 1998 from $50,186,000 in 1997. Savings
deposits increased $6,944,000 to $43,920,000 in 1998 from $36,976,000 in 1997.
Time deposits increased by $43,104,000 to $193,867,000 in 1998 from $150,763,000
in 1997. Short-term borrowings decreased $1,673,000 to $18,006,000 in 1998 from
$19,679,000 in 1997. Other borrowed funds increased $43,672,000 in 1998 from
$96,072,000 in 1997 to $139,744,000 due to the decrease in short-term borrowings
and additional usage of wholesale funding through the Federal Home Loan Bank of
Pittsburgh. Average demand deposits rose $6,810,000 or 22.83%.
In 1997, SUN's average interest-bearing liabilities rose $69,420,000 or 24.42%
from $284,256,000 in 1996 to $353,676,000 in 1997 with Bucktail providing 83.59%
of this increase. Total average deposits grew $52,726,000 or 28.47%. NOW and
Insured Money Market Accounts grew $7,428,000 to $50,186,000 in 1997 from
$42,758,000 in 1996. Savings deposits increased $7,359,000 to $36,976,000 in
1997 from $29,617,000 in 1996. Time deposits increased by $37,939,000 to
$150,763,000 in 1997 from $112,824,000 in 1996. Short-term borrowings decreased
$14,899,000 or 43.09% to $19,679,000 in 1997 from $34,578,000 in 1996. Other
borrowed funds increased $31,593,000 in 1997 from $64,479,000 in 1996 to
$96,072,000 due to the decrease in short-term borrowings and additional usage of
wholesale funding through the FHLB. Average demand deposits rose $9,360,000 or
45.73% due primarily to the Bucktail acquisition.
<PAGE>
Management's Discussion and Analysis
AVERAGE BALANCE AND NET INTEREST INCOME ANALYSIS
The table below presents an analysis of the composition of average daily
balances and net interest income on a fully taxable equivalent basis.
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
--------------------------- --------------------------- ---------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ----- -------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $ 11,653 $ 617 5.29% $ 6,282 $ 271 4.31% $ 548 $ 35 6.39%
Loans (net of unearned
income) (1) (2) 317,285 29,006 9.14 266,576 24,439 9.17 210,820 19,620 9.31
Investments: Taxable 168,987 10,549 6.24 98,795 6,402 6.48 90,621 5,851 6.46
Tax-exempt (2) 45,295 4,068 8.98 45,847 4,044 8.82 30,382 2,765 9.10
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total interest-earning assets 543,220 44,240 8.14 417,500 35,156 8.42 332,371 28,271 8.51
------- ----- ------- ----- ------- -----
Noninterest-earning assets:
Cash and due from banks 10,973 7,061 6,196
Bank premises
& equipment 8,939 8,740 4,610
Accrued interest and
other assets 16,409 10,587 4,093
Less: Allowance for
loan losses (3,388) (3,014) (2,314)
Unamortized
loan fees (356) (693) (483)
--------- --------- ---------
Total assets $575,797 $440,181 $344,473
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW Accounts $ 51,628 $ 1,226 2.37% $ 35,162 $ 708 2.01% $ 32,390 $ 652 2.01%
Insured Money Market
Accounts 21,380 775 3.62 15,024 593 3.95 10,368 379 3.66
Savings deposits 43,920 986 2.24 36,976 858 2.32 29,617 661 2.23
Time deposits 193,867 10,918 5.63 150,763 8,021 5.32 112,824 6,501 5.76
Short-term borrowings 18,006 707 3.93 19,679 907 4.61 34,578 1,779 5.14
Other borrowed funds 139,744 7,855 5.62 96,072 5,532 5.76 64,479 3,717 5.76
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total interest-bearing liabilities 468,545 22,467 4.80 353,676 16,619 4.70 284,256 13,689 4.82
------- ----- ------- ----- ------- -----
Noninterest-bearing liabilities
and shareholders' equity:
Demand deposits 36,640 29,830 20,470
Accrued interest and
other liabilities 3,549 5,205 2,861
Shareholders' equity 67,063 51,470 36,886
--------- --------- ---------
Total liabilities and
shareholders' equity $575,797 $440,181 $344,473
========= ======== =========
Interest rate spread 3.34% 3.72% 3.69%
===== ===== =====
Net interest income/margin $21,773 4.01% $18,537 4.44% $14,582 4.39%
======= ===== ======= ===== ======= =====
</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 35%.
<PAGE>
Management's Discussion and Analysis
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.
<TABLE>
<CAPTION>
(In Thousands) 1998 Compared to 1997 1997 Compared to 1996
Increase (Decrease) Increase (Decrease)
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 231 $ 115 $ 346 $ 366 $(130) $ 236
Loans 4,656 (89) 4,567 5,198 (379) 4,819
Investments:
Taxable 4,548 (401) 4,147 531 20 551
Tax-exempt (49) 73 24 1,407 (128) 1,279
------- ------ ------- ------- ------ -------
Total interest-earning assets 9,386 (302) 9,084 7,502 (617) 6,885
------- ------ ------- ------- ------ -------
Interest paid on:
NOW Accounts 330 188 518 56 - 56
Insured Money Market Accounts 252 (70) 182 171 43 214
Savings deposits 161 (33) 128 164 33 197
Time deposits 2,293 604 2,897 2,183 (663) 1,520
Short-term borrowings (77) (123) (200) (767) (105) (872)
Other borrowed funds 2,517 (194) 2,323 1,815 - 1,815
------- ------ ------- ------- ------ -------
Total interest-bearing liabilities 5,476 372 5,848 3,622 (692) 2,930
------- ------ ------- ------- ------ -------
Net interest income $3,910 $(674) $3,236 $3,880 $ 75 $3,955
======= ====== ======= ======= ====== =======
</TABLE>
Income on tax-exempt loans and investments have been adjusted to a fully
taxable equivalent basis using the federal income tax rate of 35%.
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
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.
<TABLE>
<CAPTION>
(In Thousands) 1998 Compared to 1997 1997 Compared to 1996
----------------------------------------- -----------------------------------------
Average Volumes Income/Expense Average Volumes Income/Expense
------------------- -------------------
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
--------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net $ 50,709 19.02% $4,567 18.69% $55,756 26.45% $4,819 24.56%
Investment securities 69,640 48.15 4,171 39.93 23,639 19.54 1,830 21.24
Interest-bearing
deposits 5,371 85.50 346 127.68 5,734 1046.35 236 674.29
--------- ------ ------- ------- -------- -------- ------- -------
Total interest-
earning assets $125,720 30.11% $9,084 25.84% $85,129 25.61% $6,885 24.35%
========= ====== ======= ======= ======== ======== ======= =======
NOW Accounts $ 16,466 46.83% $ 518 73.16% $ 2,772 8.56% $ 56 8.59%
Insured Money Market
Accounts 6,356 42.31 182 30.69 4,656 44.91 214 56.46
Savings deposits 6,944 18.78 128 14.92 7,359 24.85 197 29.80
Time deposits 43,104 28.59 2,897 36.12 37,939 33.63 1,520 23.38
Short-term borrowings (1,673) (8.50) (200) (22.05) (14,899) (43.09) (872) (49.02)
Other borrowed funds 43,672 45.46 2,323 41.99 31,593 49.00 1,815 48.83
--------- ------ ------- ------- -------- -------- ------- =======
Total interest-bearing
liabilities $114,869 32.48% $5,848 35.19% $69,420 24.42% $2,930 21.40%
========= ====== ====== ======= ======== ======== ====== =======
Net interest income $3,176 18.65% $3,524 26.08%
Provision for possible loan losses 25 2.12 525 80.77
------- ------- ------- -------
Net interest income after provision for
possible loan losses 3,151 19.87 2,999 23.32
------- ------- ------- -------
Service charges on deposit accounts 215 22.97 412 78.63
Trust income 185 42.82 120 38.46
Net securities gains (376) (21.14) 1,421 396.93
Income from insurance subsidiary 19 12.58 (109) (41.92)
Other income 222 42.13 17 3.33
------- ------- ------- -------
Total other operating income 265 6.93 1,861 94.76
Salaries and employee benefits 903 18.88 1,252 35.46
Net occupancy and equipment expenses 363 29.80 428 54.18
Pennsylvania shares tax 105 27.63 70 22.58
Amortization of goodwill 377 99.74 378 -
Expenses of insurance subsidiary 23 14.11 (31) (15.98)
Other expenses 151 6.16 1,048 74.70
------- ------- ------- -------
Total other operating expenses 1,922 20.51 3,145 50.50
------- ------- ------- -------
Income before income tax provision 1,494 14.49 1,715 19.95
Income tax provision 569 22.67 313 14.25
------- ------- ------- -------
Net income $ 925 11.86% $1,402 21.91
======= ======= ======= =======
</TABLE>
<PAGE>
Management's Discussion and Analysis
OTHER OPERATING INCOME
SUN's total operating income increased $265,000 or 6.93% in 1998. Service
charges on deposit accounts increased to $1,151,000. The increase was due
primarily to transaction accounts acquired through the Bucktail acquisition and
an increase in automated teller machine fees. Trust income increased $185,000
to $617,000, due primarily to the addition of trust accounts from Bucktail along
with an increase in trust accounts and balances. Net security gains decreased
$376,000 to $1,403,000. Other income, mainly comprised of non-yield related
loan fees and other miscellaneous income, increased $222,000 or 42.13% with
$154,000 of the increase resulting from gains on sale of loans, while gains on
sale of other real estate owned increased $93,000.
In 1997, total operating income increased $1,861,000 or 94.76%. Service
charges on deposit accounts increased to $936,000. The increase was due
primarily to transaction accounts acquired through the Bucktail acquisition and
an increase in automated teller machine fees. Trust income increased $120,000
to $432,000, due primarily to the addition of trust accounts from Bucktail along
with an increase in trust accounts and balances. Net security gains increased
$1,421,000 to $1,779,000. These security gains, from the sale of equity
securities, accounted for most of the increase in other operating income.
Income from insurance subsidiary decreased $109,000. This decrease was due to
a decline of bank customers' demand for life and disability insurance coverage
related to their loans with the bank. Other income included $83,000 recognized
from the sale of the Shamokin Dam branch in 1997. However, without the sale,
other income would have decreased by $66,000. Other income is mainly comprised
of non-yield related loan fees and other miscellaneous income.
The table below illustrates the changes in other operating income for the
years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
(In Thousands) 1998 % Change 1997 % Change 1996
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $1,151 22.97% $ 936 78.63% $ 524
Trust income 617 42.82 432 38.46 312
Net securities gains 1,403 (21.14) 1,779 396.93 358
Income from insurance subsidiary 170 12.58 151 (41.92) 260
Other income 749 42.13 527 3.33 510
------ ------- ------ ------- ------
Total other operating income $4,090 6.93% $3,825 94.76% $1,964
====== ======= ====== ======= ======
</TABLE>
OTHER OPERATING EXPENSES
SUN's total other operating expenses rose $1,922,000 or 20.51% to $11,295,000
in 1998. Increases in salaries and employee benefits, net occupancy expense,
and furniture and equipment expense were reflective of increased operating costs
associated with the addition of seven former Bucktail locations. At
December 31, 1998, SUN had 188 full-time equivalent employees, which represents
an increase of 3 employees from 1997. Pennsylvania shares tax increased by
$105,000 as a direct result of the Bucktail acquisition. Amortization of
goodwill increased $377,000 to $755,000 in 1998. The amortization is the result
of goodwill related to the acquisition of Bucktail. Expenses of the insurance
subsidiary remained relatively unchanged at $186,000. Other expenses rose
$151,000 in 1998 due to increases in general operating expenses such as
marketing, insurance, supplies, and postage due to the addition of seven branch
offices and one administrative office of the former Bucktail Bank and Trust
Company.
In 1997, SUN's total other operating expenses rose $3,145,000 or 50.50% to
$9,373,000. Increases in salaries and employee benefits, net occupancy expense,
and furniture and equipment expense were reflective of increased operating costs
associated with the addition of seven former Bucktail locations in mid year.
Other factors that resulted in increased operating expenses include increased
salaries and furniture and equipment expense related to the opening of the
Northumberland and the expansion and relocation of the Shamokin Dam branch
operations. At December 31, 1997, SUN had 185 full-time equivalent employees,
which represents an increase of 72 employees from 1996. Pennsylvania shares tax
increased by $70,000 as a direct result of the Bucktail acquisition. Also,
amortization of $378,000 was recorded in the last six months of 1997 resulting
from goodwill related to the Bucktail acquisition. Expenses of the insurance
subsidiary remained relatively unchanged at $163,000. Other expenses rose
$1,048,000 in 1997 due to increases in general operating expenses such as
marketing, insurance, supplies, and postage due to the addition of seven branch
offices and one administrative office of the former Bucktail Bank and Trust
Company. A $180,000 write-down of the estimated value of other real estate
owned also contributed to the rise in other expenses in 1997.
The table below illustrates the changes in other operating expenses for the
years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
(In Thousands) 1998 % Change 1997 % Change 1996
------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 5,686 18.88 $4,783 35.46% $3,531
Net occupancy expenses 709 24.39 570 42.14 401
Furniture and equipment expenses 872 34.57 648 66.58 389
Pennsylvania shares tax 485 27.63 380 22.58 310
Amortization of goodwill 755 99.74 378 - -
Expenses of insurance subsidiary 186 14.11 163 (15.98) 194
Other expenses 2,602 6.16 2,451 74.70 1,403
------- ------ ------ ------- ------
Total other operating expenses $11,295 20.51% $9,373 50.50% $6,228
======= ====== ====== ======= ======
</TABLE>
<PAGE>
Management's Discussion and Analysis
INVESTMENT PORTFOLIO
SUN's total portfolio is classified as available for sale, which means it is
reported at fair value with unrealized gains or losses, net of taxes, excluded
from earnings and reported as accumulated other comprehensive income within
shareholders' equity. SUN had unrealized gains on investment securities of
$3,056,000 and $4,812,000 at December 31, 1998 and 1997, respectively. The
majority of SUN's portfolio is comprised of fixed-rate mortgage-backed
securities that have monthly principal and interest paydowns. There are no
single-issuer concentrations in municipal securities.
The following table shows the actual maturity distribution of investment
securities, including mortgage-backed securities at their contractual
maturities, at December 31, 1998.
<TABLE>
<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 $ 609 6.91% $ 4,682 6.26% $38,221 6.57% $145,436 6.47% $188,948 6.48%
Obligations of
states and political
subdivisions (1) 579 10.94 13,748 8.91 532 9.97 29,484 8.42 44,343 8.62
Corporate - - - - - - 500 9.00 500 9.00
------ ------ ------- ----- ------- ----- -------- ----- -------- -----
Total $1,188 8.87% $18,430 8.24% $38,753 6.62% $175,420 6.81% 233,791 6.89
====== ====== ======= ===== ======= ===== ======== ===== -----
Equity securities (2) 17,933
--------
Total investment
securities $251,724 6.40%
======== =====
</TABLE>
(1) The federal income tax rate of 35% 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.
<PAGE>
Management's Discussion and Analysis
LOAN PORTFOLIO
Total loans, gross, increased $16,673,000 or 5.25% from $317,717,000 in 1997
to $334,390,000 in 1998. The real estate mortgage portfolio decreased
$11,493,000 or 5.66%, while commercial and industrial loans increased
$18,263,000 or 52.84%, and individual loans increased $10,075,000 or 13.36% from
1997 to 1998. In 1997, SUN's total loans increased $95,984,000 or 43.29% from
$221,733,000 in 1996. The acquisition of Bucktail increased loans by
$98,195,000 with 49.25% of these loans secured by real estate, 48.19% were loans
to individuals, and 2.56% were commercial or agricultural loans.
The loan portfolio is carefully analyzed on a routine basis to ensure the
asset quality remains strong. Real estate loans account for 58.24% of the
portfolio and these loans are generally well-secured with minimal credit risk.
Lending activities are concentrated within SUN's market area; therefore, there
are no foreign loans. Also, SUN does not engage in lease financing. Management
believes the loan portfolio is adequately diversified and there are no
concentrations exceeding 10% of total loans.
The following table identifies the composition of the loan portfolio, net of
unearned income, unamortized discounts on purchased loans, deferred loan fees
and allowance for possible loan losses, for the five years ended December 31,
1998.
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate - Construction $ 3,353 $ 3,632 $ 5,107 $ 4,729 $ 5,221
Real estate - Mortgage 191,389 202,882 158,310 144,746 135,120
Agricultural 971 1,157 769 724 665
Commercial and industrial 52,823 34,560 24,554 25,713 20,703
Individual 85,471 75,396 32,848 31,205 30,384
Other 383 90 145 60 42
Unearned income on loans (396) (1,961) (5,357) (5,074) (4,679)
Unamortized discount on purchased loans (1,270) (1,793) - - -
Deferred loan fees (274) (533) (661) (468) (500)
Allowance for possible loan losses (3,327) (3,130) (2,490) (2,191) (1,999)
--------- --------- --------- --------- ---------
Total loans, net $329,123 $310,300 $213,225 $199,444 $184,957
========= ========= ========= ========= =========
</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, 1998. These tables represent
gross loan balances.
<TABLE>
<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 $25,321 $11,094 $17,762 $54,177
Real estate - Construction 3,353 - - 3,353
------- ------- ------- -------
Total $28,674 $11,094 $17,762 $57,530
======= ======= ======= =======
</TABLE>
Interest Rate Sensitivity
---------------------------------
Fixed Variable
Rate Rate Total
------- -------- -------
Due within one year $ 5,684 $22,990 $28,674
Due after one year 28,030 826 28,856
------- ------- -------
Total $33,714 $23,816 $57,530
======= ======= =======
<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 which are contractually past due 90 days or more as to interest or
principal payments and 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.
At December 31, 1998, total nonperforming loans amounted to $3,745,000 or
1.12% of total gross loans. Total loans grew $16,673,000 or 5.25% to
$334,390,000 in 1998. Even though total loans have substantially increased,
nonperforming loans have decreased $679,000 or 15.35% from $4,424,000 in 1997.
An integral part of our community bank philosophy is our ability to meet our
customers' needs while maintaining prudent, yet flexible, lending practices.
The improved balance of nonperforming loans can be attributed to the work of
the problem loan committee which meets monthly in order to monitor existing
problem loans, attempt to identify other potential problem loans, design
strategies for minimizing the amount of losses from the loan portfolio and to
ensure that the allowance for possible loan losses is adequate. The committee
members include the Chief Executive Officer, Chief Operating Officer, Senior
Vice President in charge of lending, and other members of senior management.
Also in 1998, SUN engaged an independent consulting firm for a review of all
loan relationships in excess of $250,000. This review was performed to provide
management with some degree of assurance that its internal review process is
complete and accurate. A similar external loan review is planned for 1999.
The following table presents information on nonaccrual, past due and
restructured loans for the five years ended December 31, 1998.
(In Thousands) 1998 1997 1996 1995 1994
------ ------ ------ ------ ----
Nonaccrual loans $ 635 $1,110 $ 236 $ - $163
Loans past due 90 days or more 2,867 2,988 1,863 1,989 488
Restructured loans 243 326 153 148 175
------ ------ ------ ------ ----
Total nonperforming loans $3,745 $4,424 $2,252 $2,137 $826
====== ====== ====== ====== ====
As of December 31, 1998, the total nonperforming loans amount above included
approximately $2,523,000 of "impaired" loans. In accordance with SFAS No. 114,
a loan is considered impaired when, based on current information and events, it
is probable that all amounts due will not be collected according to the
contractual terms of the loan agreement. This category does not apply to large
groups of smaller balance loans that are collectively evaluated for impairment,
such as residential mortgage and consumer installment loans.
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 monthly review of the allowance for possible loan losses is done to
determine the collectibility of certain loans based on internal 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 should be charged off
and if additions to the allowance are necessary. At December 31, 1998,
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
The following tables present the allocation of the allowance for possible loan
losses and the changes in the allowance for the five years ended December 31,
1998.
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996 1995 1994
------------------ ----------------- ------------------ ------------------ ------------------
% of % of % of % of % of
Allowance Total Allowance Total Allowance Total Allowance Total Allowance Total
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $1,408 42.32% $1,651 52.75% $1,009 40.52% $ 631 28.80% $ 279 13.96%
Commercial
and industrial 479 14.40 335 10.70 1,013 40.68 1,080 49.29 1,093 54.68
Individual 1,440 43.28 1,144 36.55 468 18.80 480 21.91 627 31.36
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total
allowance
for possible
loan losses $3,327 100.00% $3,130 100.00% $2,490 100.00% $2,191 100.00% $1,999 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996 1995 1994
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $3,130 $2,490 $2,191 $1,999 $1,732
------- ------- -------- -------- --------
Loans charged off:
Real estate (271) (962) (18) (50) -
Commercial and industrial (276) (145) (113) (37) (37)
Individual (704) (895) (236) (89) (73)
------- ------- -------- -------- --------
Total loans charged off (1,251) (2,002) (367) (176) (110)
------- ------- -------- -------- --------
Recoveries:
Real estate 95 22 1 2 -
Commercial and industrial 32 48 4 5 4
Individual 121 105 11 1 13
------- ------- -------- -------- --------
Total recoveries of loans charged off 248 175 16 8 17
------- ------- -------- -------- --------
Net loans charged off (1,003) (1,827 (351) (168) (93)
------- ------- -------- -------- --------
Provision for possible loan losses 1,200 1,175 650 360 360
------- ------- -------- -------- --------
Allowance for possible loan losses assumed
upon acquisition of Bucktail - 1,292 - - -
------- ------- -------- -------- --------
Balance, end of year $3,327 $3,130 $2,490 $2,191 $1,999
======= ======= ======== ======== ========
Ratios:
Net charge-offs to average loans .32% .69% .17% .09% .05%
======= ======= ======== ======== ========
Allowance for possible loan losses to
total loans at December 31 1.00% .99% 1.12% 1.06% 1.04%
======= ======= ======== ======== ========
Allowance for possible loan losses to
total nonperforming loans 88.84% 70.75% 110.57% 102.53% 242.01%
======= ======= ======== ======== ========
</TABLE>
<PAGE>
Management's Discussion and Analysis
DEPOSITS AND BORROWED FUNDS
At December 31, 1998, SUN's total deposits were $363,886,000 compared to
$327,018,000 at December 31, 1997, an increase of $36,868,000 or 11.27%. SUN
continues to obtain and maintain deposits by offering new and attractive deposit
products, while remaining interest rate competitive. In 1997, total deposits
increased $121,399,000 or 59.04% from $205,619,000 in 1996. The increase
consists of $114,034,000 in deposits acquired from Bucktail.
SUN continued to actively utilize the credit products of the FHLB in 1998.
At year end, overnight borrowings through the FHLB amounted to $11,599,000. The
$161,500,000 in term advances at year end included $155,000,000 in variable rate
advances with maturities ranging from September 28, 2001 to September 2, 2008
and $6,500,000 in fixed rate advances with maturities ranging from January 22,
1999 to June 12, 2002. All of these borrowings are collateralized by SUN's
investment in mortgage-backed securities and first mortgage loans. Other
sources of funds include deposit 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.
The following tables summarize the changes in deposit balances and related
information for the periods indicated.
<TABLE>
<CAPTION>
(In Thousands) % of % Change from
1998 Total Prior Year
-------- ------- -------------
<S> <C> <C> <C>
Demand deposits $ 36,429 10.01% 19.19%
NOW accounts 63,366 17.41 31.54
Insured Money Market Accounts 21,606 5.94 10.45
Savings deposits 42,982 11.81 (1.05)
Time Certificates of Deposit of $100,000 or more 34,506 9.48 16.58
Other time deposits 164,997 45.35 5.98
-------- ------- ------
Total deposits $363,886 100.00% 11.27%
======== ======= ======
(In Thousands ) % of % Change from
1997 Total Prior Year
-------- ------- -------------
Demand deposits $ 30,563 9.35% 52.99%
NOW accounts 48,171 14.73 55.27
Insured Money Market Accounts 19,562 5.98 85.70
Savings deposits 43,436 13.28 61.65
Time Certificates of Deposit of $100,000 or more 29,599 9.05 69.65
Other time deposits 155,687 47.61 56.05
-------- ------- ------
Total deposits $327,018 100.00% 59.04%
======== ======= ======
</TABLE>
<PAGE>
Management's Discussion and Analysis
LIQUIDITY
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 overnight "Open Repo Plus" borrowings through the FHLB as well
as term advances through the FHLB. At December 31, 1998, SUN had approximately
$38,401,000 in unused funds available through the FHLB. There are no known
trends, demands, commitments, or uncertainties that will result in liquidity
increasing or dcreasing in any material way.
MARKET RISK - INTEREST RATE SENSITIVITY AND EQUITY SECURITIES RISK
Interest Rate Sensitivity
SUN's management closely monitors the interest rate sensitivity of 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.
The following tables present estimated principal cash flows and the estimated
fair values of SUN's interest-bearing assets and liabilities as of December 31,
1998 and 1997. The tables reflect estimates of loan charge-offs, principal
prepayments on loans and mortgage-backed securities and call activity on other
debt securities. Approximately 78% of the deposit liabilities which have no
stated maturity date, such as Savings, NOW and Insured Money Market Accounts,
were assumed to be core deposits. The remaining balances were assumed to
"roll-off" within the first two years of expected cash flows. Time deposits and
borrowed funds are shown based on contractual maturity dates. Current market
interest rates as of December 31, 1998 for each significant type of loan,
available for sale security and deposit, were utilized in determining these
estimates.
In evaluating SUN's exposure to interest rate risk, certain limitations
inherent in the method of analysis presented in the tables must be considered.
For example, the information is presented based on estimated maturity rather
than showing SUN's interest rate sensitivity based on repricing of variable rate
instruments. Based on this method of presentation, SUN has a one year negative
gap position of $96,729,000 and $92,943,000 in 1998 and 1997, respectively,
meaning it has more liabilities maturing than assets in that period. However,
SUN has $$76,127,000 and $95,384,000 in 1998 and 1997, respectively, in its
variable rate loan portfolio with the majority of the loans having the ability
to reprice within one year. Furthermore, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. All deposits are presented as fixed rate in
this table;; however, Savings, NOW, and Insured Money Market Accounts typically
reprice with changes in the market. Additionally, certain assets, such as
adjustable rate mortgages, have features which restrict changes in interest
rates in the short-term and over the life of the asset. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels may
deviate significantly from those assumed in calculating the table. Finally, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase. Management considers all of these factors in monitoring
the Bank's exposure to interest rate risk.
<PAGE>
Management's Discussion and Analysis
<TABLE>
<CAPTION>
(In Thousands) December 31, 1998
-----------------
Expected Cash Flows:
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
--------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits
Fixed rate $ 880 $ - $ - $ - $ - $ - $ 880 $ 880
Average interest rate 5.29% - - - - - 5.29%
Debt securities available for sale
Fixed rate 42,924 28,504 37,522 26,332 21,740 72,841 229,863 231,989
Average interest rate 6.65% 6.74% 6.28% 6.38% 6.19% 6.87% 6.60%
Variable rate 943 716 545 414 315 995 3,928 3,936
Average interest rate 7.07% 7.07% 7.07% 7.07% 7.07% 7.07% 7.07%
Loans
Fixed rate 13,628 10,751 21,276 31,324 40,015 136,002 252,996 257,060
Average interest rate 7.91% 10.17% 10.14% 10.01% 9.16% 8.37% 8.90%
Variable rate 2,312 2,109 5,030 1,198 773 64,705 76,127 76,127
---------
Average interest 8.62% 8.17% 8.20% 8.54% 8.84% 8.69% 8.64%
--------- ---------- --------- --------- --------- --------- ----------
Total interest-bearing assets
Fixed rate 57,432 39,255 58,798 57,656 61,755 208,843 483,739 489,929
=========
Average interest rate 6.88% 7.68% 7.68% 8.35% 8.11% 7.85% 7.80%
========= ========== ========= ========= ========= ========= ==========
Variable rate 3,255 2,825 5,575 1,612 1,088 65,700 80,055 80,063
=========
Average interest rate 8.17% 7.89% 8.09% 8.16% 8.33% 8.67% 8.56%
========= ========== ========= ========= ========= ========= ==========
Liabilities:
Interest-bearing deposits
Fixed rate 142,816 70,652 8,374 2,866 1,477 101,272 327,457 326,709
Average interest rate 5.13% 4.70% 5.66% 5.26% 4.75% 2.57% 4.26%
Borrowed funds
Fixed rate 2,500 2,000 - 2,000 - - 6,500 6,372
Average interest rate 5.15% 6.40% - 7.84% - - 6.36%
Variable rate 12,097 - 20,000 55,000 - 93,653 180,750 178,838
---------
Average interest rate 5.36% - 5.74% 5.80% - 4.98% 5.34%
--------- ---------- --------- --------- --------- --------- -----------
Total interest-bearing liabilities
Fixed rate 145,316 76,652 8,374 4,866 1,477 101,272 333,957 333,081
Average interest rate 5.13% 4.75% 5.66% 6.32% 4.75% 2.57% 4.30% =========
========= ========== ========= ========= ========= ========= ===========
Variable rate 12,097 - 20,000 55,000 - 93,653 180,750 178,838
=========
Average interest rate 5.36% - 5.74% 5.80% - 4.98% 5.34%
========= ========== ========= ========= ========= ========= ===========
Interest rate sensitivity gap
By period
Fixed rate $(87,884) $ (33,397) $ 50,424 $ 52,790 $ 60,278 $107,571 $ 149,782 $156,848
Variable rate $ (8,842) $ 2,825 $(14,425) $(53,388) $ 1,088 $(27,953) $(100,695) $(98,775)
========= ========== ========= ========= ========= ========= =========== =========
Cumulative
Total $(96,726) $(127,298) $(91,299) $(91,897) $(30,531) $ 49,087
========= ========== ========= ========= ========= =========
Cumultive interest-bearing
assets as a percentage of
cumulative deposits and
borrowings 38.55% 44.67% 64.67% 71.13% 90.45% 109.54%
========= ========== ========= ========= ========= =========
</TABLE>
<PAGE>
Management's Discussion and Analysis
<TABLE>
<CAPTION>
(In Thousands) December 31, 1997
-----------------
Expected Cash Flows:
Fair
1998 1999 2000 2001 2002 Thereafter Total Value
--------- ---------- ---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits
Fixed rate $ 786 $ - $ - $ - $ - $ - $ 786 $ 786
Average interest rate 4.31% - - - - - 4.31%
Debt securities available for sale
Fixed rate 38,612 28,034 26,751 21,514 13,847 16,419 145,177 147,797
Average interest rate 6.64% 6.55% 6.42% 6.20% 6.26% 6.35% 6.45%
Variable rate 266 266 266 266 266 5,251 6,581 6,548
Average interest rate 7.52% 7.52% 7.52% 7.52% 7.52% 7.52% 7.54%
Loans
Fixed rate 11,422 10,304 17,204 23,028 32,048 120,910 214,916 218,502
Average interest 9.32% 10.34% 10.22% 10.22% 9.82% 8.59% 9.20%
Variable rate 2,897 2,642 6,303 1,501 968 81,073 95,384 95,384
Average interest rate 9.41% 9.00% 8.60% 8.84% 8.51% 9.11% 9.07% --------
--------- ---------- ---------- --------- --------- --------- ---------
Total interest-bearing assets
Fixed rate 50,820 38,338 43,955 44,542 45,895 137,329 360,879 367,085
Average interest 7.21% 7.57% 7.91% 8.28% 8.75% 8.32% 8.08% ========
========= ========== ========== ========= ========= ========= =========
Variable rate 3,163 2,908 6,569 1,767 1,234 86,324 101,965 101,932
========
Average interest rate 9.25% 8.86% 8.56% 8.64% 8.30% 9.02% 8.97%
========= ========== ========== ========= ========= ========= =========
Liabilities:
Interest-bearing deposits
Fixed rate 115,142 49,346 56,138 3,253 1,673 70,903 296,455 294,462
Average interest rate 4.75% 5.21% 6.14% 5.64% 5.63% 2.16% 4.49%
Borrowed funds
Fixed rate 11,525 2,500 2,000 - 2,000 - 18,025 17,840
Average interest rate 5.33% 5.15% 6.40% - 7.87% - 5.70%
Variable rate 20,259 - - 20,000 55,000 - 95,259 95,401
--------
Average interest rate 5.02% - - 5.74% 5.80% - 5.62%
--------- ---------- ---------- --------- --------- --------- ---------
Total interest-bearing liabilities
Fixed rate 126,667 51,846 58,138 3,253 3,673 70,903 314,480 312,302
========
Average interest rate 4.80% 5.21% 6.15% 5.64% 6.85% 2.16% 4.56%
========= ========== ========== ========= ========= ========= =========
Variable rate 20,259 - - 20,000 55,000 - 95,259 95,401
========
Average interest rate 5.02% - - 5.74% 5.80% - 5.62%
========= ========== ========== ========= ========= ========= =========
Interest rate sensitivity gap
By period
Fixed rate $(75,847) $ (13,508) $ (14,183) $ 41,289 $ 42,222 $ 66,426 $ 46,399 $ 54,783
Variable rate $(17,096) $ 2,908 $ 6,569 $(18,233) $(53,766) $ 86,324 $ 6,706 $ 6,531
========= ========== ========== ========= ========= ========= ======== ========
Cumulative
Total $(92,943) $(103,543) $(111,157) $(88,101) $(99,645) $ 53,105
========= ========== ========== ========= ========= =========
Cumultive interest-bearing
assets as a percentage of
cumulative deposits and
borrowings 36.74% 47.91% 56.73% 68.55% 70.59% 112.96%
========= ========== ========== ========= ========= =========
</TABLE>
<PAGE>
Management's Discussion and Analysis
Equity Securities Risk
SUN's equity securities portfolio consists of restricted stock, primarily of
the FHLB, and investments in stocks of other banks and bank holding companies,
mainly based in Pennsylvania.
FHLB stock can only be sold back to the FHLB. Accordingly, SUN's investment
in FHLB stock is carried at cost, which equals par value, and is evaluated for
impairment. Factors that might cause FHLB stock to become impaired (decline in
value on an other than temporary basis) are primarily regulatory in nature and
are related to potential problems in the residential lending market; for
example, the FHLB may be required to make dividend or other payments to the
Financing Corporation, the Resolution Funding Corporation, or other entities, in
amounts that could exceed the FHLB's total equity.
Investments in bank stocks are subject to the risk that factors affecting the
banking industry generally, including competition from non-bank entities, credit
risk, interest rate risk and other factors, could result in a decline in market
prices. Also, losses could occur in individual stocks held by SUN because of
specific circumstances related to each bank. Further, because of the
concentration of its holdings in Pennsylvania banks, these investments could
decline in value if there were a downturn in the state's economy. SUN's
management continually monitors its risk associated with its equity securities.
Equity securities held as of December 31, 1998, are as follows:
Fair
Cost Value
------- -------
Banks and Bank Holding Companies $ 8,871 $ 9,793
FHLB and Other Restricted Stock 9,062 9,062
------- -------
Total $17,933 $18,855
======= =======
CAPITAL ADEQUACY
SUN's management understands the importance of adequate capitalization as it
relates to shareholder confidence and regulatory compliance. Currently, as well
as in the past, SUN is a well-capitalized organization. Shareholders' equity
increased $2,188,000 in 1998. As previously discussed, unrealized gains or
losses, net of taxes, on available-for-sale securities are reported as
accumulated other comprehensive income within shareholders' equity. At
December 31, 1998 and 1997, SUN had unrealized gains, net after taxes, of
$2,016,000 and $3,176,000, respectively, which resulted in a $1,160,000 decrease
in capital in 1998. During 1998, SUN paid $5,369,000 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.
<PAGE>
Management's Discussion and Analysis
YEAR 2000 READINESS
The topic of Year 2000 related problems and the potential effect it could have
on the financial services industry has been an ongoing concern. The banking
industry's regulatory agencies have implemented a rigorous evaluation program to
monitor all banks to assure they have met the guidelines for Year 2000
readiness. Because of the unprecedented nature of the Year 2000 issue, its
effects and the success of SUN's remediation efforts will not be fully
determinable until the Year 2000 and thereafter. However, SUN has taken the
Year 2000 challenge very seriously, placing intense focus on this subject.
Recent updates on Year 2000 readiness:
- The renovation phase was completed during the 4th quarter of 1998.
- The validation phase is nearly completed, with the testing of mission
critical systems substantially completed.
- Training on Year 2000 related issues for all bank employees will be
completed during February 1999.
- The review of our larger business customers on their Year 2000 status was
completed and will continue to be monitored.
- The readiness status of critical companies that provide supplies and
services has been assessed and is being monitored.
- Contingency plans have been identified for the mission critical systems and
procedures throughout the bank, with continued planning underway, by the
project team.
SUN began the Year 2000 readiness project nearly two years ago. A Year 2000
project team, which includes senior management and other members from all
departments of the bank, was formed and has met regularly. The project was
divided into five phases; awareness, assessment, renovation, validation, and
implementation. SUN has completed the first three phases, has nearly completed
the validation phase, and is well underway with the implementation phase.
It is anticipated that the Year 2000 project will be completed ahead of the
dates in the guidelines established by the Federal Financial Institutions
Examination Council (FFIEC). Senior management has reported Year 2000 progress
to SUN's Board of Directors on a quarterly basis. To date, there have been no
significant problems identified and the renovation phase for Year 2000 has not
had a material financial affect on the bank. The total cost through
December 31, 1998, excluding our personnel costs, is under $25,000. Additional
external costs in 1999 are expected to be minimal.
Awareness Phase:
The initial phase of the project was to become familiar with all aspects of
the Year 2000 issue. This involved many steps such as: establishing the project
team, developing a project plan, attending seminars and joint meetings with
other banks, reviewing the guidance material issued by the regulatory agencies,
and hiring outside consultants to conduct training workshops for SUN's
management team.
SUN performed various awareness seminars including Year 2000 notification
mailings to our customers, updates to our employees through monthly newsletters,
specialized training for our lenders, and conducted business symposiums for the
public. These awareness seminars were held during the latter part of 1997 and
first half of 1998. In addition, Year 2000 awareness booklets were prepared and
distributed to our business customers.
Awareness programs for both our customers and employees continue. During
January 1999, we will be performing an in-house training program which is
required for all employees. Articles are written for the SUN's quarterly
newsletters which are mailed to bank customers and shareholders. We plan to
mail out updated material to our customers informing them of Year 2000 actions
by SUN, as well as the Federal government. This Year 2000 readiness disclosure
will also be added to SUN's internet home page for informational purposes.
Assessment Phase:
Early in the project, the assessment phase was started in order to determine
the scope and magnitude of this project. First, an inventory was completed and
updated for computer hardware and software, vendors, utility companies,
municipalities, and other equipment such as heating and air conditioning,
security systems, vaults, ATM's, calculators, etc. These listings were used to
send inquiries about the Year 2000 status and to track and evaluate responses.
We have received confirmation or verified that the identified items are either
Year 2000 compliant or do not pose any risk to SUN.
A listing was used to evaluate our hardware and software systems to determine
whether they were mission critical. We identified 13 different systems that our
project team deemed mission critical, keeping in mind that this actually equates
to a few hundred components, i.e. programs, processes, interfaces, etc.
During this phase our larger business customers, primarily loan related, were
evaluated by bank officers to determine their Year 2000 plans and assess their
readiness. These companies were rated based on risk as it applies to Year 2000
concerns and follow-up reviews are being conducted as necessary.
<PAGE>
Management's Discussion and Analysis
Renovation Phase:
The renovation phase refers to taking the necessary corrective action to
assure systems are Year 2000 compliant. This procedure may involve replacing or
upgrading hardware or software systems. The large majority of SUN's systems,
including our mission critical systems, were purchased from or serviced by
another entity. Therefore, we have no significant system modifications,
replacements, or upgrades to be made internally. The vendors have already
tested the systems and have confirmed that they are Year 2000 compliant.
However, we chose to validate these systems are Year 2000 ready by testing
them. The highest priority systems are SUN's core application software. In
order to thoroughly test these systems, SUN purchased a test module from the
vendor and our data processing personnel attended a training class on how to
test the software. Many other tests have been conducted with our outside
service providers for all mission critical systems, including our ATM processor,
the Federal Reserve Bank, and our trust financial services department.
Validation Phase:
The validation, or testing, phase is very critical in that it assures our
computer systems are indeed Year 2000 compliant. By December 31, 1998 our
highest priority systems were substantially tested, with lower priority systems
to be completed by the end of the second quarter of 1999. System testing has
been performed and validated by our Year 2000 project team. A formal written
test plan was prepared in mid 1998 and served as the basis for conducting the
tests. The results of our computer system tests have been carefully reviewed
and documented.
Using a test database, tests were performed against all the of the critical
dates identified by the FFIEC. The test results were reconciled and balanced
back to the general ledger. In addition to the core systems, other interfaces
were tested with third parties, as well as other mission critical PC based
systems.
Implementation Phase:
As part of this phase we are developing contingency plans for our mission
critical systems in the unlikely event that we are unable to conduct business as
usual due to a Year 2000 related failure. In December 1998, a formal
contingency plan was written as a guide to implement specific action plans,
which are being created by the project team. These plans will be implemented
during the second quarter of 1999. SUN has a disaster recovery plan, which
is tested at least annually at a "hotsite", which provides a redundant computer
system at a remote location to process our work, if we cannot use our own
computer system for any reason.
<PAGE>
Management's Discussion and Analysis
REGULATORY ACTIVITY
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of SUN and Sun Bank. It cannot be predicted whether such legislation
will be adopted or, if adopted, how such legislation would affect the business
of SUN and Sun Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, SUN's and Sun Bank's business is
particularly susceptible to being affected by federal legislation and
regulations that may increase the costs of doing business. Except as
specifically described above, Management believes that the effect of the
provisions of legislation on the liquidity, capital resources, and results of
operations of SUN will be immaterial. Management is not aware of any other
current specific recommendations by regulatory authorities or proposed
legislation, which if they were implemented, would have a material adverse
effect upon the liquidity, capital resources, or results of operations, although
the general cost of compliance with numerous and multiple federal and state laws
and regulations does have, and in the future may have, a negative impact on
SUN's results of operations.
Further, the business of SUN is also affected by the state of the financial
services industry in general. As a result of legal and industry changes,
Management predicts that the industry will continue to experience an increase in
consolidations and mergers as the financial services industry strives for
greater cost efficiencies and market share. Management also expects increased
diversification of financial products and services offered by Sun Bank and its
competitors. Management believes that such consolidations and mergers, and
diversification of products and services may enhance its competitive position as
a community bank.
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.
This report contains certain "forward-looking statements" including statements
concerning plans, objectives, future events or performance and assumptions and
other statements which are other than statements of historical fact. SUN
BANCORP, INC. and its subsidiaries wish to caution readers that the following
important factors among others, may have affected and could in the future affect
SUN's actual results and could cause SUN's actual results for subsequent periods
to differ materially from those expressed in any forward-looking statement made
by or on behalf of SUN herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which SUN must comply, and the associated costs of compliance with such laws and
regulations either currently or in the future as applicable; (ii) the effect of
changes in accounting policies and practices, as may be adopted by the
regulatory agencies, as well as by the Financial Accounting Standards Board, or
of changes in SUN's organization, compensation and benefit plans; (iii) the
effect on SUN's competitive position within its market area of the increasing
consolidation within the banking and financial services industries, including
the increased competition from larger regional and out-of-state banking
organizations, as well as nonbank providers of various financial services; (iv)
the effect of changes in interest rates; (v) the effect of changes in the
business cycle and downturns in the local, regional or national economies; and
(vi) the effects of change resulting from potential problems from Year 2000
issue.
SUN's management and the Board of Directors are looking forward to taking
advantage of the many opportunities that 1999 is expected to present. SUN's
acquisition of Bucktail in 1997 has allowed us to serve a new and broader
customer base with its varied selection of financial products and services.
In 1999, we anticipate offering an array of diversified financial services to
include annuities and casualty insurance products. 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>
Shareholder 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.
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
Bid Information Cash Dividends Bid Information Cash Dividends
----------------- -------------- ----------------- --------------
Quarter Ended High Low Declared (1) High Low Declared (1)
- ------------- ------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $36.19 $33.33 $.190 $22.54 $20.95 $.157
June 30 33.33 29.25 .205 25.17 20.48 .164
September 30 31.25 28.00 .210 27.33 23.83 .179
December 31 31.00 27.00 .215 37.00 25.00 .185
</TABLE>
(1) Cash dividends declared are adjusted for the 5% stock dividends that
occurred in June of 1998.
<PAGE>
Subsidiaries of SUN BANCORP, INC.
---------------------------------
The following table sets forth the subsidiaries of the Registrant at December
31, 1998. 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
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.1)
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---
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- ---
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pursuant to Exchange Act Rule O-11 (Set forth the amount on which
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<PAGE>
(LOGO)
March 26, 1999
Dear Shareholder:
It is a pleasure to invite you to the 1999 Annual Shareholders' Meeting of SUN
BANCORP, INC. ("SUN") to be held on April 22, 1999.
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 1999. At the meeting, SUN's management
will address other corporate matters which will be of interestto 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 9, 1999 to SUN at 2-16 South Market Street, P.O. Box 57, Selinsgrove,
Pennsylvania 17870. The reverse side of the RSVP card has been designated for
questions you would like addressed at the Annual Meeting.
We strongly encourage you to vote your shares, whether or not you plan to
attend the meeting. It is very important that you sign, date and return the
accompanying proxy in the postage prepaid envelope as soon as possible. If you
do attend the meeting and wish to vote in person, you must give written notice
thereof to the Secretary of the Corporation so that your proxy will be
superseded by any ballot that you submit at the meeting.
Sincerely,
/s/ George F. Keller /s/ Fred W. Kelly, Jr.
George F. Keller 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 22, 1999
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Shareholder of SUN
BANCORP, INC. hereby constitutes and appoints Robert C. Longenberger and Roy A.
Knause (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 22, 1999, 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 X
1. ELECTION OF DIRECTORS.
THE NOMINEES FOR THE BOARD OF DIRECTORS TO SERVE FOR A THREE YEAR TERM
EXPIRING AT THE ANNUAL MEETING IN 2002 ARE:
David R. Dieck
Louis A. Eaton
Dr. Robert E. Funk
George F. Keller
Dennis J. Van
and until their successors are duly elected, qualified and take office.
PLEASE CHECK ONLY ONE OF THE BOXES BELOW. IF BOX (c) IS CHECKED, PLEASE
CROSSOUT 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, 1999.
[ ] 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., 1999.
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
Number of Shares Owned _____________ Signatures above will be determined to
as of March 4, 1999 have been signed for all matters in
this proxy whether appearin 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>
(LOGO)
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 22, 1999
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 22, 1999 at 10:30 a.m.,
prevailing time, for the following purposes:
1. To elect five (5) directors to serve for a three (3) year term and until
their successors are elected, qualified and take office;
2. To ratify the appointment of Parente, Randolph, Orlando, Carey &
Associates, Independent Accountants, as the Corporation's independent
auditors for the fiscal year ending December 31, 1999; 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 4, 1999 will be entitled to vote at the meeting and any
adjournment or postponement thereof.
By Order of the Board of
Directors of SUN BANCORP, INC.
/s/ Jeffrey E. Hoyt
Jeffrey E. Hoyt
Executive Vice President, Chief Operating
Officer and Secretary
March 26, 1999
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>
(LOGO)
PROXY STATEMENT FOR ANNUAL SHAREHOLDERS'
MEETING TO BE HELD ON APRIL 22, 1999
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 1999 Annual Meeting of Shareholders ("Annual Meeting"). The
Annual Meeting is scheduled to be held on Thursday, April 22, 1999 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
(570) 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 26, 1999. 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.
1
<PAGE>
Discretionary Authority of Proxy - Right of Revocation of Proxy
The accompanying proxy vests discretionary authority in the proxyholders to
vote with respect to any and all of the following matters that come before the
Annual Meeting: (i) matters about which the Corporation has no knowledge, a
reasonable time before the proxy solicitation, that may be presented to the
meeting, (ii) approval of the minutes of the most recent prior meeting of the
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 4, 1999. Only holders of
record of common stock on the Corporation's books at the close of business on
March 4, 1999 will be entitled to notice of and to vote at the Annual Meeting.
On that date, the Corporation had outstanding 6,516,691 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.
Shares represented by proxies on the accompanying Proxy, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the shareholders. Any Proxy not specifying to the contrary will be voted FOR
the election of the nominees for the directors named and FOR ratification of the
appointment of Parente, Randolph, Orlando, Carey & Associates, Independent
Accountants, as the Corporation's independent auditors for the fiscal year
ending December 31, 1999.
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 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.
2
<PAGE>
Assuming the presence of a quorum, the five (5) nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Votes withheld from a nominee and
broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote of a majority of all
votes cast by shareholders on such matter is required for the ratification of
the appointment of independent certified public accountants. Abstentions and
broker non-votes are not deemed to constitute "votes cast" and therefore do not
count either for or against such ratification. Abstentions and broker non-
votes, however, have the practical effect of reducing the number of affirmative
votes required to achieve a majority for each such matter by reducing the total
number of shares voted from which the required majority is calculated.
The Corporation has no present reason to believe that any of the Board's
nominees will be unable to serve as a director, if elected. The Board of
Directors does not know whether any nominations will be made at the Annual
Meeting other than those specified in this proxy statement. If any such
nominations are made, or if votes are cast for any candidates other than those
nominated by the Board of Directors, the persons named as proxyholders will vote
for those persons nominated by the Board and identified in this proxy statement.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 4, 1999, the name and address of
each person who owns of record or who is known by the Board of Directors to be
the beneficial owner of more than five percent (5%) of the Corporation's
outstanding Common Stock, the number of shares beneficially owned by such person
and the percentage of the Corporation's outstanding Common Stock so owned.
Percent of
Outstanding
Shares Common Stock
Beneficially Beneficially
Name and Address Owned (1) Owned
---------------- --------- -----
F.N.B. Investment Corporation 994,212 15.25%
Hermitage Square
Hermitage, Pennsylvania 16148
(1) See footnote (1) to the Security Ownership of Nominees, Directors and
Executive Officers" table on page 10 for the definition of "beneficially owned."
3
<PAGE>
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 sixteen (16) directors with (i) five (5) directors in the class whose term
expires at the annual meeting in 1999, (ii) five (5) directors in a class whose
term expires at the annual meeting in 2000, and (iii) six (6) directors in the
class whose term expires at the annual meeting in 2001. 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 person serves as a director until the
annual meeting following that meeting. The directors in each class normally
serve terms of three (3) years each and until their successors are elected,
qualified and take office. All of the nominees are current directors of the
Corporation.
General Information About the Board of Directors*
The Corporation's and Sun Bank's Boards of Directors hold separate meetings.
There were five (5) meetings of the Corporation's Board of Directors during
1998. Each incumbent director 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, other
than Mr. Hebble, and each incumbent director, other than Mr. John, Mr. Schnure
and Mr. Soper, 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 1998.
The members of the Committee are: George F. Keller, Chairman; Max E. Bingaman;
Jeffrey E. Hoyt; 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 five (5) meetings
in 1998. The members of the Committee are: Max E. Bingaman, Chairman; David R.
Dieck; Louis A. Eaton; Dr. Robert E. Funk; Thomas B. Hebble; Marlin T. Sierer;
Jerry A. Soper; and Jeffrey J. Kapsar, an ex officio member and the
Corporation's Internal Auditor and Compliance/Loan Review Officer.
________________
* See Footnote Information Concerning Directors on Page 9.
4
<PAGE>
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 1998. The members of
the Committee are: Jeffrey E. Hoyt, Chairman; Stephen J. Gurgovits; George F.
Keller; and Fred W. Kelly, Jr.
Long Range Planning/Merger & Acquisition Committee (the "Long Range Planning/
-----------------------------------------------------------------------------
M&A"). The Long Range Planning/M&A Committee develops and implements 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 ten (10) meetings during
1998. The members of the Committee are: Fred W. Kelly, Jr., Chairman; Robert
A. Hormell; Jeffrey E. Hoyt; George F. Keller; and Raymond C. Bowen, an ex
officio member.
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 1998. 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 two (2) meetings during
1997. A subcommittee of the Personnel and Retirement Committee called the
Compensation Committee, which is comprised of four (4) outside Directors (Mr.
Keller, Mr. Bingaman, Mr. Hormell and Mr. Soper), determines the executive
compensation policy of SUN and administers SUN's Stock Incentive Plan and SUN's
Employee Stock Purchase Plan. The Committee meets at the call of its Chairman
and held two (2) meetings in 1998. The members of the Personnel and Retirement
Committee are: George F. Keller, Chairman; Max E. Bingaman; Robert A. Hormell;
Jeffrey E. Hoyt; Paul R. John; Fred W. Kelly, Jr.; Lehman B. Mengel; Jerry A.
Soper; Dennis J. Van; and Carol A. Swineford, an ex officio member and Sun
Bank's Vice President of Human Resources.
5
<PAGE>
Members of the Boards of Directors - Biographical Information
NOMINEES FOR ELECTION TO SERVE UNTIL 2002
DAVID R. DIECK, age 65, 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 1987 and he serves on the Audit
Committee. Mr. Dieck's term as a director expires in 1999 and if elected will
serve until 2002.
LOUIS A. EATON, age 77, was a Sales Engineer since 1981 for Dorsey Trailers,
Inc., a manufacturer and distributor of truck trailers and retired on
December 31, 1986. He has served in various capacities with Dorsey Trailers,
Inc. (formerly Trailco Manufacturing and Sales Co., Inc.) since 1947. He has
served on Sun Bank's Board since 1979 and the Corporation's Board since 1982 and
he serves on the Audit and Nominating Committees. Mr. Eaton's term as a
director expires in 1999 and if elected will serve until 2002.
DR. ROBERT E. FUNK, age 68, a practicing dentist in Watsontown having started
his general dentistry office in 1955. He was elected to the Corporation's Board
in 1993 and served on Sun Bank's Board since 1977 and he serves on the Audit and
Nominating Committees. Dr. Funk's term as a director expires in 1999 and if
elected will serve until 2002.
GEORGE F. KELLER, age 65, Chairman of the Corporation, Chief Executive Officer
and member of the Board of Keller Marine Service, Inc., a wholesale distributor
of marine products. He is a past President of the National Marine Distributors
Association and past President of the Warehouse Distributor Association in the
RV Industry. 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." Mr. Keller serves as a
director of the Salvation Army, the Susquehanna Economic Development Association
- - Council of Governments (SEDA-COG) and a past Regional Vice President and
Director of the Central Susquehanna Valley Chamber of Commerce. He has served
on Sun Bank's Board since 1967 and the Corporation's Board since 1982, was
appointed Chairman of Sun Bank's and the Corporation's Board in 1997 and he
serves on the Executive/ALCO, Long Range Planning/M & A and Personnel and
Retirement Committees. Mr. Keller's term as a director expires in 1999 and if
elected will serve until 2002.
DENNIS J. VAN, age 52, is President and owner of The Colonial Furniture
Company, a manufacturer of quality home furniture located in Freeburg, PA. Mr.
Van serves as a director of the Susquehanna Valley Country Club. He has served
on Sun Bank's Board since 1990 and the Corporation's Board since 1994, and he
serves on the Personnel and Retirement Committee. Mr. Van's term as a director
expires in 1999 and if elected will serve until 2002.
6
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 2000
THOMAS B. HEBBLE, age 38, is Senior Vice President of First National Bank of
Pennsylvania and previously served as Senior Vice President of Metropolitan
National Bank of Ohio. Mr. Hebble is treasurer and director of Shepherd of the
Valley, Inc., a full care nursing home in Niles, Ohio, and a director of the
Sharon Country Club. He has served on the Board of the Corporation since 1997
and his term as a director expires in 2000.
JEFFREY E. HOYT, age 43, 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 has served on the Boards of Sun Bank and the Corporation since
1996 and his term as a director expires in 2000. He serves on the
Executive/ALCO, Investment, Long Range Planning/M&A and Personnel and Retirement
Committees.
PAUL R. JOHN, age 61, is Chairman 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 the Corporation's Board since 1994, and his term as
a director expires in 2000. He serves on the Personnel and Retirement
Committee.
FRED W. KELLY, JR., age 54, 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, Past Director of Susquehanna University,
and a member of The Degenstein Charitable 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 his term as a director expires in 2000. He serves on all
the Board Committees of the Corporation other than the Audit Committee.
JERRY A. SOPER, age 66, former Vice President of Ott Packagings, Inc.,
Selinsgrove, Pennsylvania, a manufacturer of paper box products having retired
in February 1992. He has served on the Boards of the Corporation and Sun Bank
since 1982, and his term as a director expires in 2000. He serves on the Audit,
Nominating and Personnel and Retirement Committees.
7
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 2001
MAX E. BINGAMAN, age 63, President since 1969 of Bingaman and Son Lumber
Company, Inc., supplier of hardwood lumber to the furniture and cabinet
industry. Mr. Bingaman serves as a director of the Hardwood Lumber
Manufacturers Association of Penna., Bethesda Treatment Center, a privately
operated program for troubled youth, located in Milton, the Pennsylvania Family
Institute, 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 2001. He serves on
the Audit, Executive/ALCO and Personnel and Retirement Committees.
STEPHEN J GURGOVITS, age 55, is Vice Chairman of FNB Corporation and President
and CEO of First National Bank of Pennsylvania. Mr. Gurgovits is a director of
FNB Corporation, First National Bank of Pennsylvania, Regency Finance
Corporation, Winner International Corporation, a marketer of security devices in
Sharon, Pennsylvania, Walton Paint Company, and a part owner of Betres-Keelan,
Inc., a builder and leasor of a strip plaza in Butler, Pennsylvania. He has
served on the Board of the Corporation since 1997 and his term as a director
expires in 2001. He serves on the Investment Committee.
ROBERT A. HORMELL, age 51, 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 and the Central Pennsylvania Forum for the Future. He
has served on Sun Bank's Board since 1991 and the Corporation's Board since
1994, and his term as a director expires in 2001. He serves on the Long Range
Planning/M & A and Personnel and Retirement Committees.
LEHMAN B. MENGEL, age 71, Chairman and Director of L/B Water Service South,
Inc. since 1984, which provides the water and sewer works industry with
materials and service, a director and treasurer of the Sunbury Grouse Club and a
director of the Susquehanna Valley Country 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 2001. He serves on the Executive/ALCO Committee.
HOWARD H. SCHNURE, age 88, 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 2001. He serves on the Nominating
Committee.
MARLIN T. SIERER, age 76, 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 2001. He serves on the Audit and
Nominating Committees.
8
<PAGE>
* 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. 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 4, 1999, 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.
Information Concerning Executive Officers of the Corporation*
Name Title and Position Age
---- ------------------ ---
Fred W. Kelly, Jr. President and Chief Executive Officer 54
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 43
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 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.
* 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 4, 1999, 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.
9
<PAGE>
Security Ownership of Nominees, Directors and Executive Officers of the
Corporation
The following table sets forth, as of March 4, 1999, 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 4, 1999(1) Owned
- ---- ------------------- -------------
NOMINEES FOR ELECTION AS DIRECTORS
FOR 3 YEAR TERMS EXPIRING IN 2002
David R. Dieck (2) . . . . . . . . . 11,964 .18
Louis A. Eaton (3) . . . . . . . . . 16,170 .25
Dr. Robert E. Funk (4) . . . . . . . 7,500 .12
George F. Keller (5) . . . . . . . . 189,648 2.91
Dennis J. Van (6) . . . . . . . . . 27,659 .42
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Max E. Bingaman (7) . . . . . . . . 22,335 .34
Stephen J. Gurgovits . . . . . . . . 245
Robert A. Hormell (8) . . . . . . . 3,920 .06
Lehman B. Mengel (9) . . . . . . . . 89,932 1.38
Howard H. Schnure (10) . . . . . . . 31,969 .49
Marlin T. Sierer (11) . . . . . . . 27,369 .42
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Thomas B. Hebble . . . . . . . . . . 243
Jeffrey E. Hoyt (12) . . . . . . . . 15,000 .23
Paul R. John (13) . . . . . . . . . 167,514 2.57
Fred W. Kelly, Jr. (14) . . . . . . 40,125 .62
Jerry A. Soper (15) . . . . . . . . 60,520 .93
DIRECTORS WHOSE TERMS EXPIRE IN 1999
All directors and executive officers
as a group (24 persons) . . . . . 728,124 11.17
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 4, 1999.
Individuals may disclaim beneficial ownership as to certain of the
securities reported.
10
<PAGE>
(2) Includes 11,964 shares jointly held by Mr. Dieck and Annetta M. Dieck, his
wife.
(3) Includes 16,170 shares jointly held by Mr. Eaton and Dorothy L. Eaton, his
wife.
(4) Includes 1,120 shares jointly held by Dr. Funk and Marvene Funk, his wife.
(5) Includes 47,376 shares jointly held by Mr. Keller and Margaret E. Keller,
his wife; 14,798 shares held by Margaret E. Keller, his wife; and 110,282
shares held by Keller Marine Service, Inc.
(6) Includes 10,988 shares jointly held by Mr. Van and Judy A. Van, his wife;
5,150 shares in an Individual Retirement Account for Judy A. Van, his wife
and 7,011 shares held by Colonial Furniture Company.
(7) Includes 19,072 jointly held by Mr. Bingaman and Martha Bingaman, his wife
and 3,263 shares held by Mr. Bingaman in a 401(k) account through Bingaman
& Son Lumber, Inc.
(8) Includes 2,393 shares jointly held by Mr. Hormell and Jean L. Hormell, his
wife.
(9) Includes 89,932 shares held by the L & R Mengel Company.
(10) Includes 5,409 shares jointly held by Mr. Schnure and his son, James Purdy
Schnure, and 4,364 shares jointly held by Mr. Schnure and his daughter,
Sarah J. Lindsay.
(11) Includes 16,537 shares held by H. Arlene Sierer, his wife.
(12) Includes 429 shares jointly held by Mr. Hoyt and Kathy J. Hoyt, his wife.
(13) Includes 167,514 shares jointly held by Mr. John and Mildred D. John, his
wife.
(14) Includes 27,028 shares held by Donnell W. Kelly, his wife, and 988 shares
jointly held by Mr. Kelly and Kyle D. Kelly, his son.
(15) Includes 21,589 shares held jointly by Mr. Soper and Craig A. Ott Soper,
his son; 21,596 shares jointly held by Mr. Soper and Kim Marie Soper, his
daughter; 6,393 shares jointly held by M. Corrine Soper, his wife, and
Craig A. Ott Soper, his son; 6,393 shares jointly held by Corrine Soper,
his wife, and Kim Marie Soper, his daughter, and 430 shares held in a
personal Trust Account for Mr. Soper.
11
<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
George F. Keller, 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.
12
<PAGE>
SUMMARY COMPENSATION TABLE
The remuneration table contains information with respect to annual
compensation for services in all capacities to the Corporation for fiscal years
ending December 31, 1998, 1997 and 1996 of those persons who were, at
December 31, 1998, (i) the Chief Executive Officer and (ii) the four (4) other
most highly compensated executive officers of the Corporation to the extent such
person's total annual salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation 1/ Long-Term Compensation
Awards Payouts
Other Annual Restricted All Other
Name and Salary Bonus Compensa- Stock Options/ LTIP Compensa-
Principal tion 2/ Award(s) SARs Payouts tion
Position Year ($) ($) ($) ($) (#) 3/ ($) ($) 4/5
-------- ---- --- --- --- --- ------ --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr. 1998 152,776 19,079 2,592 0 15,000 0 23,875
President & CEO 1997 146,604 30,117 2,635 0 13,387 0 23,539
1996 143,653 32,459 4,517 0 8,000 0 22,409
Jeffrey E. Hoyt 1998 125,008 15,626 4,633 0 15,000 0 13,200
Exec. VP & COO 1997 110,399 21,510 4,257 0 12,600 0 12,358
1996 96,152 21,103 3,154 0 7,000 0 9,621
</TABLE>
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, the 5% Stock Dividend granted June 1997, the 3
for 2 Stock Split effective December 1997 and the 5% Stock Dividend granted
June 1998.
4/Residual category for Mr. Kelly includes: (a) employer contributions to
defined contribution plan ($8,000); employer contributions to a 401(k) plan
($4,800); and (c) employer contributions to a non-qualified supplemental
retirement plan ($11,075). The respective amounts disclosed for 1997 were
(a) $8,000; (b) $4,800; and (c) $10,739 and for 1996 were (a) $7,500; (b)
$4,500; and (c) $10,409.
5/Residual category for Mr. Hoyt includes: (a) employer contributions to
defined contribution plan ($7,055); (b) employer contribution to a 401(k)
plan ($4,233); and (c) employer contributions to a non-qualified
supplemental retirement plan ($1,912). The respective amounts disclosed for
1997 were (a) $6,591; (b) $3,954; and (c) $1,813 and for 1996 were (a)
$5,551; (b) $2,335; and (c) $1,735.
Other than the compensation set forth in the above table and under the several
plan captions below, the other compensation for services during 1998 aggregated
less than the disclosure thresholds established by the Securities and Exchange
Commission for other than the named executive officer.
13
<PAGE>
OPTION/SAR GRANTS TABLE
<TABLE>
<CAPTION>
Option/SAR Grants In Last Fiscal Year
-------------------------------------
Individual Grants
-----------------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise Grant
Options/ to Employees or Base Date
SARs Granted in Fiscal Price Expiration Present
Name (#) 1/ Year ($/Sh) 2/ Date Value ($)
---- ------ ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr. 15,000 15.91% $36.00 6/2/08 $540,000.00
President & CEO
Jeffrey E. Hoyt 15,000 15.91% $36.00 6/2/08 $540,000.00
Exec. Vice President,
COO & Secretary
</TABLE>
________________________
1/Reflects share adjustment based on 5% Stock Dividend granted June 1995, the
10% Stock Dividend granted December 1995, the 5% Stock Dividend granted June
1996, the 5% Stock Dividend granted June 1997 and the 3 for 2 Stock Split
effective December 1997 and the 5% Stock Dividend granted June 1998. Options
granted under the SUN BANCORP, INC. 1994 Stock Incentive Plan are not
exercisable until December 2, 1998.
2/Reflects price adjustment based on 5% Stock Dividend granted June 1995, the
10% Stock Dividend granted December 1995, the 5% Stock Dividend granted June
1996, the 5% Stock Dividend granted June 1997, the 3 for 2 Stock Split
effective December 1997 and the 5% Stock Dividend granted June 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- --------------------------------------------------------------------------------
Mr. Kelly exercised 9,021 options in fiscal year 1998 at an adjusted price of
$10.30 per share.
Mr. Hoyt exercised 4,909 options in fiscal year 1998 at an adjusted price of
$10.82 per share, 3,391 options at an adjusted price of $11.86 per share, 3,956
options at an adjusted price of $11.30 per share and 2,688 options at an
adjusted price of $14.39 per share.
14
<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 and the SNL $500 Million to $1 Billion Bank Index for the period of
five fiscal years commencing January 1, 1994 and ending December 31, 1998. The
shareholder return shown on the graph below is not necessarily indicative of
future performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
SUN BANCORP, INC. Common, All NASDAQ Stocks,
SNL Less Than $500 Million Bank Index and the
SNL $500 Million to $1 Billion Bank Index
SUN BANCORP, INC.
[ GRAPH ]
NOTE - GRAPH TO FOLLOW WITH HARD COPY
<TABLE>
<CAPTION>
Period Ending
---------------------------------------------------------
INDEX 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sun Bancorp, Inc. 100.00 123.13 169.02 230.60 390.61 329.03
NASDAQ - Total US 100.00 97.75 138.26 170.01 208.58 293.21
SNL <$500M Bank Asset-Size Index 100.00 107.55 147.13 189.37 322.82 294.76
SNL $500M-$1B Bank Asset-Size Index 100.00 106.76 141.74 177.19 288.03 283.20
</TABLE>
15
<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 original Agreement automatically
renewed 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 has been notified that his Agreement will not be renewed after
January 30, 1998. Mr. Kelly's Agreement was amended on December 19, 1988 and
provides that Mr. Kelly will receive (i) a minimum annual base salary of
$152,776 in 1998; (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, 1998, Mr. Kelly would have received an aggregate amount of $623,835
for his services through January of 2003.
On May 6, 1994, Mr. Hoyt entered into a written five (5) year employment
agreement (the "Agreement") with SUN. The original Agreement automatically
renewed 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 has been notified that his Agreement will not be renewed after
September 30, 1998. Mr. Hoyt's Agreement provides that he will receive (i) a
minimum annual base salary of $125,000 in 1998; (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, 1998, Mr. Hoyt
would have received an aggregate amount of $593,750 for his services through
September of 2003.
Future Remuneration
The officers included in the remuneration table on page 13, as named
individuals, may in the future receive benefits under one or more of the
following ongoing plans.
16
<PAGE>
SUN Defined Contribution Plan
On August 6, 1990, SUN's Board adopted a Defined Contribution Plan (the
"Contribution Plan") and made it available to all eligible employees of Sun
Bank.
Under the Contribution Plan, a minimum of five percent (5%) of the employee's
wages will be paid by Sun Bank and deposited in the Contribution Plan for the
eligible employee at the end of each calendar year. No contribution on the part
of the employee is required or permitted. The employee may choose to invest
SUN's contribution in any of the investment options available under SUN's 401(k)
Plan discussed below. After completion of five (5) years of active service, the
employee will be vested in SUN's contributions made to the Contribution Plan on
his/her behalf.
To be eligible to participate in the Contribution Plan, an employee must be
twenty-one (21) years of age and must work one (1) continuous year in which the
employee has worked one thousand (1,000) hours. After completing the
eligibility requirements, the employee will enter the Contribution Plan on
January 1, or July 1, whichever date comes first. Non-employee directors, of
SUN and its subsidiaries, are not eligible to participate in the Defined
Contribution Plan.
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 13, the estimated annual pension benefit upon retirement at age sixty-five
(65) pursuant to the benefits from the Contribution Plan is $109,670 for Mr.
Kelly and $121,761 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
contributionsthat could be made by a participant, during 1998, was ten thousand
dollars ($10,000.00) and the amount that can be contributed in 1999 is also ten
17
<PAGE>
thousand dollars ($10,000.00). 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.
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.
Seven (7) 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 1998 is included in the "All
Other Compensation" column of the Summary Compensation Table.
Executive Incentive Plan of Sun Bank
In 1998, the Board of Directors of Sun Bank modified the incentive profit
sharing plan basing it on Sun Bank's profitability. The plan is maintained for
all employees of Sun Bank 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 dollar level of profitability. Payments aggregating
$493,514.32 were awarded under the previously disclosed profit sharing plan in
1998. During 1998, 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.
18
<PAGE>
Compensation of Directors
The Chairman and all other directors, who are not officers of the Corporation
or any subsidiary, were paid a fee of $450 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 and all other directors, who are
not officers of the Corporation or any subsidiary, are paid for attending the
Corporation's Committee meetings. Each outside director and the Chairman of the
Corporation were paid $200 for each Executive/Asset & Liability Committee
meeting attended. Each outside director and the Chairman of the Corporation was
paid a fee of $100 for all other Committee meetings of the Board attended in
1998.
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,
1998, 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 $7,166,948 or approximately 10.57% 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, 1998 through December 31, 1998, its Officers
and Directors were in compliance with all filing requirements applicable to
them.
19
<PAGE>
PROPOSAL 1 ELECTION OF DIRECTORS
(Item 1 on the Proxy)
Nominees for Directors
The following directors, whose terms expire at the 1999 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 2002 Annual
Meeting:
David R. Dieck
Louis A. Eaton
Dr. Robert E. Funk
George F. Keller
Dennis J. Van
If one or more of the nominees should at the time of the Annual Meeting be
unavailable or unable to serve as a director, proxies may vote in favor of a
substitute nominee as the Board of Directors 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 five (5) nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Proxies solicited by the Board of
Directors will be voted for nominees listed above unless the 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 1999. This firm served as the Corporation's independent auditors
for the 1998 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 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.
20
<PAGE>
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 1999.
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 1999.
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 2000
The Corporation's Annual Meeting of Shareholders will be held on or about
April 28, 2000. 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 7, 1999.
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, 1998, containing, among other things, consolidated financial
statements certified by its independent public accountants, was mailed with this
Proxy Statement on or about March 26, 1999 to the shareholders of record as of
the close of business on March 4, 1999.
21
<PAGE>
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, 1998 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.
/s/ Jeffrey E. Hoyt
Jeffrey E. Hoyt
Executive Vice President, Chief
Operating Officer and Secretary
22
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this annual report on
Form 10-K of Sun Bancorp, Inc. for the year ended December 31, 1998 of our
report dated February 16, 1999 which appears on page 24 of the annual report to
shareholders for teh year ended December 31, 1998.
/s/Parente, Randoph, Orlando, Carey
& Associates
Williamsport, Pennsylvania
March 25, 1999
<PAGE>
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